The following is the first of a new BTN series which examines whether there is any such thing as regional banking culture-at least as pertains to how technology is viewed and used. The institution profiled here is based in Westchester County, NY, an area that one might say epitomizes "Old Money." We hope in this series to also examine the banking culture of "New Money," of the urban poor and the rural poor.

Jack Finnerty loves relationships. His marriage of 37 years is evidence, along with thousands of other relationships that he has cultivated in his role as chief executive officer and president of Hudson Valley Bank, based in Yonkers, NY. Good job, since 98% of Finnerty's customers are small business owners.

Hudson Valley, a $1.1 billion-asset bank, has its hub and all but one of its 14 branches in Westchester County, NY. Finnerty is currently searching for a second location, this time in the Bronx, for his 250 full-time employees.

"We wouldn't have a consumer loan in the bank if it weren't for employees," Finnerty says. He acknowledges Hudson Valley's uncompetitive pricing, but believes that his clients bank at Hudson Valley for the service.

"Typically, our bank pays a little less on deposits and charges a little more on loans, and our clients know that...They get over it because they get personal service, attention, flexibility and willingness to accommodate their needs, which aren't readily available in the chain banks."

Hudson Valley exists in an aggressive market situated close to New York, where paying out less and charging more should be a death march. But it's managed to survive and thrive-Finnerty boasts an average 18% return on equity for the last 20 years-based on its small business niche and highly developed customer relationship management. As of March 31, that return on equity was 22.14%, putting it in the 85th percentile in its peer group.

"They perform very well within their peer group," says David Furnace, director of Alex Sheshunoff Management Services, an Austin-based financial services consulting firm. "With respect to return on equity, they're a high performing bank."

Finnerty views customers in two blocks. Ninety-eight percent of his accounts, or about 1,600, are small businesses, generating the lion's share of Hudson Valley's revenue. Walk-in traffic makes up the remaining 2%. His advertising/promotional budget reflects that balance. They spend about $10,000 a year on advertising. "But, we spend $250,000 on lunches, soliciting people one- on-one," Finnerty says. "We've never advertised for a retail checking account. We don't seek them. We seek the niche customers."

Hudson Valley segments its small business accounts, dedicating staff to particular segments. For instance, attorneys comprise a significant portion of the bank's business clientele, and therefore warrant a separate group to handle their special needs, such as escrow accounts.

At a time when touting personal service has become a clich for smaller banks unable to compete on any other level, Hudson Valley has given it bottom line credibility. Personal service remains an integral part of the bank's strategy, and standing at the helm, Jack Finnerty remains committed to that course.

The Boss

John Finnerty, a.k.a. Jack, arrived at Hudson Valley in 1978 as the vice president and cashier, responsible for operations. It was the bank's sixth year, and at that time the bank was a $40 million institution with four branches and 40 employees.

Finnerty graduated from banking school in 1976 and admits to being somewhere over 60 years old, with two grown children, and a grandchild. For recreation, he golfs, ice skates, and is an occasional Internet explorer. But, he admits, "My time is fairly limited, and my adventures on the Internet have been more frustrating than successful."

Maybe as a result of Finnerty's lack of enthusiasm for the Web, Hudson Valley has managed up to this point with no Web activity. That will change, though, with the October launch of its new site and Internet banking program.

Finnerty has run his bank, like thousands of other community bank leaders across the country, based on the needs of his target market in his community.

Customer Relationship Management

In the mid-1970s, long before technology elevated CRM to an art form, Hudson Valley meticulously charted its client relationships on big, green accounting paper. "We kept a record of every account in a relationship, and we would look up their balances every month and calculate their total balances and earnings manually," says Pat Plonchak, senior vice president and director of technology. "We would create reports that would identify our best customers, so we would know what kind of service to provide to them."

An excerpt from a 1978 document by John Pratt Jr., a former Hudson Valley Bank president, seems almost prescient in its focus on technology to manage customer relationships:

"The information system is of vital importance to any Customer Call Program.

The ultimate system is a computerized master file on each of the more important customers of the bank. However, at this point in time, most banks find that they are unable to computerize this program effectively enough to provide all the information needed. Since this is the case with the Hudson Valley Bank, the information system will be handled on a manual basis until such time when we can fully computerize the system."

Plonchak says that then and now, the reporting was mostly on the deposit side. When the technology became available, they upgraded from green paper to Lotus spreadsheets, where core data could be downloaded to generate reports. "They had this before there was any good CRM software. They've had to cut and paste different systems together with their relationship management system," says Lee Horton, senior associate at Brintech, a consulting firm based in New Smyrna Beach, FL. Brintech has worked extensively with Hudson Valley.

"Everything is driven by a relationship management code, so they can see the full picture about the customer at any point."

"A lot of banks pay lip service to CRM, and only a few are beginning to make significant capital investments and understand how CRM is going to impact their business," says Surya Kolluri, head of strategy at Philadelphia-based Destiny Web Solutions Inc. Management at Hudson Valley has remained vigilant about systematic customer contact.

A couple of years ago, the bank purchased Relationship Explorer 2.7, a system from Transcend Systems Group Inc., based in Sioux Falls, SD, that tracks relationships, accounts, profitability, and all account activities. Hudson Valley then supplements that information with a Microsoft Access database.

"In there, we track all the kinds of things that aren't normally captured on a system, such as entertainment and how much it costs. We track if we've made any contributions on the customer's behalf," Plonchak says. "We track their background, which is a story of how they came to the bank, who they know, and if they have sensitivities or other things we should know when dealing with the customer." The database also remembers who attends the bank's holiday parties, and their guests, keeping the door open to new accounts as well as maintaining old relationships.

Despite its sharp focus on CRM, Hudson Valley does not have plans to integrate its system with the Web at this time. Finnerty concentrates on his continuing customer relationships, and is less concerned with attracting more. "We perceive ourselves as a unique bank. We deal only with the relationships. We seek a lesser number of higher value relationships, as opposed to the mass retail banks which seek all of the relationships they can get."

So far, the strategy at Hudson Valley has paid off, and has managed to blaze some trails in the process. "You hear often that banks would like to focus on the 20% of customers that bring the 80% of their deposits. Hudson Valley has found a way to do that. Everything they do is based on relationship management," Horton says.

Internet banking and Web site

The Internet is another story. Here, the bank is certainly not cutting edge-either by accident or intent. Finnerty seems ambivalent about Internet plans, and even indifferent to the specifics of the program. He considers the Internet simply another delivery system, and wants to be sure it will not distance him from his customers. "We are going on the Internet. We'll be up next month, and we'll be up there with a very normal range of informational and banking information services," Finnerty says.

George Chesmar, the vice president in charge of electronic banking, comments that clients have shown an interest in accessing their account information electronically. However, he says, "They also want to be able to get on the phone and talk to their relationship manager or talk to the president of the bank."

Hudson Valley chose to outsource both its Internet banking program and Web site. It will implement an Internet banking program by Equifax, in a service bureau environment.

Though Hudson Valley is taking the plunge online, it will face some challenges, and Kolluri wonders if the bank may be playing a catch up game.

"The fact that they don't have a call center means that they will have to think about ways of providing 24/7 service that their customers will increasingly demand."

General technology

Though the bank has moved slowly to offer technological services to its clients, its backend has been moderately progressive. Late in 1999, DataLan Inc., based in White Plains, NY, fitted the bank with a thin client network: a Windows NT Terminal Server with Citrix Metaframe, which runs at all 15 locations.

Plonchak feels the need to justify the investment. "I have a very small staff. We had a Novell network with servers in every branch, and every time we needed to upgrade something you'd have to drive out to the branches," she says. "We wanted to upgrade from Windows 3.1 to Windows NT, and get more centralized management of our systems, so we looked into thin client and decided to give that a shot. We've been very happy with the results."

For core processing, the bank has used the Dimension 3000 system from Orlando, FL-based Kirchman Corp. since 1982. The plan is to keep that system for now. Chesmar says that after they finish the Internet project, they will focus on areas such as teller and platform automation.

Hudson Valley retains Brintech to help develop technological strategy and improve back office operations. Horton is currently reengineering its lending processes.

Conclusion

Hudson Valley has strong customer relations, no doubt. It has shown excellent returns, and a willingness to exceed its customers' expectations. Finnerty says the bank has captured slightly over 2% of its total market, and he sees the potential for that to grow to 5%. In an age where the big get bigger and the small get eaten, can his bank survive? Finnerty thinks so.

"Women have a choice between shopping in huge department stores or small boutiques ... a lot of them still shop in boutiques."

Lynn Koller is a freelance writer based in

Ormond Beach, FL.

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