Banks striking out into new territory usually start by looking for loans and letting the rest of the business follow.
Southwest Bancorp is doing something different. The $4.8 billion-asset Houston company is laying the groundwork for a major expansion not by opening loan production offices, but by aggressively pitching its treasury management services.
Earlier this month Southwest hired Ralph F. Walker from J.P. Morgan Chase Bank to promote treasury management products to businesses in San Antonio and Dallas-Fort Worth as well as Louisiana and other states surrounding Texas. Mexico is in the marketing plan as well.
In time Southwest intends to follow up with branches and traditional banking products, but president and chief executive officer Paul B. Murphy Jr. said details such as how many branches it will open and where have yet to be decided. In broad terms, though, Mr. Murphy said the company would set up shop in the markets where its treasury management push is the most successful.
"We lead with treasury management services quite often where other banks might lead with credit or investment banking," he said.
Treasury management is essentially a series of bookkeeping-type functions for corporate clients. These functions include lockbox services, where the bank collects and deposits payments from the client's customers; document imaging and data collection; wire transfers; and online account management.
Southwest's treasury management strategy allows the company to build its deposit base in a new market without first having to construct an expensive branch network.
That is possible because treasury management services are provided over the Internet or the phone or by a computer network linked directly to Southwest with a dial-up modem.
A firm in Baton Rouge, for instance, could simply direct its customers to send payments to a post office box in Houston. Once Southwest deposited the funds, the Baton Rouge firm could manage them online. Currently about 1,300 of Southwest's 4,200 treasury management customers use the Web exclusively to manage their money, according to Debbie Innes, its manager of treasury management services.
Treasury management services are determined by deposits maintained at the bank: the bigger a company's balance, the smaller the fees.
Southwest collected $13.8 million in service charges on its treasury management services in the first nine month. That is up nearly 40% from the first three quarters of 2001 and 17.8% of revenue at Southwest, which has 32 branches in Houston and a loan production office in Dallas.
Jennifer Demba, an analyst with SunTrust Robinson Humphrey Capital Markets in Atlanta, said Southwest has had a 55% operating margin on treasury management. "That business has been a major home run for them," she said.
Even competitors praise Southwest.
Manuel J. Mehos, the chairman and CEO of Coastal Bancorp Inc., a fellow Houstonian, said his company is getting ready to unveil an online treasury management function modeled in part after Southwest's.
"Southwest is a really good bank," Mr. Mehos said. "We're competitors, but it's a healthy competition. I admire what they've done."
Ms. Demba said Dallas holds the most promise for Southwest in the immediate future because of the large market there and the absence of large hometown banks.
"I'm glad to see that they've hired someone who's dedicated to marketing outside of Houston," the analyst added.
Mr. Walker said his company has already begun actively selling treasury management in new markets in Texas, Louisiana, and Mexico. and that clients' ability to use Southwest's treasury management system almost instantly through the Internet without installing new software has been helpful.
"I've been really pleased by the reaction we've received outside of the market," Mr. Walker said. "It's taking hold and word is getting out."
Mr. Murphy said the company will open branches in other markets eventually, but "we think we can go in with this product."
