Commonwealth National Bank:
Bank Where You Won’t Get Lost in the Crowd
by Sidney King, President and CEO, Commonwealth National Bank
Recent Commonwealth National Bank advertisement
For the first 25 years it was open, Commonwealth National Bank, Mobile, Ala., struggled with volatile operating results. However, the last few years have produced some of the best results in the bank’s history, and we’re proud to say that shareholders have received growing dividends in each of the last five years.
Two key factors that contributed to our recent success have been the establishment of an experienced management team and a marketing program specifically targeting the predominately African-American population that we were founded to serve in 1969.
In the fall of that year, the highest bank position held by a black man in Mobile was that of janitor. Believing that the only way black men would gain exposure to the city’s banking industry was through a minority-owned bank, Commonwealth National Bank founder W.O. Powell convinced 14 other men to invest 15 cents each to cover the cost of corresponding with bank regulatory agencies about opening a full service minority-owned bank.
Capital an Issue Then and Now
In 1971, the regulatory agencies told W.O. Powell and his investors that they would need to raise $1 million in capital to qualify for a commercial bank charter. After several years of campaigning through the Black churches, local schools, postal workers and door-to-door solicitation, the association was only able to raise $750,000 from more than 900 individuals. However, when the bank organizers presented a proposal that supported the adequacy of the lesser capital amount, the OCC approved the proposal and Commonwealth National Bank opened for business in a trailer on February 19, 1976.
Commonwealth was created to provide Mobile’s historically underserved and unbanked minority community with access to credit and capital. Without a banking relationship, one will never learn the discipline of money management. Without this discipline, one can never escape poverty. Our mission today continues to focus on ending this generational problem and to make our community a better place to live.
While our assets have grown from $9 million dollars in 1988 to approximately $60 million today, there is considerable room for growth. Our near term goal is to grow our assets to $100 million by 2010. We currently have two locations in Mobile and one in nearby Prichard. With the pending merger of Alabama’s two largest banks, we hope to open more strategically located branches in the Mobile area in the future and to expand our current market share of about one percent of the city’s deposits.
Many Hurdles to Overcome
Raising capital continues to be a major limitation in our ability to reach our growth goals. At $60 million, we have limited capital to continue our current growth trend. Internally generated capital will fund modest growth, but additional sources are necessary to support our $100 million goal. Additional capital will increase our lending limit and put us in contention for million-dollar-plus quality loan opportunities in our market. Greater returns from these loans will improve our earning potential. Capital is the ingredient that lifts us off the ground and powers us far beyond what our founders ever imagined.
In the beginning, the African American faith-based community was the bread and butter of the African-American banks. They were our largest supporters and depositors. Over the years, the majority banks discovered the strength of this customer base (thanks to the Community Reinvestment Act [CRA]), and these banks now dominate this market by catering to the wishes of the church leaders. Unfortunately, these leaders do not understand that by transferring the wealth of their congregation to the large out-of-town banks they are disinvesting in their own local community.
Another example of the challenges facing our community is the fact that the large out-of-town banks have centralized their operations. As a result, credit decisions are made based totally on the numbers. Banking is a relationship business, and community banks understand this concept. Locally, the large banks are turning down loans with FICO credit scores below 630, even if the customer has had five timely paid loans in the past. Many of these customers are being referred to Commonwealth because we can make these loans. It is still a challenge, however, to get these new loan customers to move their deposit relationships.
As a community bank, our resources do not always match those of our larger competitors. With all of the large banks in our market offering a free checking account, we had to yield to competitive pressure and offer our “Free at Last” free checking account. The account offered free checks, unlimited check writing, no minimum balance or direct deposit requirements, free Internet with bill pay, convenient ATM access, and a minimum opening deposit of $25. During the first full month of offering this product, we opened 240 new checking accounts versus 92 for the same month the previous year.
We have developed a relationship with one of the large banks in our area to allow our customers to use their ATM machines without being charged an access fee. We pay the large bank a fee for this service and we do not pass this additional cost on to our customers. It is a value added service that we provide to our customers.
The majority of our customers could be characterized as high transaction/low balance accounts. This makes our operation more labor intensive when compared with other banks our size. As a result, our earnings tend to be below other banks our size. We consider our “peers” to be other minority-owned banks serving economically challenged, inner-city communities similar to ours. Most peer comparisons include banks our size and make-up that serve higher wealth communities with comparably-sized populations. These peer banks may have equal deposit sizes but probably half of the customer base. Typically, their customers have better paying jobs, larger deposit balances, and own, rather than rent their homes.
Targeted Marketing Program
To appeal to the approximately 45 percent of the Mobile population that is African American, Commonwealth’s advertising slogans offer targeted, upbeat messages such as:
- “Bank where your daughter could one day be President”
- “Black Banking and Proud”
- “What’s your bank doing to make your community a better place?”
- “Bank where you won’t get lost in the crowd”
These campaigns were all well received and successful in developing new business.
The first and the third of each month, when government checks are issued and people come to get cash, are the busiest banking days for our bank. After reading the book Fish! A Remarkable Way to Boost Morale and Improve Results by Stephen C. Lundin, we looked for an idea to make this busy time a positive experience for our customers.
We began giving our customers a Hershey “Kiss” when they completed their transactions on the first or third day of the month. This campaign was so well received that we began giving our customers a “Kiss from Commonwealth” everyday. While most customers are happy with the chocolate kiss, some request the real thing!
Keys to Success
While our experienced management team and targeted advertising campaign continue to bring new customers through our door, it is our unique brand of quality customer service that keeps them coming back. We are truly making a difference in our community.
We are especially proud of the fact that we were the first bank in our area to open for business the day after Hurricane Katrina ripped through the Gulf Coast area in 2005. After Hurricane Ivan in 2004, we purchased a generator for our Prichard location, which allowed us to open for business at 9 a.m. the morning after Katrina hit Mobile. We provided approximately 100 customers with needed cash in the wake of the worst storm in American history.
The keys to success for Commonwealth can be summed up in our core values: Service, Integrity, Confidentiality, Profitability, and Security. We have an active board of directors led by retired Marine General J. Gary Cooper and a management team with nearly 200 years of combined financial services experience. Our unique brand of knowledge, experience, and creativity has transformed Commonwealth National Bank into the bank our founders envisioned more than 30 years ago.
While the large banks continue to grow larger through acquisitions and focus more on commercial accounts, there will always be a place for community banks. Customers still appreciate the personal touch and quality service that make them feel special.
Over the last five years, we have picked up tremendous momentum toward becoming a high performance bank. We have reached record asset size and produced record earnings. Shareholder value has grown to respectable levels and annual returns have been consistent and growing. Commonwealth is poised and positioned to move on to the next level in its transformation.
For additional information, contact Sidney King at (251) 476-5938.