Eyes on the enterprise: Susquehanna Bancshares, Inc

RMA Journal, The, Feb, 2003 by Beverly J. Foster

Susquehanna Bancshares is a $5.4 billion financial holding company for eight community banks operating in more than 150 locations throughout central and eastern Pennsylvania, Maryland, southern New Jersey, and eastern West Virginia. Farmers. First Bank and Susquehanna Bank account for nearly half of the company's assets. Nonbanking subsidiaries provide leasing, insurance, mortgage banking, asset management, and brokerage services. Permitting its banks to run with a fair degree of autonomy is critical to the success of Susquehanna Bancshares. But increased autonomy can lead to increased risk. Like a number of its larger brethren, Susquehanna has a newly appointed chief risk officer. In this interview, The RMA Journal introduces readers to William J. Reuter, chairman, president & CEO, and David D. Keim, chief risk officer and chief credit officer.

RMAJ: Let's introduce you to our readers through your philosophy about banking, and how it may have changed in the 30-plus years of your career.

WJR: We began operations in 1982 under the premise of preserving community banking. We've evolved into a financial services holding company completing more than 32 acquisitions, but each bank operates under its own name, has its own board of directors, makes its own credit decisions, and sets its own rates and minimums on deposits. Our philosophy is that by staying close to each market, we can deliver superior customer service. Susquehanna Bancshares supports its banks with consolidated operational functions and provides asset liability management, investments, loan review, human resource management, finance, marketing, and training support, among other services.

Our nonbank affiliates also operate with a fair amount of autonomy. A primary goal with our non-banks is to continue strengthening a model that allows us to take full advantage of cross-sell opportunities. For the past several years, we have devoted considerable resources to the acceleration of our sales culture, and one result is that our banks had core loan and deposit growth of approximately 10% in 2002. I strongly believe that the consistent development of our retail sales culture and commercial sales culture makes this growth rate sustainable.

We have a broad mix of customers across our footprint. If you look at the demographics and the average median income in the markets that we serve, you'll see that they are some of the best in the U.S. We don't target specific consumer groups, but we accommodate the groups in our market area.

We try to build as much flexibility into the system as we can. We don't dictate all standard operating policies from one location. We want to make it easier for people, under the right circumstances and under the regulations in place, to open accounts with us.

RMAJ: Having had the experience of beginning as a much smaller community bank, what advice would you offer to banks that are $500 million and under in today's environment?

WJR: Smaller banks need to stick to the things they do best. If they've been lucky enough to develop a niche, they need to exploit that niche. If not, they need to stick to basics and execute them well.

A lot of small banks would do well to spend more time on management, board, and ownership succession planning. These banks often have an aging management and board. Estate planning of individual directors puts pressure on the bank to provide liquidity for its directors' stock ownership interests. This is probably the largest reason small banks that have been around for a while decide to sell.

Also, small banks depend on third-party vendors, and it's essential that they align themselves with vendors that offer the best fit. Possibly the second largest reason community banks sell out is because they haven't been able to do this well. It takes significant due diligence to get the right support for data processing, back-room operations, wealth management, asset liability management, internal audit, and loan review functions.

Community banks will continue to have an essential role in fulfilling the needs of their marketplace. The overriding factor in costumers' minds is receiving a high level of service. The community banks I know that are doing well are able to do that. Other factors in success, of course, include location, demographics, and successful management. As exotic as we try to make banking, it's often a matter of the basics--how well we gather deposits and how well we lend them out to consumers and businesses.

RMAJ: Three somewhat larger institutions--Allfirst Financial, Fulton Financial, and Sovereign Bancorp--are considered by Hoover's Online to be major competitors to Susquehanna Bancshares. What else can you tell us about your competitive landscape?

WJR: We compete well with large and small banks; some of the most formidable competition, however, comes from the nonbank segment--everything from brokerage firms, to wealth management companies, to credit unions, to mass marketers offering home equity loans, credit cards, and mortgage loans.