The term "trust department" may conjure images of large, monolithic bank buildings in major cities, or bank executives in plush offices, discussing million-dollar deals with well-heeled customers.
Regardless of the perception, community banks are changing the face of trust services today. Community banks are moving their trust departments into the mainstream of their operations. In small banks, trust departments are being viewed as profit centers, with trust officers being held accountable for asset performance. The days of trust departments as loss leaders simply to bring new business into the bank are no longer tolerated.
Trust operations are a natural outgrowth of community banks' main business of taking deposits and making loans, says Chicago-based consultant Henry Feldman, who advises more than 200 small to mid-sized banks and private trust organizations.
Customers are being more fickle about what they do with their money, and they want knowledgeable people they can trust to handle their assets. And community banks are responding.
Feldman says community banks have a window of opportunity to capitalize on customers' increasingly sophisticated financial needs. "In the future, trusts organizations that properly reposition and market themselves will be the ones to survive and prosper," Feldman says.
Therefore, Feldman recommends that banks promote not only trust services, but trust and asset-management services. Many bank customers have significant assets that need professional management, but not necessarily in a trust vehicle.
The most natural choice is the community banker who knows the customer's financial and, often, personal background.
CAPITALIZE OR LOSE IT
For many banks, not offering trust services can mean losing significant potential income. A Cornell University study reports that more than $8 trillion will be inherited in the next 20 years, with more than 15 percent of beneficiaries receiving an average of $470,000. Most of the people who receive those inheritances will have never managed financial assets of that size before. That's one reason why some community banks that don't have trust departments now are seriously looking at offering trust services very soon.
Still, other community banks have offered trust services as long as their bank has been open. With that kind of experience and reputation, some community bank trust departments are actually benefiting from the continued mergers and acquisitions in the industry.
Large Cleveland, Ohio, banks, such as National City Bank, have made major acquisitions in northwest Indiana the last few years. But, in doing so, the big banks have moved the trust operations to the home offices. That has left a gaping hole in smaller communities for trust services.
Today in northwest Indiana, many of the local attorneys and certified public accountants refer clients needing trust work to Mercantile National Bank of Indiana, in Hammond, which has opened 100 new accounts with more than $50 million in assets in the last year, according to bank President Vern Holzhall.
The bank gets the referrals because its trust department has always been a major part of Mercantile's business. In fact, the trust department's assets are $100 million more than that of the $470 million-asset bank itself, Holzhall says.
"We've had a trust department for 90 years," Holzhall says. "We've always been involved in personal trusts, pensions, land trusts, estates, whatever investments people want."
Mercantile's trust department includes five attorneys and several other professionals, a feature that attracts customers as well as referrals.
"They're all knowledgeable," Holzhall says of his trust staff. Trust department services "are one of the premiere products we offer the community."
"Everyone has their own horror stories about what happens when a large institution buys someone …