Academic journal article ABA Banking Journal

High-Caffeine Banking: Take One Part Aggressive Acquiror, One Part Branch Builder, Lace in More Variations on Incentive Compensation Than You Can Count. Serve Very Hot, and You've Got North Fork Bancorporation

Academic journal article ABA Banking Journal

High-Caffeine Banking: Take One Part Aggressive Acquiror, One Part Branch Builder, Lace in More Variations on Incentive Compensation Than You Can Count. Serve Very Hot, and You've Got North Fork Bancorporation

Article excerpt

Don't drool when you see North Fork Bancorporation's efficiency ratio: In 2003, the ratio came in at 34.3%, incredibly low for any bank, and especially for a bank with a ubiquitous branch network. That number, please understand, is actually high for this hustling New York regional--it's been lower in all five previous years, including 29.7% in 2001. But then, North Fork's been in a building phase.

How does North Fork do this? There are several ways you can find out.

One is to ask the top man, John Adam Kanas, chairman, president, and CEO.

"Cost control is kind of a religion around here," says Kanas, who joined the bank in 1971 as a management trainee and who first became president and CEO in 1977, adding the chairman's title in 1988. "We try not to show that to our customers. If you go into our branches, you will be pleased by what you see. But we try to get people to think frugally all the time, and to understand that small things add up."

If frugality is a religion at North Fork, John Kanas is the high priest. Years ago, he recalls, he wanted to make a point about expenses. He sent employees a memo, asking them to attend a general meeting, and making an unusual request: Open your desk drawer, and take out all but three pens, and send the rest back to Central Supply.

The day of the meeting, Kanas waited until everyone was assembled, and then, with drama, pushed in a wheelbarrow filled with the more than 2,000 pens that had been returned.

"I dumped it out in the middle of the auditorium floor," says Kanas, "and I said, 'This is the result of one memo. Now do you understand what waste is? Now do you understand what excess is?'"

More ideas came up in the discussion that followed.

"We do make a point about being efficient in some of the oddest ways," Kanas acknowledges.

Let's not forget two more basic numbers, too, for the Melville, N.Y.-based North Fork. ROA for the $20 billion-assets company for 2003 was 1.86%, and ROE hit 26.15%.

None of this is lost on the Street.

"We believe North Fork ranks among the best regional banks in execution ability as its strong sales culture is driven by the most effective incentive compensation plan we have seen, its efficiency ratio is among the best in the industry, credit quality is excellent, and there is a strong entrepreneurial spirit," wrote analyst Keith Horowitz, in an April report for Smith Barney.

With two major acquisitions on their way to completion--the Trust Company of New Jersey (announced in late 2003) and GreenPoint Financial Corp. (announced in February)--Kanas is situated to be chief of the nation's 16th-largest bank holding company, with more than $50 billion in assets.

Branching with a cost-conscious eye

The second way to understand how North Fork saves money is to get out an& see where North Fork meets its customers. (For a virtual tour of North Fork branches in Manhattan, go to www.ababj.com.)

North Fork makes no bones about being primarily a commercially oriented bank, and, while nothing essential is stinted inside its branches, nothing is spent on unnecessary frills. And one such "frill," in some neighborhoods, is a storefront, ground floor location. In fact, at more than one location, the only noticeable indication that a bank branch is in the building is a sign hanging over the sidewalk. To get to the offices, you can either take an elevator or walk up one flight of stairs. The reason some branches in Manhattan are on the second floor is simple. The rent is much cheaper.

Don't take away from this the impression that North Fork cheaps out on its "look" or its branch equipment. The branches fit their neighborhoods to a fair-thee-well. Its branch on Park Avenue and 50th Street, in the corporate canyon near the Waldorf Astoria Hotel, has an "investment bank" look, complete with golden lettering for all its exterior signage. …

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