Citizens Bank: Succeeds with supermarket strategy
by Glenn RittFrom his glass-enclosed office overlooking Faneuil Hall – and miles beyond – Bob Smyth ponders how Citizens Bank can grow from its No. 2 position in the Plymouth County and Cape Cod markets.
He contemplates strategies from a relatively secure perch. Citizens, with $35 million in assets statewide, is firmly positioned on the Cape – ahead of all competition but Cape Cod Five Cents Savings Bank; and it is the rare mega bank in Southeastern Massachusetts to actually improve deposit market share in the last two years.
Rivals Bank of America and Sovereign Bank have slipped some, partly because they acquired Fleet and Compass banks, which had both been losing momentum because of customer dissatisfaction. Meanwhile, many community banks and credit unions have been picking up deposit share, despite heavy competition from national institutions and a growing array of Internet players.
Smyth, who holds the titles of chairman, president and CEO of Citizens Bank points to several key reasons for his company’s sustained growth:
There are several key reasons for the growth:
• Its pervasiveness – 264 branches across the state, including 112 in Stop & Shop supermarkets. The bank will open five more branches in 2007.
• A strong emphasis on sales. It makes no apologies for hiring sales-oriented personnel and training them to be bankers, especially for its supermarket locations.
• A footprint broad enough to serve a single customer in two locations – their primary and second homes. On Cape Cod, more than half of about 45,000 second-home owners live elsewhere in Massachusetts.
Smyth acknowledges that no matter how many products a bank offers, it comes down to an ability to meet customers’ personal and business needs. In a commodity business, it is all about “who can be the most creative, flexible and responsive,” he said.
And one place Citizens outpaces all rivals is at the supermarket.
Most freestanding bank branches overwhelmingly serve current customers. But a supermarket location is exposed to hundreds of potential new customers every day – the key is to capture their attention.
“That’s why we tend to hire people without banking experience if they come with a sales orientation,” explained Smyth. “We recognize the value of dealing with prospects. If you can touch them at the supermarket, and it is a convenient location for them, we can be very responsive.”
Smyth reports that Citizens’ home mortgage and home equity business remains strong despite declining housing sales. At the same time, he acknowledges that residential lending has been shrinking as a proportion of Citizens’ portfolio – a function of greater competition from mortgage brokers and Internet companies.
Some banks have reported lost lending business with builders and developers, but here too, Smyth said, Citizens is holding its own. “Condo, apartment and senior housing development has remained strong. Only industrial development has been less during the last couple of years.”
About 40 percent of Citizens’ lending activity is on the commercial side, and the vast majority of customers fit cleanly into the small business sector. Local branches tend to serve businesses with up to $10 million in revenue; regional offices serve companies with $10 million to $25 million in revenue.
“If you go back 10 years ago, Citizens was much more of a retail consumer bank, but we have dramatically increased commercial business,” said Smyth. With that expansion has come a greater emphasis on building expertise among loan officers.
“We have a number of specialty areas – commercial real estate, technology, nonprofit, health care, publishing. We also have business bankers assigned to each branch.” Among their duties is working closely with the U.S. Small Business Administration to help new businesses get launched. Citizens has been the No. 1 SBA lender for six consecutive years.
Smyth is particularly pleased with an 18-month-old initiative called the Citizens Job Bank. “This is for small businesses on the fence about whether to expand or not, but facing rising interest rates. For every new job they commit to adding, we will lend them $40,000 at a two to three percentage points below the market rate.” The program should lead to as many as 1,500 new jobs.
Despite its wide array of lending products, Citizens has yet to follow the lead of other competitors by establishing distinct wealth management and trust departments. It also has opted out of the insurance business.
When it comes to helping customers manage their portfolios, Citizens assigns financial consultants to its branches. “Our branch officers uncover opportunities – whether annuities or mutual funds – with their customers and then refer them to the experts,” explained Smyth.
That system did break down two years ago when one of Citizens Financial Group’s consultants working on Cape Cod placed elderly clients in inappropriate investments, particularly variable annuities.
In a settlement with the state, which said the problem went beyond the Cape, Citizens agreed to offer refunds to elderly customers who bought variable annuities and it paid fines totaling $3 million. Several employees also left the bank.
It was an embarrassing chapter for the bank, but it appears to have weathered the storm. “Citizens has taken significant steps to improve our systems and policies which represent best practices for our industry and the best service for our customers,” said Smyth.
After purchasing two small insurance agencies within the state, Citizens decided to sell them to HUB International and then forge a referral arrangement with the company. “We pass business to each other,” explained Smyth. HUB International crosses many state lines and has a broader array of services for Citizens’ customers than what it saw as a conglomeration of smaller companies with fewer resources.
One area where Citizens has diversified in a big way is equipment leasing – from airplanes to plant facilities. “We are in the top 10 nationally among bank-owned leasing companies,” he said.
Published in Cape Business May/June 2007
Glenn Ritt Glenn Ritt is editor and co-publisher of Cape Business Publishing LLC. He is the former publisher of Cape Cod Community Newspapers and editor of The Bergen Record in New Jersey. 
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