A Small Bank's Answer to the Challenge of Cross-Selling

Banks have a long history of falling short of expectations for cross-selling products.

Such sales, however, have become increasingly important because of fierce competition and low interest rates.

Peoples Bancorp in Marietta, Ohio, believes it has found a way to succeed at pitching services to clients by focusing heavily on its insurance and investment businesses. The company, which has benefited from buying six banks since 2012, is eager to do more deals, including the possible addition of insurance agencies and investment firms.

"Our basic tenet is never sell a product that isn't in the customer's best interest," said Charles Sulerzyski, the $3.2 billion-asset company's president and chief executive. "We treat the customer like family."

Insurance is attractive to many banks because it can produce high returns without requiring a large amount of capital, said Sulerzyski, who joined Peoples in 2011 after a stint at KeyCorp. Most cross-selling of banking and insurance products stall because of cultural reasons, he added.

So it is important for management to take the time to "teach the bankers and the people in insurance what each person brings to the party," Sulerzyski said.

Leadership at the top is critical, industry experts said.

In the case of Peoples, Sulerzyski "has been instrumental in revitalizing the culture" at a company where fees — mostly from its insurance and investment businesses — make up roughly 40% of total revenue, said Daniel Cardenas, an analyst at Raymond James. Peoples' product mix has allowed it to "grab a bigger portion of the customer's wallet," he said.

The insurance and investment businesses help Peoples compete in Ohio, which is also home to KeyCorp in Cleveland, Huntington Bancshares in Columbus and Fifth Third Bancorp in Cincinnati.

"Peoples has been able to put together a more sophisticated product set than its peers so they can better compete with regionals," said Scott Siefers, an analyst at Sandler O'Neill. "They also have the high-touch feel of a community bank."

The company had more than 3,000 referrals from its branches to its insurance business, and it even made an $8.5 million loan to one of its insurance clients. While Peoples has some referral incentives and competitive in-house rankings, Sulerzyski said most of the success stems from making sure everyone understands the product offerings and is comfortable making suggestions to clients.

"You have to get people to understand one another's perspective," Sulerzyski said. "When you build that, they respect the capability and are surprised at what each other brings."

Peoples has a big focus on supporting employees that includes coaching, Sulerzyski said. Every 90 days, managers provide performance reviews that break out a few things that each employee does well and a few areas that could be improved.

"My belief is the boss-employee relationship in America is poisoned," Sulerzyski said. "When your phone lights up and you see your boss's name on it, you don't go, 'Oh great!' You go, 'What did I screw up now?'"

Sulerzyski wants to change that mindset by making sure everyone receives constructive feedback, something that Peoples teaches it managers to do. New employees are also told during orientation to not only expect this level of feedback, but to also demand it.

The hope is that, by incorporating a healthy culture now, Peoples — which added $1.2 billion in assets last year, largely from acquisitions — will be well-served as it keeps growing. While easily on pace to hit $5 billion in assets, Sulerzyski said he has no plans to flirt with the $10 billion threshold because of the added regulations it would bring.

Peoples could add to its operations in northeastern Ohio, where it has already bought North Akron Savings Bank and Ohio Commerce Bank, though it could also look to expand more in Cincinnati, Siefers said. "There is a broad swath of area that they could be interested in," he said.

Acquisitions can be a good strategy, especially for banks like Peoples, which has benefited from having its stock trade at 150% of tangible book, said Michael Iannaccone, president and managing partner of MDI Investments. So far, Peoples has seemingly chosen its deals wisely, snagging deposit-rich banks at solid prices, he said.

"It can be difficult for banks to compete organically, and maybe the better way is for Peoples to buy other institutions," Iannaccone said. "They have a healthy stock price, and acquisitions, using that stock as currency, are the most efficient means to an end."

Peoples could also look for bank in Ohio, western West Virginia and Kentucky that would boost its market share or provide opportunities in adjacent markets, Sulerzyski said.

One area that still needs improvement is its efficiency. Peoples' efficiency ratio was roughly 96% in the first quarter, which largely reflected costs tied to its purchase and integration of NB&T Financial Group. Merger-related costs also forced Peoples to report a quarterly loss.

Those numbers should improve as Peoples wrings out expenses at the banks it has bought, Sulerzyski said. A lot of opportunity exists, he said, if the company can add another $1.5 billion in assets and lower its efficiency ratio to about 60%.

"It's an opportunistic management team," Cardenas said. "They're very much on target of where they want to be. It's definitely a company to watch."