To lower funding costs, one Georgia start-up is turning to a higher power.
First Covenant Bank in Woodstock opened its doors Sept. 18 with an unconventional strategy: Create a nationwide network of low-cost deposits from churches, synagogues, missionary institutions, and religious-education organizations. In return for their deposits, the bank plans to offer free accounting and donation management services.
“It’s a substitute for building branches,” said Bill Blanton, a director and major investor in First Covenant.
Faith-based nonprofits are ideal sources for low-cost deposits, because they tend to accumulate large pools of funds gradually to be used for various projects, he said.
As competition for low-cost deposits increased, bankers started targeting specific niches, and Mr. Blanton was an early pioneer.
As the chief executive officer of the $671 million-asset First Capital Bank in Norcross, he went after homeowner and condominium associations, offering free cash management services in exchange for deposits. The program, known as Smart Street, raised roughly $175 million of low-cost deposits from more than 5,000 associations in 35 states, Mr. Blanton said.
(The $1.8 billion-asset Flag Financial Corp. of Atlanta bought First Capital in November.)
First Covenant president and CEO Henry Vick, who worked with Mr. Blanton at First Capital, called Smart Street “a template” for First Covenant’s deposit-gathering strategy.
“This is tailored to the faith-based world, which we believe is a much bigger world,” Mr. Vick said.
There are roughly 500,000 churches in the United States, a third of which are growing, according to John N. Vaughan, who runs the Center for the Study of Growing Churches and the Megachurch Research Center, both in Bolivar, Mo.
Georgia is a hot spot for new banks. Of the 142 start-ups formed so far this year, 16 are based there, making the state second only to California, with 17, according to the Federal Deposit Insurance Corp.
Gary Kennedy, the director of mergers and acquisitions at Alex Sheshunoff & Co. Investment Banking LP in Austin, said the Georgia banking market remains strong. Three banks that were started there in 2003 sold themselves this year for more than three times their book value, he said.
The success of First Covenant’s low-cost deposit-gathering strategy “will be based on how successful they’ve been in identifying the need” within the nonprofit sector, Mr. Kennedy said.
To identify those needs, Mr. Blanton said, First Covenant must have the right personnel.
“First of all, you don’t hire bankers,” he said. “Bankers, quite frankly, don’t know much about anything other than banking.”
Mr. Blanton said that he would hire people from within the nonprofit sector — perhaps a minister or a missionary — to serve as “calling officers.” Such employees would use their experience and contacts to help the bank establish relationships with nonprofit organizations, he said.
