William T. Baldwin
Professor of Business Administration
Transylvania University
Lexington, KY

In 1997, commercial banks and savings & loan associations in Central Kentucky benefited from yet another year of economic expansion amidst low inflation and interest rates. At the same time, these banks have been major contributors to this favorable economic environment and continue to be well-positioned to support economic activity.

As lenders, banks play the important role of funding the expenditures of both consumers and businesses. But banks offer an ever-expanding array of products and services that enable them to serve customers in a variety of ways. For example, they support business activity by enhancing their cash management efforts, setting up retirement plans, advising small and medium-size businesses in financing and investing decisions, and providing a number of other fee-based services. Services available to individuals include financial planning, personal trusts, electronic transfers of funds, an expanding menu of investment alternatives (not just deposit accounts) and leasing.

Banks increasingly compete with brokerage companies, investment bankers, mutual funds, insurance companies and even real estate businesses. And the competition between banks themselves is fierce in Central Kentucky which can only benefit potential and present bank customers.

Banks of all sizes are here. Super regional banks such as Bank One, Fifth Third, PNC, and National City Bank can accommodate virtually any customer. Smaller Kentucky-based organizations, such as Whitaker Bank, Kentucky Bank, and Community Trust Bank, have established networks over multi-county areas. There are the independent banks that have long been closely intertwined with their communities such as Peoples Commercial Bank in Clark County and State Bank & Trust Company in Mercer County. Other independent banks have carved out niches in the larger Lexington market and range from the small (Bank of the Bluegrass) to the large (Central Bank, now the second largest bank in Lexington).

Area banks differ in how they package and distribute their product offerings. For example, while banks have traditionally separated their trust operations from the banking side of business, National City Bank is now combining private banking and trust through its "Private Client Group." This unit offers sophisticated banking, investment management, estate planning, and financial planning services to company executives and upper-level managers. A broad array of retail products and services -- ranging from checking accounts to mortgages -- is also provided to the entire employee base.

Fifth Third offers "Commercial Banking," which provides services to businesses, government and professional customers, and "Retail Banking," which provides deposits and loans to individuals. "Investment Advisors" offers investment management for individuals, companies, and not-for-profit organizations; personal and institutional trust; custody services for individuals, financial institutions, advisors, retirement plans and insurance companies; corporate trust services, which include bond administration and stock transfer services; private banking; and Fifth Third Securities, Inc., its own brokerage subsidiary. Midwest Payments Systems, Fifth Third's data processing subsidiary, operates the bank's Jeanie ATM network and is one of the leading national providers of Electronic Funds Transfer services and merchant transaction processing.

While smaller banks cannot directly offer the range of services provided by the largest banks, they can still accommodate most customers' needs. For example, loan participations involve the originating bank inviting other banks to share in making a large loan. Smaller banks can also call on "correspondent banks" to help them provide services they are not equipped to offer directly.

Still, due to their size, smaller banks concentrate primarily on individuals and small business customers. The primary businesses targeted by Bank of the Bluegrass, for example, are those with annual sales of $1 million or less. What may be small loans to a large bank are essentially considered large loans to Bank of the Bluegrass (and other small banks), which prides itself on the personalized attention that it gives business customers and individuals alike.

Kentucky Bank, headquartered in Paris, is one of several Kentucky-based banks using an acquisition strategy to better compete with larger banks. Kentucky Bank has positioned itself to benefit from the future expansion of the Greater Lexington area by buying branches in the perimeter cities of Versailles, Georgetown, Versailles and Nicholasville. The larger volume of business enables the bank to afford the specialists that are needed to provide the most professional level of service possible.

Central Bank is a Lexington independent bank that has achieved the critical mass needed to provide a wide variety of products and services, such as automated account reconciliation, payroll direct deposit, lock box services (to speed up the receipt of cash), credit card merchant processing, and a variety of investment products. Central Bank is also adopting Kentucky Bank's model of perimeter growth, with the opening of a savings bank in Nicholasville representing its first step in that direction.

Just as smaller banks have found some ways to overcome smallness, large banks don't necessarily confine their attention to large business customers. A representative of National City Bank notes that NCB offers the same level of sophistication that is provided to large companies to smaller businesses and entrepreneurs, often helping them avoid costly mistakes by advising them on how to better structure their borrowing and cash management needs.

Want to do your banking from home? Lexington's Vine Street Trust Company -- affiliated with the world's first cyberspace bank, Security First Network Bank -- began offering banking services to home computer users on the Internet in 1996. But customers who prefer to bank on site enjoy a luxurious atmosphere that one would expect to find at a bank that caters largely to upscale customers.

Clearly, one of the good things about banking in many communities in Central Kentucky is that individuals and companies of any size have many financial institutions from which to choose. Any business or individual new to the area should not have to look too long to find at least one bank that offers an appealing mix of quality service, convenience, cost and personal touch.

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