Stonebridge Bank Finds Success with Local Internet Strategy

Aiming for a local market on the borderless Internet, Stonebridge Bank seems built on a contradiction.

A state-chartered commercial bank with headquarters in West Chester, Pa., Stonebridge has fixed its focus primarily on the Delaware Valley, an areathat crosses counties in Pennsylvania, Maryland, Delaware and New Jersey. It offers its banking products and services through Stonebridgebank.com, a subsidiary of the holding company Stonebridge Financial.

"The local Internet was the niche we picked," said Christopher J. Annas, president and CEO at Stonebridge Bank. "When the Internet banks first came out, they tried to take a national footprint. We decided on a specific geographic area."

In another example of reverse strategy, virtual Stonebridge originated out of the brick and mortar of Community Bank of Chester County in Exton, Pa., which Annas, a former divisional vice president in charge of corporate and media lending for Summit Bank, opened in 1999. Seeing banks and brokerages convert to the Web, "we decided that's where we wanted to head," Annas said.

Stonebridge opened its Web doors in February 2000, keeping the Exton location as a full-service staffed branch. "The customer says, 'Maybe I need to get there just once a year, and so I want some physical presence, maybe just something I drive by or I know I can get to if I need to.' So we give them that," said Annas.

Stonebridge Bank offers retail customers a 4% rate on checking accounts, a 5.25% rate on money market accounts-with no fees-and a 5.75% rate on one-year CDs. It also furnishes an array of consumer loans, including credit lines, home equity loans and mortgages. New services include discount brokerage and insurance quotes, check imaging and bill payment, which it keeps in-house. "Of all the different online products, bill pay is one of the more confusing and customer-service intensive," said Annas.

Online bill payment comes free for the first three months; after that, customers pay $4.95 a month for an unlimited number of bills. The service remains free for those who keep at least $5,000 in their combined accounts.

The local Internet allows Stonebridge to attack this market from the asset side, said Annas, in the form of small-business loans and deposits. Stonebridge can also tap such business services as equipment leasing, and ease cash management burdens through real-time access to accounts.

"Other Internet banks have had to go to public market investments and to things that don't offer the yield that a small-business relationship does," Annas said. "We can deploy lending officers in each county to generate small-business loans that are attractive yields to us. The local nature gives us a great advantage on the profit side. We've probably got $65 million in commercial loans on the books."

Stonebridge's local strategy might have already paid off. The bank reported a 715% increase in new accounts between year-end 1999 and 2000, and deposits rose 300% during the same period, from $19.9 million to $79.3 million. Loans increased 276% to $69.9 million, and assets grew 257% to $87.9 million. It has about 6,000 customers and has projected a profit for the first quarter of 2001.

Stonebridge targets the female customer between 22 and 45 years old. "They're the fastest-growing population on the Net," said Annas. "We're not looking for someone who brings in their $2,000 paycheck and needs to see the teller take it and put it in the vault. We're looking for someone who is familiar and comfortable with online transactions."

Reaching these customers reveals "another beauty about the local Internet," said Annas, as the bank can focus its promotional campaigns on the Delaware Valley and take advantage of radio advertising, which has proved the most cost-effective.

American Bank in Pennsylvania's Lehigh Valley, another local Internet bank that opened in 1997 and went public last June, is Stonebridge's closest competitor. "They've done a lot of the small business loans we have," said Annas.

Located in the heart of a high-tech sector that rims Philadelphia, Stonebridge can count on a steady stream of the Internet-savvy customers it craves.

Stonebridge has more locations planned, in Bucks County and Maryland's Montgomery County. "We'll probably add four or five of these service offices over the next two years," said Annas. "One office per county allows us a much deeper penetration."