UNBANK should expand to Menlo Park. The current lack of success to attract depositors to Palo Alto from Menlo Park total deposits were only 10.5% of the banks total see Exhibit Seven. This situation could be attributed to an old concept of neighborhood banking. The potential market demographics is shown in Exhibit three, which details current competitors and their individual market percentages. In addition, higher traffic levels between Menlo Park and Palo Alto might also prevent or discourage depositors to Palo Alto.Carl’s philosophy of a natural market share also appears to be accurate and the application of this in the expansion could yield additional market share upwards toward 15%, Menlo Park is the logical next step.
Their current reputation and proven business success should be leveraged to this expansion; their recent national attention could also be leveraged to support the expansion. Therefore, UNBANK should not hesitate to move on this opportunity, they should build and plan then move on it and move quickly.The second reason to expand is to solve the lack of floor space at the Palo Alto facility. The current Palo Alto trust department needs the additional space.
However, this expansion is predicated upon UNBANK’s ability to duplicate all the successful methods and processes to Menlo Park, without dilution the current operation, even by customer perception. The market potential is favorable; competition is less than the current Case Study discussion questions (con’t) environment 27 banks in Palo Alto with a population of 54,600 and only 10 banks in Menlo Park with a population of 34,000, see Exhibit Two. What is your specific position regarding the Santa Cruz Trust operation? Support with both data and rationale.UNBANK should not expand to Santa Cruz. The first reason is a lack of fit between the Santa Cruz market and UNBANK.
Many of UNBANK’s core competencies, successful methods and proven processes for a local small bank strategy many cannot be directly applied to Santa Cruz. UNBANK should stay with what they know, not venture to something new. Approximately 14.4% of UNBANK’s adjusted operating income is from noninterest transactions and only 8.24% for trust activities, see Exhibit Four.This expansion would definitely be counter to Carl’s vision of a local small bank strategy. In addition, if the Menlo Park was undertaken a further dilution of the customer focus and potentially Carl’s attention away from the Palo Alto and toward managing a small group of individuals so far away at Santa Cruz.
Another disadvantage to this business decision is the prediction that it will be unprofitable for several quarters due to the lead-time to staff the operation; again a longer payback period with considerable risk would not be advisable.Hopefully, Carl would also not transfer employees away from the operation at Palo Alto to staff the Santa Cruz potential this would dilute the Palo Alto bank in another way. Another reason is that the overall profitability of the Santa Cruz operation would be much less than what could be realized in the net interest spread on loans and other investments, 50 basis points versus up to 500 basis points. Once again UNBANK should focus on their core competencies that has a proven track record.Case Study ExhibitsExhibit One, University National Bank ; Trust Company: Comparison of ROA and ROE among Banks by size (all California banks: 1978)Exhibit Two, University National Bank ; Trust Company: Local Market Demographics: 1978Exhibit Three, University National Bank ; Trust Company: Local Market Demographics: 1978Exhibit Four, University National Bank ; Trust Company: Comparison of Bank’s Noninterest IncomeExhibit Five, University National Bank & Trust Company: Summary of Earnings (for fiscal years ending December 31) (dollars in 000’s)