Café-bank concept to evolve

The Gold Café coffee shops that Union National Community Bank opened last year will get a polish.

Union National Chief Executive Officer Mark D. Gainer said the Lancaster County bank would make some tweaks to the unconventional branches, which he gave a mixed review overall.

“I think that there is general acceptance of them,” Gainer said. “Especially Centerville (Road) is doing fairly well.”

The bank needs to clarify to customers that it is primarily a bank, he said.

“There is a little bit of confusion — is it a coffee shop or is it a bank?” Gainer said. “We are in the business of banking. We’re not in the business of coffee, even though that is part of the Gold Café.”

The bank plans to change Gold Café signs and adjust the branches’ interior design to make the banking side of the facilities more evident, Gainer said.

The Gold Cafés have become popular meeting places for business customers, and Union National will encourage more businesses to make use of the branches, Gainer said.

Asked whether the Cafés have met initial targets, Gainer said, “In some things, yes; in some things, no.”

Bank officials told the Business Journal last year they might open a third Gold Café in 2007, but Gainer said Union National will hold off on that plan.

“I think we’re going to take a pause here for a while and grow these before we look into other markets,” Gainer said.

The bank recently announced it was scrapping plans for a new branch. Gainer said the cancelled branch probably would have been a Gold Café, but that had not yet been certain.

Gainer compared the bank’s experience with the Gold Cafés to a car company that rolls out a new vehicle and makes changes in the second model year.

Union National is capitalizing on the popularity of hangouts such as Starbucks, said marketing expert Chris Edwards. The bank’s challenge is to push consumers to associate that atmosphere with banking and to convert visitors into banking customers, he said.

Edwards is vice president of sales and marketing at Visual Impact Productions Inc., a York advertising agency whose customers include banks.

Success may also depend on the demographic the bank is targeting. The café crowd may open checking and savings accounts, Edwards said. Mortgages and financial planning are another matter.

“That’s like my dad. And my dad, you know, he’s not hanging out at Starbucks,” Edwards said. On the other hand, developing loyalty now among younger customers could pay off in the long term for Union National, he said.

Union National is in restructuring mode after a tough earnings year in 2006, but Gainer said he was optimistic after the bank’s holding company reported second-quarter profit of $337,000.

“Given where we came from, I’m pleased with the progress we’re making,” Gainer said.

The second-quarter results were down 28.6 percent from the same period in 2006, but up from a loss in the first quarter, when the bank took big charges related to the restructuring.

Small banks with earnings problems can become acquisition targets, but Gainer said Union National was firmly committed to remaining independent. Investors will give him a chance to turn things around, he said.

“I think that we have fairly patient shareholders. We have to prove that we can perform at a level that’s acceptable to them and give them (the) return that they’re looking for,” he said. “I think we can do that. I’m confident we can do that.”

Union National came upon hard times partly because of industry pressures but also because expenses were too high, Gainer said.

He pointed to two problem areas — the bank’s cost of borrowing and its personnel expenses.

“That had a huge impact on our bottom line,” he said.

The cost of building and operating the two Gold Café branches has also raised expenses, Gainer said. The branches are pricey to construct. Because they are open seven days a week, they also raise operating costs, he said.

The bank is tackling expenses and borrowing costs. The bank has cut 18 jobs, or about 10 percent of its workforce, through attrition and layoffs. It also made changes to its balance sheet that reduced debt.