State Vibe :: Colorado » banking

Bank branch bubble may be about to burst

Colorado Springs Business Journal — Fri, 18 Dec 2009 16:41:39 +0000

Fewer, smaller branches will have to serve skittish small-biz customers

By Claude Solnik

Dolan Media Newswires

Financial industry experts expect to see more bank branches — during the short term.

Nationwide, there were 99,456 bank branches as of June, 10,000 more than during 2004, according to the Federal Deposit Insurance Corp.

In Colorado Springs, in-store branches have flourished.

“People still want that face-to-face contact,” said American Bankers Association spokeswoman Carol Kaplan. “Not everybody is comfortable dealing with computers.”

Back to basics works: brick-and-mortar branches offer a commodity banks have long offered and which is more in demand than ever — security.

Customers gravitate to branches, seeking not just attention, but advice as they refinance mortgages or plan for retirement.

“Because of the crisis we went through, people are going to be in a branch much more than they were before. They like to talk to people because that’s almost as good as touching the money itself,” said Arthur Loomis, president of Albany, N.Y.-based Northeast Capital. “Web pages and automated responses don’t cut it when you have a question like, ‘How much of my deposit is actually insured?’ You’re going to go into the branch to have a conversation.”

The long-term outlook

Even if counts climb next year, bankers and experts believe online banking in the long run will overtake branch business. The branch count will come down, they say, although no one knows when.

“Over time, the number of branches will decline,” Loomis said. “But it’s a delivery channel that’s important.”

And more basic transactions are done online — one sign of less reliance on branches.

This year, for the first time, online banking ranked as the preferred means of transactions, according to ABA’s annual survey.

Many banking transactions can be done online, and, of course, for basic transactions, it’s usually faster and more convenient.

Locally, there are signs that bank branching expansion is beginning to slow. During 2009, Colorado’s branch count declined by four, compared to an increase of 53 during 2008 and 73 during 2007.

Small is beautiful

When new branches are opened, they are smaller than their counterparts of yesteryear, employing fewer people per unit.

“They don’t have to be that big,” Loomis said. “They can have five people in a branch and have it be 1,000 to 1,500 square feet and be a wonderful delivery platform.”

Banks are using branches to sell sophisticated services such as insurance, investment advice and mortgages — even as more simple transactions are done online.

“Most of our growth in Colorado within the last 10 years has been primarily in-store branches,” said Tom Naughton, U.S. Bank southern Colorado regional president.

The popularity of U.S. Bank’s in-store branches, in Safeway and King Soopers, has been their accessibility, convenience and extended hours of operation, he said. Consumers realize that smaller or in-store branches can do most things that larger branches can do — consumer and small business loans and mortgages.

“It’s a different delivery model, but it’s proven to be effective,” Naughton said, adding that people like the extended evening hours, Monday through Friday, and Saturday/Sunday hours.

In addition to grocery stores, banks are moving toward on-site locations at corporate headquarters and medical centers.

“Places like these have a higher density of employees, and it’s a great benefit for employees to have on-site branches,” he said.

That function of the bank as retail center, rather than simply transaction site, is prompting a new look. Branches are designed to feel personalized, more like a boutique than a stark lobby surrounded by tellers.

But even if consumers migrate online, bankers say small companies will stand behind branches.

Small business owners tend to make deposits daily, and have more questions about cash flow, products or insurance.

People cannot handle all of their banking needs via Internet and phone, said Don Childears, president of the Colorado Bankers Association. “Nationwide, banks are reporting that branches have become popular again.”

And for “capturing new business, people need the face-to-face interaction,” Childears said.

The mergers and acquisitions of several national banks resulted in the closure of some branches — but others are planning “fairly aggressive branch expansion.”

And while the number of banks chartered in Colorado has decreased from 175 during 2005 to 148 this year — that number doesn’t account for the 47 banks operating in Colorado that have offices in at least one other state and are increasing their footprint locally.

“Adams Bank & Trust has multiple operations along the front range,” Childears said. “They and other banks have one or two operations in their home state, but have decided that for future viability they need to be in a growing market — like Colorado.”

Banks chartered outside the state are almost equal in assets — $50 billion — and employees as those headquartered in Colorado.

Rebecca Tonn contributed to this story.

Adams explains the FDIC, current banking climate

Colorado Springs Business Journal — Fri, 30 Oct 2009 06:00:39 +0000

Adams Bank & Trust’s breakfast and Colorado Economic Forum was held at Cheyenne Mountain Resort, during a stunning pink and lavender Rocky Mountain sunrise.

The keynote speaker was Todd S. Adams, chairman and CEO of Adams Bank & Trust, and board member of the Omaha Branch of the Federal Reserve Bank of Kansas City.

As a prelude to discussing current economic conditions, Adams gave the audience some background information about the purposes and functions of the Federal Reserve System.

It was established on Dec. 23, 1913, and — unlike other central banks — it is independent, reports to Congress and any earnings or assets are returned to the Treasury Dept.

There are 12 regional Federal Reserve Banks which are responsible for operating a nationwide payments system, distributing the nation’s currency and coin, regulating and supervising member banks/holding companies and serving as a banker for the U.S. Treasury, including processing Treasury bills, notes and bonds.

The Federal Open Market Committee meets every six weeks to help set interest rates.

“The Federal Reserve has every kind of statistic that you can think of,” Adams said. “What they don’t know is what business people are thinking now and plan to do for the future.”

So, they talk to people in the community and conduct surveys to gather input before making policy decisions.

Now, for current economic conditions.

Unemployment is continuing to rise, and many people are “under-employed — working less than 40 hours per week or not at the level they’re capable of,” Adams said. “But we’re a consumer economy.”

About 70 percent of the economy is driven by consumers, who have been beleaguered by economic conditions and unemployment.

“I’m not an economist — I don’t want to talk to you as one,” Adams said. “But as a banker, I know that no new jobs equals no new income. And no new income equals no new sales.”

So it becomes a cycle.

One of the lagging indicators of the economy is bank profits. Banks in the United States posted a $3.7 billion loss during the second quarter, he said. One in four is unprofitable.

And “one of the things we have to face in this country is the doctrine of too big to fail,” Adams said. “What does it mean? That no matter what you do, no matter what decisions you make — the taxpayers of the country will step in and put the chips back on the table for you so you can continue? Is that what we want to do as a nation?”

Currently, there are 416 banks, with $300 billion in assets, on the “problem” list, so the pace of bank closures is going to rise, he said.

As for the banking industry, not only has the cost of insurance gone up, but the Federal Deposit Insurance Corp. recently required insured institutions to pre-pay their estimated quarterly risk-based assessments — not only for fourth quarter 2009 but through 2012.

This should bring in an estimated $45 billion to strengthen the FDIC’s position.

“In its 75 years of existence, the FDIC has never cost taxpayers a dime,” he said. “Healthy banks like us have to pay a part of that (covering bank failures) — but that’s the cost of doing business.”

As banks and other financial institutions have increased capital requirements, “they’ve reduced their loans — but we’re still happy to take your deposits and lend you money,” Adams said, and the audience laughed.

“We are so fortunate to live and work in the part of the country that we do, because our recovery will be quicker and our downturn was not as bad,” he said. “But as a country, we need to encourage small business recovery and growth. A jobless recovery is like a loveless marriage — it’s not very satisfying.”

More audience laughter.

“We’ve got to get people back to work in meaningful things to get the engine of the economy going. We have to make something of value that people want, by incentivizing business and manufacturing jobs,” Adams said. “One of the things that made our country great is the animal spirits of our small business people — but we’re not encouraging that spirit right now.”

He said that because of uncertainty, small business owners are not going to take risks — they’re going to sit on their assets.

(This time the audience fairly howled.)

Rebecca Tonn covers banking and finance for the Colorado Springs Business Journal.