U.S. banks pruning branches, but Nebraska, Iowa bucking trend

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Posted: Tuesday, December 17, 2013 12:00 am

In 2007, bank branches seemed destined for a bright new future, full of techno wonders that would delight, inspire and make a trip to the teller window as breezy as a Jetson family jaunt in the aerocar with the top down.

After all, it was an era that encouraged bankers to dream. The U.S. economy was full-speed ahead, and profits were fat and quarterly, thanks to the conceit that every American, no matter how feckless, needed to have a mortgage.

While the mortgage bankers were getting all the attention, and bonuses, the folks in charge of the retail side turned their attention to the humble branch. What was needed was deposits, to satisfy all the loan requests. One strategy, said Tony Plath, a banking professor at the University of North Carolina at Charlotte, was to compete with other banks based on the amenities offered in branches, where most people opened new accounts.

Many proposals made the rounds to amp up the headline factor. Waterfalls started appearing in some branches, along with fancy outdoor landscaping, coffee bars and Internet kiosks.

Push the fast-forward button from 2007 and things are much different. The financial crash of 2008 — mostly caused by bank speculation in the future cash flows of home mortgages extended to people with fictitious incomes and poor credit records — eliminated bank expansion plans and capital expenditures.

Ideas that seemed fabulous at the time were terminated as reinforcing the idea that banks made so much money in the lush years that they could waste some of it on trifles.

“The waterfalls, coffee bars and popcorn machines went out the window,” Plath said. “Things would never be the same for bank branches.”

Branches continued to be magnets for deposits, and still are to some degree, he said, but that is waning.

U.S. banks have closed about 800 branches in the past six months. Huge national chains such as Bank of America and Citigroup have been the leaders, as they struggle to get expenses in order after years of losses, TARP paybacks and bad loans.

Overall, U.S. banks have been dropping about 1,000 branches a year for the past few years; the total now stands at about 96,000.

It is a bit different in Nebraska. There were about 1,000 branches in 2004, and there were about 1,100 at last count, according to the Federal Deposit Insurance Corp. It is the same with many other states with low populations and only a few large cities, such as Iowa, Missouri and South Dakota.

Nebraska banks didn't suffer as much during the recession, and the state has many one-branch banks.

“We are still building branches,” said Rolland Johannsen, head of First National Bank of Omaha's retail banking group. “They are mostly on a fill-in basis” or covering a geographic area that has achieved unexpected growth. First National still plans to provide amenities such as coffee bars and wireless Internet access.

And Johannsen doesn't think branches are done for. “I have been in banking for 35 years, and for 35 years I have been hearing about the end of the branch.”

If there is a trend working against the bank branch, it can be found in cyberspace, in mobile and Internet apps. Internet banking at the dawn of the 21st century got one generation used to not having to visit branches. Now another generation has come of age in an era of mobile banking via smartphone and tablet.

Consultants at professional services firm Accenture said in an analysis last month that bank customer surveys found a 50 percent increase in mobile banking activity over the 12-month period; double- and triple-digit growth in online sales of traditional banking products amid falling sales in branches; and a strong trend of customers looking for suppliers other than their main bank for new financial services.

Most sobering for retail bankers, according to the Accenture analysis, is the growth in sales of those things that people once considered so confidential, important and complicated that only a long visit in a bank office would suffice:

» Sales of mortgages via the Internet increased 75 percent while sales at branches fell 16 percent.

» Online sales of auto loans nearly doubled while branch sales dropped nearly 10 percent.

» Online sales also increased in checking, savings, personal and home equity loans and money market funds.

All of which is good for banks. Such sales require fewer people, less expense, more profit, more revenue from a standardized platform, and what manufacturers call throughput. Nationally, some of the largest banks have been responding as if such developments will take root.

Whether they'll replace branches, however, still is an open question to some. None of the previous technologies supposedly wielding the executioner's sword — the Touch Tone telephone, the ATM, the computer — significantly dented the branch count, First National's Johannsen said.

“Customers found these technologies useful and convenient, and they relied on them to a degree, but they in no way replaced the branch; people just added these to their normal banking behavior,” he said. “Mobile may be different. We will have to wait and see.”

Bruce Paitz, a vice president at Lincoln-based Pinnacle Bank, recognizes the mixed message banks sometimes send with their investments in mobile and Internet banking which, at their core, are to encourage people to avoid the expensive-to-maintain branches.

“Here we go and invest all this money in the branch network, then we go and invest all this money in applications whose message is 'avoid the branch network,' ” Paitz said. “But the fact is, customers are embracing these technologies faster than could have been imagined.”

Things are moving fast indeed. Already deep into mobile and Internet banking, next on the block for Pinnacle, Paitz said, is tablet-computer banking. That comes in recognition of the mini-computers many people are carrying around, with screens bigger than a smartphone but more compact than a notebook. And each remote technology — mobile phone, Internet, tablet — requires its own software package, as the screens and displays of each device differ.

If remote technologies such as tablets don't reduce branch visits, banks are at least hoping they can handle branch traffic in a fraction of the space — space which of course requires lighting, heating, cooling, insuring and securing.

San Francisco-based Wells Fargo & Co., the fourth-largest bank in the nation and second in Nebraska deposit-share, is experimenting with branches as small as 1,000 square feet, or 80 percent smaller than the average of 5,000 square feet, said Kirk Kellner, the company's regional president overseeing the Cornhusker State.

Such branches have so-called “smart ATMs” capable of taking deposits, dispensing one-dollar and five-dollar bills, and lobby-based bankers equipped with tablet computers, but far fewer tellers and far less back-office space for paperwork and office tasks.

“We are trying those out in Washington, D.C.,” Kellner said. “They very well might end up elsewhere.”

Some of the latest ATMs are even connected via video feed to a customer service center, where a teller appearing on the monitor will assist with questions, deposits, withdrawals and other routine matters.

Plath, the banking professor, said smartphone, tablet, mobile and small branches sum up the future of banking. The full service branch of the past? Forget it, he said; they are nothing but expensive, and not of interest to anyone but people about age 50 and older.

Switching to small branches with nothing but a banker or two to sell loans and investments and a smart ATM hooked up by video link to a customer call center for routine transactions is the new banker dream, he said.

“Believe me, banks say it all the time in their internal meetings, they just don't say it in the media,” said Plath, who was a banker himself before entering academia. “They don't want to tick off their older customers.”

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