The new year is likely to bring a continuation of some current banking trends as well as some new developments affecting the industry. That’s according to Peter Gwaltney, president and CEO of the N.C. Bankers Association. In a recent interview, Gwaltney summarized his perspectives.
“I do think we’ll see a continuing expansion of mobile banking and remote access for things like deposit account opening and access to credit,” he said. “The technology in these areas is advancing rapidly, including in some of the smallest banks. That’s good because it increases [customer] access and takes the friction out of services.”
Gwaltney also predicts that banks will continue to consolidate branches but emphasized that branch consolidation is not to be confused with branch closures.
“In the previous era, branches were … put on street corners for image and presence,” he said. “There was a focus on convenience: not making someone drive too far. Now we’re finding we don’t need a bank branch on every corner; there are not as many in a community as there once were.”
In his remarks during Live Oak Bank’s Q3 earnings call Oct. 28, Chairman and CEO James “Chip” Mahan had some statistics to share about in-branch activity at traditional banks. Quoting research by Harris Simmons, CEO of Zions Bank, he said bank branch activity is only 9% of what it was several years ago and consumer transactions in branches are just 7% of what they used to be. Small business in-person transactions are also down markedly but not by as much: They are 27% of prior levels.
Pandemic branch restrictions have boosted drive-thru and online banking activity as well as development of accessible banking technology. But customers in poor and rural communities tend to rely on in-person transactions. A problem may arise when banks do shutter branches in rural communities, especially poor ones where residents may not have ready internet access, Gwaltney acknowledged.
“Banks take these closures very seriously,” he said. “Often, other key businesses have already left, and a bank may remain open even if it’s losing money. When they do decide to close, they will hold a community meeting and sometimes will donate their building to the community. Maybe they will put in a robust ATM. Banks are pretty thoughtful about [how they leave a community].”
DIVERSITY, EQUITY & INCLUSION
Making banking services accessible and affordable to everyone – especially to people of color who are more likely to be “unbanked” – is one of the industry’s aims through its emphasis on diversity, equity and inclusion (DEI), Gwaltney said.
“The banking industry has gotten very serious about diversity in the workforce and making sure it is serving everyone in the community,” he said. “Banks ask themselves if there is a market they are not reaching because they don’t have staff that look like the people in that market.”
Gwaltney quoted Truist Chairman Kelly King as saying this outreach effort is both a moral imperative and a business case. And, Gwaltney added, diverse banking teams outperform their more homogenous counterparts. The N.C. Bankers Association is “working on a number of initiatives to diversify the pipeline,” he said. “We’re partnering with HBCUs (historically Black colleges and universities) to provide job-ready commercial bankers.”
Because banking must spread its high operating costs over as many customers as possible to remain profitable, Gwaltney said the motivation to merge with or acquire another financial institute will continue. The problem is, there are fewer and fewer banks based in this state.
“There are 45 banks headquartered in North Carolina, down from 75 about seven years ago,” according to Gwaltney. “In 2021, there were only two acquisitions in the state: First Bank’s acquisition of Select Bank and United Community Bank’s acquisition of Aquesta Bank.”
But despite a scarcity of acquisition targets, the state will continue to see mergers and acquisitions because the North Carolina economy is so good and cities are growing, Gwaltney explained. “Banks in non-growing areas want to enter the market, and it’s easier to do that by purchasing an existing bank than to come and build new physical locations.”
In the Oct. 28 Live Oak Bank earnings call, Mahan also talked about branch consolidation and bank mergers.
“The day I went into the banking business on July 9, 1973, there were 13,748 banks in this country,” he said. “Today, there are less than 4,700 banks, and about 600 of those are publicly traded. … There have been 30 bank acquisitions above $5 billion over the past 36 months.”
Mahan said that many in the industry believe mergers or acquisitions are the way to build better banks.
“Buy the folks next door, eliminate overlapping expenses,” he said, but pointed out, “M&A causes disruption and culture change for the acquired, and customer service falters.”
TECHNOLOGY WILL MAKE THE DIFFERENCE
Instead, Mahan said, banks need to improve their technology so they can provide better service, whether in person or online.
“We still believe that the regulated bank environment with access to the FDIC-insured deposits will win the day for small business America,” he said.
Some banks, looking to expand their footprints, are taking heed of Live Oak’s example. In late November, Pennsylvania-based Customers Bank announced it was entering the Carolinas, choosing Wilmington for its first location.
Although it will soon open a physical location here – and ultimately follow suit in a few other small cities across the two-state region – Customers Bank will focus more on its online presence rather than on creating a network of branches, according to Brad Neigel, the bank’s regional president of banking for the Carolinas.
“Everything that can be automated will be,” Gwaltney predicted.
FNB noted for reaching underserved areas
First National Bank (FNB) recently received an Outstanding rating from the Office of the Comptroller of the Currency on its Community Reinvestment Act performance. The OCC assessment looked at how well FNB meets the credit needs of lowand moderate-income individuals as well as how it deploys capital and other products and services in the low- and moderate-income communities it serves.
FNB is one of fewer than 10% of banks to receive this highest-possible CRA rating, according to a news release.
“We are proud of our ‘Outstanding’ CRA rating, which also acknowledged our excellent lending performance and strong service coverage in North Carolina, including the Wilmington MSA,” Spence Broadhurst, regional market executive and president of FNB’s Eastern Carolina Region, said.
“FNB’s community commitment is evident in Wilmington, where we have contributed to small business development and home ownership.”