Mark Welch, CEO of the Instution for Savings in Newburyport, says he’s not a popular guy at banking conventions.
He knows why: it’s because he promptly climbs on his soapbox and tells his peers they aren’t willing to make tough decisions about firing bad employees.
“Too many of my contemporaries seem to still be willing to say, ‘You know what? Dottie’s a good girl, she’s been with us for 20 years and she’s only got 20 more years until she retires, so we’re going to let her stay – even though she’s terrible, she offends the customers, she doesn’t know what she’s doing,’” Welch said, chuckling.
In the past, community banks could more easily support an inefficient staff because banking was a sleepier, easier business in previous decades.
“It’s not easy anymore, it’s unbelievably competitive. Margins are narrower than they’ve ever been. They’re going to get narrower still.”
Bankers are fighting soaring costs of business, ever-present competition, as well as the heavy blows of regulatory costs and FDIC fees and assessments. Yet 89 out of 172 FDIC-insured institutions in Massachusetts increased staff, while only 49 trimmed employee numbers between June 30, 2008 and June 30 of this year.
Warning Voices
Most of the staffing changes were minor, either gaining or dropping a couple employees, and some can be attributed to bank consolidations. Welch himself advocates for having quality employees rather than simply cutting jobs to save money, but he and other efficiency hawks harp on the importance of getting more miles out of banks’ money. And it seems that – for better or worse – banks haven’t cut staff to make up the difference.
That bump in employment is indicative of a paradox in community banking. Many Massachusetts bankers say they’ve grown fat on deposits this year, and have been sheltered from the enormous loan delinquencies elsewhere.
But other voices warn the state’s banks have serious big-picture issues to deal with. Stanley Ragalevsky, a partner at Boston law firm K&L Gates, notes that a rapid, troubling decline in efficiency – measured by return on assets – has happened during the same years when expenses have spiked.
As of June 30, Massachusetts-based banks’ collective return on assets was at .37 percent. In June 2008, it was .56 percent. That’s down from .77 percent in 2007, and .94 percent in 2006. State Street Bank was removed from these statistics because its size and activity differentiates it too widely from other FDIC-insurance institutions. As a result, many consultants predict a jump in mergers and acquisitions in upcoming years, and others harp on the need for efficiency.
As far as employment goes, a look at Massachusetts banks shows wildly divergent numbers on employee levels for banks of similar size.
For example, Walpole Co-operative Bank manages to operate with 33 employees, while its nearest peers, asset-wise, have almost a full 2/3rds more employees.
Ragalevsky said the trouble is bankers still keep opening branches. Opening a branch is a way to expand deposits – but it’s a costly endeavor.
“It seems dopey that they’re opening as many facilities as they are,” he said, especially with the rise of Internet banking. An American Bankers Association study last month reported customers reportedly preferred Internet banking over every other kind of bank interaction for the first time in the annual survey’s history.
Ragalevsky says even those who aren’t opening new branches are loath to close the one they already have.
“A lot of them don’t want to do it, even though [the branch] hasn’t done anything for them.”
The prevalence of Internet banking often requires a relatively large investment, diverting some of the banks’ funds to set up and maintain complex systems. But it hasn’t led to a decrease in jobs, according to ABA spokesman John Hall.
People predicted the rise of ATMs would lead to mass teller layoffs in the industry, too, he said, but that didn’t happen, either. As with ATMs, Internet banking has met another consumer demand, but didn’t eliminate the need for face-to-face interaction.
Elizabeth Jones, CEO of Everett Co-operative Bank, says her office’s foot traffic has gone down in the past few years, thanks mainly to Internet banking, but she hasn’t trimmed staff because she still needs people around to help handle regulatory compliance work.
Still, Everett Co-Op prides itself on running lean – the bank has no branches, and keeps overhead low, she said.
Another relatively lean bank, Hingham Institution for Savings, with assets of about $862 million, had 99 employees as of June 30. All but one of its closest peers – those with between $800 million and $900 million in assets – had between 142 and 156 employees each, about 50 percent more than Hingham.
CEO Robert Gaughen says that in Hingham’s case it isn’t about fewer branches – the bank has nine – but about keeping those branches running with as lean a staff as possible.
It’s able to do that partly because the bank keeps its overall operations simple, offering basic banking products to the retail side, and sticking to things such as mortgage, home equity and checking account products on the lending and commercial side, respectively, he said.
Hingham doesn’t have any investment funds or an insurance agency. Smaller banks that try to tackle some bold new ventures can risk losing focus and spending a great deal on an investment that brings little revenue in, Gaughen said.
Branch Numbers Matter
Peter Conrad, CEO of the Co-operative Central Bank in Boston, which provides a research fund for co-ops, noted that some banks have more employees than their peers because some banks emphasize more employee-heavy activities, such as commercial or construction lending, which requires more back-office and higher-paid lending personnel.
Still, opening a single branch will load up more employees than even delving into complex lending activities, he said, and many bankers just aren’t willing to close off underperforming branches.
“Even given the deposit inflows that we’ve had, a branch network is an expensive way to raise deposits,” Conrad said.
It’s a delicate issue to bring up, but Welch maintains it’s a decision that has to be made.
“We’ve got to commit ourselves as an industry to making the very difficult decisions, personnel-wise. That will be the difference between succeeding and not succeeding.”
