Nationwide, bank branches are closing in droves: According to the FDIC, 481 branches were shuttered nationwide in July, versus only 250 openings.
But among Massachusetts-based banks, the numbers are headed in the opposite direction.
Between July 2009 and July 2010, locally based institutions sought permission to open 34 new branches in the state, according to the Division of Banks, while only applying to close 21 locations, frequently in high schools or grocery stores.
Despite the increasing emphasis on Internet and remote banking, local bankers insist that branches are the only way to gain a toehold in a new neighborhood. But not everyone is enthusiastic about the idea: Some experts warn that certain economic factors make now a terrible time to build branches.
On the contrary, said Jim McCarthy, COO of Danversbank, which has sought regulatory permission to open three branches, in Boston, Lexington and Needham, in the past year.
Now provides some real estate opportunities that won’t always be around, he said. With many retailers holding back on expansion, banks have less competition in buying up properties that otherwise might have gone to a Dunkin Donuts or similar retailer.
But in the long term, it’s simply the best way to get new customers.
“We have a whole online suite of products, but if you’re not in a town and investing in that town, we find it very difficult to gather deposits,” McCarthy told Banker & Tradesman.
Open Door Policy
Experts have been predicting the death of branch-banking for years, but while customers do more of their banking online or by ATM, many won’t do business with a new institution without checking it in person and knowing they have a place to go if something goes wrong.
“If there’s a problem, they’ll still show up at your door, and you’d better have a door to show up to,” McCarthy said.
Holyoke-based PeoplesBank had three new branch opening requests within the last 12 months, continuing a branch-opening streak that includes one opening in 2008 and three in 2006. PeoplesBank wants to show it’s committed to offering service in the Pioneer Valley, and this is the best way to do it, said Sheila King-Goodwin, senior vice president of retail banking.
Branch-building may be a very traditional bank activity, but the branches themselves are very different than they used to be. Most importantly, they’re far smaller, said Richard Gavegnano, CEO of East Boston Savings Bank. East Boston has opened new branches in Revere and Medford, and its Mt. Washington Bank division plans to open a new location in West Roxbury.
Physical facilities have gone from roughly 4,000 square feet to 2,400 square feet, he said. With most customers using the ATM or drive-through, a branch can fully serve customers with far less space than in previous generations.
A Hard Sell
Still, smaller though those branches may be, they are still greeted with skepticism from some corners.
New offices are always expensive, said Frank Farone, managing director of Newburyport-based Darling Consulting Group, no matter if they’re built from the ground up or merely rehabbed from existing properties. And although branches can rake in deposits if they open their doors, there aren’t many promising avenues in which to use that money.
Mortgage lending is extremely sluggish, and low interest rates mean banks won’t get much return on common investment vehicles for the foreseeable future, Farone said.
“I’d be hard-pressed to justify why it makes sense to go out and build a branch to spend money when there’s not a lot of loan demand out there, and most banks don’t need liquidity right now,” he said. Bankers generally want more customers and locations, but they often overlook the fact that they need a solid strategy to warrant those expenses.
Many of the institutions requesting new branches – both banks and credit unions – intend to open only one location. But those who are opening multiple branches often do so because they have too much capital on hand or they’re positioning themselves to be sold in a few years, Farone said.
The local build-up is a far cry from the sweeping closures taking place elsewhere in the country, which are often the result of major national banks executing mass closures. With the consolidation of many major national banks, it’s no wonder that now appears to be a particularly heavy time for branch closures, said Bill Bradway, owner of Framingham-based Bradway Research. In comparison, a small bank opening two or three branches doesn’t make much of a dent.
But with Massachusetts’ relatively calm banking environment, it’s perhaps no wonder that more doors are opening.
“I’m not surprised,” he said.
