Branch growth may be slow

A new Federal Deposit Insurance Corp. report expects branch banking to resume growing after the last remnants of the financial crisis are filtered through the system and the economy rebounds.

Bankers and industry officials generally agree with the conclusions of the report, Highlights from the 2009 Summary of Deposits Data.

But local bankers said future branch growth in the Wichita area will be nowhere near as high as it was a few years ago.

"I believe we are two or three years away from any type of normality in the banking system," said Brad Elliott, CEO of Andover-based Equity Bank.

The report said the number of FDIC-insured institution offices in the U.S in 2009 increased 0.4 percent over the prior year, the smallest increase in 13 years.

In that same period, the number of branches in the Wichita area grew 1.2 percent, according to FDIC data.

In 2008 and 2007, annual national branch growth rates were 2 percent and 2.7 percent respectively, the report said.

Equity's Elliott thinks a number of issues will halt branch expansion here, including new regulations that will shrink the amount of income banks can earn from overdraft fees and requirements by regulators for banks to increase the money they set aside for bad loans.

"Banks are going to be stressed for the foreseeable future," he said.

Kevin Chase, CEO of Verus Bank in Derby, doesn't expect to ever see a resumption of the kind of branching activity the area saw just a few years ago.

"You're always going to see a few new branches built here and there," Chase said.

But there are going to be a growing number of bankers who "don't see building new branches as an efficient way to build a bank's franchise value," he said.

Thinning profit margins mean banks are going to have to be more efficient, Chase said, and building new branches isn't efficient for most community banks.

But Miami banking consultant Ken Thomas thinks branch banking will rebound strongly and will continue to be the primary channel people use to do their banking business.

Thomas, of, said the decline of brick-and-mortar branches is something he first heard would happen with the advent of the ATM in the 1970s.

"People want, need and deserve personal service and you get that through the branch," he said. "You don't get that" with ATMs or online banking.

"The branch will continue to be king and dominant."