Over the past few weeks, I've reached out to a couple of community bank presidents and a few others in senior positions at regional banks. I've been curious to hear what they see on the horizon for our industry and their own institutions.
Some were more animated than others when sharing their opinions of how and why our present economic, regulatory and reputational challenges came to be. One old friend stressed that his comments were not to be publicly attributed, and he reminded me that he knows where I live. (He does.)
To a person, each does not believe that standing pat and simply "waiting out the storm" is a viable option any longer. If any are expecting an economic tide on the way that will raise all boats, they are keeping those predictions to themselves.
Most believe that the next couple of years will be a tougher business environment than the last two. All hope their negative predictions are wrong, but aren't going to be betting the bank on it, so to speak.
I kidded with one of my particularly blunt and cut-to-the-chase friends that I admired his ability to get out of bed in the morning. The picture he paints of the challenges he sees for his bank in the near future is pretty daunting.
He laughed, "Well, they pay me to get out of bed in the morning. So, there's that." He then followed, "But there is an upside here. We're going to be making changes that, frankly, we should have started already."
He pointed out that for many banks, even the suggestion of closing a branch – much less multiple branches – has been considered blasphemous.
We discussed some of the reasons for this. Historically, the most visible sign that a bank was solid and growing was the building of branches.
And bank branches played a certain "factory" role. They processed the mountains of paper transactions necessary to conduct banking. The more successful the bank, the more paper to process, the more buildings were needed. Closing one of those "factories" was seen as a public sign that things were not as busy or prosperous as before.
And banks rely more than most businesses on customers' faith in their soundness and stability.
He suggested that he suspects many bankers have kept unprofitable branches in some markets open purely for the reputational risk of closing them. And maybe that has been the wise move for some. But that strategy is one that fewer organizations are willing or able to afford.
So discussions about branch network "optimization" and "consolidation" are no longer ephemeral slides in board presentations – topics you bring up, but never really act upon.
But he also shared that his total branch count going forward may not shrink much, if at all. Along with a few consolidations, he plans on opening new branches in the future, as well. These new branches, however, will have smaller footprints, rely more on technology and be staffed with smaller, more flexible branch teams.
I suggested that what he described was not a new concept to banks. He was describing the basic operating model of an in-store branch, with or without a grocery store surrounding it.
While each banker I spoke with had individual priorities for the upcoming year, all seemed to believe that real and noticeable changes are coming to their institutions.
I respectfully reminded them that times of turmoil are also times of opportunity. And no one is operating in a vacuum. The challenges each face are not dissimilar to what their peers down the street or across the country are facing.