ARCHIVED  October 1, 1996

Interstate branch banking debuts in June

Interstate branch banking is coming, offering both challenge and opportunity for banks along the Northern Front Range of Colorado and Wyoming.But don’t look for a new national branch bank on every corner – at least not right away. And above all, don’t look for the demise of smaller community banks that specialize in customer service.

When the landmark federal Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 takes effect next June 1, individual banks will be allowed to establish branches in other states without having to form a holding company or maintain separate capital and boards of directors.

So far, 42 states, including Colorado, have opted in for interstate branching; only one state, Texas, has opted out. Wyoming has yet to consider the issue but must act by June 1 1996, or interstate branching will be allowed automatically.

The new law will make it easier for large out-of-state bank holding companies to enter markets such as the Northern Front Range, and it will open the door for Front Range banks to establish branches in neighboring states.

However, a cross-section of Front Range bankers suggests that the impact may not be as dramatic as some had foreseen during the stormy debates in Colorado. Most do not look for a large influx of new nationwide banks, partly because of healthy banking competition along the Front Range, partly because of the cost of building and staffing new branches, and partly because nationwide banks are using other marking methods.

“Most Northern Colorado providers have tried to anticipate interstate branching, and they’ve plugged the dike” by building their own branches, said Larry Meier, president of Poudre Valley Bank in Fort Collins. “We’ve tried to position ourselves so that if someone wants to come in, it’s going to be tough for them to make a profit.”

“I don’t see a major influx into Colorado,´ said Jim Tuggle, president of Union Colony Bank in Greeley. “The major markets are pretty well tapped and may already have reached saturation. Certainly we’re going to see some, but I don’t think it’s going to be like it would have been, even five years ago.”

Colorado was one of the last states to allow branch banking, Tuggle noted, and “now that we can do it, we want to.” Meier estimates the number of banks and branches to have grown by 45 percent in the last four or five years.

“Eventually, sure, because it’s going to be so much easier,´ said Dave Armstrong, Fort Collins area president for Key Bank. “But the market is pretty well-covered now, and opening a new bank is an expensive proposition. I don’t see a flood of de novo charters. I think we’ll have additional competition, and that’s good.”

Bankers suggest the market saturation and the cost of building “brick and mortar” and the expense of capitalizing and staffing a new facility will deter many outsiders from moving in. So will market density and profit potential.

“Citibank or Bank of America won’t go into Brush or Fort Morgan, I don’t think,” Tuggle said. “If the numbers don’t make sense, they’re not going to come. And if they wanted to do that, they would have already done it.”

Other limiting factors include the growing interest of nationwide banks to prospect for new customers through telemarketing or direct mail or use of new technology such as the Internet, where Nations Bank is adding 10,000 customers a month.

For large bank holding companies already operating in the Front Range, such as Key Bank and Norwest, the new federal law will be helpful.

“Key Bank has been preparing to do business nationwide for some time,´ said Key Bank’s Armstrong, whose company already operates in 38 states stretching from Alaska to Maine. “The Interstate Bill will enable us to operate more efficiently and allow us to provide a much broader spectrum of financial services.”

Norwest already has a strong presence in Northern Colorado, and Betsy Brinkerhoff, vice president of marketing, anticipates Norwest will continue to grow through acquisition, rather than through launching new branches.

“Our strategy has been to grow through acquisitions,” she said. “It’s a more efficient way to expand. If you go in with no customer base and no staff with roots in the community, it’s pretty tough to get a foothold.”

Bankers agree there will be more competition, but they believe the smaller community banks have found a niche and will meet that competition.

“Small community banks are not only going to survive but thrive,´ said Tom Byington, president of First State Bank of Fort Collins. “But we’ve got to be smart about it. We can’t be all things to all people.”

The key to success is providing a higher level of personalized and customized customer service, according to Byington, Union Colony’s Tuggle, Poudre Valley’s Meier, 1st Choice Bank’s John Drennen and First National Bank of Wyoming’s Dan Furphy.

“People like to bank with a banker they know,” Furphy said.

“We think we’ve found a way to co-exist with the large out-of-state bank holding companies,” Drennen said. “We don’t try to compete with them at every level, but we concentrate on the things we’re good at – knowing your customers, knowing your local markets, being adaptable.”

“We have no aspirations to be the bank of Hewlett-Packard or Anheuser Busch,” Drennen said. Instead, he concentrates on their employees. “I’ll make them the loans to buy their cars,” he emphasized.

The other side of the coin with the new interstate branching law is the opportunity for area banks to branch out beyond their traditional borders, but most of the bankers interviewed don’t foresee a lot of interstate branching.

1st Choice Bank is one of Colorado’s fastest-growing banks, but Drennen said that while intrastate expansion is a future possibility, there are no plans for out-of-state branches.

“We want to be primarily Northern Colorado-based,´ said Poudre Valley’s Meier. “I don’t think we’re looking to cross state lines. I think most smaller community banks won’t look at that either.”

“I don’t think our local banks are probably that excited about moving far from our core area,´ said Union Colony’s Tuggle. Still, recent advertising his bank did for Cheyenne customers suggest there’s a market potential. “I can’t tell you I’m going to put in a branch tomorrow, but I might,” he said.

Meanwhile, at least one Wyoming bank, First National of Wyoming in Laramie, has definite interest in Fort Collins. It already has loan origination offices in Fort Collins and Cheyenne, and Furphy said “we’re very interested” in the Fort Collins market and “we’re currently looking at locations.”

Until the federal interstate branching law takes effect, Furphy’s bank can’t establish a branch in Fort Collins. But he is looking at possible partnerships with Fort Collins interests and would consider the option of establishing a new bank with a de novo Colorado charter.

Until it opts in or out, Wyoming remains somewhat of a no-man’s land for interstate branching. The Wyoming Legislature is expected to consider in January a proposal to opt in with restrictions that would require new banks to buy an existing bank already chartered for at least five years or create a new bank with a de novo charter, which would require capitalization and a separate board.

Interstate branch banking is coming, offering both challenge and opportunity for banks along the Northern Front Range of Colorado and Wyoming.But don’t look for a new national branch bank on every corner – at least not right away. And above all, don’t look for the demise of smaller community banks that specialize in customer service.

When the landmark federal Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 takes effect next June 1, individual banks will be allowed to establish branches in other states without having to form a holding company or maintain separate capital and boards of directors.

So …

Categories:
Sign up for BizWest Daily Alerts