ABA Banking Journal - February 2008 - (Page 42)

RETAIL BANKING says Quick. “Other markets rely more on a mix of working professionals and small businesses.” This year, the bank used segmentation analysis to leverage segment distinctions in offer messaging and products emphasized, picking up $270 million in additional deposits over two mailings alone. The bank’s third direct mail campaign, which was in the planning stages as of this writing, was to be aimed at a mix of customers (15%) and prospects, some of which were identified through referrals. $95,000, “so it counts as core deposits.” Meanwhile, experts say, there are also steady-state factors affecting competition for deposits for the foreseeable future. “The internet has empowered the consumer to rate shop and served as a venue for all sorts of bank offers. The environment is consumer and business friendly. It can pull deposits out of a given region,” says Greg McBride. “And, I would argue, it’s made everyone more price sensitive.” Anat Bird agrees. With internet-only banks currently taking about 10% of deposits off the table (other experts dis- Why deposits ebb—and flow Other conditions-of-the-moment include the perception of recession, a creeping personal cost-of-living index, and stock market volatility—some of which might nibble at deposits, some of which could go in the industry’s favor, notes Greg McBride, senior financial analyst, Bankrate.com. “In a recession, consumers tend to remember the value of money and care more about having an emergency fund,” he explains. “Certainly, bank customers with the means to play in the market will pull back if there is a sudden drop in return.” This pullback into safety, after all, was one driver of bank profitability after 2001. “The only thing that might work in the industry’s favor is the consumer quest for a safe haven if the stock market gets super volatile again,” agrees William J. McGuire, president and CEO, Scottsdale-Ariz.-based McGuire Performance Solutions. But Terry S. Key, president and CEO, Lubbock National Bank, in Lubbock, Tex., questions the value of such gains. “Customers aren’t loyal anymore,” he says. When asked why consumers seemed more rate conscious and prone to switch over business, Key answered: “The time has passed since members of a community felt their bank could make or break them. The perception among many business people and consumers is that they don’t need our acumen. Any source of funding will do and anyone can price a loan or offer bank services.” Key says that performance chasers make the business tougher for everyone. To cope, the $488 million assets Lubbock National has offered internet CDs through National CD Rateline, limiting amounts raised to 42 FEBRUARY 2008/ABA BANKING JOURNAL “It’s tough for community banks. On the lending side, the loans have leaner margins, yet there is a lag and banks are forced to pay more to consumers for deposits” – William McGuire, McGuire Performance Solutions despite Chicago’s ruthless branching development by having a classic, serviceoriented focus that includes small businesses. “Chicago’s always been a tough town,” he says. “That’s why it’s important to zero in on very specific opportunities here.” Indeed that other real estate matter— the branch build out—which was an extensive, some say, extravagant, feature in most regions of the country between 2002 and 2006 now puts pressure on all core deposit gatherers. “The average U.S. branch is only at a third of its capacity,” says Friesen. “At a time when we have three times as many branches as we need to support the population, it’s pretty clear that everyone is on the hunt for customers and new sales opportunities.” William McGuire agrees it’s been a market of scarce funding and it will hit smaller institutions hard. “It’s tough for community banks. On the lending side, the loans have leaner margins, yet there is a lag and banks are forced to pay more to consumers for deposits.” Not everyone thinks the current cycle was especially troublesome. “The need for deposits is currently outpacing supply in many markets, but it’s cyclical and not especially pronounced or problematic,” says Bob Wiseman, president, Agiletics, a Longwood, Fla.-based firm that teaches banks how to reduce deposit gathering expense as well as an expert in nonvolatile funding such as escrow accounts. agreed with her estimates, saying the figure was far lower at present, but admitting that it could grow rapidly in short order), and that share likely growing into the future, community banks will have to be creative to get their fair share of deposits going forward. “Community bank management has been too nice in the past,” says Bird. “The leadership will need to push their frontline people to follow through and they need to find ways to parlay their community involvement into business.” Mike Carlino, president and CEO, Cambridge Bank, Lake Zurich, Ill., says his bank has made use of the Qwickrate internet service to manage liquidity. The $400 million assets institution has hung in What’s different now? Whether you believe this scarce funds cycle is like any other or a doozy to be reckoned with, there are other considerations. Gordon Goetzmann points out that a complicating factor in the deposit-gathering game is the fact that many banks are offering what’s viewed as a commodity. “Eventually, somebody will figure out how to move beyond free checking, which nearly everyone has already copied,” says Goetzmann. After all, says Goetzmann, it was free checking as an innovation that allowed a bank such as Washington Mutual to five years ago push into Manhattan, a notoriously hard-nosed place to pick up customers. “Differentiation—and solid execution against that value proposition—is what www.ababj.com/subscribe.html http://bankrate.com http://www.agiletics.com http://www.mpsaz.com http://www.mpsaz.com http://www.lubbocknational.com https://www.cambank.com http://www.qwickrate.com http://www.ababj.com/subscribe.html

Table of Contents Feed for the Digital Edition of ABA Banking Journal - February 2008

ABA Banking Journal - February 2008 Contents On ABABJ.COM: Have You Visited Our Brand-New Website? Editor's Column "That's Edutainment" Snapshot: Tier 1 Ratios Stable so Far 100th Anniversary: Then and Now ABA Resources ABA Chairman's Position Don't Despair Pass the Aspirin Cover Story: Socially Responsible Banking Profitably - Incoming America's Community Bankers Council Chairwoman, Dorothy Bridges Demonstrates the Way A True "Rags-to-Banker" Story Retail Banking: On the Money Hunt Community Bank Management: The Ugly Truth About Board Relations Does Core Really Matter? Security 2.0: Not Just a New Kettle of Phish A Personal Case of Mal-Serendipity DOD Credit Regs Demand Attention Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - February 2008

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