Branch-building abounds as profits rise post-recession

January 14, 2011

Business Courier - by Steve Watkins , Staff ReporterDate: Friday, January 14, 2011, 6:00am EST

Despite electronic banking's popularity, bank branches are popping up around the Tri-State after a financial crisis-induced lull.

Fifth Third Bank filed plans with regulators last summer to open 15 branches across its footprint. Others, from community banks to major players, are opening branches around the Tri-State.

Downtown-based First Financial Bancorp has built seven new branches over the past two years across its three-state system. Three - in Edgewood, Madeira and Mason - were local.

"That's consistent with the plans we had pre-financial crisis," First Financial Bancorp CEO Claude Davis said. "It didn't really stop our plans."

And that doesn't include 19 local branches it bought from West Chester-based Peoples Community Bancorp Inc., which was shut down by regulators in 2009.

But banks' financial struggles the past couple of years clearly had an impact on their branching activity. New branches typically cost more than $2 million or a lot more if they're in high-traffic areas. So banks have had to watch it in recent years as they struggled with loan losses and the weak economy.

Now that most banks are profitable again, they can spend on their branches.

"I don't think there's any doubt that people feel more comfortable and are beginning to spend a little of their capital," said LCNB Corp. CEO Steve Wilson, who also is chairman of national trade group the American Bankers Association.

First Financial is in the middle of a five-year plan to remodel about 70 older branches out of its 108-branch network. Between those plans and the new branches, it budgets millions a year, although it doesn't disclose an exact amount, Davis said.

Fifth Third Bancorp has saturated the local market. Its 140 local branches are 19 more than the next-biggest local bank, U.S. Bank, and at least 45 percent more than any other bank. So it hasn't opened a new local branch that's not part of a relocation since 2006. But it's opening new branches across its 12-state network, although its pace has slowed dramatically since the crisis. It opened 55 new banking centers in 2008, 23 in 2009 and just five in 2010, according to spokeswoman Stephanie Honan.

But it did file plans for those 15 branches, many of which will likely open this year.

"We would continue to focus on high-opportunity markets such as Atlanta, Chicago and North Carolina," Honan said.

Even smaller banks are adding locations. Union Savings Bank plans to add two branches this year, including one local site in West Chester, to its 25 full-service branches, CFO Bob Bogenschutz said. That's as many as it opened the last three years combined.

But the question facing bankers is, does it make more sense to build branches or to focus on their electronic banking options?

Well, the amount of deposits held at cyber branches fell 2.4 percent in the year ended June 30, according to Charlottesville, Va.-based SNL Financial. That's the first such drop in a decade. SNL noted that the line between online and standard deposits is getting blurry. And electronic banking isn't going away.

What's more, that conversation has been going on for at least two decades. Bank of Kentucky Financial Corp. CEO Bob Zapp remembers the banking movement that said branches were a dying breed way back in 1990, when he first opened his bank. He opened branches anyway and now has 31 in Northern Kentucky."

No matter what you do electronically, customers still have things they want to do face-to-face," he said.

Branches also create brand awareness and serve as a marketing tool, especially these days when banks are limited in the overdraft fees they can charge.

"(The industry) needs access to people so we can cross-sell more products," Zapp said. "We want a bigger piece of their wallets."

Wilson said Lebanon-based LCNB National Bank is taking a balanced approach. It'll support people who want to bank electronically by providing ATMs, cell phone access and debit and credit cards.

"But we believe that you have to have a market presence, where someone can come in, sit down and talk to someone they know and trust," he said.

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