Banking industry reacts to changing economy

The current economy bears little resemblance to the unprecedented boom of the 1990s. As the times and the economy have changed, so has the focus of the banking industry, which is broadening its services and pursuing multiple revenue streams.

A vendor approach

"Margins (the difference between the interest rate a bank earns on its loans and what it pays on its deposits) are thin on the banking side, and so banks are looking for avenues to generate income," said Jim Riggins, president of Missouri State Bank and Trust Company. This is especially true in Springfield and southwest Missouri where competition for loan-seekers is tough, he added.

One reason banks are seeking new cash infusions stem from the dollars they've lost to zero-percent financing offers from major auto manufacturers since Sept. 11. "Basically, that takes any kind of lending institution out of the equation," Riggins said.

The goal is to create a one-stop shop through services like safety deposit boxes, ATM and debit cards or money orders, and handling issues involving wealth management or business expertise.

"It's kind of a marketing objective to get the customer tied to you three or four ways," said Dave Tooley, president of Metropolitan National Bank.

Tooley said over time client relationships with banks have changed. Some of today's newer customers utilize bank services through the Internet or by ATM visits.

As a result, larger banks sometimes have an advantage through their elaborate Web sites or numerous ATM locations, he added.

Boom and bust

The overall market surge of the 1990s, driven largely by the technology sector, gave a lot of people "a false sense of security," Riggins said. He attributed a share of the last five years' rising bankruptcy numbers to a quickened buying impulse during the bull years.

The consumer debt from this spree period has proven a rich market for the banking industry as people consolidate expenses with new loans at more favorable rates. Riggins said the "income stream" associated with these loans' interest and fees has "definitely been a boon to financial institutions, whether it be banks, savings banks, mortgage companies, whatever."

Buyers market

While bankruptcies and credit card debt have soared, home and auto sales remain outstanding, Riggins said. "I'm not sure anybody really understands the paradigm right now," he added.

"Rates are aggressive," Riggins said. "It's definitely a consumers' market. There's no doubt about it. Interest rates are the lowest in the 30 years I've been in the business."

But where there's an up, there's a down. While borrowers are getting "unprecedented rates" on certain types of loans, the downside is that depositors are getting reduced yields from lower interest rates, Tooley said.

Blending banks

Bank mergers and acquisitions were a major phenomenon in the 1990s, but that activity has slowed significantly. However, that isn't to say there won't be more deals ahead.

Suitable targets for acquisition or merger can be anything from a low-cost bank with management problems that's on the sales block to a solidly run, high-cost bank that will prove a wise buy over the long haul, said Todd Parnell, president of The Bank.

The rationale behind mergers is at least three-fold according to Parnell. The union increases a bank's market share, provides penetration in an area where it may not be active and helps realize cost efficiencies by combining operations.

He added that in mergers between banks, common fiscal and operational procedures are important as well.

Mergers "will continue as long as shareholder value can be enhanced by merging interests," Parnell said. He said he knows of no pending mergers in southwest Missouri.

Institutional diversity, however, is positive, Tooley said. "The good thing about Missouri is we still have over 400 banks (separate charters) and over 1,800 locations for people to deal with."