What's Going On?

What's Going On?

 

“What’s Going On?” is a new feature for the Miners Bank web site. It is opinion oriented and will raise questions related to the banking industry and our customer base. We invite your feedback and comments.

 

George Groves

President & CEO

The Miners Bank 

 

 

  • Obamacare and Small Businesses

    One of the most controversial, partisan, divisive, and ineffective pieces of legislation that our country has ever had is the Affordable Care Act known as Obamacare.

     

    Despite a substantial lead time and more substantial investments, the administration has not been able to get the exchanges ready for this fall. They also recently gave a one year reprieve to certain businesses because they weren’t ready (but they didn’t exempt individuals.)  The acting head of the IRS—which will administer the act---said in Congressional  testimony that he did not want to switch to Obamacare. Clearly the complexity and impact was not foreseen when it was passed (thank you queen Nancy—“We’ll have to pass the law to know what it contains”.)

     

    Now comes the icing on the cake. The administration is providing a special subsidy to Congress and its staff. So what we have is that everyone that was supposed to benefit from the act will be detrimented and the royal class of Washington gets special deals. And Congress wonders why their approval ratings are so low?

     

    Why am I as a banker writing about this? Obamacare is paralyzing our nation’s small businesses. In countless conversations with our customers and prospects, the subject comes up. No one really knows what the impact will be economically. No one really knows whether to add staff (or cut hours so more of the staff is “part-time” ). The result of this fear and confusion is a reluctance to invest in people, machinery and the future. With lack of knowledge, the future is uncertain and job growth is stymied.

     

    We already have the worst recovery since the Great Depression. We don’t need Obamacare on top of it. We need to be growing and creating real jobs.

     

    When Obamacare was written, a clause was inserted that basically indicated that Congress couldn’t exempt itself—“eat its own cooking”. Harry Reid softened that and now the administration has completely exempted Congress and its staff by providing special subsidies. This is shameful!

     

    There are parts of the new law—parental insurance coverage to age 26, no insurance denial for pre existing condition, etc—that all can support in the future. We don’t need the dramatic overhaul of our health care system to achieve that.

     

    To get the job creation machine going again, this law must be altered or abandoned. Write or contact your Congressperson and Senator and express your concern about this law—it is not too late. And...tell them they should resign if they place themselves outside of the citizen’s plight by exempting them from the weight of Obamacare.

    Comments (0)

  • Change

    Think through some of the changes you have experienced in product/service delivery of banking services:  extended hours, proliferation of branches, consumer loans, certificates of deposit, credit cards, debit cards, ATMs, drive- in banking, multiple mortgage products, etc.  These changes have all occurred in the last 35-40 years - and the changes are just starting.

    Ranging from remote deposit using a smart phone, to ATMs that can manage virtually all types of transactions with no human teller intervention, technological tools are replacing physical branches and customer-to-teller interaction.

    In a recent announcement PNC Financial disclosed they were closing 200 branches this year (out of a total of 2,900).  The stated reason is to prepare for the “digitally thin” customer environment.  That “digitally thin” designation refers to both cost-cutting and customer behavior/preference.  PNC estimates that a standard transaction with a teller in a branch costs about $3.88 each.  Digital and electronic transaction costs range from 10¢ to $1.00 each,  depending on the type.  So there is a significant cost element.  But…consumer preference is the real driving force.  Today’s consumers can use their computer, their smart phone, a  remote deposit device, and on-line applications for loans or deposits in order to execute a transaction, anywhere, anytime.  Why go to the branch?

    Well, I think you will see the designs of the branches that do remain reflect a different look and purpose.  No longer will the teller line/windows  be the main feature of the branch.  More likely you will see an increasing use of “smart” ATMs with fewer human tellers, while the branch will become the place to open accounts and discuss how to best match the consumer’s needs with products/services that the bank offers.  This will be the real value-add in the not-too-distant future.   Many will never visit a branch again.

    Online products and services combined with hardware—smart phones and computers—and an application to do anything make banking more convenient for you.

    As the environment has changed in the past, it will continue and you benefit with greater flexibility and lower costs.   Maybe change is not so bad

     

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  • Political Consequences

    I opined in the last article, “Vote”, that the election of 2012 could be one of the most consequential in recent history. While we need to wait for history to judge it, I still believe it to be of great consequence. Let’s review some of the likely outcomes that will result from the election.

    • Partisan government will be more so. We have just experienced the solving of the “fiscal cliff”, right? First, it was not a solution. Second, it was a total win for the governing party with no give to the opposition. That’s not bi-partisan. Third, it was a made up scenario, so the politicians could whip up a frenzy of fear, “solve” the crisis, and start planning for the next crisis. There is no plan to really tackle the larger issues, we’re just jumping from crisis to crisis. Our national leadership—in BOTH parties has failed to seek to solve our nation’s real problems.
    • The banking industry (I write about the community banking sector) will continue to be under pressure from new regulations/laws. A little known agency, the Consumer Financial Protection Bureau was created as part of the regulation from Dodd-Frank. It is funded by the profits of the Federal Reserve Bank, so it is not subject to budget review. Congress has no say in CFPB oversight. It is a law into itself. The best one can say is that its activities will be onerous to the Community Banking industry.
    • The big daddy—Dodd-Frank, rolls on. Two years after its passage, it has enacted about 1/3 of the required laws/regulations, 1/3 are in process, and 1/3 yet to be dealt with. The best one can say is that its regulations will be onerous to the Community Banking industry.
    • The election results (yes, as we have been reminded, elections have consequences) will have further consequences to the community banking industry:
      • Industry consolidation will continue and probably accelerate. Currently, Banks greater than $10 Billion in assets control 80% of all bank assets. This is up from about 50% only 25 years ago. Put another way, the top 660 banks in America control 90% of all deposits. The other 6,586 banks control 10%--and this is shrinking. The big will get bigger and the smaller will disappear. Only the public can judge whether this is good or bad. But the net effect is that fewer banking decisions, whether about specific credits, supporting community activities, employment and other community values will be made in a distant headquarters with little community input. The pressure for consolidation comes from the increased costs of regulation that is borne disproportionately by the smaller community banks. As well the financial returns available to the owners of these community banks will be diminished due to the costs of complying with the new rules/regulations. Less returns cause pressure to seek higher returns thru a sale.
      • The branch banking model will change significantly, largely driven by technology. For example, the costs of a bank transaction are; branch teller $4.00, call center $3.75, ATM $.85, online $.17, and mobile $.08. With that cost profile blended with customer demographics, branch consolidation will also occur.

    I will admit that I am biased in this discussion. There are arguments that the larger banks can deliver more and better services — perhaps the arguments are a bit weak following the 2007-2009 financial crisis given the part played by the larger banks, but they are to be made. I, however argue for the Community Banking model.

    There is a reason it is called the Community Banking sector and Community is the reason. Demand more of our politicians and ask them to discern between Community and Regional, National, and International banks. On a non industry basis, demand that they work on real problems and solve them to the nation’s benefit and not for a partisan political party.

     

    George Groves

    President / CEO

    Miners Bank

    Comments (0)

  • VOTE !!

    VOTE!

    The upcoming election of November 6, 2012 is one of the 2 or 3 most consequential elections in our nation’s history. It is also one in which the choices are different and pronounced. Please take the time to study the issues and exercise your franchise to vote.

    A review of the banking industry and its interests indicates a huge difference between big and small. 660 banks (9.1% of the total) control 90% of all assets. The remaining 7246 banks have 10% of the total assets. In its infinite wisdom, the problem solvers in Washington have treated the industry as homogeneous and have developed laws and regulations in that context.

    There is a real distinction between regulatory oversight of the largest banks in the country and your local community bank. The larger banks—especially the top five or ten in the country-- were part of the problem in the financial crisis of 2008-2010 and both deserve and need greater oversight. The community banks on the other hand did not create the crisis. The community banks that went beyond good management were severely punished by the market and probably failed (with no harm to depositors). No new regulations needed for this segment.

    Generally speaking, there is a difference in how the 2 major political parties view our industry and how they view regulation. One party is sympathetic to the differences between the big banks and community banks, the other not so much. I know I’m voting to benefit the community bank segment.

    Beyond the narrow industry interest, the election is huge. The  future of our country is on the line. We cannot afford soaring deficits, trillion dollar additions to our national debt, and no leadership to tackle these difficult issues. But they must be dealt with!

    I ask you to think about the issues and vote for the candidates that you think provide for the best future America. And I ask you to send a message to your Representative and Senator to sit down and come up with a solution or vote them out. Partisanship cannot stand in the way of solutions.

    VOTE!

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  • Where is Fiscal Responsibility?

    JP Morgan Chase announces a loss of at least $2 billion (yes with a B) on a hedging strategy gone awry.

    The hue and cry associated with the announcement—primarily from the political class—demonstrates how there is a mismatch with Washington DC and the private sector and may shed some insight as to why we are not generating job growth in our country.
    Let’s review some facts: Morgan is privately owned by shareholders. Although it took TARP during the financial crisis, it did so not out of need but to not embarrass others who did have a need. It paid back TARP as soon as it was allowed. The government did not save it. Morgan has $2.3 Trillion (yes T) in assets. It has $180+ Billion in equity and it earns $20+ Billion in a normal year.

    The loss was a bad mistake—and was admitted as such. Who was harmed? The shareholders of Morgan. That’s what owners do; they win or lose with their own capital. Based on the size of Morgan, the $2 Billion loss is not catastrophic. They will move thru it.

    Let us contrast that situation with the profit/loss of the US Government. Our recent deficits have been in excess of $1 Trillion. We’ve added $4-$5 Trillion of debt in the last 3+ years. Yet, the US Senate has not passed a budget for the last 3 years.  You and I as families cannot operate that way. The businesses we work for cannot. The budget is a simple framework of the priorities of a given entity. It provides discipline.

    The political class decries Morgan’s loss, but cannot focus on providing an economic environment that encourages growth and eliminates uncertainty. Having no budget creates uncertainty. Uncertainty causes businesses to “freeze” their decisions and that freeze is a huge hindrance to job growth.

    Political yelling at JP Morgan is nothing more than a smokescreen for the politicians that don’t want to focus on their jobs and do what the American people elected them to do.

    The private sector creates jobs when the sector is growing. The sector grows when the economic environment—tax policy, regulatory balance, etc is structured to let America compete. We are not there now. Our elected politicians are not doing their jobs. Too many families suffer.

    Comments (0)

  • What's Happening to Bank Branches?

    Vintage Bank Teller StationWhat’s happening to bank branches?

    In 2009, the number of branches in the US peaked at about 100,000. In 2010, the number dropped by 1% to 99,000. This was the 1st recorded drop in the number of bank branches.

    While banks will continue to open new branches to fill a tactical/geographical void in their delivery system, the absolute number of branches has begun a long term decline.

    It would be easy to argue that the reduction is due to the difficult economic environment and that is clearly an important factor (and you can expect to see the larger banks become even more aggressive in branch closures), but the real reason is a very positive one—customers are rapidly adapting to new technologies and delivery methods.

    Most Americans have access to a personal computer (if not at home, most libraries have them available). Currently about ½ of Americans have a smartphone. With advanced applications and sophisticated security, virtually every activity formerly conducted at the branch can now be conducted remotely, with mobility, and in the time of your choice.

     
    It is not a stretch to say that in the next 15-20 years the smartphone will replace most of the banking transactions currently conducted by check or debit/credit card. The power of these mobile devices gives the consumer greater power than ever in determining how to “bank”

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    Some may lament the decline of the physical branch. Many more will welcome the freedom provided by technology and won’t pay to subsidize a branch network. Branches become more strategic to the banks and less tactical to the consumer.

    The branches are declining—long live the branches.

    Comments (1764)

  • 5:1 Investment in Communities

    5:1

    In a recent study conducted by Biz2credit, Banks with assets greater than $10billion approved only 9.2% of Small Business loan applications. The approval rate for community banks for Small Business loans was 45.1%. Yes, the approval rate is almost 5 times higher for the loans!

    Since Small Businesses account for most of the new jobs growth in the US, it’s important to recognize that community banks deliver the goods.

    What explains this disparity? One word—Community. Community banks prosper only if their community does. The incentive is very strong for community banks to spend the time to know the customer, the business plans, the history, etc. because we want new jobs to flourish in the community. We make local decisions based on local knowledge. The larger banks focus much more heavily on numerical analysis (conducted out of the community market) and do not allow as much emphasis on local knowledge for their decisions.

     With all the commotion concerning the “Occupy _____” movement, it is useful to step back and understand the distinction between Wall Street and Main Street.

    Community Banks serve their communities.

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  • Debit Cards and Unintended Consequences

    Debit Cards, or more specifically debit card fees, have been in the news lately headlined by a Bank of America proposal to charge a $5 monthly fee—under certain circumstances.

    It is widely agreed that debit cards are a safe and fast way to access money—even better than their predecessors—the ordinary check. However, there are real costs to provide access for customers in an instant, private, secure and reliable manner.  This 24/7 access is provided anytime anywhere.

    I guess that since a check is a tangible piece of paper, customers can ascribe value/costs to that method. Just because debit cards are electronic doesn’t mean there are no costs. Building and maintaining the infrastructure, computers, telecommunications systems, fraud prevention, staff salaries and benefits, regulatory compliance, etc creates a substantial expense—those expenses need to be covered by income.

    In general terms, it costs about $250 to $300 a year for a bank to operate a checking (debit card) account. The revenues earned by banks on accounts of less than $2,000 simply will not cover those costs.  The fees paid by merchants for debit card services helped pay those costs and subsidized free checking. The government has mandated that those fees are reduced by one half. In another case of unintended consequences, the reduction on the debit card charges to the merchants creates a cost shift to the debit card customer. Merchants win, customers lose. Thanks Uncle Sam.

    It is not clear at this point what the right solution to this congressional cost shift will be. For one it demonstrates that the government should avoid the unintended consequences of mandating terms to the private market as consumers generally lose. I suspect there will be a number of efforts by the banking industry to find the best and most fair solution. The proposal by B of A may not survive in the market place, but a fair allocation of costs for value will be developed.

    Avoid the headlines and search for What’s Going on!

     

    Comments (1)

  • American Community Banking

    I just returned from a short vacation in a European country.  Typically European, in which the federal government plays an oversized role in the lives of the citizens of that country.

    I spent some time observing the banking industry (busman’s  holiday?).

    There are far fewer banks.  There is less competition.  The banks are very security conscious.  The banks are even more regulated than in the US. Marketing of bank products and services is usually limited to in-branch display (and since the banks are so security conscious, there are not many customers in the lobby).  The customer experience in that country was very different from that offered in the US.

    Let’s take a brief look at the American banking industry.  There are currently 7,513 insured banks.  Of these, 6,846 or 91% are banks with an asset size of less than $250 million and can be considered community banks.  Yet, the 9% larger banks have about 90% of the total assets in the industry.  The industry is consolidating at a fairly rapid pace. Using the $100 million banks as an example, in 1990 those banks composed 70% (in number) of all banks; in 2000 they were 55% and 34% in 2010.  During this same time frame, the total of insured institutions has dropped from about 15,000 to the previously mentioned 7,513.  We are losing the community banking segment of the industry.

    What’s causing this consolidation?  The single most important factor is the change in the business model emanating from new regulatory requirements and laws.  The smaller the institution the larger the proportionate cost.  There are many sides to the larger argument of regulation equals consumer protection.  But, I would argue that if consumers are charged a higher cost or with less choice, the price of regulation has exceeded the benefit.

    The point of all this is that we are becoming Europe in which the industry is dominated by the giants. Community banking—in which you know the bankers and the directors-- is dying out.  Pushed out by a regulatory zeal that has yet to prove its benefit.

    Do you want America to become Europe?  While it may be fun to bash the banking industry, there are real consequences in reaction to regulation.

    That’s what’s going on!

    Comments (2)

  • Funding for Small Businesses !!

    What’s Going On? 

    Miners Bank was recently chosen by the US Treasury to receive a $3.5 million investment from the Small Business Lending Fund (SBLF).

    The SBLF was created to help banks provide more lending to small businesses in their market. Overwhelmingly, the new job creation in our country comes from the small business sector.

    Miners Bank was the 21st bank in the country selected and the only one in our geographic market. The $3.5 million investment will allow Miners Bank to make about $40 million new commercial loans to the locally owned, privately held businesses in the marketplace. Job creation and capital investment in Schuylkill and southern Luzerne counties can benefit.

    The strategic focus for Miners Bank is to provide the products and services—loan and cash management—that these businesses need to grow. Try us out.

    That’s what’s going on.

    Comments (1)

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