Banks making the most out of late '90s

Vermont Business Magazine, Mar 01, 1998

Vermont's banks have enjoyed an excellent year. Low interest rates have fueled a boom in mortgage lending and financing, commercial activity has been strong, and a new fee-for-service orientation have all helped keep the financial picture healthy. Industry consolidation, facilitated by federal legislation, has continued to blur the boundaries between Vermont and out-of-state hanks.

Improved technology, too, has helped make possible the networks of branches, alliances, mergers and acquisitions that now characterize the banking landscape.

At the same time, banking leaders are candid in saying they work in a tough, competitive environment, pressed not only by the investment situation but also by a host of non-bank lending institutions that often do not come under the same kind of regulatory scrutiny. But increasingly they are going beyond the traditional roles of banks to compete in such fields as insurance, securities and financial planning, bringing with them the formidable advantage of consumer trust built up over the generations.

The kind of closeness that Vermont banks develop with their depositors and borrowers shows up most clearly in the way small community banks have been able to stay determinedly independent. Mainstays of their local business districts and highly local community reinvestors, they and their largely local stockholders often have no interest whatsoever in trading their historic identities for a chance to outdistance their already quite reasonable rates of return.

YOU CAN BANK ON IT

"There is no question that Vermont banks certainly have prospered over the past few years," said Thomas Candon, Deputy Banking Commissioner. Figures comparing December of 1996 and 1997 from the State Department of Banking, Insurance, Securities and Health Care Administration bear out that summary.

Though the picture for some categories was mixed (five of the 24 institutions tracked showed declines in deposits, some showed increases in non-performing loans, etc) the bottom lines added up to $94.8 million in profits. That was slightly less than 1996's $97.5 million, neither year showed any of the three Vermont savings banks, 10 Vermont-chartered commercial banks, or 11 nationally chartered banks drifting into the red.

The good times also had an effect on employment, a sore point with some larger municipalities that saw Vermont departments closed when local banks merged with out-of-state operations. From the Department of Employment and Training's January figures, the most recent available, "depository institutions" saw an increase in jobs from 4,700 in December of 1996 to 4,800 in November of 1997, with the unrevised preliminary estimate for December of 1997 at 4,850. Average earnings were not broken down between finance, insurance and real estate, but looked respectable at an average of $13.35 in November of 1997, with weekly pay averaging $495.29.

Though many Vermont banks do not issue credit cards, and though the ones that do report much lower problem rates than national issuers, consumer problems with credit card debt have become an industry concern (see story in this issue on bankruptcy). One sign of the times is that the Banking Department has published and is circulating an informational booklet "What You Should Know About Credit Cards," with one chapter titled "Beware of "The Slippery Slope'," in an attempt to dispel some of the irrational exuberance brought on by easy access to "plastic."

On the other hand, the stock market has given Americans a new incentive to save money -- and has set a challenge for banks that may in some cases become an opportunity.

Mutual Funds Magazine for February 1998 noted that for the first time, assets in mutual funds (more than $4.3 trillion) now exceed those in depository accounts at commercial banks, savings institutions and credit unions ($3.9 trillion).

But changes in federal regulations have taken down what used to be called "the Chinese wall" between banking and investment services. The same magazine article noted the bank-managed fund assets have reached $631 billion.

The other big change in the legal framework for Vermont banks has been congressional passage in 1994 of the Reigle-Neal Interstate Banking and Branching Efficiency Act, which removed the major barriers to interstate banking activity. Vermont followed up with the 1995 repeal of the 1987 Interstate Banking Act, and put in place legislation enabling Vermont-chartered institutions to branch out and other states to move in.

In contrast to the crossfires and allegations in the unsecured credit arena (which at times seems almost like the savings and loan debacle of the '90s), Vermont banks continue to be both stable and adaptable parts of the state's business infrastructure. Perhaps the best indicator that things are proceeding well is the way different institutions have been taking different roads up the mountain, all climbing with success.

NATIONAL LEAGUE

The federal legislation that erased previous limits on interstate banking has spotlight an abbreviation unfamiliar to some customers: "NA," which means "National Association when it comes at the end of a financial institution's name; it also can mean formidable economies of scale, departmental specializations and technology resources.