‘There’s just a relentless drive to fewer banks’

Banking industry veterans say that increased costs associated with delivering products and services, from technology costs to distribution costs to regulatory costs, has led to increased consolidation in Maryland and across the nation. (Depositphotos)

The numbers tell the story of how banking in Maryland has changed.

At the turn of the century 20 years ago, there were 142 banks headquartered in the state. Today? Maryland is down to 38 banks headquartered here, according to Federal Deposit Insurance Corporation data.

In 2000, several of the state’s top banks — those with the highest share of the market — were based in the state. While North Carolina-based Bank of America had the top spot at 15.77%, Allfirst Bank, a bank based in Baltimore that operated in Maryland, Washington, and three neighboring states, had the second-highest share, at 11.79%

Now, Bank of America is still top dog, with a market share just under 23%. But Allfirst is gone, having been bought by M&T Bank in 2003. Other high-ranking banks — Provident Bank of Maryland, Mercantile-Safe Deposit and Trust Company and Farmers & Mechanics National Bank, which were the banks with the sixth-, seventh- and 10^th-highest market shares in the state — were absorbed as well, the former by M&T and the latter two by PNC.

Meanwhile, many of the largest presences in Maryland banking today — such as M&T, Wells Fargo and Capital One — hadn’t yet entered the market.

If regulators approve Pittsburhg-based F.N.B. Corporation’s planned purchase of Howard Bank, a local bank launched 17 years ago in Howard County, few community banks will remain in Maryland — and only three will be based in Baltimore. Two Maryland-based banks, Sandy Spring Bank and EagleBank, remain in the state’s top 10; both are based in Montgomery County.

Mary Ann Scully, the founder and CEO of Howard Bank, has observed a number of changes to the market that contributed to the increase in consolidation over the past few decades. Factors like record-low interest rates that have been in place since the Great Recession limit the amount of revenue banks can make and make it challenging for smaller banks, who rely largely on loans for their revenue, to complete with larger banks that are able to make their money from a wider range of products and services.

She’s also noticed changes in customer behavior in recent years, changes that have had a negative impact on smaller community banks.

“We think of ourselves as a really important member of the greater Baltimore community,” says M&T Bank’s Augie Chiasera.

“We’re seeing customers who, rather than keep a relationship with the same bank when their loan is up for renewal, may very well put it out for bid,” Scully said. “The behavior around loyalty and relationships has changed.”

Augie Chiasera, M&T’s regional president for Greater Baltimore and an industry veteran of 27 years, feels that increased costs associated with delivering products and services, from technology costs to distribution costs to regulatory costs, has led to increased consolidation as well.

Of course, Maryland isn’t alone in this trend; banks nationwide have been undergoing large-scale consolidation for years now. The total number of U.S. banks in 2000 was 8,315 — already on the decline from peak numbers in the 1970s and 1980s — and is now just 4,518, a loss of approximately 190 banks each year for the past two decades.

When banks disappear

For some leaders in the banking industry, consolidation doesn’t pose many major repercussions for banks or for customers.

Greg Farno, the Maryland regional president for Truist, a company that was formed through the 2019 merger of two banks with significant Maryland presences, SunTrust and BB&T, said the merger has only served to strengthen the bank’s ability to serve customers. A main driving force behind the merger, he said, was improving technology and digital banking services as more and more customers begin using mobile and online banking.

“At the time, we became the sixth-largest bank in the country,” Farno said (the bank also became the third largest in Maryland). “But the merger was not about getting bigger, it was getting better.”

Still, others are more concerned. A lower number of community banks can mean an increase in “banking deserts,” a phenomenon in which a certain area or neighborhood doesn’t have easy access to a bank. Bank deserts can exist in both rural and urban communities.

Howard Bank had already closed 15 branches in the years leading up to its sale to FNB, including two in Baltimore that shut this past January; there is no word yet on which Howard locations will continue to operate and which will close following the merger.

“There’s just a relentless drive to fewer banks,” says Howard Bank’s Mary Ann Scully. “None of this is a happy story. It’s just the relentless march of time.”

“Baltimore is already one of those areas that’s considered a bank desert,” said Pamela Queen, a professor of economics at Morgan State and delegate in the Maryland General Assembly. “This consolidation adds to that discussion. What’s going to happen to this group of people that are already underserved or underbanked already? … I definitely have concerns about it.”

Although some larger banks may take over branches of closed banks or open new ones, the total number of bank locations has been on the decline in recent years. Statewide, the number of branches peaked at 1,663 in 2009 and decreased to 1,367 as of 2019.

The continuing decline in bank branches is likely due in some part to customer’s increased preference for — and banks’ increased development and deployment of — online banking options over actually going to visit a bank in person. But that reliance on digital services can make banking difficult for those without a phone, computer or reliable access to the internet.

Beyond limiting residents’ access to capital, bank closures and the resulting banking deserts can open the doors for predatory lenders, expensive check-cashing facilities and pawn shops to open up where banks previously stood, Queen said.

But even when larger banks are able to open shop where local banks closed, communities can still be disenfranchised, she said. Local, community banks tend to open doorways for smaller businesses and people from marginalized communities who may not have had the opportunity to form a formal relationship with a national or regional bank.

“We knew with COVID, there were a lot of small businesses that didn’t have those formal banking relationships, so they didn’t get those PPP loans,” she said.

Larger banks step up 

Still, some national and regional banks have worked to build stronger bonds with the communities out of which they operate.

Although it operates over 750 offices in 12 states, M&T considers itself a community bank, Chiasera said.

“We think of ourselves as a really important member of the greater Baltimore community,” he said. “We put our name on M&T Bank Stadium back in 2003, and when we did that we knew that our community engagement was about more than just our name on a building.” The bank contributes millions of dollars to local nonprofits annually and employees volunteer for the same organizations.

“I think that, consumers really drive the change,” Currie said. “When you think about people achieving financial goals, those needs and the goals that people have really dictate what will be available,” says Bank of America’s Janet Currie.

Similarly, Farno not only considers Truist a community bank, but he also feels that the merger between SunTrust and BB&T created a bank that is greater than the sum of its parts when it comes to local presence and community engagement.

“We doubled in size here in Maryland overnight,” he said. “All of sudden, the heritage SunTrust teammates are exposed to all of the community activities that BB&T was involved in” and vice versa.

Like M&T, Truist also contributed monetarily to local nonprofits last year, giving a million in grants to local organizations, on top of donations to groups working to fight COVID-19. The company also promotes volunteerism and community engagement among its staff.

Though some parts of the industry have changed over the course of Farno’s career, he believes the need for banks to be community-focused has persisted through the decades.

“We have a regional construct where we’ve put teammates and decision-making authority locally, because banking is a very local industry. To be successful in banking, you have to be local,” he said. “That is something, interestingly, that has not changed in the years that I’ve been in banking.”

Over the last 20 years, Bank of America has maintained the No. 1 spot in the Maryland market. Janet Currie, who oversees Bank of America’s operations here, says that some of the lamentations on the disappearance of community banks misses the mark.

“I think that, consumers really drive the change,” Currie said. “When you think about people achieving financial goals, those needs and the goals that people have really dictate what will be available. So, I would say that, the industry is still very broad. You have large banks, you have community banks, you have fintech, you have different options for the consumer. As long as consumers have options, and are finding opportunity to meet their financial goals, I think that is what the focus is.”

The end of community banking? 

Scully said she still believes strongly in the central tenets of community banking that she had in mind when forming Howard Bank — giving clients access to decision-makers in the company, turning around loans quickly and committing to supporting the community.

To be successful in banking, you have to be local,” says Truist Bank’s Greg Farno. “That is something, interestingly, that has not changed in the years that I’ve been in banking.”

But she acknowledges that it’s rare for banks to be able to stay afloat with only the products and services community banks offer. Howard’s success as a community bank was impressive, but it also was unique, emphasizing the way that banking in Maryland has shifted towards a small number of large banks in recent. Despite being a relatively small bank, Howard held one of the top shares of the Baltimore market, indicating the scarcity of small local banks and the dominance of major industry players.

“People would ask if I was surprised that I got to $2.5 billion in 17 years and I’d say no … but what surprised me is I was able to become the seventh-largest local bank at $2.5 billion,” Scully said.

It doesn’t bode well for even smaller banks, Queen said, taking particular note of America’s 44 Black-owned banks — one of which, Harbor Bank of Maryland, is based in Baltimore — which collectively have just under $7 billion in assets.

“If Howard Bank is concerned with ($2.5 billion) that they won’t survive, look at the assets of savings and loans associations, credit unions,” she said.

Most believe this trajectory, of national and regional banks continuing to acquire smaller banks, is unlikely to end any time soon.

In Queen’s view, federal legislation may be the only way to curb the trend, but, for now, she isn’t sure what that legislation might look like

“If we want to say to ourselves that there needs to be community banks, there needs to be those savings and loans and credit unions that are very much community based, you’re going to have to have some sort of federal policy.”

This push towards consolidation doesn’t mean the absolute end of community banking, Scully said — new ones will still crop up here and there, some of which will still be able to find success. At the same time, she doesn’t anticipate the number of banks in the country increasing any time soon.

“There’s just a relentless drive to fewer banks,” she said. “None of this is a happy story. It’s just the relentless march of time.”