The Baltimore Sun

When it's time to choose a bank, most customers look to their nearest street corner -- a move that keeps inspiring financial companies to pump millions into building more branches.

Bank construction, which can cost upward of $2 million a branch, is picking up speed even as online banking keeps growing. The number of Maryland bank branches is at a decade high with financial companies fighting to recruit and retain customers, both online and in person.

While some analysts have raised concerns about a saturated market, construction crews across the region are erecting more branches to bolster several banks and their brands. Bank executives say many customers want to know a branch is close by even if they never plan to visit a teller.

"Consumers ... are looking for the ability to access their financial accounts how they want to, where they want to and when they want to," said Maryland Bankers Association President and Chief Executive Officer Kathleen Murphy. "That's why even with a growth of technology we've seen a growth of brick-and-mortar branches."

As online banking makes it increasingly easy to switch funds from one financial institution to the next, banks are scrambling to stand out among a crowded field of traditional and Internet-only banks as well.

More branches are an effective branding initiative, many analysts said, since several studies show that the majority of customers choose their primary bank based on the proximity to their home or business.

The number of bank branches in Maryland rose 7 percent during the past five years to 1,805 as of June 30, 2007, according to the Federal Deposit Insurance Corp. Nationally, branches climbed more than 12 percent to 97,272 during the same period. Online banking has grown even more. About 40.7 million households banked online in 2005, more than doubling from four years before, according to Forrester Research.

Luring customers to their Web sites takes a host of advertising strategies. But many financial executives acknowledge that the construction boom is about making sure customers see a company's sign and its branches often so that they'll feel a connection when visiting a bank's Web site. Customers want to know a human being is close by in case there's some question about a loan, deposit or something else, executives say.

"What we've found is clients are really doing both," said Michael L. Oster, BB&T; Bank's Maryland state and group president. "People tend to open their online accounts with the banks that are in their neighborhood."

BB&T; Bank is planning new branches in Owings Mills, Havre de Grace and Hunt Valley among others for next year, Oster said. The company also expects to add branches in Anne Arundel County in 2009, bolstering the company's 230 Maryland locations.

M&T; Bank averages about 18 renovations, relocations and additions in the Mid-Atlantic area each year, increasingly in Anne Arundel, Howard and Montgomery counties, said Atwood "Woody" Collins, president of M&T;'s Mid-Atlantic Division. The bank currently has 147 branches in the state.

Seeking relationship

When the popularity of online banking increased several years ago, the industry began to predict a decline in physical branches. But those expectations didn't match customer demand. Customers who were looking for a variety of bank products were more dependent on physical locations, said Janet Wagner, associate chair of marketing for the Robert H. Smith School of Business at the University of Maryland.

"They really want a relationship with someone in the bank who can advise them and help them with transactions that involve a lot of money," Wagner said.

Customers still go into bank branches to make daily business deposits or access safe-deposit boxes -- resources that the younger and tech-savvy generation may not have a use for yet.

"I know a lot of younger folks will say, 'I never go to a bank branch,' but when they're older, they may have more reason to go into a bank branch," said Bert Ely, president for banking consultant Ely & Co. in Alexandria, Va.

Baltimore resident and M&T; customer Russ Karpook, 60, hasn't gotten around to setting up online banking, partially because he likes the bank atmosphere, he said.

"I enjoy the interaction," he said.

Online banking devotees, however, said they visit the branch only for necessities. Take Debbie Garbers, 48, of Pasadena, who went to a branch recently to make some business deposits. Garbers said she pays her bills online and prefers not to visit a branch for deposits, either.

"It would be more convenient to do online," she said.

While more branches keep going up, some analysts said banks need to be careful not to saturate the market.

"If these banks are expanding in a high-growth suburb ... then there's room for at least one," said Alenka Grealish, managing director of the banking group for Celent, a research and consulting firm based in Boston. "But it is foolhardy if 20 banks do it at the same time."

Most metropolitan areas experience such banking booms as the area's economy and population grow, analysts said. But the success can often wane when too many banks employ the same strategy -- a process that occurred in Chicago a few years ago.

"Only a few banks can really feast," Grealish said. "In typical bank fashion, everyone ran like lemmings to these new suburbs and saturation happened pretty quickly."

Adding a branch is not a cheap or short-term project, though.

Spending $2 million on a bank could be a conservative estimate, Grealish said. The price tag can go up to nearly $10 million when banks compete with retailers for land.

Such construction, however, can help a bank garner good will in a community because those investments signal a commitment to the area, some analysts said.

'Ebb and flow'

"I think this is sort of the natural ebb and flow," said David Dove, managing vice president of Dove Consulting, which provides services for the financial services industry. "[Banks] expand in certain markets, then they sort of digest the new branches and ATMs."

With Maryland's growing population and an economy that is expected to add jobs during the coming years, banks are looking for various ways to get in front of more consumers.

"You're also seeing more branches set up in supermarkets, you're seeing them in airports, bus terminals," said Murphy of the Maryland Bankers Association.

Provident Bank, for example, has four new branches planned for next year, three of which will go in existing stores, such as Shoppers Food and Pharmacy. These branches can cost up to 75 percent less than traditional buildings, said Stephen Heine, executive vice president of consumer and business banking.

"The net profit from that is very favorable to a traditional branch," Heine said.

By mid-November, Provident will have 100 branches in Maryland, 32 of which will be in-store locations.

M&T; took an unorthodox approach, too, when it opened a branch at Baltimore-Washington International Thurgood Marshall Airport, a move that was inspired by the airport's 10,000 employees and 54 businesses. The bank also set up a temporary branch at the Ravens training camp, signing up nearly 500 accounts.

The upswing in bank construction likely will continue, experts agreed, as long as the population continues to grow and the state's economy can support it.

"Branches are still an important point of sale for banks and an important part of their delivery mechanism," said Ely, the consultant. "They're not going away any time soon."

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