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Banking on Bozeman-What’s behind the recent financial expansion and what will it mean for local consumers?

Does it seem like a lot of banks are breaking ground in Bozeman lately? It’s true, new banks are coming to town and local banks are building new branches – in big numbers.

By Jeannie Counce The Bozeman Chronicle

About a half dozen new bank branches opened last year, and of the 15 or so major banks in the area, three are planning to open new branches in town in the next year. Others have similar plans for areas outside the city limits, and at least one completely new player is poised to enter the market.

Why all the banking activity? Why here and now? A combination of factors – coupled with the Gallatin Valley’s dazzling growth statistics – is at work. The resulting conclusion: What was once "some of the best farmland in Montana" is also fertile ground for financial institutions.

Setting the Stage

To begin with, two major legislative changes helped open our geographical and consumer market. A 1997 Montana law loosened strict banking regulations that treated each bank as a stand-alone entity, requiring a charter, financing, and board of directors.

"Now, there are fewer hoops to jump through for banks based in other towns and out-of-state to open branch offices," explained Jim Drummond, who will be president of the Gallatin Commerce Bank, a proposed start-up that plans to build at 19th and Kagy.

Montana was the last state to allow branch banking, added Drummond. who was the president and CEO of First Security Bank for 12 years before he retired and then came out of retirement to work with Gallatin Commerce Bank’s investors. Since Montana was previously "under-banked," he said, "Part of what we’re seeing is a function of catching up and keeping pace with growth."

Revisions of banking laws at the federal level are also a factor. The Financial Services Modernization Act of 1999 greatly expanded the type of products banks can offer, according to Tracey Mills, senior public relations manager at the American Bankers Association in Washington, D.C. That law removed the barriers that separate banking, insurance, and securities, said Mills, who noted that banks typically attract customers with basic services with the hope of up-selling other products, such as home loans, CDs, and the like.

That’s why traditional "bankers hours" have been replaced with easy and accessible banking. Extended hours, superior service, free checking, phone banking, online banking, and more branches -i including grocery store branches, which are generally not profitable – are all products of the new service-based banking revolution.

The investment is paying off. Bank income and profitability set new records in 2002, according to the FDIC’s quarterly banking profile. Nationwide fourth quarter earnings of $25.6 billion were the third highest ever – a 16 percent increase over those of the same quarter a year ago.

Our Neck of the Woods

Zoom in from the "big picture" to some local trends and the reasons for increased banking activity in Bozeman become even clearer.

"Look around, Bozeman is a rapidly growing town," said Rich Daem, branch president at First National Bank of Montana, which is building new branches at 19th and Oak and in Four Corners.

"Gallatin County is the fastest growing county in the state," confirmed Alicia Bradshaw, executive director of the Gallatin Development Corporation, who points out that local commercial growth goes beyond banking and beyond the confines of Bozeman. "It’s no surprise we’re seeing activity in the banking industry; it’s happening in other industries, such as construction and professional services, as well. It’s just not as visible.

"And the growth isn’t just in Bozeman, it’s in Big Sky, Four corners, and Belgrade," added Bradshaw, who predicted that commercial activity will continue to increase across the entire valley, including Manhattan and Three Forks.

Other areas of the state are experiencing similar trends.

"Hamilton, Billings, Kalispell, Missoula are all large growth areas," said Steve Wheeler, president of First Interstate Bank, which recently opened a branch on 19th and is planning to open another at the old Firestone building site on Grand and Main. Wheeler noted that many of same banks doing business in Bozeman are opening branches in those cities, as well.

But it’s not just our accelerated population growth (3.3 percent annually) that’s attractive to bankers; it’s the quality of that growth. Compared with the rest of the state, Gallatin County "has the highest percentage of population in the bankers’ preferred demographics," explained Drummond, whose investors found several "green flags" for locating here. Forty-four percent of county residents are between 20 and 44, the standard age range of "credit users," according to Drummond. And 20 percent are between 45 and 64, or "depositers" in banking terms. It’s a healthy mix, he said.

Add to that an average deposit rate that’s growing by 8.6 percent per year.

"That’s huge in our industry," said Drummond, who noted that such numbers indicate growth and relative affluence.

"Our household income is among highest in state," observed Bryan Klein, branch president of Rocky Mountain Bank. "And, it’s increasing at a higher rate."

It makes sense that bankers would "want a piece of the action," explained Don Chery, president of Big Sky Western Bank, which is building a new location in the old Elks building on East Babcock "Out-of-towners are looking for more market share and it’s a way to grow assets for the banks that are already here."

In many cases, financial institutions are banking on continuing growth, said David Smith, president of the Bozeman Area Chamber of Commerce. "The national banks are aggressively finding new markets to get returns for their investors and to have a presence before the market fully matures."

Either way, "The banking community needs to be optimistic in order to grow," said Wheeler. "We’re bullish on Bozeman because we think it will continue to be successful."

As for location, First Interstate chose to locate closer into town because, "Downtown is home base," said Wheeler. "We honestly believe in having a bank downtown to support local retail and business people."

But while a cluster of branch offices are opening in town, institutions who don’t already have active branches further west are opening them, taking advantage of a shifting population center. Valley Bank of Belgrade recently bought land in the River Rock subdivision where it plans to open a branch in the future, according to Joe Dahinden, Valley Bank’s president.

Show Us the Money

What does all this mean for the average Bozeman citizen or small business? "It’s great for the customer," observed Chery. The five other banking officials interviewed for this article all agree: Increased competition between banks benefits the consumer.

"Every bank has the same things to offer," said Daem. "The difference is in how you treat your customers."

Termed "relationship banking," bankers try to distinguish their institutions by reaching out to customers with extended hours, more locations and highly personal, low-hassle service.

And despite all the technological advances that allow people to bank from their phones and computers, "People like to come to the bank," said Wheeler, adding "as long as you provide good service."

Most customers prefer a strong personal relationship, agreed Klein — especially with financial matters.

"Our customers disclose a massive amount of personal and financial information when seeking loans," he said. "We have to earn their trust and confidence."

For some small businesses, competition has resulted in quicker – and sometimes better — loan approvals, said Bradshaw, whose group aides small businesses in planning and development.

"We can’t sit at desk and wait for customers," said Klein of bankers’ newfound aggressiveness towards making the sale. "You want to go after the business you want."

Bradshaw has seen it in action, recalling a business that was seeking private financing to compliment the public financing it had already secured.

"They found a local bank that was willing to lend the entire amount," she said, noting that the business avoided the extra time and hoops involved with public financing – and kept everything local. "Whenever you have more access to capital and more options, that’s good. When the capital is acquired and spent locally, that’s even better."

All in all, more banks translate into more resources in the community, according to Wheeler. Aside from the employment opportunities – from construction to teller – they create, banks are a barometer of the local economy. he current trend "should give people confidence," said Wheeler. "When people are more willing to spread their wings, invest a little bit – it stimulates the economy."

Will the Bozeman banks eventually reach a level of saturation, or even experience a regional consolidation? Possibly. "There’s always a chance," said Bradshaw.

"The way I see it, competition in the U. S. of A. is good," exclaimed Chery. "The forces of supply and demand will play that out."

http://bozemandailychronicle.com/articles/2003/06/18/business/01banking.txt

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