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Are there too many banks in Lancaster?Experts say no, but new players should be cautious

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When a rapid-fire series of mergers knocked National Penn, Susquehanna and Metro banks out of existence in late 2015 and early 2016, many bankers eagerly rushed to fill what they perceived as a community banking void in Central Pennsylvania.

Much of that expansion has focused on Lancaster County, which has seen an influx of new branches from banks based in neighboring areas. But just how many branches can the county sustain?

As of June 30, Lancaster had more branches per household than any other county in the midstate, and larger banks have collectively closed thousands of branches in recent years as customers do more of their banking online.

Many of the new players in the market, however, say the opportunities in Lancaster are more nuanced — and more plentiful — than the numbers suggest.

Room to grow?

The rush into Lancaster started when BB&T swooped in from North Carolina to buy Susquehanna Bank in 2015. The pace quickened in 2016 when Pittsburgh-based F.N.B. Corp. bought Metro, another midstate institution, followed shortly thereafter by BB&T’s purchase of National Penn.

Community banks saw their opening. Lancaster was already a strong market, many bank leaders said, and it likely had customers who would prefer smaller banks over bigger brands like BB&T or F.N.B. Many also saw opportunities to scoop up talent from the merged banks.

A year after the last big merger, the race to expand in Lancaster has reached a fever pitch. Banks from all across Central Pennsylvania have opened or announced plans to open Lancaster offices in 2016 and 2017, including Montgomery County-based Univest Bank & Trust Co., Lebanon County-based Jonestown Bank & Trust, Shippensburg-based Orrstown Bank, Dauphin County-based Centric and Mid Penn banks and York County-based PeoplesBank

The frequency of new-branch announcements might create the perception of a county suddenly overwhelmed by banks. Lancaster, though, had fewer branches as of the end of June than at any point since at least 2000, according to the most recent numbers from the Federal Deposit Insurance Corp.

The county’s branch count reached its peak in 2008 and 2009 with 205 brick-and-mortar bank buildings. That number has shrunk in the post-recession years to a low now of 187.

And the number of institutions with a presence in the market has hovered right around 20 for at least the past 17 years.

Banks have reason to move forward with caution, however.

Lancaster leads the midstate in its concentration of branches relative to its population, with roughly one bank office for every 1,044 households, according to the most recent available census numbers. Cumberland has the second-highest concentration with about one per every 1,090 households, followed by York, Lebanon and Dauphin counties, in that order.

The national average is about one branch per 1,300 households. That difference could point to a risk of overbranching in a place like Lancaster, said Jeff Marsico, executive vice president of Bethlehem-based bank consulting firm The Kafafian Group Inc.

The concern is not unique to the midstate. Wells Fargo, for example, announced in January it would close 400 branches by the end of 2018, and still drew criticism from some shareholders who felt the bank needed to close more. Regional giant PNC Bank closed 87 branches between October and December 2016.

Many banks cite technological advancements as the culprit behind the death of branch banking, saying closing high-cost, low-traffic offices frees up resources they can invest in their apps and websites.

The number of bank branches across the country has dropped about 5 percent since 2009 and, according to at least one research group, could drop even more quickly in the coming years.

But there’s a catch: Most of the shuttered branches so far belong to the big brands like Wells Fargo, Bank of America and Chase.

Community banks, at least locally, still see room to grow. They figure they can serve customers who still want face-to-face interactions, and provide loans too small for national brands to bother with.

Univest is a prime example of a smaller bank leveraging change in the Lancaster market to buck the branch-closing trend.

The bank, which has about $4.2 billion in assets and 50 offices across three states, had no branches in Lancaster County a year ago. It will have four by the end of 2017, as well as a corporate office.

The moves probably would not have happened if not for a team of commercial lenders Univest lifted from National Penn after the merger with BB&T, said Univest president Mike Keim. The bank has strategically placed financial service centers around these existing customer bases, often in nearly move-in-ready buildings previously used by banks like PNC.

Finding a niche

Ask any of the new banks in Lancaster County if they’re worried about oversaturation, and each will say no. They see a market with strong business lending possibilities and an appetite for relationship-based banking.

That’s not necessarily a wrong answer, Marsico said, as long as banks target a specific slice of the market and plan their strategy carefully.

F&M Trust CEO Tim Henry shares that belief.

“I think you’re going to see banks really start to focus in on who is their niche,” Henry said, referring not just to Lancaster but to the entire midstate market. “A bank probably can’t be all things to all people.”

For Chambersburg-based F&M, that means focusing on growth opportunities in closer-to-home Cumberland and Dauphin counties and, at least for now, avoiding the Lancaster County feeding frenzy.

Many of the new players who are pursuing that market say they have specific strengths and niches they think will help them stand out among the growing competition.

Univest, for example, is banking on its commercial lending team’s knowledge of the market, as well as the bank’s wealth management and insurance businesses, Keim said.

Orrstown also benefits from a team of lenders who know the county, including former Susquehanna executive Dave Hornberger, who now serves as Orrstown’s Lancaster market president. Orrstown sees its niche as small- to medium-sized businesses — a common target for many banks its size — as well as clients from an investment advisory firm it recently acquired in the county, said Orrstown president and CEO Thomas Quinn Jr.

“We are very, very pleased with the investment we’ve made,” Quinn said. “I think we’re being rewarded for our community bank business model.”

Jonestown, meanwhile, believes its new branches can stand out by building on the brand’s established reputation in the community, said Ed Martel, the bank’s senior vice president of sales, marketing and branch administration. The bank has had a branch in Ephrata since 2011 and plans to open two more in the county by spring 2018.

The newcomers aren’t the only ones staking their claim on specific segments of the market.

Lancaster-based Fulton Bank, which led the county in market share of deposits as of last June, has its eye on customers who want a local bank with the ability to offer services the smaller market entrants can’t.

“New competition comes and new competition goes, and what we focus on in the long-term is having products and services to compete with the big banks,” said Curtis Myers, Fulton’s president and COO.

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Jennifer Wentz

Jennifer Wentz

Jennifer Wentz covers Lancaster County, York County, financial services, taxation and legal services. Have a tip or question for her? Email her at jwentz@cpbj.com. Follow her on Twitter, @jenni_wentz.

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