ConnectOne Bank CEO on future of banking: Brick and mortar locations 'changing over time'

ConnectOne Bank CEO, Frank Sorrentino, joins Yahoo Finance to talk about the outlook for regional banks and the Fed's effect on Main Street.

Video Transcript

ADAM SHAPIRO: Well, let's talk about the future of banking with Frank Sorrentino. He is the CEO of ConnectOne Bank. And it's good to have you here. As we look towards the outlook and what's happening with the Federal Reserve, all of the big questions, I want to ask you this simple question, your prediction, when do we stop having banks branches on the corner? I mean, other than an ATM, do we really need them in an age where do it all on your phone?

FRANK SORRENTINO: Well, you can't do it all on your phone. And branches have been in decline for the past, I don't know, four or five years. I think we will definitely see less branches as time goes on, but I don't think we are forecasting the complete demise of all bank branches. People still want to do certain types of transactions in person. They still want to meet with folks when they gather advice. When they have an issue or a challenge, they certainly want to come in and sit down with a representative.

And there are actually some banks that are being very successful in repurposing some of those branches. As you know, ConnectOne has built out some more private banking type offices, where we meet with clients and can sit down and try to understand their business goals and their objectives. So I think the purpose of the physical, you know, brick and mortar locations is changing over time.

The transaction-based teller window maybe is going to go away. But I still think folks want to-- you know, they want to still come in. I mean, look at retail in general. It's amazing that even some of the, you know, most technologically-forward companies are now opening retail brick and mortar locations.

EMILY MCCORMICK: Frank, thank you so much for joining us. This is Emily here. I'm wondering, in the near term or the next 12 months, what is your outlook for the regional banks? Because it seems like they would be pretty significant beneficiaries of a rising rate environment and the Federal Reserve's rate hikes in the next year.

FRANK SORRENTINO: So I mean, that's what the consensus believes, that a rising rate environment is, you know, is better for banks that make their income on spread income. I think that's probably going to hold true. I think what's more important is what is happening with the economy around this. Not so much just rates, but how do we feel about the economy going forward.

And I've been fairly bullish about what 2022 brings. The Fed and the administration has put a lot of stimulus into the economy thus far. A lot of it hasn't really been fully deployed. And I think we're going to see more of that occurring over 2021.

People's savings accounts are pretty full. People are making more money. Now, I understand there's some wage inflation, and we can talk a little bit about that. But people make more money, they feel better. Unemployment is getting near historic lows. So I think we're set up for a really good 2022 for all manners of, you know, industry, businesses, whatever.

There's also this incredible pent-up demand for goods and for services. People just want to get out. They want to do things, they want to experience things, and they want to buy things. And that's generally good for the economy.

ADAM SHAPIRO: What's going to-- for regional banks, we've got, you know, hedge fund folk like Mr. Dalio saying if you've got money, if you've got cash in a savings account, you're going to hit the inflation tax, it's doing nothing, encouraging people to put that money to work somehow outside of a bank, perhaps. What happens to banks if people start doing that, especially if they're concerned that the purchasing power of the money they're saving is going to decline with inflation?

FRANK SORRENTINO: Well, that's a whole economics lesson we'd have to get into, but just because you invest your money somewhere doesn't mean it leaves the banking system. Someone else got the money, right? If you buy a stock, then someone had to sell a stock. Or if you invest in something, that person that you bought from would then get the cash.

What's really important is what's happening with M2 and the amount of liquidity that's in the system today. And that's been going up. And it's been going up dramatically. And it's still continuing to go up, even as the Fed is tapering.

What potentially is concerning is what happens when the Fed begins to drain that liquidity from the system, and what happens to bank deposits. Folks have been talking about the demise of bank deposits for-- I want to say decades, and it really hasn't happened. Yes, there's been some disintermediation, but overall, banks are the places where businesses need to keep their cash in order to run their business. You can't make investments and then pay your people on Friday. You need cash. And when I say cash, I'm talking about money supply. You need liquidity.

EMILY MCCORMICK: Frank, I'm wondering about what you're seeing in terms of the impact of the rise of crypto on the traditional banking industry, because are you seeing that consumers are demanding that their banks have offerings in the cryptocurrency space in order to continue to have cash in these institutions?

FRANK SORRENTINO: So you know, right now I think what we're seeing is that, with this tremendous and rapid rise in cryptocurrency valuations, that folks are looking at it as a store of value. There really hasn't been a lot of utilization around crypto for transactions. There are things that have made the news, but it's really hard for you to go buy a pizza, you know, with, you know, some type of cryptocurrency today. And I just don't think that those currencies or those cryptocurrencies are going to replace the US dollar for those types of transactions.

Will we utilize blockchain technology? Will we utilize some of the advanced technologies to move payments around the economy and around the globe? Absolutely. Will there be the utilization of some type of stablecoin to allow for international transactions? I believe that's coming. But I don't-- I find it hard to believe that central banks around the world are going to just let go of their currency systems to the cryptocurrency market.

And I-- cryptocurrency is not cheap, either. I know everyone thinks that cryptocurrency is free. It's really not. And so I think the banking system has got a long way to go utilizing the US dollar, or whatever the sovereign currency is in different countries, for day-to-day type transactions, to allow people to get paid, to allow for commerce to take place. I think we're a long way away from cryptocurrencies replacing that.

ADAM SHAPIRO: Frank Sorrentino, ConnectOne Bank CEO, thank you so much for joining us.