ranch banking may be in flux in the digital age, but physical locations remain a central component of most banks’ distribution models. Lest there be any doubt, JPMorgan Chase & Co., the nation’s largest bank, announced in early 2018 that it will build 400 new branches—a number roughly equal to the 25th largest branch network in the country.
Bank leaders with a firm vision about where they want to be and accurate market data to make informed decisions are best positioned to balance efficiency and growth in their branch networks, says John Smith, the CEO of DBSI, a retail banking consultant. “You have the data, you have your strategy of where you want to be, and now it’s about proper execution,” he says.
Bank Director developed two metrics to measure the effectiveness of a bank’s branches. Deposits per branch (as of March 2018) and employees per branch (as of December 2017) were analyzed to create an efficiency score. A growth score was developed by measuring the expansion of branch networks over a two-year period, ending June 2017—the most recent data available from S&P Global Market Intelligence on the number of branches for each bank—as well as growth in core deposits from March 2016 to March 2018.
To supplement these quantitative metrics, Bank Director conducted a qualitative analysis designed to reward branding, innovation and alignment with strategic goals. Bank analysts also provided their perspective.
Each bank was scored relative to its regional peers. Regional winners were then scored against each other to determine the overall category winner. Due to this second scoring, the overall winner’s final score differs from its regional score.
When it comes to the efficacy of its branch network, First Republic Bank topped the West and the category overall. Thanks to its focus on high-net-worth customers, its network is extremely efficient, with 55 employees and $976 million in deposits per branch.
“When you’re talking about the high-net-worth individuals, they’re typically much larger balance deposits,” says David Long, an analyst with Raymond James. “The average deposit size for First Republic is going to be much larger than most banks.”
Beyond pure numbers, First Republic distinguishes itself when it comes to the quality of service. Fresh-baked cookies have greeted First Republic’s customers in its branches since 2001. Its high-touch strategy to serve an affluent clientele means branches still play a key role—but not in the usual way.
“I have never heard any other person talk about a bank the way that people talk about First Republic and the service that they provide,” says Long. “That is what they’re known for.” Clients come in to get advice from their personal banker, not to deposit a check.
First Republic’s branch network has grown by just 1.39 percent, but it grew deposits by 35 percent in the two years ending March 2018. And compared to many other high performers in this category, its growth was organic, not obtained via acquisition.
Earning top place for its branch network in the Northeast, Sterling Bancorp is also highly efficient, with $522 million in deposits per branch (second behind only Signature Bank in that region) and 52 employees per branch, almost on par with First Republic.
Sterling has grown its core deposits by 114 percent— thanks largely to its acquisition of Astoria Financial Corp. But as Sterling continues transitioning from a retail-oriented thrift to a commercially-focused bank—as well as integrating Astoria—it’s trimming those acquired branches, which explains why Sterling reduced its branch network by 33 percent over two years.
South State Corp.’s branch network stands out compared to its peers in the South. While it is moderately efficient, at 21 employees and $89 million in deposits per branch, it saw growth in core deposits of 61 percent—largely through M&A—and modestly expanded its branch network, by 8 percent.
In the Midwest, Huntington Bancshares and Commerce Bancshares tied for their branch network strategies. Between the two, Commerce was more efficient than the much bigger Huntington, but Huntington saw greater growth in both core deposits and the expansion of its branch network. (Huntington acquired FirstMerit Corp. in 2016.)
Huntington’s branch network includes smaller in-store locations that take advantage of frequent foot traffic. Meanwhile, Commerce has focused on updating its branches. A new branch that opened in 2017 features an “exploration center,” for instance, where customers can access online banking. It’s also designed so a banker greets the customer at the door, rather than waiting for them at a traditional teller line—indicating the bank has shifted to a universal banker model that can better serve customers’ needs. Commerce was also an early adopter of instant card replacement, and some locations even feature electric car charging stations, implemented through a partnership with Nissan.
How They Ranked: Best Branch Network Strategy
|SCORE||DEPOSITS PER BRANCH (THOUSANDS)||BRANCH NETWORK GROWTH|
|OVERALL WINNER: First Republic Bank||2.11|
|3||Webster Financial Corp.||2.78||$127,936||1.81%|
|4||Community Bank System||3.56||$39,200||22.7%|
|5||M&T Bank Corp.||3.89||$109,859||16.38%|
|1||Huntington Bancshares (TIE)||2.33||$77,313||38.07%|
|1||Commerce Bancshares (TIE)||2.33||$111,919||-3.65%|
|3||Fifth Third Bancorp||2.89||$93,282||-12.35%|
|4||Chemical Financial Corp.||3.17||$55,924||32.28%|
|5||Great Western Bancorp||3.50||$53,384||9.26%|
|1||South State Corp.||2.56||$89,202||8.26%|
|4||FCB Financial Holdings||3.39||$206,413||-6.12%|
|1||First Republic Bank||1.67||$976,097||1.39%|
|2||Western Alliance Bancorp.||2.22||$475,694||-9.76%|
|3||Cathay General Bancorp||3.17||$221,516||9.26%|
|4||Bank of Hawaii Corp.||3.22||$211,325||1.43%|
|5||East West Bancorp||3.72||$270,765||-2.42%|
SOURCES: Federal Deposit Insurance Corp., S&P Global Market Intelligence, bank annual reports and other public information