Building a Stronger Bank



Following an acquisition or merger, many banks struggle to build and strengthen their brand. The branch channel is an important part of the franchise for most institutions, so determining which locations to keep, and which to close, is a key strategic decision post-merger. In this video, Anthony Burnett of Level 5 explains how to approach these decisions. He also shares how banks can position themselves for future growth by evaluating opportunities and staffing, and developing a long-term growth plan for the back office.

  • Strategies that Strengthen Your Bank’s Brand
  • Making Decisions About Branch Redundancies
  • Addressing the Back Office
  • Positioning the Bank for Future Growth

This Bank Is Winning the Competition for Deposits


deposits-3-15-19.pngFrom the perspective of a community or regional bank, one of the most ominious trends in the industry right now is the organic deposit growth at the nation’s biggest banks.

This trend has gotten a lot of attention in recent years. Yet, the closer you look, the less ominous it seems—so long as you’re not a community or regional bank based in a big city, that is.

The experience of JPMorgan Chase & Co. serves as a case in point.

Deposits at Chase have grown an average of 9.4 percent per year since 2014. That’s more than twice the 4.6 percent average annual rate for the rest of the industry. Even other large national banks have only increased their deposits by a comparatively modest 5.3 percent over this period.

This performance ranks Chase first in the industry in terms of the absolute increase in deposits since 2014—they’re up by a total of $215 billion, which is equivalent to the seventh largest commercial bank in the country.

If any bank is winning the competition for deposits, in other words, it seems fair to say it’s Chase.

But why is it winning?

The answer may surprise you.

It certainly helps that Chase spends billions of dollars every year to be at the forefront of the digital banking revolution. Thanks to these investments, it has the single largest, and fastest growing, active mobile banking base among U.S. banks.

As of the end of 2018, Chase had 49 million active digital customers, 33 million of which actively use its mobile app. Eighty percent of transactions at the bank are now completed through self-service channels, yielding a 15-percent decline in the cost to serve each consumer household.

Yet, even though digitally engaged customers are more satisfied with their experience at Chase, spend more money on Chase-issued cards and use more Chase products, its digital banking channels aren’t the primary source of the bank’s deposit growth.

Believe it or not, Chase attributes 70 percent of the increase in deposits to customers who use its branches.

“Our physical network has been critical in achieving industry-leading deposit growth,” said Thasunda Duckett, CEO of consumer banking, at the bank’s investor day last month. “The progress we’ve made in digital has made it easier for our customers to self-serve. And we’ve seen this shift happen gradually across all age groups. But even as customers continue to use their mobile app more often, they still value our branches. Convenient branch locations are still the top factor for customers when choosing their bank.”

This bears repeating. Despite all the hoopla about digital banking—much of which is legitimate, of course—physical branches continue to be a primary draw of deposits.

Suffice it to say, this is why Chase announced in 2018 that it plans to open as many as 400 new branches in major cities across the East Coast and Mid-Atlantic regions.

Three of Chase’s flagship expansion markets are Boston, Philadelphia and Washington, D.C. This matters because large metropolitan markets like these have performed much better in the ongoing economic expansion compared to their smaller, nonmetropolitan counterparts.

The divergence in economic fortunes is surprising. A full 99 percent of population growth in the country since 2007 has occurred in the 383 urban markets the federal government classifies as metropolitan areas. It stands to reason, in turn, that this is where deposit growth is occurring as well.

Chase isn’t the only big bank expanding in, and into, large metropolitan markets, either. Bank of America Corp. is doing so, too, recently establishing for the first time a physical retail presence in Denver. And U.S. Bancorp and PNC Financial Services Group are following suit, expanding into new retail markets like Dallas.

The point being, even though the trend in deposit growth has led analysts and commentators to ring the death knell for smaller community and regional banks without billion-dollar technology budgets, there’s reason to believe that the business model of many of these banks—focused on branches in smaller urban and rural areas—will allow them to continue prospering.

Smart Growth: Expanding Your Branch Network


growth-11-15-18.pngBranches play an important—but changing—role in the typical bank’s retail strategy. Increasing digital adoption may make consumers more apt to deposit a check using a smartphone camera than through a teller, but they still want to visit a branch for advice: A Celent survey published in May 2018 found more than three-quarters of customers want to meet a banker face-to-face to discuss a topic in-depth. Very few—just 12 percent of millennials—say branches are unnecessary, and prefer all-digital interactions.

And that has many banks evaluating whether to expand their branch network, even in today’s digital age. In Bank Director’s 2018 Technology Survey, 54 percent of responding executives and directors said their bank plans to add branches.

Before you move forward with building or acquiring your next branch, here’s what you should keep in mind.

Establish goals.

Understand how the role of the branch fits within the institution’s overall delivery channel strategy, advises Jim Burson, a managing director at Cornerstone Advisors. “Start with, what are your growth objectives as an organization, and then second, how do you envision the role of the various channels supporting that growth objective.”

These goals will differ by bank. Burson says one of his clients prizes a branch’s “billboard value”—it lets customers know the bank is physically located in their market. That CEO values a big sign and a tiny lobby. “That’s a very clear objective for a branch. So, when they [build] new branches, if they can’t get the signing ordinance they want from a community or they can’t get the visibility they want when people are driving down the street, it’s off the table—that location is gone,” says Burson.

Before purchasing property and breaking ground on a new branch, a feasibility study should be conducted, advises John Smith, chief executive officer of retail banking consultant DBSI. Understand the deposit and loan opportunities within a desired market, and if there is room to gain market share for your bank.

“Every market we go into, we look at it strategically,” says William Stuard Jr., the CEO of $1.1 billion asset F&M Financial Corp. The branch should be within an hour or two of the bank’s headquarters in Clarksville, Tennessee, so the footprint is easy to manage.

Geographic expansion starts with a lending team. “We don’t go in and just get a building and try to start from scratch,” says Stuard. The bank’s Hendersonville, Tennessee branch started as a mortgage office, then a loan production office before the bank built a full-service branch in the town’s growing commercial area in 2017.

Taking an incremental approach to branch expansion appears to be a common method for testing the viability of a market.

William Chase Jr., the CEO of Memphis, Tennessee-based Triumph Bank, with $784 million in assets, says starting out with a loan production office helps the bank get into a market faster. “It’s a lot easier to go through the process of finding some nice office space and get an LPO approved,” he says. “Time is money.” And a full-service branch takes time to build.

He also credits commercial real estate expertise on the board with making smart financial choices on property.

Bassett, Nebraska-based Sandhills State Bank, with $242 million in assets, seeks to fill in the gaps in its sparsely populated area in Nebraska. When big banks pull back from the market, “it offers a great opportunity for community banks to fill that vacuum and pick up more deposits,” says CEO David Gale.

The bank’s current investors bought what was then a $28 million asset bank in 2010. The bank’s initial expansion occurred by sending lenders into new markets. These lenders’ first offices were, in fact, a pickup truck. “Our first three branches in 2010 out of the gate were built around lending talent and started out as loan production offices out of their pickups,” says Gale. Once lenders hit $5 million in loans, the bank would add an office in the market. At $10 million, they would open a branch and hire more staff.

Recent expansion has occurred through acquisition: Bank of Keystone in 2016, and in early 2019, the bank will purchase three western Nebraska branches from Western States Bank. At that point, Sandhills State Bank will reach $310 million in assets.

The pending branch acquisition (which is awaiting regulatory approval) will help the bank diversify its agricultural loan portfolio and acquire more deposits to fuel its loan growth. Like many in the industry, the impetus on deposit growth makes a branch acquisition more attractive than starting out organically with a lender in the market—though Gale does express a preference for organic growth.

Bank leaders hungry to acquire branches need to pay attention to opportunities in their markets. Gale has worked to build relationships with other bank CEOs, and this directly led to the the bank’s upcoming branch acquisition. In today’s competitive M&A market, bank CEOs need to be proactive to position their bank to pick up branches.

Improve the branch experience.

More consumers would switch banking providers over a poor branch experience (47 percent) than a poor digital experience (36 percent), according to the Celent survey.

When asked about specific branch experiences that would prompt them to switch, 68 percent cited ill-equipped banking associates, 55 percent long wait times and 49 percent impersonal service, meaning the bank doesn’t know the customer or understand what they need. Wealthier customers are even more sensitive to these oversights.

Some banks are solving this problem by adopting a universal associate or universal banker model.

“[Create] a relevant environment where you’re viewed as a place to get advice from,” says Smith of DBSI. “Today’s financial institutions are primarily still transactional.”

Because universal associates are capable of doing more for the customer—from service to advice—the customer has a better experience, and the bank can reduce its headcount in the branch. The universal banker model can also present a better career path for the employee, which should result in lower employee turnover.

But to make it work, universal associates should be properly trained, and the branch should be designed to make the most of the new model.

At Triumph Bank, universal bankers are “empowered to do almost anything that a customer would need,” from cashing a check to opening an account to financial planning options, says the bank’s human resources officer, Catherine Duncan. “We’ve got people that want to stick around and want to grow with the company. You empower them to make decisions … it keeps them engaged, it keeps them feeling valued.”

In addition to training these employees, the bank created an manual that serves as a go-to guide for any questions the associate might have, so they don’t have to run to a supervisor or another employee, and instead can help the customer confidently and immediately.

Triumph’s newer branches are designed without teller rows, and universal associates greet customers at the door.

At Sandhills, a lightly-staffed model works better in its sparsely populated market. The bank leverages technology to reach its rural customers—mobile adoption exceeds 50 percent, says Gale, which is on par with JPMorgan Chase & Co.—and you won’t find a drive-thru lane. “We want to talk to our customers,” he says.

Branch transformation initiatives should align with the bank’s overall objectives for its branch network, says Burson. And banks should evaluate their branches—old and new—to determine they’re meeting these goals. Too frequently, a branch is built, and the business case for that expansion isn’t revisited. “They don’t manage to the objectives,” he says. And that’s a big mistake.