Branches Per Household Drop for Third Straight Year

In one corner, there was JPMorgan Chase & Co., building branches while competitors retreated; in the other, Capital One Financial Corp., doubling down on its "direct" banking strategy.

Now JPMorgan Chase is having second thoughts about the scale of its branch campaign. In view of new regulations, for "some branches the [profit] margins are no longer great," Chief Executive Jamie Dimon said this month.

Recent predictions of the demise of branch banking can sound like the premature eulogies that have been floated since the advent of the Internet, but data suggests that a fundamental shift may be under way.

The number of branches per million households in the country has been dropping since the middle of 2008, partly undoing an industrywide buildup that prevailed for most of the last decade, according to data from the Federal Deposit Insurance Corp. and the Census Bureau.

The reversal has been particularly strong in western states, where failures and consolidation have greatly reduced the number of institutions serving the region.

Banks and thrifts with offices in the West dropped by almost 13% from mid-2008 to about 1,100 in the middle of this year, according to annual branch data.

Over the same time, the number of branches per million households in the West — an area whose sparse geography was already matched by the relatively low density of its bank offices — fell by 3%, to 669.

In the Northeast, which has historically been characterized by a high density of branches relative to the number of institutions that operate in the region, institutions fell by only 5%, to about 1,000, and branches per million households fell by just half a percentage point, to about 900.

To be sure, the recent decline in branch coverage took hold during a severe downturn.

Moreover, while Capital One’s deals to acquire the online bank ING Direct and HSBC Holdings PLC’s U.S. credit card operations are in line with its belief that a large, direct platform is needed to compete effectively in the national market for basic financial services, the company still touts the value of its office networks in the Atlantic seaboard and in Louisiana and Texas.

"Local branch scale is still, pound for pound, the most effective way to reach a broad base of commercial, small-business and consumer customers," Capital One’s chief executive, Richard Fairbank, said in a third-quarter earnings presentation this month.

Similarly, JPMorgan Chase is still on track to build about 250 offices this year.

Nonetheless, when the nation’s largest banking company by assets begins to reconsider further expansion, it is a sign of a change in sentiment on the profitability of the branch model.