Banks under mounting pressure to increase deposits per branch

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With interest rates at a 19-month low and loan demand spotty at best, banks are under increasing pressure to find cost savings wherever they can in order to maintain profit margins.

And one way many banks are looking to improve overall efficiency is by focusing on a metric that doesn’t show up in call reports: deposits-per-branch.

Boosting the deposits-to-branch ratio involves more than closing branches that are inefficient because they hold too few deposits. It also means opening branches in areas in deposit-rich areas, retooling existing branches through staffing measures, reducing square-footage and improving technology.

For example, the $22 billion-asset Fulton Financial in Lancaster, Pa., has used all available options to increase deposits in each branch — a combination of shuttering some offices, opening new ones in more-promising areas, and installing technology in existing locations, said Andy Fiol, director of consumer channel segment and product.

The result: Its deposits per branch have climbed 7% to $69.6 million from June 30, 2018 to June 30, 2019 and the figure has improved by at least 4% each year since 2015. Its efficiency ratio improved 532 basis points in that period, to 63.66%.

Other banks should attempt to emulate the strategy of institutions like Fulton, said Neil Stanley, CEO at The CorePoint in Omaha, Neb. As a potential recession lurks and low rates pressure net interest margins, banks will must find more places to identify cost savings. Deposits per branch is fertile territory for many banks to improve efficiency.

“It’s no longer about the quantity of branches you have,” Stanley said. “It’s about the quality and productivity of each branch.”

Over the past five years, multiple groups of publicly traded banks in various asset classes have improved overall median deposits-per-branch, according to a recent Janney Montgomery Scott study.

At banks with at least $50 billion of assets, for example, the median deposits per branch rose from about $110 million in June 2015 to about $130 million in June this year.

Some banks have made more progress than others in boosting deposits per branch.

At the $5 billion-asset Great Southern Bancorp in Springfield, Mo., median deposits per branch rose 21% to $39 million between the second quarters of 2018 and 2019, based on the Federal Deposit Insurance Corp.’s yearly Summary of Deposits. The $90 billion-asset Banco Santander’s deposits per branch also increased 21%, to $113.3 million. Those two banks had the best performance among all companies examined in the Janney Montgomery Scott study.

The largest banks are tackling deposits-per-branch from all sides, too. Bank of America and JPMorgan Chase are opening hundreds of branches, many of which in markets that are new to each company, such as Charlotte, N.C. and Nashville, Tenn., and offer better growth potential. The new branches are often typically smaller in size than the banks’ legacy branches, making them cheaper to operate.

At the same time, U.S. Bancorp plans to cut thousands of jobs at branches, in a bid to cut costs, but still keep all its 3,700 locations open.

“Big banks are pretty intentional about justifying their decisions,” Stanley said. “Even though they are building some branches, they’re very strategic about where they’re putting them.”

Regional banks have also pursued a combination of techniques. The $34 billion-asset F.N.B. in Pittsburgh is opening in locations with greater potential for deposit growth, such as Washington, D.C., and closing underperforming offices; F.N.B.’s branch count dropped about 8% to 370 from the third quarter of 2018 to 2019. During the same period, F.N.B.’s efficiency ratio improved 123 basis points to 53.32%.

Some banks are focusing on technological improvements to boost deposit-per-branch numbers and improve efficiency. The $147 billion-asset KeyCorp in Cleveland and many others are equipping branches with the latest technological innovations in consumer banking. These moves incur expenses in the short term, the result is a lower cost structure for retail operations, said Brian Martin, an analyst at Janney Montgomery Scott.

“We know that there have to be investments by these banks from a digital perspective,” Martin said.

Each new Fulton Bank branch is equipped with computer tablets and some are being staffed with universal bankers who can handle more than one type of job responsibility, Fiol said.

“Having a tablet and a universal banker, that enables a side-by-side experience to help customers bank wisely,” Fiol said. “We can demonstrate to them how to use the technology to make their lives easier.

Some large and regional banks have improved deposits per branch but still lag their peers. At the $128 billion-asset Regions Financial in Birmingham, Ala., for example, median deposits per branch increased 4.6% from 2018 to 2019. But they were still $68.5 million, the lowest among a group of 20 banks with at least $50 billion of assets.

Regions and several other institutions “have the opportunity to close branches and retain deposits and possibly get some savings,” Martin said.

It’s an essential task as rates remain persistently low and banks run out of other ways to generate profit growth, he said.

“You’ve got to dig deeper in this environment with low rates,” Martin said.

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Deposits Branch banking Earnings Community banking Regions Bank JPMorgan Chase Bank of America KeyCorp