JPMorgan Finds Ways to Grow While Shrinking

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Even the nation's high-tech hub needs to bank the old-fashioned way sometimes.

JPMorgan Chase plans to open new brick-and-mortar branches in San Francisco and other high-growth cities, as it looks to expand its base of low-cost deposits.

The move is part of a targeted effort by JPMorgan — the industry's largest bank by assets — to expand its market share in fast-growing and affluent regions of the country. In addition to San Francisco, the bank has added branches in Miami, while it eliminated them in Chicago and Phoenix.

"I'm often asked, 'Why don't we just accelerate closings?'" said Gordon Smith, head of JPMorgan's consumer-banking unit. "The answer is, our customers want to go there — and when they don't we'll change the strategy."

Smith added that it is not just the company's older, more affluent clientele who are visiting the branches. Younger consumers — a group often assumed to prefer mobile banking — also visit branches for a range of basic needs, from check cashing to tailored financial advice, he said.

"They use them for the same things that the rest of customers use them for," Smith said.

Smith's presentation was part of JPMorgan's annual investor day, held at the company's New York headquarters on Tuesday.

Overall, JPMorgan has slimmed down on its overall branch count, in line with most of the industry, as it continues to make splashy investments in new technology.

Total branches declined by about 3% last year, to just over 5,400. In the coming year, the company expects to trim another 150 branches.

But it has taken the opposite strategy in a handful of urban markets — and it has the deposit share gains to show for it.

Since 2012, JPMorgan has added 26 branches in Miami, and another 15 in San Francisco. At the same time, the company said that it added market share in those cities at a higher rate than the industry average.

The company's deposits grew by 48% in Miami and 35% in San Francisco in the last three years, compared with industrywide growth of 14% and 18%, respectively, the bank said, citing Federal Deposit Insurance Corp. data.

"This is just a moment in time," Smith said, noting that other cities that show strong growth potential will be targeted for new branches. He did not name other potential growth markets. Smith also said that it typically takes between three and five years for a branch to become profitable.

The targeted approach to branching also comes as the company works to acquire a more affluent customer base. At various points throughout the investor day presentations, JPMorgan executives talked about the bank's ability to attract a well-heeled clientele.

"What we're trying to do is attract a customer that stays with the bank, and the deposit is an outcome of having that relationship," Smith said.

Between 2012 and 2015, the average checking account balances of new customers increased 42%, the company said, though it did not say how big the average balancers were.

Despite its retail-growth ambitions, JPMorgan reiterated that it has made progress on its year-long of goal shrinking its overall operation. In the past year, the company has purged a significant portion of its balance sheet, as it looks to avoid the most onerous regulatory requirements for large and complex banks.

Total deposits declined by 6% in 2015, to $1.2 trillion, compared to a year earlier, as the company shed higher-cost wholesale accounts and focused on core retail accounts. Total assets, meanwhile, declined by about 8%, to $2.4 trillion.

The company also saw declines in overhead expenses, though its outlook for costs in the coming year remains flat.

Those changes have helped JPMorgan reduce its capital surcharge to 3.5%. A year ago, the bank faced a surcharge of 4.5%, close to the highest level required by the Federal Reserve.

While the company has made significant progress on slimming down — and, notably, at a time when big banks are once again coming under scrutiny for being bloated and hard to manage — officials cautioned investors that future operational cuts will be much less significant. In her presentation to investors, Chief Financial Officer Marianne Lake said that most of the big cuts have already been made.

"A lot of the low-hanging fruit has been harvested," Lake said.

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