Our analysis of the products that dominate retail franchise profits — checking, savings, and money market deposit accounts — shows that balance growth has been negligible on an acquisition-adjusted basis. As usual, however, there is considerable variation. Some banks have achieved more than a 4% compound annual growth rate in core deposits between 1993 and 1999; others have actually seen deposits shrink by as much as 3% per year.

Our analysis has uncovered five statistically significant factors that predict 85% of the variation among banks’ core deposit growth. Of these, four are related to value propositions as perceived by customers.

First, the level of spreads and fees varies inversely with banks’ growth rates. For some, it appears that retail and asset/liability pricing committees may have become overly aggressive. Whereas taking another 10 basis points in spread from savings or money market deposit account customers from time to time can be a “fix” of short-term earnings, longer-term growth can suffer if one’s best customers are pushed too far.

The tradeoff of price versus growth requires “what-if” optimization modeling. There is potential for creativity in pricing schemes, particularly at banks with the tools to measure customer profitability.

The second growth driver is service. Here we used the latest Consumer Reports survey as a measure of customer satisfaction. The highest-rated banks had, all else being equal, a two-percentage-point advantage per year versus the average growth rate. Those with poorer service ratings had relative deposit declines.

Third (and fourth), branch and ATM convenience matter. We first observed in the early 1990s that branches were valued by banks’ most profitable customers, based on our examination of customer profitability and transaction behavior. This is still true. Banks with the largest increase in acquisition-adjusted number of branches achieved one-percentage-point higher annual balance growth than the average bank.

Again, a short-term profit focus appears to have led some bankers to cut back too far on branch convenience. The days of the “low-hanging fruit” may be over, but our client work shows that it is possible to evaluate individual branches based on how critical they are to originating and servicing the most lucrative consumers and small businesses. Scorecards can be developed based on customers’ actual branch use (as opposed to assigning the customer to the branch where the account was opened). “Same-store” growth analysis is also useful. Such techniques can guide more thoughtful branch network optimization.

The density of a bank’s off-site ATM network is also positively correlated with growth. This makes sense, since ATMs provide free geographic convenience, particularly in a world of “foreign” ATM fees and surcharges. Of course this transaction convenience comes at a cost; for example, in some locales ATM oversaturation and merchant demands for space rental have made surcharges insufficient to recoup costs. Similarly, some banks with high deposit growth rates also waive ATM fees and credit surcharges incurred by customers using foreign ATMs.

Conversely, too high a concentration of on-site ATMs at physical branches had a slightly negative correlation with deposit growth. One hypothesis is that such banks have cut back human assistance too aggressively.

The fifth statistically significant factor underpinning deposit trends is the economic growth of the region. Banks whose retail franchise is concentrated in higher-growth markets enjoyed annual deposit growth over one-percentage-point higher than average. Related to this factor, the location of branches also affects growth. Banks concentrated in suburban and urban markets had higher growth than those in rural markets.

Formulas Driving PerformanceWe found no bank in the top 30 that held an advantage in all the above factors, that is, friendly pricing, good service, and above-average branch and ATM convenience within attractive markets. Rather, some banks, like Compass, enjoy underlying market growth, have been expanding their branch and offsite ATM distribution channels, and offer attractive pricing.

Some, like Wachovia and M&I, are using service levels and pricing underpinned by customer-level MIS and analytics.

For the lowest-growth banks, there are variations as well. Some have very aggressive pricing, low or negative branch growth, and subpar regional economies. Such banks appear to be harvesting their franchises. Our previous analysis found that banks with this behavior have often sold out, leaving their acquirer with the challenges of addressing this problematic positioning in the market.

Others have attractive pricing and concentrations in higher-growth markets but are compromised by poor service. Still others have high growth in branches and ATMs, but the combined impact of high prices, subpar economic growth, and low service has penalized growth.

Interestingly, some factors expected to correlate with deposit growth were not statistically significant.

Banks often tout high market share in investor presentations, or use it as a justification for acquisitions. Though local share has correlated with profitability, we found no statistically significant lift in increasing the odds of internally generated growth. There appear to be limits on market share, and some banks have found them.

In a drive to become more efficient, we thought some banks might be cutting into customer service “muscle.” So far, we have not seen this conclusively in the data. It raises the possibility that some banks with better efficiency may have cracked the code on low-cost operations without compromising relative customer service levels.

Finally, the ability to attract deposits online may play a role, but it is too early to tell.

Based on recent conversations with more than 30 senior retail executives and leading equity analysts, there are additional potential drivers of deposit growth where data are not available to quantify their impact. Improved staffing and training for the front line are examples.

Looking forward, management will need to consider all of the variables that drive growth and make the appropriate tradeoffs. Leaders have demonstrated an ability to grow this mature business while maintaining efficiency ratios and profitability. Such growth has been worth 10 to 20 percentage points over the last five years compared with average or low performers.

Mr. McCormick is president of First Manhattan Consulting Group; Mr. Goetzmann and Mr. Zizka are managing vice presidents.

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