At the start of each year, Bancography prepares its annual outlook for the financial ..... About 88% of U.S. banks left
Dear Clients and Colleagues, At the start of each year, Bancography prepares its annual outlook for the financial services industry, examining deposit, demographic, and economic trends across the U.S. This year’s edition reprises many charts from prior years’ studies (archived at www.bancography.com/bancographyoutlook.html for comparison), but repeat readers will notice new exhibits addressing branch open and close patterns and the economic environment. The exhibits herein reflect the 2012 FDIC and NCUA branch statistics, as well as 2012 demographics and forecasts, and reveal some interesting trends to consider in your strategic planning efforts. As you review the report, give a call with any questions. Thanks, as always, for your confidence in Bancography.
DETAILS • Most data are presented in two groups: – –
For the 30 largest metropolitan areas in the United States For the 30 top-ranking markets on the specific attribute, among all U.S. metros with at least 500,000 residents; this threshold impounds 102 metros
• The top 30 metros encompass: –
45% of U.S. residents and 49% of U.S. deposits
• The 102 metros with population > 500,000 encompass: –
66% of U.S. residents and 69% of U.S. deposits
• Need information on a market that’s not in the study or a measure that’s not
included? Just give us a call and we’ll send the statistics you need. 3
SOURCES, NOTES, ETC. • Data include both banks and credit unions. • All data are as of June 30 in the year indicated. • Note that substantial corporate and public funds deposits at large main
offices can skew deposit statistics. To counter this, all calculations truncate individual branch deposits at $250M, i.e., any branch that owns more than $250M in deposits is given credit for only $250M in the deposit summary calculations. The resulting statistics offer a plausible estimate of retail and small business deposits. • Note also that large office balance variances tend to smooth over time, so the
four year trend graphs may be more useful than the one year graphs. • All demographics are from EASI Demographics, June, 2012.
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NATIONAL DEPOSIT GROWTH TRENDS Since the ‘flight to quality’ boon that followed the 2008 economic crisis, consumer and small business deposit growth has remained low, though 2012 saw some rebound from the lows of 2010 and 2011. In contrast, institutional balances increased substantially in 2011 and 2012 as large corporations parked cash in financial institutions, hesitant to invest in a slow economy. 9% 8% 7% 6% 5% 4% 3% 2% % Deposit change, total
1%
% Deposit change, retail / small business
0% 2006
2007
2008
2009
2010
2011
2012 5
DEPOSIT CHANGE (%), TWO YEAR COMPARISON Top 30 MSAs 8% 2011 - 2012 2010 - 2011
6%
4%
2%
Riverside
Los Angeles
Kansas City
Chicago
Sacramento
Tampa
New York
Cleveland
San Diego
Cincinnati
Atlanta
Philadelphia
Las Vegas
St. Louis
Detroit
Orlando
Phoenix
Miami
Denver
Seattle
Boston
Portland
Minneapolis
Pittsburgh
Baltimore
Dallas
Houston
San Francisco
-2%
San Antonio
Washington
0%
Almost all of the top 30 MSAs posted greater deposit growth in 2012 than in 2011, and only Riverside showed a decline over the past year. As in 2011, three of the four fastest growing markets were in Texas, and four of the top 10 along the Northeast corridor. The two large Pacific Northwest metros both ranked well, too.
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DEPOSIT CHANGE ($B), TWO YEAR COMPARISON $ Billions
Top 30 MSAs
$14
$15B
$12 $10
2011 - 2012 2010 - 2011
$8 $6 $4 $2
-$2
Washington New York Houston Dallas Boston Miami Philadelphia Seattle Pittsburgh Baltimore Minneapolis Detroit San Antonio Atlanta Chicago Phoenix Denver St. Louis Portland Los Angeles San Diego Orlando Cincinnati Cleveland Tampa Las Vegas Sacramento Kansas City San Francisco Riverside
$0
In absolute terms, the large markets in the Northeast corridor continued to show the greatest deposit gains, capturing six of the top ten spots. Three large Sun Belt metros (Houston, Dallas, Miami) all ranked among the top six markets.
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DEPOSIT CHANGE (%) Top 30 MSAs among all metros with population > 500,000 9%
$8.0 $12.5B
8%
% Deposit growth
$7.0
Deposit change ($B)
7%
$6.0
6%
$5.0
5% $4.0 4% $3.0
3%
$2.0
2%
Seattle
Tucson, AZ
Boston
Little Rock, AR
Portland, OR
Minneapolis
Columbus, OH
Nashville, TN
Poughkeepsie, NY
Bridgeport, CT
Ogden, UT
Pittsburgh
Portland, ME
Springfield, MA
Baltimore
Dallas
Raleigh, NC
Omaha, NE-IA
Grand Rapids, MI
Colorado Spgs, CO
Oklahoma City, OK
Durham, NC
Salt Lake City, UT
El Paso, TX
Houston
San Antonio
Washington
$0.0
Charleston, SC
0%
Provo, UT
$1.0 Austin, TX
1%
Many smaller metros posted deposit gains comparable to the top large markets, with the top gainers scattered across the country in markets as diverse as Austin, Provo, and Charleston. Contractions in state employment were evident, as fewer state capitals ranked highly than in prior years – though Austin, Salt Lake City, Oklahoma City, and Raleigh maintained top 15 positions.
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DEPOSIT CHANGE (%), 2008 – 2012 Top 30 MSAs 30% 25% 20% 15% 10% 5%
Las Vegas
Riverside
Los Angeles
Atlanta
Chicago
Cleveland
Sacramento
Tampa
San Diego
Detroit
Phoenix
San Francisco
Kansas City
Orlando
Miami
Seattle
Cincinnati
Denver
Pittsburgh
New York
St. Louis
Minneapolis
Philadelphia
Baltimore
Portland
Dallas
Boston
Houston
San Antonio
-5%
Washington
0%
-10%
Over the past four years, Texas and Northeast corridor markets captured seven of the top eight growth spots. In contrast, the long-term performance shows the severe impact of the housing slowdown in once high-flying markets (Las Vegas, Riverside, Phoenix, Atlanta). A revival in manufacturing has moved Midwest metros such as Detroit, Cleveland, and Cincinnati upward in the rankings.
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DEPOSIT CHANGE ($B), 2008 – 2012 Top 30 MSAs
$ Billions
$65B
$40 $36 $32 $28 $24 $20 $16 $12 $8
Riverside
Las Vegas
Sacramento
Cleveland
Tampa
Orlando
Kansas City
Atlanta
San Diego
Phoenix
Cincinnati
Detroit
Denver
Portland
Pittsburgh
Seattle
San Antonio
St. Louis
Baltimore
Chicago
Los Angeles
San Francisco
Miami
Philadelphia
Houston
Dallas
Boston
Washington
-$4
New York
$0
Minneapolis
$4
Large markets in the Northeast corridor showed the highest absolute deposit gains over the past four years, but two large Texas metros and two major California metros also ranked among the top ten, with Chicago and Miami rounding out that top group.
10
DEPOSIT CHANGE (%), 2008 – 2012 Top 30 MSAs among all metros with population > 500,000 35%
30%
25%
20%
15%
A longer-term view shows that many of the fastest growing markets were in the South or Southwest, including the five largest MSAs in Texas. State capitals fare better than in the one year view, confirming the impact of recent employment declines in the public sector.
Hartford, CT
Philadelphia
Grand Rapids, MI
Baton Rouge, LA
Poughkeepsie, NY
Albuquerque, NM
Baltimore
Portland, ME
Portland, OR
Wichita, KS
Springfield, MA
Worcester, MA
Nashville, TN
Provo, UT
Omaha, NE-IA
Little Rock, AR
Melbourne, FL
Dallas
Boston
Durham, NC
Jackson, MS
Houston
El Paso, TX
Oklahoma City, OK
Harrisburg, PA
San Antonio
Washington
Austin, TX
Raleigh, NC
Bridgeport, CT
10%
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DEPOSIT GROWTH AND UNEMPLOYMENT • The maps on the next two pages show deposit growth and unemployment
rates by state. Note the high correlation between the two statistics. Driven by expanding energy production, North Dakota and adjoining states in the upper Midwest show the nation’s lowest unemployment rates and also the highest deposit growth. Other states with strong energy economies (Texas, Alaska, Montana) also fared well on both dimensions. • Conversely, states with high unemployment such as California, Illinois, and
several Southeast states suffered corresponding low deposit growth.
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DEPOSIT GROWTH BY STATE
13
UNEMPLOYMENT RATE BY STATE
Source Bureau of Labor Statistics
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UNEMPLOYMENT AND DEPOSIT GROWTH 12%
Deposit growth, 2011 - 2012
10%
R² = 0.50
8% 6% 4% 2% 0% -2% 3%
4%
5%
6%
7%
8%
9%
10%
11%
2012 Average Unemployment
The correlation between unemployment and deposit growth is also evident in the best fit regression line in the graph above, where each point represents one of the 50 states. On average, every one percentage point reduction in unemployment increases deposit growth by 0.7 percentage points.
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UNEMPLOYMENT AND DEPOSIT GROWTH 13% 12%
Unemployment rate
11% 10% 9% 8% 7% 6% 5% 4% ND NE SD IA WY OK VT HI UT KS LA VA MN MT NH TX NM ID AK WI MD MO OH MA DE AL AR ME WV WA TN CO AZ PA FL KY IN NY SC OR DC MS GA CT IL MI NC NJ CA NV RI
3%
Given the relationship between employment levels and deposit growth, statewide trends provide valuable insights. The chart shows the Dec 2011 and Dec 2012 unemployment rates for each state. Green bars show improvement from the top (2011) to the bottom of the bar (2012 ); red bars indicate backsliding from bottom (2011) to top (2012). Nevada and Florida showed the greatest improvement in the past year, but unemployment levels remain at troubling levels in both states.
16
DEPOSIT GROWTH BY INDUSTRY TIER • As large banks wrestled with financial troubles and image issues over the past
four years, credit unions and community banks outgrew those firms. National banks rebounded somewhat in 2011, and joined credit unions with the top growth rates in 2012, confirming that brand differentiation now requires more than simply a “we’re not them” message.
•
Table classification definitions – National: Bank of America, Wells Fargo, Chase, Citibank – Super-regional: operating in 10+ states, or spanning multiple regions, such as Key, US Bank and SunTrust – Regional banks: operating in four to nine mostly contiguous states within a single region of the country, usually 200+ branches, e.g., Associated Bank, Synovus and Union Bank – Super-community banks: serving only one to three states; also includes most of institutions in the 100 – 150 branch tier, e.g., FNB Pennsylvania, Prosperity Bank and Wesbanco – Community banks: deposits less than $1B, geographically compact franchise 17
BRANCH DEPOSIT GROWTH $1,200
Median deposit change, mature branches ($000s)
35%
% Branches with deposit change > $3M
30%
$1,000
25%
$800
20% $600 15% $400
10%
$200
5%
$0
0% 2007
2008
2009
2010
2011
2012
The median deposit change among mature (open at least five years) freestanding branches last year was $850m. That statistic has hovered between flat and $1M over the past six years, confirming the difficulty of generating deposit growth once a branch leaves its startup phase. The $3M point offers a good boundary for demarcating top-tier performance as in most years, about one in four branches surpasses that level in deposit growth.
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BRANCHING ACTIVITY OF U.S. BANKS The inventory of branches in the U.S. has declined by almost 2,000 units over the past three years, including a decline of 750 units in 2012. However, the pace of new branch opens revived from 2011 lows last year – even as the pace of closes increased by a greater degree. 6,000
Total opens Total closes Net opens
5,000 4,000 3,000 2,000 1,000 0
2005
2006
2007
2008
2009
2010
2011
2012
-1,000 -2,000
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BRANCHING ACTIVITY OF U.S. BANKS The industry’s 750 unit branch decline was rooted in a limited number of institutions, mostly regional and national banks. Just six banks accounted for half of the total unit decline, and the 17 banks that closed 15 or more branches (net of opens) accounted for more than 80% of the industry’s aggregate branch loss. Most of these institutions pared smaller branches; the average deposits of the closed branches generally falls well below the industry’s $47M average and $36M median branch size.
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THE SCOPE OF U.S. BRANCH NETWORKS
10 5 0 -5 -10
Riverside Portland Seattle Los Angeles San Diego San Francisco Miami Cleveland Kansas City Washington Las Vegas Sacramento Minneapolis St. Louis Denver Orlando Baltimore Phoenix Boston Pittsburgh Cincinnati San Antonio Atlanta Houston Detroit Tampa Chicago Philadelphia Dallas New York
Average four year change, top five branch networks
In about two-thirds of the top 30 metros, the average size of the market leaders’ branch networks has declined over the past four years (2008 - 2012); in about one-third it has increased. For this study, the market leaders are defined as the owners of the five largest networks by number of branches. Most of the increases occurred in high growth metros on the west coast, where branch concentration levels are lower. The largest contractions occurred in older markets and in markets that saw significant merger activity.
-15 -20 -25 -30 -35
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THE SCOPE OF U.S. BRANCH NETWORKS While the statistics on the preceding page (replicated here as the light blue bars) indicate that in many markets the market leaders are willing to compete with fewer branches, the chart below illustrates that the magnitude of the changes – expansions or contractions – remains minimal relative to the absolute scope of the leaders’ current networks (shown as dark blue bars). 492
300
Average four year change, top five branch networls
250
Average size, top five branch networks, 2012
200 150 100 50
New York
Dallas
Philadelphia
Chicago
Tampa
Detroit
Houston
Atlanta
San Antonio
Cincinnati
Pittsburgh
Boston
Phoenix
Baltimore
Orlando
Denver
St. Louis
Minneapolis
Sacramento
Las Vegas
Washington
Kansas City
Cleveland
Miami
San Francisco
San Diego
Los Angeles
Seattle
Portland
-50
Riverside
0
22
BRANCHING ACTIVITY OF U.S. BANKS, 2011 – 2012 About 88% of U.S. banks left their branch networks unchanged last year. Of those banks that adjusted their network size, slightly more reduced branches than added branches. But as in the prior year, the statistics were close, with roughly the same number of institutions choosing to grow versus shrink their branch networks. The lack of a clear direction likely reflects the broad differences in regional economies, market growth, and institution health across the industry.
0%
Reduced No change Added
20%
40%
60%
80%
100%
US banks: Branch network activity, 2011 - 2012 457 6,350 437
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PROJECTED HOUSEHOLD GROWTH, 2012 - 2017 Top 30 MSAs 18% 16% 14% 12% 10% 8% 6% 4% 2% Pittsburgh
Detroit
Cincinnati
Cleveland
St. Louis
Chicago
New York
Philadelphia
Los Angeles
Minneapolis
Baltimore
Kansas City
Miami
San Diego
San Francisco
Boston
Sacramento
Atlanta
Tampa
Denver
Seattle
Washington
Portland
Riverside
Dallas
Houston
Phoenix
Las Vegas
-4%
Orlando
-2%
San Antonio
0%
As the economy recovers, household growth is reviving, especially in markets that suffered severe slowdowns during the recession (Las Vegas, Phoenix, Riverside). Three of the ten fastest growing large metros are in Texas, and nine of the top ten are located west of the Mississippi River, with Washington, DC the lone exception. 24
PROJECTED HOUSEHOLD GROWTH, 2012 - 2017 Top 30 MSAs among all metros with population > 500,000 18% 16% 14% 12% 10% 8% 6% 4% 2% Harrisburg, PA
Albuquerque
Portland, OR
Colorado Spgs
Charlotte, NC
Lancaster, PA
Salt Lake City
Augusta, GA
Durham, NC
Nashville, TN
Tucson, AZ
Richmond, VA
Riverside
Boise, ID
Dallas
Cape Coral, FL
Charleston, SC
Houston
El Paso, TX
Bakersfield, CA
Ogden, UT
Columbia, SC
Phoenix
Las Vegas
Orlando
New Orleans
Provo, UT
Raleigh, NC
Austin, TX
San Antonio
0%
Warm weather locales dominate the list of fastest-growing metros, with five Texas markets and four markets in the Carolinas ranking among the top 30 MSAs by household growth forecast. The Rocky Mountain region is well represented, too, by three markets in Utah and four markets elsewhere in the region. In contrast, only two markets from the Northeast reach the list, with Lancaster and Harrisburg, Pennsylvania in positions 25 and 30.
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PROJECTED HOUSEHOLD GROWTH, 2012 - 2017
The Pacific Northwest, Texas, and the south Atlantic coastal states show the highest household growth forecasts over the next five years. In contrast, note the low forecasts along the Mississippi River Valley, through much of the upper Midwest, and across the Appalachian regions. 26
AGE DISTRIBUTION
California and much of the Rocky Mountain region feature younger household bases, as do the major metros of the Northeast corridor. The household base skews older in the upper Midwest, as well as in coastal retirement communities. The coastal retirement phenomenon is not exclusive to warm climes; note the areas in Maine, northern Michigan, and on the Washington and Oregon coasts.
27
MEDIAN HOUSEHOLD INCOME Top 30 MSAs among all metros with population > 500,000
$95,000 $90,000 $85,000 $80,000 $75,000 $70,000 $65,000 $60,000 $55,000 Washington Bridgeport, CT San Jose, CA Oxnard, CA San Francisco Poughkeepsie, NY Boston Hartford, CT Baltimore Minneapolis Seattle Worcester, MA New York Honolulu, HI San Diego New Haven, CT Odgen, UT Chicago Denver Raleigh, NC Philadelphia Sacramento Madison, WI Salt Lake City, UT Austin, TX Los Angeles Des Moines, IA Provo, UT Albany, NY Virginia Beach
$50,000
The Northeast corridor dominates the list of most affluent metros, and numerous California MSAs rank well, too. The top-ranking Midwest and Northwest markets fall a level below the Northeast and West coast leaders, and the median income in the topranking Southern market, Raleigh, falls 30% below that of Washington.
28
DEPOSITS PER HOUSEHOLD Top 30 MSAs
$90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000
The largest, long established metros such as Washington, New York, Boston, San Francisco, and Los Angeles show higher deposits per household than newer markets such as Orlando, Phoenix, Las Vegas and Riverside – San Bernardino.
Riverside
Las Vegas
Phoenix
Orlando
Portland, OR
Atlanta
San Antonio
Cincinnati
Sacramento
Denver
Tampa
Dallas
Minneapolis
Detroit
Kansas City
Cleveland
Houston
Baltimore
Seattle
St. Louis
San Diego
Pittsburgh
Philadelphia
Chicago
Miami
Los Angeles
San Francisco
Boston
New York
Washington
$0
29
DEPOSITS PER HOUSEHOLD Top 30 MSAs among all metros with population > 500,000
$100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 Bridgeport, CT Raleigh, NC San Jose. CA Washington Harrisburg, PA New York Boston San Francisco Honolulu, HI Los Angeles Madison, WI Salt Lake City, UT Hartford, CT Miami Chicago Philadelphia Poughkeepsie, NY Oxnard, CA Ogden, UT Springfield, MA Albany, NY Pittsburgh New Haven, CT Knoxville, TN San Diego Providence, RI St. Louis Portland, ME Bradenton, FL Allentown, PA
$0
Income translates directly into deposits; note the high overlap between the highest-income markets on the prior pages and the top deposits per household markets in the graph above; five markets rank in the top ten on both measures.
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INCOME DISTRIBUTION
Affluence is concentrated in major metros, especially along the Northeast corridor from Washington, DC to Boston. Chicago, Minneapolis and parts of Texas, California, and the Pacific Northwest rank highly, too; while the South and Appalachian regions remain among the least affluent areas. 31
AGGREGATE INCOME GROWTH, 2012 – 2017 Top 30 MSAs among all metros with population > 500,000 41% 39% 37% 35% 33% 31% 29% 27%
Modesto, CA
Omaha, NE
Bakersfield, CA
Tucson, AZ
Seattle
Nashville, TN
Oxnard, CA
Orlando
Portland, ME
Riverside
Minneapolis
Portland, OR
Raleigh, NC
Bradenton, FL
Madison, WI
Phoenix
Des Moines, IA
Albuquerque
Charleston, SC
Denver
San Antonio
Salt Lake City
Ogden, UT
Colorado Spgs
Provo, UT
Boise, ID
El Paso, TX
Cape Coral, FL
McAllen, TX
Austin, TX
25%
The rate of aggregate income growth impounds the rate of household growth, the projected level of affluence and the aging of the household base. Aggregate income is projected to grow fastest in economically strong states such as Texas and the Rocky Mountain region, which combine to hold all but one of the top 11 spots.
32
BRANCH CONCENTRATION 2,000 1,800 1,600 1,400 1,200
US overall
1,000 800 600 400 200
Long-established markets in the Northeast and Midwest are more concentrated, with one branch for every 900 – 1,000 households. California and other Western metros remain less concentrated; many contain only one branch for every 1,500 households.
Kansas City
Pittsburgh
Cincinnati
Cleveland
St. Louis
Boston
Chicago
Washington
Philadelphia
Orlando
Houston
New York
Baltimore
Portland, OR
Miami
Seattle
Dallas
Denver
Detroit
Tampa
Atlanta
San Antonio
San Francisco
Minneapolis
Los Angeles
San Diego
Phoenix
Sacramento
Las Vegas
Riverside
0
33
DEPOSITS PER BRANCH $M
Top 30 MSAs $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 Cincinnati
Kansas City
Orlando
Cleveland
Pittsburgh
Portland, OR
St. Louis
Phoenix
Houston
Denver
Atlanta
Riverside
Dallas
Baltimore
San Antonio
Las Vegas
Chicago
Tampa
Detroit
Philadelphia
Seattle
Minneapolis
Sacramento
Miami
Boston
San Diego
New York
Washington
Los Angeles
San Francisco
$0
The top markets in terms of deposits per branch reach that status through a combination of high affluence or low to moderate branch concentration. The largest average branch size is thus found in markets that rank highly on both attributes (San Francisco, Los Angeles). In Washington and New York, affluence is high enough to offset severe branch concentration.
34
DEPOSITS PER BRANCH $M
Top 30 MSAs among all metros with population > 500,000 $140 $120 $100 $80 $60 $40 $20
Chicago
Tampa
Salt Lake City, UT
Detroit
Modesto, CA
Providence, RI
Philadelphia
Seattle
Tucson, AZ
Harrisburg, PA
Fresno, CA
Hartford, CT
Minneapolis
Albuquerque, NM
Melbourne, FL
Bakersfield, CA
Sacramento
Bridgeport, CT
Miami
Boston
San Diego
Oxnard, CA
Ogden, UT
New York
Washington
Honolulu, HI
Los Angeles
San Francisco
Raleigh, NC
San Jose. CA
$0
With their greater aggregate wealth, large markets capture most of the top spots in a ranking of deposits per branch. San Jose, Raleigh, Honolulu , Ogden, and Oxnard – all high income communities – lead a group of mostly coastal smaller markets that reach top rankings.
35
ADVICE FOR THE YEAR AHEAD • Although most economic indicators are trending positively, the pace of the
recovery varies by region. In economically healthier areas, lending demand is reviving. While this is certainly beneficial to the financial institutions in those regions, bankers must reestablish sales momentum to capitalize on the recovery. Lenders conditioned to sluggish demand and organizations that relentlessly focused on problem assets may find it difficult to return to sales mode without some level of internal reconfiguration. Bank executives must clearly set a tone that the institution’s primary mission has shifted from balance sheet repair back to portfolio growth. • Further, reviving loan demand could bring about liquidity challenges for the
first time since before the recession. The institutions that are best attuned to the economic conditions of their markets will stand the best chance of capitalizing when loan demand returns to historic norms. But keep in mind that as loan to deposit ratios rise, maintaining adequate liquidity will likely demand a higher cost of funds than the industry enjoys today. 36
ADVICE FOR THE YEAR AHEAD • Indicators for consumer lending remain mixed: consumer credit has rebounded
to all time high levels, but mortgage and home equity balances continue to decline. But the ratio of owners’ equity to real estate value is now at its highest level since 2007, so home-owning consumers may soon feel more assured in assuming additional leverage, i.e., raising home equity balances. • The housing sector continues to improve in terms of new and existing home
sales, average sales prices, and inventory levels. However, the historic low-rate environment may have conditioned consumers to view any mortgage rate above 5% as untenably high, so any substantive increase in rates could counteract the present positive trends. In markets that enjoyed excessive pre-recession housing development, the resulting inventory overhang will keep prices moderate, and bankers can build enduring relationships by helping first-time homebuyers capitalize on the opportunity.
37
ADVICE FOR THE YEAR AHEAD • In long established markets, branch closures and consolidations may create
opportunities for community banks and credit unions to purchase or lease sites at favorable terms. But in less concentrated markets, market leaders continue to add branches and the cost of keeping pace may prove prohibitive. In such markets, smaller institutions may be better served pursuing only specific corridors rather than marketwide branching, or focusing on specific, non-retail lines of business such as wealth management or business banking. • At the height of the financial crisis, some industry analysts predicted a
‘meltdown’ in commercial real estate on a par with the housing crisis that occurred during the past four years. But commercial real estate declines never reached the magnitude of the housing downturn, and as a result, the cost of potential branch sites – both freestanding and in strip shopping centers – remains near historic norms. Still, store closures by troubled retailers (e.g., Best Buy, Barnes and Noble) could adversely affect specific shopping centers, and bankers must carefully evaluate the long term viability of the stores anchoring shopping centers that hold proposed branch sites.
38
ADVICE FOR THE YEAR AHEAD • The FDIC closed 51 banks in 2012, down from 92 in 2011 and about 150 in
2009 and 2010. If the downward trend continues, not only will there be fewer growth opportunities; but the price for FDIC-assisted transactions will likely increase. Thus, banks seeking to grow quickly will need to turn to open-bank acquisitions, or purchases of branch ‘carve outs’ from other banks looking to strategically exit certain markets. • Even as the industry continues to debate the role of the branch in the long
term future, it remains the near exclusive channel for sales origination in the immediate term. Effective banks must continue to expand their networks within target markets to provide both awareness and consumer convenience. However, with the economic recovery just beginning to gain traction in many markets, new branch balance growth may lag historic norms. This underscores the importance of judicious branching; adding branch capacity only incrementally, and employing service models that keep occupancy and staff costs to a minimum during the start up phase of new branches. 39
Questions, Comments or More Information? Bancography (205) 252-6671
[email protected]
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