By Steve Reider
The banking industry has experienced a well-documented decline in branch counts over the past 10 years, as electronic channels have emerged and in-branch transaction counts have waned. Accordingly, any number of articles and presentations have questioned the ongoing need for branches, and predictions of the branch channel’s demise remain routine fodder for dramatic proclamations at industry conferences.
However, the reality is more nuanced. No doubt, electronic channels continue to fulfill an increasing share of transaction demand; and correspondingly, industry-wide branch counts have declined in recent years. Overall, banks and credit unions shed a net 8,500 branches over the past four years, and the resulting count of 95,000 bank and credit union branches nationwide sits 16 percent below the peak levels of 2010. Despite those statistics, several underlying components of those totals point to continued confidence in branch banking as a viable channel for balance growth.
First, note that much of the decline in branch counts reflects institutions closing direct overlaps that arose from in-market mergers. Closures that followed the merger of BB&T and SunTrust into the newly named entity of Truist accounted for more than 10 percent of the industry’s entire net branch decline from 2019-2023. These and other merger-related closures of overlapping branches do not impact the convenience proposition of the bank to the consumer. If one branch closes but a surviving branch sits a block away, that does not diminish the bank’s coverage of the market, or indicate any lesser belief in the importance of branches.
Note also: The decline in branch counts in many cases reflects a reorientation of assets from lower-potential markets into higher-potential markets—not a wholesale abandonment of branches as a channel for client acquisition. Consider that in the 2023 FDIC reporting year (ended June 30), the industry’s net decline of more than 1,500 branches was a composite of 2,530 branch closures, offset by more than 1,000 branch openings.
Thus, while bankers are paring ineffective and unprofitable locations in declining markets, they are concurrently investing in higher-opportunity markets. In that the median cost of new freestanding branches in the U.S. is now $2.4 million and inline branches more than $700 million, the construction of 1,000 new branches likely represents a capital investment of more than $2 billion in new branches in the U.S. in the past year (assuming a 75 percent / 25 percent divide of freestanding versus storefront service models).
Most importantly, bankers continue to maintain branch networks in high-potential markets; as the decline in branch counts is not uniform across geographies, but rather reflects a logical process of resource allocation, aligning capital investment with market opportunity.
Of the 114 metropolitan statistical areas in the U.S., 11 showed either increases or no change in branch counts over the past four years: Austin, Charleston, Charlotte, Dallas, Des Moines, Fayetteville, Arkansas, Greenville, South Carolina, Nashville, Oklahoma City, Omaha and Provo. These markets vary sharply in size. Dallas is the fourth-largest metro in the nation with 8 million residents; Fayetteville contains only 580,000 residents. However, these resilient branching markets share other demographic commonalities.
Most notably, all are fast-growing regions. The U.S. household base increased by 3.5 percent over the past five years. Of the 11 markets with flat or increasing branch counts, 10 showed household growth rates of at least 8 percent from 2018 to 2023—more than double the nationwide pace. The lone outlier, Omaha, still outperformed the U.S. overall with 6 percent household growth in that time frame. Each of the markets also enjoy robust economies. -At a time when the nationwide unemployment rate remains near a 50-year low, the markets that have escaped branch consolidation fare even better. Eight of the 11 markets showed unemployment of less than 3 percent over the past 12 months, with Austin and Charlotte bouncing between 3 and 3.5 percent in that timeframe, and Dallas essentially mirroring the U.S. overall statistic.
While the larger markets on the list benefit from diversified economies, the smaller markets benefit from specific economic and employment drivers: major universities in Fayetteville and Provo; the state capital complex in Des Moines; the lure of coastal retirement destinations in Charleston. Several markets that fall just below the branch-neutral threshold (i.e., with declines of only 1 or 2 percent in branch counts over the past four years) share the same attributes as the top-tier group. For example, Colorado Springs and Ogden are fast-growing metros with specific governmental (military and educational) economic anchors; and Minneapolis, San Antonio and Tulsa are all fast-growing, diversified metros with robust underlying economies.
One surprising point of divergence across the top-tier markets lies in branch concentration. It would be logical that markets with high per-capita branch concentration levels would show greater levels of branch consolidation and vice versa, as markets converged toward national means. However, at a time when nationwide there is one branch for every 1,340 households, Omaha, Fayetteville and Des Moines each show ratios of 1,000 to 1,100 households per branch—levels that might predict some level of consolidation to bring ratios in line with national norms. At the opposite end of the spectrum, Austin, Charlotte and Dallas all show ratios near 1,600 households per branch, indicating ample capacity for these markets to absorb additional branching and still remain comfortably above typical branch concentration levels (Minneapolis and Colorado Springs also join that “less concentrated” tier).
In sum, even as the nation overall has shown significant levels of branch consolidation in recent years, bankers are continuing to invest in top-tier markets, especially those displaying strong household growth and with robust underlying economies. This reflects the inherent economic truth that capital flows to the opportunities offering the highest returns. So, while bankers may have turned more judicious in terms of overall branch-capital allocations, they wisely continue to maintain investment levels in top-tier markets, even if withdrawing investment from lower-potential markets in order to do so.
Steve Reider is the president of Bancography, which publishes Bancology, a quarterly newsletter on bank marketing strategies. Email: [email protected].
