Leading U.S. banks maintain branch numbers

May 6, 2011

The emergence of electronic channels in the financial sector has led some commentators to predict the imminent demise of the branch channel. In a previous blog, EMI disputed this prediction, arguing that banks would maintain a significant physical presence, although there would be changes in branch activities.

U.S. banks’ ongoing commitment to their branch networks is seen in the latest quarterly financials. Data is available for 8 of the top 10 branch networks in the U.S. (the exceptions are Wells Fargo and TD Bank).

These eight banks combined operated 23,152 branches in 1Q11, a decline of just 27 from 1Q10, and 7 from 4Q10.
Two of these banks (Chase and U.S. Bank) grew their branch networks in the most recent quarter. And in April, Chase reported that it would open 100 branches in California and 37 branches in Florida in 2011.
Bank of America registered the largest decline, with a decline of 51 branches between 4Q10 and 1Q11. Even after this decrease, it has more than 5,800 branches.

So, banks appeared committed to their branch networks for the foreseeable future. Electronic channels are now very effective in handling everyday service transactions, and are increasingly important sales channels. However, branches are still required for more complex and sensitive sales and service transactions, as well as for providing advice. However, banks need to continue to invest in their branches (in both physical infrastructure and personnel) in order to optimize effectiveness.

Banks reaching out to small businesses in advance of National Small Business Week

May 4, 2011

Over the past couple of weeks, there has been evidence of a continuation of the sometimes tentative recovery in the small business market.

The Federal Reserve’s Senior Loan Officer Opinion Survey of Bank Lending Practices found a continued easing of lending standards for small firms, as well as a growth in demand for such loans (however, this growth in demand trails that for large and middle market firms).
A Greenwich survey of small businesses found evidence of significant growth in demand for small business loans (up to now, banks have been claiming that they are willing to lend, but that small business demand has been weak)
According to the latest ADP Small Business Report, private small business employment rose by 84,000 in April 2011. Small business employment fell every month from April 2008 to February 2010, with a total decline during this period of 2.7 million. Since February 2010, private small business employment has grown every month, with a total increase of 788,000.
Some surveys (such as the latest Capital One Small Business Barometer survey) show an improvement in small business optimism. However, it should be acknowledged that this can be tentative, and other surveys (such as the Wells Fargo/Gallup Small Business Index survey and the NFIB’s Index of Small Business Optimism) registered recent declines.

Banks are now starting to introduce initiatives in anticipation on a sustained small business recovery. At the end of April, Chase committed to lending $12 billion in small businesses in 2011. And some leading banks have introduced small business initiatives around the upcoming National Small Business Week:

Citibank launched a nationwide small business campaign, starting with a national outreach day. The bank expects to reach 50,000 small businesses through a range of activities
TD Bank has launched its first small business outreach campaign, with a goal of reaching 25,000 companies during May
Wells Fargo launched its annual Small Business Appreciation Celebration and introduced the online Business Insight Resource Center

Other national and regional banks, as well as community banks, will be looking at these small business campaigns with interest, and will be trying to determine if they constitute a one-off to coincide with National Small Business Week, or the tipping point for an industry-wide re-commitment to this segment. If it is the latter, these other banks will need to quickly develop and introduce small business marketing and sales support programs, so that they are not left behind, as small business recovery takes hold.

Growth in middle market commercial lending

April 27, 2011

Recent articles in the Wall Street Journal and American Banker both discuss growth in U.S. banks’ commercial and industrial (C&I) lending. This growth in business lending has come at a time when banks are striving to find ways to catalyze revenue growth.

Banks’ first quarter financials shows particularly strong growth rates in lending to mid-sized commercial clients. The following table shows that for some leading U.S. banks (who break out C&I loan portfolio), middle market lending was stronger than overall C&I lending in the most recent quarter (the exception to this was at U.S. Bank).

Bank	4Q10-1Q11 Change in Average Loan Portfolio
Bank	Middle Market	C&I
Chase	+4.5%	+1.2%
Comerica	+0.8%	+0.1%
Key	+1.0%	-3.4%
U.S. Bank	+3.8%	+4.5%

In addition, banks reported growth in credit line utilization rates in 1Q11, in some cases for the first time in many quarters:

Bank of America reported that its middle market revolver utilization rate rose to 35%
Wells Fargo announced that its wholesale line utilization rate rose by 50 bps in the quarter to 33%
Chase middle market line utilization increased 100 bps in the quarter to 35%