Category Archives: Commercial Banking

FDI data confirms robust C&I loan growth among U.S. banks

Most of the leading U.S. banks highlighted continued robust C&I loan growth in their most recent financials.  Recently-published data from FDIC provides C&I loan data for all of the 7,200 U.S. banks, enabling us to develop a more comprehensive picture of overall changes in C&I lending, as well as making comparison between different bank-size categories.

The following are some topline takeaways from an EMI Strategic Marketing, Inc. analysis of the FDIC C&I loan data:

  • C&I loan portfolios for all FDIC-insured banks rose 18% year-over-year, to more than $1.4 trillion at the end of 2Q12
  • Looking at different C&I loan-size categories, the portfolio of loans of more than $1 million jumped 23% y/y.  However, the portfolio of loans of less than $1 million grew by only 2%.
    • Within the C&I loans of <1MM category, strongest growth was for <$100K loans (mainly business credit card loans), which rose 5% y/y
  • Continuing a trend seen in recent quarters, the larger banks (>$50  billion in assets) had the strongest y/y rise in overall C&I loans.

  • Reflecting the trend in overall C&I loans, the largest banks had the strongest growth in small business loans (of <$100K).

Market-Specific Metrics Inform Bank Branch Network Investments

The emergence of virtual channels, the need to cut costs and speculation of more industry consolidation are all spurring banks to reconsider their branch networks.  Recently, EMI Strategic Marketing Inc. published blogs on the changing role of the branch, as well as trends in branch numbers for leading U.S. banks.

Banks have reiterated their commitment to the branch channel, but many are unlikely to maintain branch numbers at current levels.  Bank decisions of branch numbers and deployments are increasingly based on an analysis to the bank’s relative strengths in different markets.  Is the bank’s branch network spread too thinly, with few branches and low deposit shares in many markets?  Does it have critical mass in terms of branch numbers and/or deposit share in particular market? If it does not have sufficient scale at present, should it expand its branch network organically or through acquisition? Or should it leave some markets?

EMI Strategic Marketing Inc. analyzed end-2Q11 FDIC data on the branch footprint of the top 15 retail banks. (Note: this does not include M&A activity over the past year, such as PNC’s acquisition of RBC Bank.)  We focused on the number of metropolitan statistical areas (MSAs) where these banks had branches, branch concentration levels, and market strength indicators.

  • The banks with the most extensive branch networks are Bank of America and Wells Fargo, who both have branches in more than 200 MSA markets.
  • Regional banks naturally have a more concentrated branch presence.  RBS Citizens, PNC and M&T all have more than 60% of their branches in 10 markets.
    • RBS Citizens has top-three share in only 14% of the 49 markets where it has a physical presence.  Recent speculation indicates it may sell off its branch network in Illinois and Michigan.  The bank has branches in seven MSAs in these two states, but does not have a top-three deposit share in any of these markets.
  • Market strength: Wells Fargo has a top-three deposit share in 70% of its MSAs.   Four other banks (M&T, Bank of America, SunTrust and PNC) are ranked in the top three in more than 40% of their markets.
  • In late 2010, Citigroup announced that it would be concentrating on 16 U.S. metro markets.  This helps to explain why 61% of Citibank’s branches are in just 10 MSAs.  On the other hand, it has five or fewer branches in more than half of its markets.  Given its stated objective to concentrate its efforts on about 15 metro markets, we can expect Citibank to leave many of these markets where it has a token presence.  However, it will be aiming to significantly grow share in its target markets.
  • Capital One, which has built a retail branch presence in recent years through acquisition, has 84% of its branches in just 10 MSAs. (In fact, 57% of Capital One branches are in just two MSAs: Washington-Arlington-Alexandria, DC-VA-MD-WV and New York-Northern New Jersey-Long Island, NY-NJ-PA.)

Customers reducing branch usage, but some banks growing branches

Many recent surveys have pointed to customers’ reduced branch usage for everyday banking, as they embrace Internet and mobile banking. Many of the leading banks have reported very strong year-over-year growth in mobile banking active users in 2Q12, including Bank of America (+35%, to almost 10.3 million), Chase (+38% to just over 9 million), and Wells Fargo (+ 38%, to 8.3 million).  At the same time, many banks are implementing aggressive cost savings programs.

Based on this, one would expect banks to significantly cut back on their branch investment.  FDIC data bears this out, with total U.S. bank branch numbers falling by more than 500 in the year to end-March 2012.  However, the following chart reveals that this trend is not universal, with many leading banks increasing branch numbers over the past year.

While some banks (such as Chase) have grown their networks organically, the increase in branch numbers for most of the other banks listed above was a result of branch/bank acquisitions.

  • PNC grew its branch network following the acquisition of RBC Bank, as well as the purchasing of branches from Flagstar Bank.
  • Chase grew its branch network in growth markets like California and Florida.  However, it has scaled back ambitious plans to grow its network further in the coming years.  Chase has also radically expanded its Private Client locations, from 16 in 2Q11 to 738 in 2Q12.
  • KeyBank’s net increase of 14 branches was due to the acquisition of 37 branches in upstate New York, partially offset by branch closures.  The bank has reported that branch rationalization is one of the central elements of its new efficiency initiative, and it plans to cut 5% of its branches in the next 18 months.

Factors that impact bank branch numbers include:

  • M&A activity (highlighted in the examples above)
  • Strategic decisions to increase/reduce presence in specific markets (e.g., grow branch numbers in targeted markets, or reduce branches in other markets where the bank’s branch presence is below a minimum threshold)
  • Ability of specific branches to meet performance goals (e.g., growth, profitability)
  • Competitive activity

Though surveys indicate that branch usage is declining, a majority of consumers and small businesses still value branches, as they want a multi-channel bank relationship (encompassing physical and virtual channels).  This is leading banks to change branch design and staffing models in order to reposition branches to provide a broader role for the bank, in areas like selling, relationship development, product testing, and branding. (See our recent blog on the changing role of the branch.)