The FDIC recently published detailed branch and deposit data for different geographic levels for all U.S. banks. EMI’s analysis of this data revealed the following trends:
There is a continued (but slowing) decline in the number of bank branches. Over the past 10 years, the total number of domestic branches for FDIC-insured institutions declined by almost 24% to fewer than 78,000 branches. This equates to an annual average decline of 2.1%. In 2Q21 and 2Q22, the y/y rate of decline exceeded 3%, but this slowed to 1.7% y/y to the end of June 2023.
Some of the largest banks had the strongest percentage declines in branches. Our detailed analysis of 30 leading banks (see below) found a 3.1% y/y decline in branches (from 35,039 to 33,920) at the end of 2Q23. However four banks with networks of more than 2,000 branches reported declines of more than 4%: Wells Fargo (-4.4%); PNC (-6.7%); Truist (-5.4%) and U.S. Bank (-8.1%). Santander Bank reported the largest percentage decline (-8.9%).
Some banks are growing their branch networks. While the overall trend has been for banks to trim their networks, some banks are maintaining or even growing their commitment to this channel. TD Bank grew its network by 11 branches, adding branches in 8 existing markets, as well as opening its first branch in The Villages, FL. Following the collapse of its planned merger with First Horizon earlier this year, TD announced plans to open 150 U.S. branches by 2027 with a focus on Southeast markets.
Banks are maintaining their presence in the vast majority of their markets. While banks are reducing branch density in their existing markets, few are completely leaving these markets. Seven of the 30 banks exited a market over the past year, but only one left more than one market: City National Bank closed its branches in both Reno and Carson City, NV.
Branch closures were spread across many existing markets. Overall, the 30 banks closed branches in 22% of their existing markets, through several had higher percentages of existing markets impacted by closures, including Santander Bank (56%), Truist (39%) and PNC (32%).
Banks concentrated their reductions on markets with the largest branch networks. Banks reduced branch densities in many of their main markets, enabling them to cut costs while maintaining a significant presence. Although more than a third of Wells Fargo’s branch reductions took place in just 8 markets, each of those markets continues to have more than 100 branches.
Some banks are opening new branches in existing markets. The 30 banks increased branch numbers in 4% of existing markets, led by TD Bank (increased branch numbers in 14% of their existing markets) and Fifth Third (13%), who are both expanding their presence in key southeastern U.S. markets. JPMorgan Chase increased branch numbers in 22 markets (10% of its existing markets), including Washington (+11 branches), Minneapolis (+9), Kansas City (+7) and St. Louis (+7).
J.P. Morgan Chase is leading the way in market expansion. Over the past year, the bank opened branches in 10 new markets, including Buffalo and Virginia Beach (4 new branches in each market). This is part of a longer-term strategy to grow its branch footprint: the bank reported at its 2023 Investor Day that its population coverage rose from c. 60% in 2017 to c. 80% in 2022, with the bank now aiming for 85% population coverage.
Banks Trim Branch Networks, but See Branches as Vital in Entering New Markets
Recent data shows that while banks continue to cut overall branch numbers, they are also deploying their network across a broader geographic base. These trends are in large part due to digital channels now dominating for everyday banking transactions. As a result, banks are maintaining a less dense network of branches in existing markets; and they are opening de novo branches in expansion markets.
The following table shows branch numbers for some leading U.S. banks at the end of the first quarter of 2023, as well as net changes from 1Q22 and 1Q18.
Most banks have closed branches steadily in recent years. Wells Fargo closed 180 branches between 1Q22 and 1Q23,and 1,280 branches over the past five years (representing a 22% decline). U.S. Bank, PNC, Huntington Bank, Santander Bank and First Horizon have also cut their branch networks by at least 20% over the past five years.
Banks have indicated that they will continue to downsize their branch networks, but this does not mean that we are witnessing the extinction of the branch channel. Surveys show that consumers continue to value branches: in the J.D. Power 2023 U.S. Retail Banking Satisfaction Study, 38% of customers describe branches as essential. And banks see branches as a key channel for:
Branding and marketing
Customer acquisition and onboarding
Local community engagement
Showcasing new products and technologies
Expert advice and support
What’s more, branches are critical beachheads for establishing a presence in new markets.
At its 2023 Investor Day, JPMorgan Chase reported that though it closed 22% of the branches in its legacy network between 2017 and 2022, 15% of its current branches were opened during the same period in new locations. It now has branches in each of the 48 continental states and 60% of the U.S. population is within a 10-minute drive of a branch (up from 50% in 2017. JPMorgan Chase is planning to grow its population coverage to 70% in the coming years.
Bank of America recently announced plans to expand its retail banking network into seven new markets, even as it cuts its overall branch count. The bank currently has branches in 83 of the top 100 markets and plans to expand that number to 90 by the end of 2025.
TD Bank announced plans to open 150 new branches by 2027, as it seeks to grow market share in south Florida, Atlanta and South Carolina.
In summary, trends in digital and branch channel usage create opportunities for traditional bricks-and-mortar banks to reduce overall branch numbers while expanding their reach into new markets through de novo flagship branches.
Leading U.S. Banks Boosted Marketing Spend in 2022
An EMI Strategic Marketing analysis of 30 leading U.S. banks found strong overall growth in marketing budgets for the second consecutive year. Following an 18% decline in 2020 in the midst of the COVID-19 pandemic, these leading banks have grown their marketing budgets by 53% over the past two years.
These banks’ average marketing ratio (marketing spend as a percentage of net revenues) rose by 34 basis points (bps) to 3.65% in 2022.
There is significant variation in bank marketing ratios between – and within – different banking categories.
Card-centric banks like American Express and Discover tend to have high marketing ratios as they have national reach but no branch networks.
Direct banks also have relatively high marketing ratios as they lack branch networks. Newer challenger banks are also investing significantly in marketing to build customers, deposits and assets.
More ‘traditional’ bricks-and-mortar banks typically have marketing ratios in the 1-3% range, although even in these categories we see significant variation as individual banks pursued different marketing objectives. Regional banks like Cadence Bank (+285% to $42 million) and BMO (+23% to $128 million) ramped up budgets in 2022 to promote brand overhauls. Super regional banks like Citizens (+38% to $184 million) and M&T Bank (+41% to $91 million) significantly grew their marketing spend to support entry into new markets following recent acquisitions.
Going into 2023, the projected trajectory for bank marketing spend is less clear, with rising inflation and slowing economic growth forcing banks to look for ways to reduce expenses. In addition, because they have grown budgets in recent years, some leading banks may decide to pause or even scale back their marketing budgets in 2023. However, many have stated their commitment to maintaining or even growing their marketing investment to support specific business strategies.
Discover expects double-digit growth in marketing spend as it pursues growth opportunities in credit card and deposits. It also claims that it continues to see strong returns on its investments.
Fifth Third plans to increase marketing spend in the mid-single digits in 2023 as it targets customer acquisition in the Southeast.
Axos Bank is maintaining higher spend levels as it seeks to grow deposits in an increasing competitive market.