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.)
In spite of the continued economic uncertainty, U.S. banks continue to enjoy strong growth in commercial lending. A study of the 2Q12 financial results of 14 leading U.S. banks revealed that 11 grew average commercial loans by double-digit rates. In addition, 11 banks had higher year-over-year growth rates in 2Q12 than in 1Q12.
13 of the 14 banks reported growth in commercial loan portfolios between 1Q12 and 2Q12.
Looking at specific banks:
Commercial loan growth was led by PNC, although it should be recognized that PNC completed the acquisition of RBC Bank in 1Q12, which significantly skews the data. PNC recorded above-average growth rates for financial services and health care loan portfolios.
U.S. Bank had the second-largest y/y growth rate, at 24%, led by a 52% rise in its specialized industries portfolio.
Comerica increased its average commercial loan portfolio 20% y/y, driven by a 46% rise in its specialty lending portfolio. (Over the past year, Comerica grew its energy loan portfolio by 68% and its tech and life sciences portfolio by 36%.)
KeyBank’s average commercial, financial and agricultural loan portfolio grew 19% y/y. KeyBank reported that its commercial loan utilization rate has been increasing in recent quarters, from 43.4% in 2Q11 and 46.9% in 1Q12 to 47.3% in 2Q12.
Chase grew commercial banking average loans 16% y/y, driven by a 42% rise in its corporate client banking loan portfolio (which covers clients with $500 million to $2 billion in annual revenue).
Bank of America was the only bank to report a quarterly decline in its average commercial loan portfolio (-2.7%). In addition, it had the second-lowest y/y growth rate (of 6.1%).
Most of the banks are reported improvements in commercial loan charge-off rates. However, yields on commercial loans continue to fall. All 12 of the banks reporting commercial loan yield data had y/y declines, but it’s important to note that 4 of the 12 (PNC, Wells Fargo, BB&T and M&T) reported an increase in commercial loan yields between 1Q12 and 2Q12.
A meeting yesterday between Vice President Biden and 13 U.S. banks has resulted in a number of these banks announcing or reiterating small business loan commitments. The banks include:
Chase: announced that it was on track to increase small business lending this year by 20% over 2010 levels, to $12 billion
Citi: committed to lend $24 billion to small business over the next three years ($7 billion in 2011, rising to $9 billion in 2013)
KeyBank: committed to lend $5 billion to small businesses over the next three years
M&T Bank: pledged to increase small business lending by $50 million over 2010 levels for each of the next three years
For banks, making such a commitment is important, as it acts as a rallying point around which resources can be concentrated. Having a specific commitment also implies that the bank’s senior management has approved the objective, another key criterion for success.
However, announcing a specific lending commitment is only a first step. For banks to achieve a small business lending objective, they need to design and implement an integrated plan that encompasses a wide range of activities, including:
In addition, these activities needs to be organized around customer needs and bank opportunities at various stages of the customer lifecycle:
Ongoing relationship development
For more insights in developing effective small business banking operations, see our white paper on The Transformation of Small Business Banking in the Thought Leadership section of the EMI Strategic marketing website.