Branching Update from ABA Competitiveness Survey

This month’s ABA Banking Journal includes the organization’s annual Community Bank Competitiveness Survey which, once again shows that branch expansion is considered to be community banks’ main source of growth. More than three fourths of those surveyed (77.8%, up from 76.7% in 2005) view expansion as the chief source of growth.

I am not surprised by this; but, what does growth mean to the people surveyed? Does growth have more to do with physical location, presence and size of footprint than deposits, share of wallet and profitability? If this is the case, then I would have to agree that branch expansion could be considered the most viable way to grow in terms of a physical presence. However, if we were to talk about growing deposits, share of wallet and profitability – I would challenge the thought that expansion is the best way to grow, and propose that organic strategies are the most viable way for many community banks to achieve and sustain growth.

We all know that expansion is an expensive commitment. Perhaps this is why 71.7% of this survey’s respondents said that their networks have stayed the same in terms of size between 2005 and 2006. It’s interesting to think that more than three fourths of those surveyed said that branching is viewed as the main source of growth, and only one fourth of the respondents said that their branch network has grown over the past year. Branching is expensive, but it is not the only way to grow. Community banks have to consider organic growth opportunities in order to remain viable.

The survey also discusses the issue of convenience. Once again, this issue was one-dimensional, as convenience was based only on physical branch hours. And, once again, there were really no surprises: less than one quarter of those surveyed offer evening hours; a quarter of those surveyed are not open on Saturdays; and forget Sundays – only 5.4% of those surveyed have Sunday hours.

The biggest red flag about convenience in article came in the author’s summary, saying “With more deposit volume arriving in the electronic in-box instead of in bags in the branch; more transactions going to plastic; and increasing sophistication seen on all banks’ websites, “bankers’ hours” won’t have to expand further to meet the demands for convenience, in spite of the Commerce Banks of the industry.” In markets around the country, customer demands are changing – and traditional “bankers’ hours” aren’t going to cut it. Sure, we are seeing an increase in electronic banking; but we are not seeing increasing sophistication on ALL banks’ websites – and we certainly can’t be made to believe that electronic channels will replace some customers’ demands for convenient (i.e. before 9am, after 5pm and weekend) branch hours.