Digital banking continues to expand its share of transactions, which aligns with industry-wide branch closures in recent years. But a simple cause-and-effect analysis doesn’t offer a complete picture.
Branch trends are clearly nuanced as some markets see growth based on strong underlying fundamentals, such as local economic strength, a military presence or retirement relocation patterns. A more focused snapshot of branch health reveals organizations smartly closing underperforming locations or rethinking footprints in favor of growth markets and new designs that more seamlessly blend in-person transactions with digital offerings.
Bank strategists may have turned more judicious with overall branch-capital allocations, but they continue to maintain investment levels in top-tier markets, often withdrawing investment from lower-potential markets to do so.
Bank branch shifts by the numbers
Overall, banks and credit unions shed a net 8,500 branches over the past four years, and the resulting count of 95,000 bank and credit union branches nationwide sits 16% below the peak levels of 2010, according to FDIC data.
Of note, much of the decline in branch counts in that stretch reflects institutions closing direct overlaps from in-market mergers. Closures that followed the merger of BB&T and SunTrust into the newly named Truist, for instance, alone accounted for more than 10% of the industry’s entire net branch decline from 2019 – 2023.
These and other merger-related closures of overlapping branches do not impact the convenience proposition of the bank to the consumer. If one branch closes but a surviving branch sits a block away, that does not diminish the bank’s coverage of the market or indicate any lesser belief in the importance of branches, says analytics firm Bancography, in a recent report that drilled down on branches by market.
Consider that in the 2023 FDIC reporting year (ended June 30 of that year), the industry’s net decline of more than 1,500 branches was a composite of 2,530 branch closures, offset by more than 1,000 branch openings.
Where are the strongest markets for new branch counts?
Of the 114 metropolitan statistical areas in the U.S., 11 showed either increases or no change in branch counts over the past four years: Austin, Charleston, S. Car., Charlotte, Dallas, Des Moines, Fayetteville, Ark., Greenville, S. Car., Nashville, Oklahoma City, Omaha and Provo.
These markets vary sharply in size: Dallas is the fourth-largest metro in the nation with 8 million residents; Fayetteville contains only 580,000 residents. However, these resilient branching markets share other demographic commonalities.
Most notably, all are fast-growing regions. The U.S. household base increased by 3.5% over the past five years. Of the 11 markets with flat or increasing branch counts, 10 showed household growth rates of at least 8% from 2018 to 2023 – more than double the nationwide pace. The lone outlier, Omaha, still outperformed the U.S. overall with 6% household growth in that timeframe.
Each of the markets also enjoy robust economies. At a time when the nationwide unemployment rate remains near a 50-year low, the markets that have escaped branch consolidation fare even better. Eight of the 11 markets showed unemployment of less than 3% over the past 12 months, with Austin and Charlotte bouncing between 3% and 3.5% in that timeframe, and Dallas essentially mirroring the U.S. overall statistic.
There are other factors outside of population size that provide fundamental underpinnings. For instance, large universities in Fayetteville and Provo; state capital status in Des Moines; and the lure of coastal retirement destinations in Charleston.
Other cities have seen largely steady branch counts, with generally positive economics to point to. For example, Colorado Springs and Ogden are fast-growing metros with specific governmental (military and educational) economic anchors; and Minneapolis, San Antonio and Tulsa are all fast-growing, diversified metros with robust underlying economies.
“Motive economic forces can also include major universities – not only for their student populations but for the corporate interest that their research laboratories tend to attract, as well as the presence of a few key companies — the most notable example being Walmart’s corporate headquarters in Fayetteville,” Steve Reider, President of Bancography, told BAI.
There’s more at work here; market maturity also matters.
“Most of the areas showing lesser branch contraction are more recently-emergent markets, so they didn’t attract the branch capital investment of say, Boston or Philadelphia or New York during the heyday of bank expansion in the 90s and 00s; the Charlotte or Austin or Nashville of 30 years ago was a fraction of what those markets are today,” says Reider.
Plus, if a bank is strategizing on footprint now versus 20 or 30 years ago, because of digital considerations they will be more aggressive to avoid neighborhood branch overlap. And they will build branches with the digital and omnichannel experience in mind, which can impact choice of address, retail partnerships and overall square footage.
Median square footage of branches declined from 3,900 in 2010 to 2,900 in 2022, per Bancography’s triennial survey of branch-construction activity.
Says Reider: Reduced size reflects bankers allocating less space to now less-prevalent teller activity, while maintaining space for service and new-account interactions, and also employing cross-trained “universal bankers.”
Even with digital expansion, consumers still largely turn to branches for new-account openings, as the BAI Banking Outlook details, and that’s the rationale for continued expansion in high-growth markets.
More consolidation doesn’t mean overall weakness
One surprising point of divergence across the top-tier markets, says Bancography, lies in branch concentration.
It would be logical that markets with high per-capita branch concentration levels would show greater levels of branch consolidation and vice versa, as markets converged toward national means. Nationwide there is one branch for every 1,340 households, yet Omaha, Fayetteville and Des Moines each show ratios of 1,000 to 1,100 households per branch – levels that might predict some level of consolidation to bring ratios in line with national norms.
At the opposite end of the spectrum, Austin, Charlotte and Dallas all show ratios near 1,600 households per branch, indicating ample capacity for these markets to absorb additional branching and still remain comfortably above typical branch concentration levels. Minneapolis and Colorado Springs also join that “less concentrated” tier.
“We’re still seeing significant branch construction in dynamic markets with strong economic drivers even in more mature parts of the nation; for example, Columbus, Ohio, Madison, Wis., and Indianapolis,” Reider told BAI. “But in those longer-tenured regions of the country, we’re more likely to see consolidations of branches built long ago offsetting those opens, thus yielding the net decline in branch counts.”
Even as the nation overall has shown significant levels of branch consolidation in recent years, bankers are continuing to invest in top-tier markets, especially those displaying strong household growth and with robust underlying economies. This reflects the inherent economic truth that capital flows to the opportunities offering the highest returns.
Rachel Koning Beals is Senior Editor with BAI.
