Branching out: Bankers wrestle with expansion strategies
By Margie Manning Senior Staff Writer
Friday, June 26, 2009


TAMPA — Jack Barrett is betting on branching as the best way to gather bank deposits and boost profitability.

Barrett, president and CEO of First Citrus Bank, just opened the bank’s fifth branch office June 22. The branch, located at 4302 W. Kennedy Blvd. in Westshore, is in a renovated Boston Market restaurant, retrofitted for about $400,000.

Barrett said branches are essential to bolster deposits, the lifeblood of community banks because the deposits they collect are used to fund loans. The difference between the interest paid on deposits and collected on loans is a bank’s net interest margin, the main source of profit for most community banks.

This focus on what Barrett calls “milk and potatoes” will drive the opening of more than 1,000 new branches over the next five years, according to some industry experts.

But the sentiment is not unanimous. Other consultants say banks faced with declining income need to cut expenses and trimming their branch networks is the best way to do that.

“We expect to see many bank branches closing in the next few years, perhaps as many as 5,000 to 10,000,” said David Kaytes, managing director of Novantas LLC, a New York consulting firm, in a video interview on the company’s Web site.

100 percent locations

Kaytes said the banking industry needs to restructure its cost base. “We have to figure out which people and assets are still critical in this new world,” he said.

The area likely to undergo the greatest pressure for cost management is the branch system, said Sherief Melleis, also a managing director at Novantas.

“Banks simply must find a way to serve customers without relying solely on

$2 million-plus branches,” Melleis said. “We think you will see real innovation in this area in the next few years, like when the airlines move to self-service kiosks so successfully.”

Ken Thomas, a Miami-based consultant and president of, said recent innovations, such as Net-only banks, haven’t worked.

“I think one of the things we’ve learned from this crisis is the importance of traditional values in banking, and there’s nothing more traditional than taking low cost deposits, lending them out and making a profit,” Thomas said. “The way to get low cost deposits is through branching.”

Thomas said good locations — what he calls 100 percent locations — cost more to secure, but in the long run bring in more deposits. He said good locations are on corners, have good ingress and egress, and are on the “going home from work” side of the road. He likes locations near Publix Super Market, Walgreens or CVS stores because people generally don’t set out with the bank as their destination but instead work their banking stops into other errands.

There were slightly more than 99,000 U.S. bank and thrift branches on June 30, 2008, the most recent information available from the Federal Deposit Insurance Corp. Thomas said that number would top 100,000 within five years.

Branching activity did slow in the second half of 2008 and the first half of 2009, Thomas said, although it was still occurring.

Barrett said the timing was good for First Citrus.

“Three years ago was the worst time to branch,” he said. “The prices and rental rates were too high. We were patient and not aggressive in that regard.”

Future branches

In the Tampa Bay area, the number of branches was up 14.6 percent between June 30, 2004, and June 30, 2008. Average deposits per branch increased 8.2 percent in the same time period from $54,197 to $58,628.

Nationally, average deposits per branch are $57 million and projected to grow to $59 million by 2013, Tom Brogan, research director for The Tower Group Inc., a Needham, Mass.-based consulting firm, wrote in a March report.

The typical 3,500-square-foot stand-alone branch costs about $2.7 million to build and equip, Brogan said, requiring a branch to generate about $40 million in the first five years to break even. However, U.S. branches open five years frequently fall short of that, averaging $27 million in deposits.

To save money, the U.S. banks will consolidate branches, focusing on refurbishing outdated offices, implementing teller-assisted technologies and reducing footprints. “The future branch will feel more informal and comfortable than current branches, but it won’t be Starbucks,” Brogan said.


Tampa Bay bank offices grow over time

Year      Number of offices     Average deposits per office
2004      1,088                           $54,197
2005      1,139                           $55,832
2006      1,208                           $55,980
2007      1,278                           $56,242
2008      1,306                           $58,628

Source: Federal Deposit Insurance Corp. | 813.342.2473
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