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From the Publisher's Page


Gearing Up for 2017


It’s amazing! We are already a month into 2017, already gearing up for the cycle of association events that, like the passing of the

seasons, serve as signposts to mark the passing of the year. It won’t be long before we turn around and wonder where 2017 has gone.


One thing is certain, this is going to be a year of change. We could see the end of Obamacare and Dodd-Frank, changes at the

Fed, changes around the world. There is already a movement to get rid of FACTA and head-off the new fiduciary rule. While these changes are unique events, there will also be more mundane changes. Our cover story deals with one of those: bank branch



The issue of under-performing branches is a constant one that the folks in the C-Suite of many banks have to deal with. Do you try to bolster the failing branch, or do you close it and consolidate its business in active nearby branches. I know of a bank that literally has two full branches less then 1000 feet away

from each other. One of them is very busy; the other, which is sort of hidden, is usually empty except for the few patrons who

know that it is there. All things considered, I have no idea why that branch remains open, but then I am not privy to what the bank’s leadership thinks. The point is, if you are in a position to have to close branches, if that is a change that you will face in 2017, there are some important things to consider and you will

find this month’s cover story particularly useful.


I also know you will find a great deal of fine material in the rest of this month’s magazine, from attracting and keeping talent to a look at next month’s ICBA Community Banking Live event, to the rise of omnichannel banking, and so much more. We know you’ll enjoy it!


Best Wishes to All,


Greg O’Neil

Publisher, Great Lakes Banker



On the Cover of Great Lakes Banker

What You Need to Consider Before You Close a Branch

Six steps to consider as customer transactions shift to non-branch channels.


By Paul L. Simoff

Senior Consultant,

ProBank Austin


Does your bank’s long-term business plan identify branch consolidations or closures as a vital strategic action item? Community bank chief executive officers and directors can

breathe a sigh of relief, at least for now, if they haven’t rushed to judgment to slash what are perceived to be underperforming offices.


Bank chief financial officers, consultants and other banking pundits who advise management teams on matters involving expense reduction, operational efficiencies, and customer servicing trends generally agree on three strategic issues. There are:

(1) too many branches; (2) not enough customers; and (3) obsolete technologies that justify a radical reexamination of what has been the most successful bank delivery channel in the last half century.


As routine transaction levels dramatically shift to non-branch channels, the immediate impulse of many bankers is to identify facilities that, in their analyses, warrant immediate shuttering, and the sooner the better! In the U.S. between 2012 and February 10, 2017, 11,960 branches closed, or 12.6%. In the Great Lakes region (Ohio, Michigan, Indiana, Illinois, Pennsylvania, Wisconsin, Minnesota, and New York), 3,783 branches closed , or 13.7% of branches during the same five-year period.


There is no question that customer preferences are shifting in substantial ways. For example, in recent survey reported by Digital Banking Tracker™ more than half of all bank business customers preferred using mobile banking apps, with nearly three-quarters of them indicating they are “highly satisfied” with the banking apps they use.


Over the past two-plus decades, according to the May 2015 FMSI Teller Line Study, average monthly branch transaction volumes nationwide have declined from about 12,000 to just over 6,000 transactions per month. At the same time, the average cost per teller transaction has risen from approximately

45¢ to $1.15.

While a compelling trend, branch transaction

volumes should not be the sole criteria to rationalize a closing decision. Other factors, some empirical and others subjective, often can and should weigh in on closure and consolidation strategies. Such factors may include branch level deposit and loan totals, market growth trends, the mix of client

relationships, branch profitability, bank culture

and history, and the potential impact on the local economy, among others.


No two branches, like no two markets, are identical in characteristics, opportunities, or importance. Three quarters of the 6,000 or so FDIC-insured financial institutions have less than $500 million in total assets. The “tests for success” will be different for a typical $500 million community bank and its branch network than for JPMorgan Chase. For

example, during the third quarter of 2016, there was a net closure (closures minus new openings) of 732 branches nationwide, with more than 25% of them attributed to just three banking companies: Bank of America, Capital One and JPMorgan Chase. Since the Great Recession, the number of bank branches

nationwide has declined for eight consecutive years.


This unprecedented trend is projected to continue once year-end 2016 tallies are finalized. Branches are projected to decline to approximately 90,000 offices by year-end 2016, a 10% reduction from their 2008 peak of about 100,000 branches. The reductions are not attributed solely to outlying facilities of community banks. S&P Global Market

Intelligence reported that 858 metro areas out of 945 nationally experienced a reduction in branches over the June 30, 2015 through June 30, 2016 period (source: FDIC Summary of Deposits).


According to S&P, most cities with increases grew by one or two offices. Just five metro areas had net increases of four branches or more. Transaction volumes for closed offices generally are not reported by banks nor included in FDIC branch statistics. However, FDIC deposit data reported as of June 2016 (which includes deposit totals through June 30, 2015) indicate that the median deposit levels of offices closed since 2012 at the time of closing were $17.9 million. Median

deposits of open offices, as reported by the FDIC in the June 2016 report, totaled $45.5 million.


In addition to transaction volumes and deposit

totals, deposit growth rates can be important and relevant indicators of a branch’s viability and value. For branches closed nationwide since 2012, deposits grew by a meager 1.1% compounded annual growth rate (C.A.G.R.) during the five years preceding their closure.  Over the five-year time frame spanning 2011-2016, the median compounded annual growth rate of deposits for open offices was 4.1%.


The enhanced efficiencies of bank servicing

technologies are enabling all banks to serve a

broader range of customers, without adding costly new facilities. Combined with the aforementioned reduction in branches nationwide and modest household growth of approximately 9% since 2006, the typical branch in the U.S. services approximately 1,360 households compared with 1,180 households a decade ago, an increase of 15%.


Story continues here.

Great Lakes Banker is published by Michigan Banker LLC © 2016