The days of building fancy brick and mortar bank branches are quickly fading amid a wider use of technology and mobile banking trends.
Last week the nation’s largest financial institution Bank of America said it will roll out smaller branches that feature new interactive technology where consumers will be served by tellers they view on large video screens well past the normal operating hours.
Earlier this year Wells Fargo, the second largest bank in the country, launched its own version of express branches. Wells said its smaller branches are designed to be about 1,000 square feet, roughly only one-quarter the size of most of its other branches.
Other banks like Ally, proudly advertise they don’t have branches but provide around the clock mobile and online banking. They have garnered more than $50 billion in deposits, the 26th largest bank in the country.
John Dominick, a banking consultant and professor at the University of Arkansas, said this trend has yet to catch on in Northwest Arkansas, one of the most over-banked regions in the country for its size. There are 207 branches in the two-county area to split up $8.277 billion in deposits. A key metric for determining branch performance is linked to the deposits it has on record.
There are a whole of lot branches across Northwest Arkansas deemed underperforming by industry standards he said.
Dominick said banks have to begin looking at more cost analysis on their branch operations now that technology has automated so much of the banking system.
“Banks have already invested heavily in technology, mobile applications and websites and this investment pales in comparison to branch overhead costs like salaries, health insurance and other benefit packages,” Dominick said. “The use of technology allows banks to downsize their branch count, reduce staff and shave overhead expenses in this era of sluggish growth, hyper competition and looming regulatory costs.”
Across the state the average deposits per branch equals $36.835 million, in the local market the average deposits per branch is $39.986 million. But a closer look shows only a few banks achieve a standard of $20 million per branch — a level analysts deem “performing.”
Dominick and other banking analysts expect to see more branch consolidations in the next year or so, and said pending mergers like the Simmons First National purchase of Metropolitan National are a good place to start.
Simmons First National CEO George Makris said last month that there will be branch consolidations in Northwest Arkansas and Little Rock. He said branch closures will likely occur around April 2014, after the assessments have been done and consumers given the required 90 days notice.
The City Wire looked at the combined 22 branches of Simmons First National and Metropolitan National in Benton and Washington counties to ascertain which branches could possibly close due to location and or underperforming standards in terms of deposits. (The map of those sites is here.)
Metropolitan has 12 branches in Northwest Arkansas, five in Benton County and seven in Washington County, none of those branches meet the $20 million deposit threshold, or even $15 million – a bare-minimum standard, according to Dominick.
The largest branch in terms of deposits at Metropolitan is $14.99 million at the Shiloh Drive location near the Northwest Arkansas Mall. The location in Johnson is the weakest performer with less than $1 million in deposits. The average deposits per branch for Metropolitan in Northwest Arkansas is $6.27 million, well below the average of $19.81 million for Simmons First who operates 10 branches in Northwest Arkansas. Seven of Simmon’s branches are within blocks of one or two Metropolitan locations.
A quick analysis of other banks in the region found just one institution with lower branch deposit performance – BancorpSouth has just $4.79 million per branch in this market. Those are likely subsidized by better performance in other markets. Statewide, BancorpSouth has $41 million per branch on average.
Simmons also has a larger statewide average per branch at $36.725 million, while Metropolitan’s statewide average is $19.16 million, still below the $20 million benchmark.
While Metropolitan National is still advertising its “Nearby and Neighborly” motto, the merger with Simmons will likely mean branch closures in Northwest Arkansas. The bank buildings alone are valued at $22.6 million on the county tax rolls.
Analysts agree that the locations of several Metropolitan branches in this region are more valuable as commercial real estate than underperforming bank branches. Insiders also said the 438 employees at Metropolitan as noted in the bank’s recent court filing are more concentrated than the industry average. A billion-dollar bank with 438 employees breaks out to $2.24 million in assets per employee. The industry standard is $4 million in assets per employee and headed toward $5 million.
Dominick said overhead costs do drag down overall bank performance which is why larger publicly traded institutions are under the gun to sell off underperforming branches and downsize others as they deem prudent.