What Earnings Calls Reveal About Big Banks’ Branching Strategies
By Steve Cocheo, Senior Executive Editor at The Financial Brand
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Bank CEOs don’t generally quote other bank CEOs. But in this case, it seemed appropriate.
During Fifth Third Bancorp’s second quarter earnings briefing, an analyst asked Timothy Spence, chairman, CEO and president, what is behind the company’s accelerating efforts to build out its branch system on multiple fronts, besides expanding beyond its traditional footprint and building market share?
Spence said that Jamie Dimon, chairman and CEO at JPMorgan Chase, which is in the midst of a multi-year build-out and optimization of its network, had recently given a speech that capsulized the appeal neatly.
Key insight: Dimon “loves branches because you scale them and they make $2 million a year to infinity,” said Spence. “Obviously the goal is to make a capital investment to build a building, create operating expense and marketing and hire people to operate that building on an ongoing basis. You build up the book. And you get an annuity out of it.”
Hyperbolic? Perhaps. Branches do get closed, combined or moved. But it explains why branches remain a key part of the industry and why some larger banking institutions, including Fifth Third, are playing the branch card hard.
Key insight: “Retail share is moving aggressively to the larger players and it’s making it more difficult to fund if you’re smaller and don’t focus,” said William Demchak, chairman and CEO at PNC Financial Services Group, during his company’s earnings briefing. In a separate recent presentation, Demchak said that he sees retail banking as “up for grabs right now” and that it “is being consolidated by the largest banks.”
Need to Know:
- More than 1,000 new bank branches have opened in each of the past three years, reflecting aggressive expansion by the country’s largest institutions and a move to seeing digital and physical working in tandem.
- While the industry’s eyes are always on Jamie Dimon’s Chase as the branching leader, other players in the top ranks are also growing and optimizing.
- In second quarter earnings briefings thus far PNC, U.S. Bank, Fifth Third and Citizens Bank detailed progress and course adjustments for analysts. Other institutions will be heard from.
PNC Is Banking on Structural Change in the Industry
PNC is in the midst of an aggressive build out, and coming off its recent FirstBank acquisition, finalized in January, with 300 branch builds in process. Plans call for 60 openings in 2026, with the emphasis on high-growth markets. The bank is aiming for higher density in such areas, with 2030 as its working target date. Demchak has found that branch density increases digital account openings in the same markets.
Key insight: During the briefing, Demchak said deposit gathering for banks that lean commercial is “really tight.”
“That’s where you’re seeing brokered CDs at really high rates,” said Demchak. “But if you’re growing and own a good retail franchise, it’s less severe.” He believes that the growing dominance of large banks in retail deposits is a structural shift and not a temporary phenomenon.
Regarding PNC specifically, he observed that its expansion moves have led to growth in demand deposit account households, increases in balances, and a drop in rates paid — though he noted that the latter was creeping back.
He said that companies with a balance between retail and commercial “are in a pretty good spot.”
Bottom line: PNC is adding households at a pace not seen for years, he said in a fireside chat at a recent Morgan Stanley conference.
Read more: How BMO is Leaning into Fundamentals to Drive More U.S. Deposits
U.S. Bank Targets Markets for Densification
Earlier this year a U.S. Bank official told The Financial Brand that “we’re pivoting to offense again” after several years of optimizing its branch network. The bank had slimmed its network by about a third, many of the locations being in-store branches.
Key insight: “Our branch expansion is focused on densifying our presence in approximately 10 markets within our footprint that have high rates of household formation,” Gunjan Kedia, chairman and CEO, told analysts at the earnings briefing.
“Since Covid, we have seen many, many areas within our footprint revive in terms of affluence and in terms of younger generations moving in,” said Kedia. A key focus has been parts of the Southwest and Southeast.
U.S. Bank’s 55 client centers — service offices for specialized business lines like mortgage lending, commercial lending and wealth management — have been and will be a toehold for new branch buildout. Based on a map included in the second quarter briefing materials, the bank has client centers in more than a dozen markets where the bank currently has no branches, including Florida, Texas and the Northeast.
Impact on growth: Kedia said that this strategy has helped drive a third consecutive quarter of record consumer deposits, in tandem with the bank’s continuing rollout of its Smartly line of consumer and business banking products. She also said that there’s some synergy between these new households and growth in the bank’s card and wealth management businesses.
She noted that the bank anticipates that its annual investment in branches will rise to approximately $300 million annually, from the historical $200 million level.
“It’s not a one-time step-up,” said Kedia. “It’s something we have been gradually leaning into.” The portion of the budget allocated to refurbishment of existing locations will shrink, as that is pretty much completed, she said, so the bulk of the money going forward will be put towards branch growth.
Read more: To Compete for Today’s Deposits, Banks Need to Redesign Their Account Offerings
Citizens Bank Will Shift In-Store Outposts to Traditional Branches
A key metric behind deposit gathering, according to Bruce Van Saun, CEO and chairman at Citizens Financial Group, is the country’s gross domestic product (GDP). As he sees it, gathering deposits from consumers and small businesses should track GDP. That’s a threshold that successful banks must surpass.
Key insight: Adding a 2% improvement on that rate equates to a significant amount of deposits over the course of a decade — billions of dollars, according to Van Saun.
Citizens Bank is pursuing multiple network strategies.
One is the ongoing build-out of its private banking operation, which presently consists of ten specialized offices in key wealth markets, with at least seven more locations planned for the near-term. This effort continues to pull in billions in deposits, according to Van Saun.
More broadly, the bank brags on the efficiency of its existing branch network, promoting its performance over peer group institutions.
What’s new: A strategic branch swap. During its earnings briefing Citizens announced plans for a major strategic shift for its branch network. The bank is going to eliminate between 100 and 120 in-store branches and shift those resources toward new standalone full-service branches in nearby locations.
“In the short run, we’re doing a lot of planning about extricating ourselves out of a lot of the supermarket branches we have,” Van Saun told analysts. The intent is to migrate customers of those branches to the not-quite-de-novo locations while using the new, more visible branches to grow new customer relationships. Van Saun indicated that this strategy could play out over a decade.
Officials pointed out that this effort would have a negligible impact on Citizens’ branch count, which is around 1,000 locations. The strategy exchanges limited-service locations for more powerful locations, according to Brendan Coughlin, president and head of consumer, private banking and wealth.
This shift would play into the bank’s current emphasis on mass affluent and affluent customers opening multiple relationships with the bank, including such products as home equity credit, a Citizens specialty. In-store branches historically have been more about convenience.
This expansion of the presence of each relocated office would also work with another Citizens strategy, in pilot, which is the addition of more specialists to selected branches. This includes small business and wealth management officers.
Thinning and replanting. Coughlin indicated that the shift out of in-store could actually thin the bank’s branch count a little, which would free up assets that could go to select de novo branches in areas management sees needing further density. He said that option would be explored selectively, organically and slowly.
Fifth Third Continues Fighting a Multifront Branch War
In the last few years, Fifth Third Bancorp accelerated its push into the Southeast and, in acquiring Comerica, launched its push into the Southwest. During the second quarter, the bank opened its first Fifth Third-branded branches in Texas and in the West, in California. (The Comerica deal was finalized in February.)
Growth of the bank’s southeastern network continues at a rapid pace, with new branches opening at a rate of one a week in the second quarter, according to Timothy Spence, chairman, CEO and president. Plans call for 55 new locations during 2026. In the quarter consumer checking households grew by 7% year over year, which Spence said was quadruple the rate of growth in the market.
In the Southwest, consumer and small business deposits were up 4%, reflecting acquisition of new customers. Spence noted that the former Comerica operation will be converting to Fifth Third’s systems and products over Labor Day, which will open up Fifth Third’s offerings and digital channels to more people. Spence said this would accelerate the combined organizations’ household growth going forward.
Expansion in Texas is on pace. Spence said that the bank has obtained 101 of the 150 locations it plans to build by the end of 2029.
Even with some of the expansion in the Southwest being embryonic, Spence said that a deposit marketing press in the region continues to exceed expectations.
“We’re excited about opportunities in the Southwest markets because we have such low share in those markets, that we have the ability to go there and drive for some good growth opportunities with limited cannibalization costs,” said Spence. Comerica branding will eclipse later this year.
Branch network déjà vu. Spence said that the Comerica network in the Southwest “looks stunningly like Fifth Third’s Southeast network in 2018.” He suggested that lessons learned in the Southeast expansion would enable Fifth Third to ramp up the Southwest more quickly.
One overlap in the historical Midwest market of Fifth Third and Comerica will drive some consolidation in Michigan. The two organizations had their own bailiwicks — Comerica in the eastern part of the state and Fifth Third in the western and northern sections. However, about 70 redundancies exist and Spence said closures have been announced.
“Many of those locations literally share the same parking lot in the same strip centers,” said Spence.
Outlook in the West. Some de novo branches are planned for markets in California, where Comerica did not have locations and Fifth Third had no retail presence at all. No major expansion of branches is planned there at this time, but Spence said he expects to reevaluate branching in the West in 2029 as existing branching plans wrap up.
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