A Dinosaur Banking Metric

On bankstocks.com, two First Manhattan Consulting Group execs wrote:

One metric stands out as being highly correlated to growth in a bank’s shareholder value: Same-store deposit growth. Banks that consistently generate strong same-store deposit growth in their mature branches tend to generate strong growth in other relevant measures, as well.

And on gonzobanker.com, Terence Roche wrote that, according to this year’s upcoming Cornerstone Report, “the 64 accounts opened at branches were offset by the closing of 55. That’s a net growth in deposit accounts of nine per branch per month.”

My take: For many banks, same-store deposit growth is a metric of the past, and should be put out to pasture.

Mr. Roche appropriately points to factors that may be artificially depressing net accounts opened per branch, like consolidation of accounts, assignment of new account numbers, and what he calls the “privilege pay” and “CD promo” factors.

A good list, but I think he missed the most important factor: the Internet.

According to NetBanker, the 23 large FIs that it tracks have been averaging about 475,000 deposit accounts (checking, saving, high-yield) opened online per month for the last four months.

While the size of those banks vary, on average we’re talking about one-quarter of a million accounts opened online per bank per year. If you’re a PNC, with about 1000 branches, that’s 250 additional accounts per branch. And that, I bet, would have a significant impact on same-store deposit growth and Cornerstone’s report findings.

Oh sure, there may be a few banks that attribute online applications back to a branch. But even for those that do, the metric is distorted by branches credited with results they might not have contributed to.

And conversely, it’s quite feasible that good in-branch service strengthened the relationship with customers who opened additional accounts online — which weren’t attributed back to those branches.

The bottom line: Same-store deposit growth is simply not a relevant metric anymore. The extent to which assumptions would have to be made to improve the accuracy of the metric isn’t worth the cost and effort.

I don’t doubt FMCG’s analysis that the metric is highly correlated with shareholder return and other ROI-oriented metrics. But — for the gazillionth time — correlation does not equal causation.

For all the talk in the industry about being customer-centric, here’s a great place to start: Stop measuring same-store deposit growth.

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