3 Big Banks Bucking the Trend

Banks everywhere have announced plans to reduce their branch count all in the name of efficiency and improvement as they seek to lower costs -- yet three banks are actually adding branches at aggressive rates.

Taking a step back, it is important to see how things have trended over the last eight years. From 2006 to 2012, the top 50 banks in the United States by total deposits added branches at a rate of about 3% per year. Yet from 2012 to 2013, branches at the top 50 banks actually fell by 1.5%, as shown in the chart below:

Source: FDIC.

Yet this hasn't meant that banks are shrinking their deposits. In fact, the exact opposite is true, as the big banks have seen their total deposits grow by almost 9% per year since 2006:

Source: FDIC.

With banking increasingly moving to interactions that are not made in branches, it's not surprising to see banks seek to reduce their branch counts. With the rash of acquisitions that were made throughout the financial crisis, many banks simply had more branches than they knew what to do with, so physical consolidation was inevitable.

A key example of this is Bank of America (NYSE: BAC  ) , which, despite closing 259 branches (about 5% of its total), actually saw its total deposits rise by 1.5% as it held on to the largest bank by deposits ranking at a little over $1.1 trillion in deposits.

Another big bank that aggressively shuttered its branches was SunTrust (NYSE: STI  ) , which closed 6% (105) of its 1,688 offices. It didn't have the same luck as Bank of America, though, as its deposits fell slightly from 2012 to 2013.

What is surprising to see is the banks that actually added branches from 2012 to 2013. Of the top 50 banks, only 11 actually added to their branch count, and one of those was primarily the result of acquisition. With that in mind, let's check in on a few of those banks that added to their branch count -- including one that may have done so to the detriment of investors.

Huntington Bancshares  (NASDAQ: HBAN  )
Deposits: $47 billion
Branches: 773
Deposit Growth: 2.4%
Branch Growth: 5.9%

While Huntington certainly has a lot going for it, the divergent trends of its branch and deposit growth is a little alarming. Its deposits grew at a rate less than half of its branches -- and it calls into question whether or not it is actually effectively adding customers with all of those new branches.

However, while the dollar value of deposits was only up slightly, Huntington actually highlighted that the number of its consumer checking accounts was up almost 11% over the past year, which is undoubtedly a good thing. Here we can see that while the FDIC data is valuable -- it is best to check with the company to see if their strategy is paying off.

BB&T  (NYSE: BBT  )  
Deposits: $137 billion
Branches: 1,851
Deposit Growth: 3.5%
Branch Growth: 4.3%

Next there's BB&T, which is a primary competitor to the previously mentioned SunTrust, which actually added to its branch network over the last year. Yet like Huntington, its deposits did not rise at a pace equivalent to its branches.

While it doesn't give any indication as to the success of its branch network, it is a little startling to see its efficiency ratio -- which is the cost of generating $1 of revenue and a number investors hope to be low -- rise from approximately 54% to 58% over the last year. Its personnel and occupancy expense, which are its two biggest expenses, rose by 9% and 7% respectively. And while expenses are not broken out by branches, it is easy to presume a big part of this is additional branches.

If BB&T is able to create more revenue and relationships from these branches as Huntington did, it shouldn't be cause for concern, but if expenses continue to go up and the cost does not outweigh the reward, it could be a tough thing for investors to watch.

Toronto-Dominion Bank  (NYSE: TD  )
Deposits: $193 billion
Branches: 1,336
Deposit Growth: 13.4%
Branch Growth: 2%

Lastly, we have TD Bank, which, unlike BB&T and Huntington, watched its deposit growth greatly outpace its branch growth. This came from a huge expansion of its personal deposits in the United States (up 9%) and the deposits at its popular investing platform, TD Ameritrade, growing by 18% to eclipse $70 billion.

Although looking at branches and deposits won't tell the entire story, they are an important place to start looking. TD and Huntington are clearly starting to see results from their expansion, while BB&T hasn't had the same success. This will definitely be something to keep an eye on with earnings season right around the corner, and if BB&T can't improve its branch performance, investors could be the ones hurting.

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