"Jamie's clapping."

JPMorgan Chase & Co. CFO Jennifer Piepszak had just given an update on the bank's branch expansion plan and paused to take note of her boss' excitement that it expects to have a physical presence in each state in the continental U.S. this year.

Banks have been slashing branch networks for about a decade and accelerated the closures in 2020 as the pandemic pushed even more activity online. Branchless startup banks have achieved valuations that would rank them on par with big regional banks like Comerica Inc. and Zions Bancorp. NA, betting that stadium naming rights and appealing digital offerings will someday enable them to scoop up much of the country's $16 trillion of deposits.

But big incumbent bank CEOs like JPMorgan's Jamie Dimon still believe branches are key to leveraging their own national brand names and hitting growth targets. "The new branches that we opened in Boston, Philadelphia, [the District of Columbia], they've been doing quite well," Dimon said on his bank's earnings call in January. "You look at the major markets, remember, people already know us through [the Chase name]. And so we're optimistic that this strategy will pay off."

Incumbent banks have sought relatively light footprints in expansion markets, somewhere between the branchless neobank model and their legacy networks. U.S. Bancorp, which said it is done shutting branches for now after slashing a quarter of its network, is shooting for about a dozen branches in Charlotte, N.C., compared with more than 80 branches in its headquarters market of Minneapolis.

"We're very conscious that the world needs [fewer] branches," Dimon said.

But while the rise of digital technology has enabled banks to prune networks without a lot of customer attrition, many of the decades-old principles behind branch strategies still apply, said Jon Voorhees, who previously led retail distribution strategy and execution at Bank of America Corp. and other big banks.

"People still like branches as a place to go open accounts," said Voorhees, who is now a director at TerraStrat Group, which offers analytical and project management services to depositories seeking to optimize and build out their branch networks. The rate at which people are moving around the country has slowed, Voorhees added, but moving remains the biggest driver of people changing banks. "That was the rule when I started 40 years ago; it's still the rule today."

Branch deployment accelerates

Thus, new branches remain a key part of the traditional bank playbook. Since the middle of 2015, JPMorgan, BofA and PNC Financial Services Group Inc. have together opened branches in at least 15 metropolitan statistical areas where they had no presence before. JPMorgan opened a net 91 branches in the Washington, D.C.; Philadelphia; and Boston regions over that time, accounting for the vast majority of its branches in those markets.

In January, JPMorgan said it had opened 190 branches in total so far out of a plan for 400 new offices, and it plans to open 150 in 2021. U.S. Bancorp also said it plans to get back on track after slowing its expansion because of the pandemic.

BofA has top 10 deposit shares in the Denver and Minneapolis regions after opening a net 21 branches in those markets since mid-2015. Chairman and CEO Brian Moynihan said the bank would be interested in acquisitions in new markets but is focused on organic growth since it is barred from buying other banks by law because it holds more than 10% of deposits nationally.

"If you look in the markets we've expanded our branch system to, we're averaging $100 million or more in deposits per branch in the ones that have been open a couple of years and moving share up literally year by year by year," Moynihan said on the company's January earnings call. "And so we think that's where we've got to keep driving."

PNC has said its launch of "solution centers" in markets like Dallas, Boston and Houston reflects its view that retail banking is heading toward an end state characterized by fewer competitors, thinner branch networks, and a convergence in deposit rates offered online and through traditional channels. But PNC still has room to acquire and said its $11.57 billion deal for BBVA USA Bancshares Inc. will "supercharge" its quest to build a national franchise.

Push for market share

Indeed, while pure de novo expansions have enabled large banks to build substantial platforms in new markets, they have not yet by themselves won the dominant positions that many banks seek.

Voorhees said a good rule of thumb is that a bank needs about 5% of the branches in a market before it can start taking more than its "fair share" of deposits in the market. At less than 5%, banks tend to grow by less than their fair share.

The object is to build a perception of ubiquity by securing prime real estate, supplementing branches with ATMs and providing digital tools that make customers sticky when they are not near a branch, Voorhees said. "If you really want to go into a market and be successful — and this is what the big banks have learned — you've got to have scale."

Some banks like Regions Financial Corp. have explicitly renounced broad geographic ambitions because of the importance of market scale. "What we have found is when you have density in markets, density allows you to ... have a commanding presence in those markets, allows you to get the first bite at the apple, allows you to attract new customers when they migrate in," Regions CFO David Turner said in November 2020. "So for us, M&A in the existing footprint to get more dense would be more important to us than a coast-to-coast national-type franchise at this point."

JPMorgan's building spree in its biggest expansion markets of Washington, D.C.; Philadelphia; and Boston have given it roughly 2% to 3% of the branches in each of those regions so far and less than 1% of deposits, after adjustments meant to exclude the impact of headquarters offices. The bank does have 7% to 10% of the branches in smaller expansion markets like Reno, Nev., and Gainesville, Fla.

BofA's network similarly accounts for 2% or less of branches in its expansion markets, except for Salt Lake City, where it has almost 4% of branches and more than 1% of adjusted deposits.

Voorhees said the "jury is still out" on whether the big bank market expansions will achieve leading market positions. "It takes a long time to get really good real estate," he said.

If changes in consumer behavior accelerate even further, big bank executives say they are prepared to reverse course quickly. JPMorgan has said it is prepared to exit 75% of its entire footprint within five years. "Like if you said the world's changing more rapidly, we're completely comfortable that in a five-year period, we can dramatically reduce the size of fleet ... while serving clients," Dimon said in January.