Stein made his comments at a May 29 teleconference entitled “Beyond Intuition: Making Better Branch Decisions with Data” hosted by Tampa-based OnsiteConference Inc.

He said that the average rate of branch growth has been significantly lower than the average rate of deposit growth since 2000. For example, in 2007, the number of branches increased by 2.7% while deposits increased by 3.9%.

De novo branch development, which was strong in 2006 and 2007, is projected to slow considerably this year as worsening economic conditions have forced banks to tighten their budgets and improve efficiency. As a result, the branches that banks are building play a much more critical role in the company’s sales, customer retention and overall performance, Stein said.

He added that branch placement may account for as much as 65% of its success. “Placement is extremely critical to the branch network. There’s an enormous correlation between market attractiveness and branch performance,” he said.

With the increasing use of alternative delivery through ATMs and the Internet, the role of the branch also continues to move from being transaction-focused to sales- and service-oriented, Stein said. Hence, many banks are looking to target specific niche populations within their market footprint when they place new branches.

Stein recommended that banks conduct a thorough analysis of the specific site and surrounding trade area. He advised banks to consider market potential, population demographics, financial product usage and demand, population density and the competitive landscape.

For example, Stein recommended that banks analyze the “branch parity” of rival branches in a potential new service area. Branch parity is the ratio of deposit share to branch share and can be a good indicator of potential efficiency, he said.

Additionally, Stein said banks should consider a formula called “ease of entry,” which is determined by taking the total number of relationships that a bank needs to acquire to meet its performance goals and divide that by the total number of “fair share relationships,” which in turn is the number of total market relationships divided by the total number of bank branches in a market.

“The devil is in the details,” said Stein, referring to the necessity of digging through such data. But he said such research and analysis is essential to achieving a “fact-based approach” to de novo branch placement.

(For more on locating new branches, see “The Laws of Customer Attraction” in the March/April 2006 issue of BAI’s Banking Strategies and “Strategic Drivers of Retail Sales Productivity” in the July/August 2008 issue. Also, see “Mission and Market Critical to Branch Placement” in the December 19, 2007 issue of BAI’s Banking Strategies Retail Delivery Insights.)