You’re probably looking for an <optgroup>:
<select>
<optgroup label="CITY 1">
<option>City 1 branch A</option>
<option>City 1 branch B</option>
<option>City 1 branch C</option>
</optgroup>
<optgroup label="CITY 2">
<option>City 2 branch A</option>
<option>City 2 branch B</option>
</optgroup>
</select>
Demo: http://jsfiddle.net/Zg9Mw/
If you do need to make regular <option> elements unselectable, you can give them the disabled attribute (it’s a boolean attribute, so the value doesn’t matter at all):
<option disabled>City 2 branch A</option>