• Bank Branches More Expendable

    Coronavirus Makes Bank Branches More Expendable

    Rapid Adoption of Digital Services, Higher Expenses Drive Increase in Closings

    PNC Bank has closed or applied for 196 branch closings with bank regulators this year. (Getty Images)
    PNC Bank has closed or applied for 196 branch closings with bank regulators this year. (Getty Images)

    Banks are ramping up their branch and office consolidation plans as executives say the coronavirus outbreak is driving more customers to digital and mobile banking.

    The escalation in branch closings is already beginning to show up. About 280 were concluded across the country from January through mid-March, when the coronavirus was declared a worldwide pandemic.

    Since then, there has been nearly 500 more closings concluded, and banks have applied for another 1,012, according to data from the Office of the Comptroller of the Currency, the federal agency that regulates national banks and federal savings associations.

    Wells Fargo Bank, with 201 actions, is leading the field of about 90 banks that have either closed branches or are waiting for approval to close this year.

    Wells Fargo said it’s preparing to cut up to $10 billion in annual expenses, a move that's expected to significantly reduce the brick-and-mortar footprint of the nation’s third-largest bank, CoStar reported this month.

    PNC Bank has come in a close second to Wells Fargo with 196 branch closing actions.

    At the end of 2019, PNC had 2,390 U.S. branch offices, according to federal banking data. CoStar data shows those branches average about 4,450 square feet. At that average, PNC has closed or filed notice to close about 872,000 square feet so far this year.

    “As part of our ongoing commitment to provide the best possible service, we constantly evaluate our branches — together with our other available channels of banking — to ensure that they are most effectively meeting our customers’ needs,” PNC said in an emailed statement to CoStar.

    A shift in the way customers are conducting their banking transactions has been an important factor in the decisions, the bank said.

    “There are many options for banking with PNC via online, mobile, ATM, phone, etc., and we have continued to see our customers taking advantage of the investments we have made in these channels and altering the ways in which they have been banking with us,” PNC said. “Consider that approximately 73% of consumer customers used non-teller channels for the majority of their transactions during the second quarter of 2020.”

    Mobile Deposits Rise

    At Regions Financial, year-over-year mobile deposits were up 36%, the bank holding company reported. Deposit accounts opened digitally rose 29% and digital logins gained 24%.

    “In fact, digital played a significant role in our ability to assist our customers in obtaining Paycheck Protection Program loans,” David Turner, chief financial officer of Regions, said in his call with analysts and investors to discuss quarterly earnings. "Approximately 80% of applications were submitted online and 97% were closed using e-signature.”

    Regions reported consolidating 36 branches in the quarter because of increased digital adoption and changing customer preferences.

    Turner said he expects branch consolidations to continue.

    Digital adoption wasn’t the only reason cited for the banks' efforts to further reduce real estate. Others cited a need for decreasing noninterest income expenses, eliminate redundant resources after recent mergers, and the decision to adopt permanent work from home arrangements for some of their employees.

    Truist Financial, which was formed by the merger of BB&T and SunTrust Banks, is stepping up its efforts to gain cost efficiencies more quickly.

    “We’ve got a ton of buildings, as you might expect duplicative buildings, some small, some large,” Kelly King, chairman and CEO of Truist, told analysts on a call to discuss earnings. “And we decided to be very aggressive in terms of consolidating and eliminating a lot of those buildings. And that’s pretty immediate cost reductions when you do that.”

    Banks have taken different approaches to shrinking branches. Some have opted for smaller square foot branches, while others are opting to reduce the total number.

    “We're more in the camp of how many branches do you need to support a geography because the people are only coming in once a month or so or once every six weeks,” Christopher Maher, chairman and CEO of OceanFirst Financial, said on his company's earnings call. “They'll drive a little bit longer. And especially in our suburban market, if you're coming to a branch, you got in a car.”

    Maher acknowledged that branch real estate when it is no longer occupied by a bank is not particularly valuable, especially outside of the urban markets.

    “I'll end up telling you just a funny story,” Maher said before moving on to another topic. “One of the more aggressive bidders on one of our branches was a cannabis distribution company that loved the idea of both a drive through and the vault. So maybe that's in future branches.”