U.S. Bank's initiative to reduce its bank branch offices is expected to go far deeper than initially anticipated, yet another real estate byproduct of the pandemic.
Executives of the Minneapolis company, which is the nation's fifth-largest commercial bank, said in a conference call to discuss its earnings that its target had been expanded to cut 25% of its branches, which would work out to about 750 locations.
That's more than the double the company's low-end estimates in April last year, when executives said they planned to shed 10% to 15% of its 3,000 branches by early 2021, a figure that would range from 300 to 450 locations. Chairman, President and Chief Executive Officer Andy Cecere told analysts this week the company is motivated by evolving customer preferences.
"While physical branches and personal interactions will always be important, we need fewer branches today than we did even a few years ago," Cecere said. "And the branches of the future need to be more advice centers and locations where transactions take place."
U.S. Bank is far from alone in this regard, and its cuts are moderate when compared to some of its rivals, including San Francisco-based Wells Fargo. Wells Fargo said in mid-July that it would cut up to $10 billion in annual expenses through consolidation of its offices. And bank branches are often in shopping areas so there could be some reduced foot traffic to neighboring retail properties as a result of the closings, at a time when storefront space is going vacant.
The U.S. Bank reductions reflect a long-established national trend toward a smaller workforce and real estate footprint in commercial banking.
According to data on file with the Office of the Comptroller of the Currency, the federal agency that regulates national banks and federal savings associations, 1,114 branches have closed over 2020 and hundreds of applications to close more are still pending.
There were 1,632 branch closings over the whole of 2019, according to comptroller database.
U.S. Bank's downsizing plan was in motion before the coronavirus began in winter 2020, but the outbreak has accelerated and amplified it.
Bank customers who were previously reluctant to adopt online banking were forced to adopt it as quarantining spread across the country. The result is that many of the branches shuttered temporarily will never reopen.
Cecere said about 75% of the locations that will go dark were closed at the beginning of the outbreak.
U.S. Bank Spokesman Jeffrey Shelman said the company does not know how many of its 70,000 employees will be affected.
"We want to keep as many of these employees as possible and we have a significant number of roles available in other parts of the business," he told CoStar News, adding that those roles including processing forgiveness for the federal Paycheck Protection Program loans.
Executives estimated that the reduction will result in $150 million in cost savings in all.
Some of that money is expected to be redirected into enhancing its technology, the digital banking platforms that it said are making many branch functions redundant.
Cuts to corporate real estate are on the table as well, said Vice Chairman and Chief Financial Officer Terrance Dolan, though in this regard the company offered no specifics.
"One of the things we're still kind of working through is like, what is the next horizon from a workforce management perspective look like, because that will obviously impact corporate real estate," Dolan said on the call. "But I do think that there is opportunity for us to be able to consolidate as we think about 2021."
By May 2019, the effects of the national reductions trend had already become apparent to investors who owned real estate tied to bank branches.
With coronavirus pushing branch consolidation into high gear, many landlords, a group that includes the banks themselves, are finding that their properties are hard to sell.
Christopher Maher, chairman and CEO of OceanFirst Financial, said during one of his company's recent calls to discuss earnings with analysts that vacant bank offices outside city centers are especially difficult to dispose of, though some non-traditional suitors, such as a cannabis distribution company, are coming out of the woodwork.