Big banks cling to branch expansion plans despite coronavirus shock

Big banks are sticking with their branch expansion plans, despite many reasons these days to give them up.

Bank of America, Fifth Third Bancorp and others in the past few years have announced rollouts of branches in cities they had not operated in before, often part of cost-conscious retail strategies involving digital platforms and fewer, more streamlined financial centers.

The coronavirus pandemic, which led to weeks of branch closures and accelerated a consumer shift to digital, raised questions about whether banks would cancel or scale back these expansion efforts. Executives of several banks have insisted their plans are largely unchanged and that there is still value in adding branches.

Yet what those new branch networks ultimately look like could depend greatly on how much branch traffic actually bounces back after COVID-19 is better contained.

“The big banks may keep to their plans and go forward, but they may moderate them somewhat,” said L.T. ‘Tom’ Hall, president and CEO of the consulting firm Resurgent Performance. “I think community banks are going to be working really hard on expenses and will probably change some of their plans.”

BofA remains committed to a plan it announced in 2018 to add more than 500 branches through 2022, Dean Athanasia, head of consumer banking, said at the Morgan Stanley Virtual U.S. Financials conference on June 9. The bank has entered or plans to enter new markets including Cincinnati, Cleveland, Denver, Minneapolis and Pittsburgh.

But he also said the company could use those branches differently than it would have in the past, based on what it’s learned during the pandemic. Financial centers will offer more complex services that people need to get in person, like a notary public, or serve as sales hubs.

“We'll do a lot more outbound calling from our financial centers than we ever have,” he said. “We've discovered a lot of different attributes to the financial centers. We could add to them, enhance them and make them better and make them more efficient.”

Executives with JPMorgan Chase said at the same conference that new branches it had added as part of an ongoing expansion had exceeded expectations.

Greg Carmichael, president and CEO of Fifth Third Bancorp in Cincinnati, said in April that the bank is sticking to a Southeast expansion plan it began two years ago. It says it will ultimately add roughly 100 new branches across the Southeast. But he also said the $185 billion-asset bank could make some design tweaks based on its experience with COVID-19, such as walk-up windows in urban branches that lack a drive-through lane.

While U.S. Bancorp in Minneapolis could accelerate some branch closings it already had in the works in existing markets, the pandemic has not hampered its plans to selectively expand into new markets. Between new branches in Texas and the Southeast and branches it will close in legacy markets, the $543 billion-asset company has said it will ultimately shrink its branch footprint 10% to 15% by early 2021.

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Chairman and CEO Andy Cecere said in May that consumers who are used to self-serve digital channels will be willing to travel a little further the few times they need a branch. He said the bank is still planning to enter new markets using a “digital first, branch light” strategy.

“I think we're going to start to migrate that way across most of our markets,” he said.

A Capital One Financial spokeswoman said via email that the company still plans to open new banking cafés in Tampa, Fla., and Scottsdale, Ariz., later this year when it’s safe to do so.

The pandemic has not delayed a Houston market expansion by the $34.1 billion-asset Cullen/Frost Bankers in San Antonio, a spokesman said recently. Frost Bank has so far opened 13 of 25 new branches in the greater Houston market, and is on track to complete that plan by year-end

“We might have one or two that end up opening early in 2021, but that will be more because of weather or administrative delays than anything specifically related to the pandemic,” its spokesman said.

Dave Martin, founder of the retail bank consulting firm bankmechanics, said that he hasn’t talked to any bankers yet who have canceled their branch expansion plans because of the pandemic. But some banks might hit pause on those expansion plans “just to be prudent,” he said.

“The branches they were talking about building anyway, they’re not as big a commitment as they once were,” he said.

Martin said he doesn’t see any big changes to the branch design resulting from the coronavirus outbreak, but branches may be more often equipped with Plexiglas separators and other features to help reduce the spread of a virus.

Others say some modifications could be in the cards. The pandemic “has to be impacting everyone’s plans” to some degree, said Steven Reider, president of the consulting firm Bancography.

“Even if they may not be rethinking their expansion plans, they’re certainly rethinking what the branches are going to look like,” Reider said.

He added that more than any other observation, he has heard bankers express surprise at how much they had underestimated the importance of a drive-through window.

Even as Frost Bank continued to open branches in the Houston area, it relied on the drive-through lane or appointments to serve customers, its spokesman said.

“You’ll probably see increased use of the interactive teller machines and maybe more kiosks,” Hall said. “But the reality is, I think they’ll all have to assess right now what the payback on something like that is going to be.”