Why the torrid pace of branch closings has cooled

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Michael Nagle/Bloomberg

An uninterrupted march toward fewer branches has permeated the banking industry since 2010. 

But, while the movement accelerated early this decade, the pace of closures eased in 2023. That could further slow this year as prominent banks look to fortify their branch networks in growth markets.

It would mark a substantial change if realized. In 2009, the last year that physical locations increased, there were nearly 100,000 branches across the U.S. There are fewer than 80,000 today, according to S&P Global Market Intelligence data.

Analysts say banks are investing more in their online platforms, where customers prefer to handle increasingly more of their banking transactions. As a result, fewer branches are needed, and banks overall are continuously trimming their physical footprints in response, pushing some of the savings to their bottom lines and reinvesting the rest in evolving technology.

"The long-term trend of shrinking branch numbers will continue as banks embrace technology and mobile banking," Jacob Thompson, managing director at Samco Capital Markets, said in a recent interview.

There were about 77,500 bank branches in the U.S. at the close of 2023, according to updated estimates from S&P Global. The trend was hastened by the social distancing measures enacted to combat coronavirus outbreaks in 2020 and 2021. Such measures brought branch traffic to a standstill and drove increased adoption of digital products and services.

Taking into account openings and closings, U.S. banks shuttered a net 2,928 branches in 2021, the most on record, according to S&P Global. That also marked an increase in closings of nearly 40% from 2020, the previous record year, the firm's data shows.

A long-running merger-and-acquisition movement across the industry has also played a role, Thompson said. Banks often pursue acquisitions of competitors to cut expenses on overlapping staff, services and facilities. The savings support profits. In recent years, closing branches has often proven integral to deal-related cost-cutting.

National and regional banks have led the branch downsizing charge, mostly because they have the largest networks and therefore the most cutting to do. However, banks of all sizes are shifting investments away from physical locations and toward digital platforms.

However, bank M&A slowed in both 2022 and 2023 amid higher regulatory scrutiny and broad uncertainty imposed by interest rates that surged over the past two years. There were only 98 M&A bank deals inked in 2023, according to updated data from S&P Global. That was far below the 161 in the prior year and less than half the 202 transactions announced in 2021.  

Additionally, early in his current administration, President Joe Biden called for increased enforcement of the Community Reinvestment Act, and regulators are asking more questions about planned branch closures, working to ensure that residents of low- and moderate-income communities are not left without convenient access to physical banks — a hallmark of the CRA.

The result: A net 1,409 bank branches closed in 2023, compared with 1,854 in 2022, according to the S&P Global data. Both years were down notably from the all-time high in 2021.

What's more, most bankers say that even their most tech-savvy customers want physical bank offices where they can seek financial advice, open new accounts or manage major transactions such as getting a significant loan.

Banks also say branches in high-traffic areas function as vital billboards. In neighborhoods with booming populations or fast-growing economies, banks do still carefully open some new branches, even as they close others elsewhere. That includes some big banks that are opening more new branches this year after years of scaling back. 

PNC Financial Services Group is a case in point. After downsizing its retail network in recent years, the $562 billion-asset company said in February it would renovate more than 1,200 existing offices and open more than 100 new ones in a bid to expand in high-growth cities. Key markets include Dallas, Houston, San Antonio, Miami and Denver.

PNC said it would invest about $1 billion in the effort, with the new branches getting built between 2024 and 2028. The bank currently operates approximately 2,300 branches.

While fewer are needed than in past eras, "branches will always have an important role," PNC President Michael Lyons said in a February interview.

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Additionally, the $3.9 trillion-asset JPMorgan Chase in New York, the nation's largest bank, said its retail business is in the midst of adding more than 500 branches by 2027.

"In 2023, we built 166 new branches, and we're planning about a similar number this year," JPMorgan CFO Jeremy Barnum said on the company's fourth-quarter earnings call in January. The company started 2024 with about 4,900 branches.

Still, analysts say banks are bound to continue shifting resources toward their online platforms. This will further diminish the need for large branch networks. It may also enable institutions to further downsize their physical footprints and reinvest the savings in digital services — though perhaps not at the record pace of recent years.

Terry McEvoy, an analyst at Stephens, said in an interview that PNC, for example, had certainly shone a new spotlight on branches. But even as the regional bank builds new ones in major cities, it may continue to close some in others.

"It is a shift in strategy, though a very targeted shift to focus on growth markets," McEvoy said.