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Brick & Mortar Banking – Are Branches Actually in Decline?


Brick & Mortar Banking – Are Branches Actually in Decline?

By now, many of us handle a good portion of our routine bank business by computer or smartphone. We can log in to check balances, transfer funds, and send payments. And we can deposit checks using our bank’s app in tandem with our phone’s camera. The ability to manage our deposit accounts from wherever we are, and without stepping foot inside a physical branch, has not only never been greater, it’s likely to continue expanding.

So with the necessity of brick and mortar branches becoming ever slimmer for most customers, are banks trimming their location numbers? And what about credit unions? We looked into the data to find out.

Identifying locations

Once a year, the FDIC publishes what’s called the Summary of Deposits, which among many other things, includes the number of physical branch locations for each bank operating in the country. It’s released every September for the previous year ending June 30. Similarly, the NCUA releases data on the number of operating credit union branches, with its reports coming out every quarter.

In 2003, the NCUA changed its reporting structure, making it much more straightforward to identify the number of credit union branches as distinct from non-branch corporate addresses. As a result, we opted to start our analysis of credit union branch numbers in 2004, and followed suit with bank branches to keep the data comparisons parallel.

... we counted three location types: those that provide full service at a brick and mortar office; those providing full service within another retail location[;] and those that offer limited services but include the acceptance of deposits and payments ...

We also needed to identify which branch types to count. The FDIC classifies branches according to more than a dozen categories based on type of location and level of service. For our analysis we counted three location types: those that provide full service at a brick and mortar office; those providing full service within another retail location, meaning a bank branch located inside a grocery store or other retail establishment; and those that offer limited services but include the acceptance of deposits and payments, and may be independent branches, in-retail branches, or drive-through locations. Although this excludes locations such as those serving only a loan processing function or only a restricted area like a military base, as well as those operating as a mobile or online banking office, our filter includes 98 to 99 percent of all FDIC-listed branches.

For credit unions, the NCUA designates only locations that provide member services, excluding offices that serve a solely corporate function.

What we learned about banks & bank branches

From 2004 to 2016, two clear trend lines stand out. First, we see that the number of bank branches has indeed been in decline for several years, but only after first climbing to a substantial peak. Bank branch expansion experienced a boom period that culminated in 2009 with 98,395 branches, representing a gain of almost 11 percent since 2004.

Since that high-water mark, the number of branches has dropped slowly but steadily for seven years, with annual decreases ranging from 0.4 to 1.6 percent. In the FDIC’s latest reporting, the number of branches stood at 90,269. Though down close to 8 percent from its 2009 peak, today’s figure still stands above the number of branches a dozen years ago.

figure 1

While this might seem to be evidence that digital banking trends are chipping away at the banking industry’s willingness to operate physical branches, looking at the second trend line offers another angle to the story. In 2004, there were over 9,000 FDIC banks in existence. Today? Just 6,068. That’s a drop of more than a third, over just a dozen years. As larger banks have subsumed smaller institutions and other banks have combined or failed, the number of registered banks finds itself on a steady declining path.

This industry consolidation would play a significant role in the number of existing branches. While the merging of two banks in disparate regions might not result in branch reductions, consider instead the bank mergers that turn two banks in the same market into a single branded bank. That’s when branch reductions may happen more quickly, as newly combined banks seek to avoid location redundancies and reduce operating costs.

So with bank numbers down 33 percent, it’s a logical follow-on that branch numbers would be in decline.

A similar trend among credit unions

The number of NCUA-regulated credit unions in the U.S. is remarkably similar to the number of banks, although they operate less than a quarter of the number of branches. Still, both the branch and institution trend lines we saw for FDIC banks generally carried through the credit union data as well.

Branch numbers technically peaked in 2010 for credit unions, climbing 11.6 percent since 2004. But from 2009 to 2012, they held almost exactly flat, so their peak experienced a longer duration. Since 2012, branch numbers have come down about 4 percent (compared to the bank branch decline of approximately 8 percent), mostly in a large drop in 2013. For the last three years, they’ve again held essentially steady, at levels just above what we saw in 2005.

figure 2

Again, however, we see a steady, straight-line decline in the number of credit unions themselves, dropping even a bit more steeply than banks. In 2004, NCUA-insured credit unions numbered over 9,300, while today they’ve dropped more than 35 percent to just over 6,000, bringing the number of active branches down with it, although less dramatically for credit unions than for banks.

Branches per institution are up

One last set of calculations shows how the decrease in institution numbers, particularly among smaller institutions, has affected the branch analysis. As seen in the chart below, the average number of branches per institution is actually increasing rather significantly. Whereas a bank in 2004 had an average of 9.8 branches, today it has over 14. For credit unions, the figures are lower and therefore the gains less pronounced, but a typical 2004 credit union would have had 2.06 branches versus the 3.43 branches operated by an average credit union today. In addition to revealing the other side of the branch decline narrative, this trend also underscores the regulatory, technological, and administrative challenges that smaller institutions have experienced over the past decade in trying to operate as stand-alone entities. 

figure 3

Until the story continues

In the fall, a new set of annual FDIC counts will become available, along with new NCUA data, and we’ll be anxious to see if banks, credit unions and their branches continue their multi-year decline or if they level off. Until then, it’s interesting to note that digital banking’s impact on branch closings is not substantial so far. While the effect is certainly there, and is combining with branch decreases from mergers and consolidations, the rumors of branch banking’s demise are much exaggerated, making it still likely your brick and mortar institution has a branch near you.

Comments
Bozo
Bozo   |     |   Comment #1
Interesting statistics. I suspect it was World Savings (before it went under) that revolutionized the layout of the bank branch. One sliver of the square footage was dedicated to the teller windows. Everything else was dedicated to up-selling. Your garden-variety bank branch today is basically a platform for up-selling.

To the right of the teller windows, you have the annuity salesperson, the stock salesperson, the bond salesperson, and the life insurance salesperson. Tellers are forced to stand. The salespersons get desks and chairs.
DCGuy
DCGuy   |     |   Comment #2
I had an account with World Savings in TX over 10 years ago. I closed the account before the bank disappeared.
wmp
wmp   |     |   Comment #18
BOTTOM LINE on these statistics: A trend of bank and credit union mergers and acquisitions has resulted in smaller NUMBERS of banks and credit unions, however, banks and credit unions are now LARGER, deposit-wise and asset-wise. This trend has meant access to branches of LARGER banks and credit union, deposit-wise and asset-wise than was the case before the trend of bank and credit union mergers and acquisitions.
Rico
Rico   |     |   Comment #3
Rico
Another less scientific indicator of the digital influence is lobby traffic in the bank or credit union branch. Branch foot traffic is down substantially in the past 5 or 6 years. Banks and I presume credit unions as well measure daily transaction totals. By my observation, these must also reflect marked declines. As transactions decline to a predetermined level , management begins a review of the viability of keeping or closing a branch, or reducing personnel within the branch.
Lubozniak
Lubozniak   |     |   Comment #4
Around where I live, it seems that whenever a vacant storefront becomes available, a Chase branch moves in. And I go to the nearest Chase branch twice a year to pay my property taxes (they have an arrangement with the county to collect taxes) and the place is vacant. It used to be that on the tax payment deadline date, there was a long line, but no more.

Maybe the occasional customer that wanders in and gets convinced to open a brokerage account justifies all the branches, but it's hard to see.
AC-DC GUY
AC-DC GUY   |     |   Comment #20
the new construction build money comes from depositors hardly getting a return via the 16 years of lowest fed rates, wells fargo put up a palace in a corn belt state burg and wells fargo had only one decent depositor fdic product called the PMA,,,,which died in 2002 under greenspans cuts. it is bad PR for a major bank to close even a modest store,,,,,therefore i wouldn't count on the fed going to normal in the next 20 years.,,,,bernanke agrees with me.
Bill O'Reilly
Bill O'Reilly   |     |   Comment #5
I do online banking, but example today, i like to leave tips in cash, so i go to the bank across the street and get the cash i need, in certain denominations (1s, 5s, 10s)....You can't do that at an ATM or online.
Att
Att   |     |   Comment #6
But a bank branch dealing in such transactions justify the cost of having a branch operating? One could do the same at a supermarket. They allow people to write checks or use ATM for more than the cost of the food purchase. Some supermarkets just scan your check and return the paperback to you. You can open a brokerage account on line as well as buy bonds, stocks and annuities. The only reason I go into a branch is for the rare signature guarantee.
LuvCD
LuvCD   |     |   Comment #7
Att, see Bozo comments. Accounting of cost for "investment side" as compared to "normal banking" is an art. As long as banks are a peddler of annuities, etc. they (generally) "need" a brick and mortar, i.e. how could they refer (get leads) a customer to the nonbank products AND sell their competitors brokered CDs!
Att
Att   |     |   Comment #8
In this day and age banks can advertise on their and other websites. They can also use mail. In the past when I went into a branch to do teller transactions I have never had anyone approach me to sell a product. I have had in the past had people call me from the branch "regarding my account" which I found out was a sales pitch. If you open or close CDs at a branch then they may try to sell. The last time I went in for a signature guarantee they did ask where my investments were, I told them I handle this myself. I live in NY near NYC. I see many branches closing including 2 Capital 1s. I think many younger people prefer using technology when it comes to finances. I think the future will be fewer branches with like a self checkout for transactions and some support people. I prefer using technology to deposit checks via phone or ATM. I can if I want use my phone, credit card or debit card to pay for things. I can purchase stocks, bonds etc via my Vanguard brokerage account. The bank would not prefer people who are looking for"tip" money or deposit coins. This prior sentence is my point.
slovokia
slovokia   |     |   Comment #9
It would be interesting to see what the average age of foot traffic into bank branches is and how that compared to the average age of all customers of that bank. My guess is that the ratio is increasing over time.
Ally6770
Ally6770   |     |   Comment #10
I remember the long lines at the bank where I worked and the long lines during the first of the month when the retirement and SS checks came in. We served cookies and coffee and it was a social event. People enjoyed the visiting with one another each month. We would have all teller lines open and the seniors would be lined up to the doors. Before I retired most went to direct deposit and then it was Thursday and Fridays with the long lines of people that came in to cash their payroll checks. We had suckers at the counter, and candy canes during the Christmas holidays. Now I see that the credit unions in my town serve coffee, cocoa, and tea and popcorn on Fridays. We are a smaller town of under 100,000 but 5-6 of our credit unions have 5 branches or more. I stopped counting but we still have at least 31 different banks and credit unions in this town.
Att
Att   |     |   Comment #11
Our favorite bank Wells Fargo is closing 400 branches buy end of 2018. In 2016 they closed 84 branches.
LuvCD
LuvCD   |     |   Comment #13
Way too many WF branches open given their business model
Att
Att   |     |   Comment #14
Too many banks period. You can effectively bank without a branch visit. Most services can be done on line or at an ATM. Wells Fargo is not that different from Chase or BOA. Chase , BOA and Citi closed 389 branches in 2016.
Nothing
Nothing   |     |   Comment #15
I don't use electronic banking. No ATM card...only credit cards (latter primarily for limited liability, former have unlimited liability and access to $s). Thus, I need, and use, banks for petty cash...given current interest rates, no interest lost.
Att
Att   |     |   Comment #16
The banks don't profit on your petty cash. They would rather have you use an ATM. It comes down to profits. If a branch doesn't make profits they will be closed and you will be forced to find alternatives. When my company 1st had etf for payroll many wanted checks. A few years later you had no choice but to have your pay done electronically. Things change.
Nothing
Nothing   |     |   Comment #17
I remember too when/where Las Vegas, everything was "cheap," and then everything became a profit center. It's all accounting! I'll let others get e-hacked
Att
Att   |     |   Comment #12
I remember when I was younger seeing the SBLI person in the bank I went to. Never saw any customers with him