Bank Branch Coverage Remains Unchanged, Even After Recent Closures

A new study by Bancography investigates whether the relationship between the use of a service and proximity of facilities holds in banking – reflecting the decrease of branch transactions caused by migration to digital channels.
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At a time when consumers can conduct financial transactions through a numerous and growing array of electronic channels, many bankers have questioned the ongoing need for physical branches. The hypothesis driving those questions is sound: with more electronic channels and improved capabilities in those channels, consumers should visit branches less often; and if they visit branches less often, they may be willing to tolerate longer travel times to the branch.

The relationship between frequency of use and travel distance is well documented in the retail sector: consumers will drive long distances to visit an auto dealer once every five or ten years to purchase a car, but will seek a neighborhood provider for the weekly trip to the grocery store?

If that relationship holds in banking, we should see branch closures creating greater spacing in retail branch networks; that is, banks that have historically competed from a premise of widespread location convenience closing branches to the point where the average distance between a bank’s branches and its customers grows larger.

A raft of branch closures by large institutions in the years following the financial crisis sparked numerous articles predicting a new era in which banks would pare branch networks and compete from a model less dependent on physical locations. However, the majority of those closures followed mergers that included some level of market overlap (e.g., Wells Fargo – Wachovia; BB&T – Colonial; PNC – National City; M&T – Provident), raising a critical question: did those closures signify a transformation in how banks plan to interact with their customers, or were the closures simply a paring of blatant post-merger branch overlaps?

To address this question, examined the branch networks of the largest U.S. banks in major metros and found no evidence of banks competing from leaner branch networks. Rather, recent branch closures were almost exclusively limited to areas where another of the bank’s branches remained close by, with no evidence of banks imposing broader spacing between branches on their customers.

The study examined the networks of the 13 banks in the U.S. that maintain more than 1,000 branches and compared their coverage in the 30 largest U.S. metros in 2010 versus 2013. The 13 institutions in the study collectively hold more than one-third of all U.S. bank branches; while the top 30 metros contain 45% of all U.S. households. The study measured the following statistic:

“Has the proportion of households in the top 30 metro areas that a top 13 bank can reach within one, two or three miles of its branches changed between 2010 and 2013?”

If banks are in fact willing to compete from leaner branch networks – if they presume that consumers will tolerate longer distances to their branch – then we would expect a decline in the statistic. For example, in 2010, 29% of households in the Cleveland MSA lived within one mile of a Fifth Third branch; 67% lived within two miles; and 85% lived within three miles of one of the bank’s branches. What are those proportions today?

More Details: Banks Can’t Close Branches Fast Enough)

If branch convenience is less important to consumers, then we should see the branch footprint scaled back, to where a lesser proportion of market households are within a small radius of the bank’s branches. But Fifth Third showed no such intent in Cleveland: in 2013, 32% of market households lived within one mile of a Fifth Third branch (versus 29% in 2010); 69% lived within two miles (versus 67%); and the same 85% lived within three miles. Thus, at a time of purported branch network contractions, Fifth Third actually expanded its coverage of the Cleveland market.

Across the 13 surveyed institutions in the top 30 MSAs, there were 180 bank-metro combinations. For example, Fifth Third maintains branches in 11 of the top 30 metros:

% Market Hits Within ‘X’ Miles of a Fifth Third Branch

2010 2013 Change
1 Mile 2 Miles 3 Miles 1 Mile 2 Miles 3 Miles 1 Mile 2 Miles 3 Miles
Atlanta 3% 11% 20% 6% 18% 31% 2% 7% 11%
Charlotte 10% 31% 48% 11% 32% 48% 0% 1% 0%
Chicago 28% 63% 84% 28% 63% 84% 0% 0% 0%
Cincinnati 43% 76% 84% 41% 75% 84% -2% -1% 0%
Cleveland 29% 67% 85% 32% 69% 85% 3% 1% 0%
Detroit 17% 49% 75% 17% 49% 74% 0% 0% -1%
Miami 2% 7% 13% 2% 8% 14% 0% 1% 1%
Orlando 16% 43% 69% 16% 44% 69% 0% 1% 0%
Pittsburgh 7% 17% 28% 9% 19% 30% 2% 3% 2%
St. Louis 5% 17% 30% 8% 22% 39% 2% 6% 9%
Tampa 14% 39% 61% 15% 43% 65% 2% 3% 3%

Note: Note: Percentages are rounded up or down to the closest whole number, so ‘change’ column may not match difference between ‘2010’ and ‘2013’ columns.

As noted in the example above, Fifth Third increased its coverage of the Cleveland metro during the past three years, and the table also shows increases in Atlanta, Pittsburgh, Saint Louis and Tampa, offset by a reduction in coverage in the bank’s home market of Cincinnati.

The data can also be viewed by market. For example, nine of the 13 large banks serve the Atlanta metro. In the past three years, Chase and Fifth Third increased their coverage of the market, while Bank of America and PNC decreased their coverage, and the others remained stable.

% Atlanta MSA HHs Within ‘X’ Miles of a Branch Of…

2010 2013 Change
1 Mile 2 Miles 3 Miles 1 Mile 2 Miles 3 Miles 1 Mile 2 Miles 3 Miles
Bank of America 22% 56% 72% 21% 54% 71% -1% -2% 0%
BB&T 12% 35% 57% 12% 34% 56% 0% 0% -1%
Chase 10% 33% 53% 13% 40% 61% 3% 7% 8%
Fifth Third 3% 11% 20% 6% 18% 31% 2% 7% 11%
PNC 10% 29% 49% 9% 28% 49% -1% -1% -1%
Regions 9% 27% 48% 9% 27% 48% 0% 0% 0%
SunTrust 23% 57% 74% 22% 57% 74% 0% 0% 0%
US Bank 1% 2% 3% 1% 2% 3% 0% 0% 0%
Wells Fargo 25% 60% 76% 25% 61% 77% 0% 1% 1%

Note: Note: Percentages are rounded up or down to the closest whole number, so ‘change’ column may not match difference between ‘2010’ and ‘2013’ columns.

Finally, across the 180 cases in the top 30 metros, there were 53 instances of increased coverage within the one mile radius and 56 cases of decreased coverage (the remaining 71 cases showed no change in coverage from 2010 – 2013). Overall, increases outpaced decreases at the two mile level by 67 to 48 and at the three mile level by 54 to 39.

The table below summarizes each bank’s actions, with several interesting statistics highlighted in the one-mile column, which would represent the highest level of branch convenience. Bank of America decreased one-mile coverage in almost all its markets; while Chase and US Bank consistently expanded coverage.

Geographic Coverage Change by Top 13 Banks

% HHs
Within 1 Mile
% HHs
Within 2 Miles
% HHs
Within 3 Miles
# of
Top 30 Markets
Increased
Coverage
Decreased
Coverage
Increased
Coverage
Decreased
Coverage
Increased
Coverage
Decreased
Coverage
Bank of America 26 0 24 2 12 2 9
BB&T 8 2 3 3 3 4 4
Chase 24 17 1 16 0 15 0
Citibank 15 2 2 3 7 2 8
Fifth Third 11 5 1 8 1 5 1
KeyBank 8 4 2 4 2 4 2
PNC 15 5 6 6 4 5 3
RBS Citizens 7 0 3 1 3 1 1
Regions 9 0 3 0 6 0 4
SunTrust 7 1 2 1 3 0 3
TD Bank 9 4 1 5 1 5 1
US Bank 17 10 0 11 0 7 1
Wells Fargo 24 3 8 5 6 4 2
Total 180 53 56 67 48 54 39

Note that even with Bank of America’s seemingly aggressive contraction, it still holds the second broadest one mile coverage, with 39% of households in its markets within one mile of its branches (Chase leads at 40% with no other bank surpassing 33%). PNC showed changes in 11 of its 15 markets, near equally split between increases and decreases, reflecting the acquisition of RBC branches and a considered reallocation of resources rather than a uniform strategy across all markets.

At the market level, Philadelphia and Detroit showed declines in one-mile coverage, as three institutions reduced household coverage while none increased. Orlando suffered five declines versus just one increase from its nine large banks. In contrast, Baltimore, Denver, Portland, Seattle, San Francisco and Washington all had three banks increase coverage versus only one decrease. Miami showed strategic discord, as four banks increased coverage while three decreased coverage.

Most importantly, the magnitude of changes across all the banks and in all of the markets was incremental rather than transformative. As the tables illustrate, there is little evidence of banks contracting their networks so severely as to indicate a desire to extend the spacing between their branches. That is, to operate from a premise that consumers in the future will be willing to travel farther to visit their branch (presumably because they need to do so less frequently); and for every case of branch constriction there is a counter case of broadened coverage.

More Details: One Third of Consumers Are Now Banking Without Branches)

How then, to explain the branch closures that occurred during the past three years? In that time, six of the 13 banks in this study closed 50 or more branches (Bank of America, PNC, RBS Citizens, Regions, SunTrust, Wells Fargo). But almost every major bank in the U.S. used acquisition as an essential part of its growth strategy over the years, and in-market mergers yielded numerous overlapping branches.

In many cases a buyer would find itself with acquired branches at the same intersection or within a few blocks of one of its own branches. At the time of merger, issues of customer disruption, capacity at teller and drive-in windows, and real estate considerations (would sale of the building create a write-down; is there a remaining lease term) may have precluded closure.

And, as bank profits soared during the middle of the last decade, there was less incentive to curtail non-interest expense (NIE). When the financial crisis mandated more diligent expense control, these overlapping branches offered an easy means to reduce NIE, all the more so as electronic channels displaced in-branch transaction demand.

The sizable branch reductions that many large banks pursued in recent years appear to be more the result of judicious pruning of redundant branches rather than a decision to vacate large portions of their markets.

The dynamic between large banks and their major metro customers appears mostly unchanged by branch closures. Rather, institutions continue to maintain broadly accessible branch networks; and in almost every top-30 market more than two-thirds of households live within two miles of one of the market leader’s branches.

As electronic channels continue to improve, the neighborhood branch may become less prevalent. But to date, the evidence shows that leading banks continue to value operating in close proximity to their current and prospective customers. And as the current branches at these institutions have likely survived numerous rounds of cost reduction initiatives, it appears that customers continue to reward that proximity with their balances.

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