U.S. banks will add net new branches in 2023 for the first time in 10 years. The bet on new brick-and-mortar stores won't wane in 2024.
Banks added 94 net new branches nationwide last year, according to new data released this week by the Federal Deposit Insurance Corporation. This was the first annual period since 2012 when more stores opened than closed.
This marks the end of a decade of consolidation of physical locations across the country, sparked by the 2008 financial crisis. As a result, many banks have been forced to cut costs and reduce physical footprint while relying more on digital banking to connect with customers.
Banks still have a long way to go to make up for all the closed stores. The number of branches in the United States will be 69,684 at the end of 2023, down from 82,461 in 2012.
This year, many major banks announced plans to add additional banks. They include Pittsburgh financial firm PNC Financial Services Group (PNC), Cincinnati financial firm Fifth Third Bancorp (FITB), and industry giant JPMorgan Chase (JPM).
Some industry insiders say the reason some banks are making new bets on physical branches is to avoid acquiring rivals that might pass antitrust regulatory scrutiny. The company sees physical stores as a new way to manage assets and attract small business customers.
“Big banks are restricted from making domestic acquisitions and encouraged to expand into new domestic markets by opening new branches,” said Eric Rosengren, former president of the Boston Fed. .
Wealth management is a big focus for many banks looking for alternative sources of income beyond lending, but “it tends to require more personal contact” that only a branch can provide, he added.
The recent turnaround has certainly been influenced by the expansion of JPMorgan, the nation's largest bank. It will open a net 110 branches in 2023, and this year announced plans to open 500 new branches and renovate a further 1,700 branches over the next three years.
Jennifer Roberts, CEO of JPMorgan Chase's consumer banking division, told Yahoo Finance: “Over the next few years, we'll see whether our network grows or shrinks.” .
There was a time when branch expansion was a key strategy for any bank with ambitions to expand beyond its home base.
According to FDIC data, the number of brick-and-mortar bank branches in the U.S. has remained steady for 70 years since the 1940s, as regulators began allowing banks to set up shop across state lines and develop networks across the country. increased.
Then, after the 2008 financial crisis, the industry made a dramatic U-turn. A setback was seen with the rise of online banking and the proliferation of devices such as Apple's iPhone, which allows customers to deposit checks remotely.
As banks retired their branches, they invested heavily in the technology needed to facilitate the online banking experience.
“All of a sudden, you could be walking around a bank with your cell phone,” Allen Tischler, senior vice president of financial institutions at Moody's Investors Service, told Yahoo Finance.
Branch utilities took a further hit during the pandemic as lockdowns forced people to do all their banking online.
More than 2,400 branches closed in 2021, the most since the 2008-2009 financial crisis.
What's remarkable about the 2023 reversal is that it occurred during a year of extreme turmoil for the industry.
Three large local lenders have been seized by regulators, sparking panic about the safety of other mid-sized lenders across the country. Failure to collect deposits, partly due to the convenience of online banking, contributed to this collapse.
Rescue teams that took over assets left behind by failed banks actually closed some branches and disposed of unnecessary items.
For example, First Citizen (FCNCA) closed 18 branches and other offices after purchasing most of the foreclosed assets from Silicon Valley Bank. A subsidiary of New York Community Bancorp (NYCB) also recorded 16 net branch closures after purchasing the majority of Signature Bank's assets.
Even JPMorgan closed 21 First Republic branches last year after acquiring the San Francisco lender's failing business last May.
A JPMorgan Consumer Banking spokeswoman said the locations had “relatively low volume and were typically within a short drive of other First Republic offices.”
Last year, banks closed the most branches in New York (96), followed by Virginia (74). The newest openings were in Connecticut (74), followed by Washington (50).
The banks that closed the most branches last year were large banks such as Wells Fargo (287 branches), PNC (241 branches), US Bancorp (220 branches), and Trust (122 branches).
However, PNC announced earlier this year that it would open 100 new branches by 2028. The strategy focuses on closing banks' unprofitable branches and expanding in hotter markets.
Bank executives refer to this strategic arm as “optimization.” Scott Schiefers, a banking analyst at Piper Sandler, calls this a “give a penny and get a penny back” approach.
PNC said in a February press release that it would build new locations in Austin, Dallas, Denver, Houston, Miami and San Antonio to improve “the convenience and reach of our coast-to-coast branch network.”
JPMorgan said in a separate press release in February that the new locations are aimed at expanding its footprint in Boston, Charlotte, Washington, Minneapolis, Philadelphia and other locations. Both provide asset management and financing services.
“Even wealthy people like to visit their properties,” JPMorgan CEO Jamie Dimon said in a CNBC interview in February, adding that 900,000 people visit the bank's branches every day. He pointed out that he was visiting.
David Hollerith is a senior reporter at Yahoo Finance, covering banking, cryptocurrencies, and other financial areas.
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