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Bank Branches on the Decline
Tuesday, October 27, 2015 6:20 AM

Branch pruning has been one of the more visible manifestations of expense cuts at U.S. banks, and an SNL study of the trend shows that from the start of 2006 (before the crisis) to Oct. 8, 2015 (five years after Dodd-Frank), banks have closed more branches than they have opened by a difference of 1,443.

Broken down by region, the Southwest saw the most net openings from 2006 to 2015, with most of expansion occurring in Texas. Aside from the state's growth in population, the numbers take into account the "explosion of loan production offices" largely of smaller institutions from rural areas looking to diversify their loan portfolios.

Meanwhile, the decline in branch presence was most noticeable in the Midwest, and largely in Michigan. Yet Pennsylvania surpassed Michigan, which experienced the highest number of net closings in the country, primarily due to banks generally paying more state tax—often significantly more—if headquartered in Pennsylvania than if headquartered in another state.

Branch success isn't only a reflection of a state's economic health but of demographics too. The brick-and-mortar decline is often attributed to the preference among Millennials for online and mobile banking.

For 2014, the Census Bureau's annual population estimates for selected age groups show that those born between 1980 and 2000 (aka, Millennials) comprise roughly 33 percent of Texas' population. It may explain why the growth in Texas focuses on loan production offices, as opposed to full service branches.

An American Bankers Association survey discovered that out of 1,000 U.S. adults, 32 percent prefer Internet banking over other methods. Branches are now the second-most preferred method, at 17 percent, down from the 21 percent it was a year ago. ATM banking also saw a decline in popularity, albeit a slight one (to 13 percent in 2015 from 14 percent in 2014), and mobile banking looks ready to overtake it (at 12 percent compared to 10 percent a year ago).

Also of note, the smallest banks opened more branches than they closed throughout the covered period, while bigger banks started closing more than they opened as early as 2009. Still, America will see an overall decline in branches in the years to come, because the smaller banks are not going to buy all the ones that big banks are closing.

Source: SNL Financial, 21 October 2015