The Wall Street Journal

3 March 2010

Say goodbye to the decadelong building boom that made it seem like there was a bank branch on every corner.

The total number of retail branches in the U.S. is on pace to decline this year for the first time since at least 2002, according to SNL Financial, a Charlottesville, Va., research firm that tracks branch data filed with banking regulators.

Some banks are aggressively pruning their sprawling operations to get rid of locations deemed unattractive. Major acquirers such as J.P. Morgan Chase & Co. and PNC Financial Services Group Inc. are closing hundreds of branches as they absorb their purchases and get rid of overlapping branches. Even financial institutions that still are opening branches are scaling back their plans, often hatched before the crisis hit.

“In this environment, people are taking a cautious approach,” says Christopher Martin, chief executive of Provident Financial Services Inc., a Jersey City, N.J., bank holding company that opened three branches and closed five in the past three years—and has no plans to increase the size of its 82-branch network this year. “We’re going slow,” he says.

According to SNL, there are 98,913 bank branches in the U.S., a decline of about 300, or 0.3%, since June 2009. The overall count still is 15% higher than in 2002, but analysts say the relentless expansion of retail-branch networks fueled by flush profits and the lure of potential customers eager to borrow money has sputtered.

“It’s just not a popular strategy right now to be building a lot of branches,” says Kris Niswander, an associate director in SNL’s financial institutions group.

Deposits keep pouring into U.S. banks, helped by higher deposit-insurance limits that will remain until the end of 2013. But the longtime obsession with relying on brick-and-mortar locations to grab all that cheap money is outweighed by a cost-cutting push among recession-battered banks trying to hoard their remaining capital.

In 2009, the 8,012 banks and savings institutions in the U.S. had just $12.5 billion in combined profits, down from $100 billion in 2007, according to the Federal Deposit Insurance Corp. A total of 140 banks failed, while 179 disappeared through mergers and acquisitions, and 702 are considered by the FDIC to be “problem” institutions.

The survivors are under intense pressure to reverse a lending slide at the end of last year that was the steepest since 1942. That leaves banks with less money for new branches, which usually cost at least $1 million and don’t turn a profit for two or three years after opening their doors.

Regions Financial Corp., a Birmingham, Ala., bank that posted net losses of $1.3 billion because of soured loans, is closing 121 branches in this year’s first quarter, or about 6% of its total of 1,895. The move is expected to save $21 million a year.

A spokeswoman declined to comment. In a securities filing, Regions said the decision “to consolidate these branches was based largely on their proximity to other branches and an opportunity for combined performance improvement.”

Some banks are trying to zero in more aggressively on the most profitable locations in areas that generate the most deposits. Next month, Comerica Inc. plans to close six branches in or near Detroit, the regional bank’s hometown until Comerica moved to Dallas in 2007.

As of 2006, Comerica was planning to have 512 branches by the end of 2010. It had just 447 branches in January, meaning it likely will fall short of the bank’s previous target. Comerica is moving ahead with 13 branch openings, mostly in California and Texas.

The slowdown could bring a new pain to the commercial real-estate industry, already pummeled by the collapse of large retailers and small businesses. But for banks still hunting for prime locations on the cheap, there is a bumper crop.

J.P. Morgan is scooping up former Blockbuster video-rental stores as the New York bank increases its retail presence in Florida. J.P. Morgan ranks fifth in Florida deposits after its 2008 takeover of Washington Mutual Inc.’s failed banking operations.

In Jersey City, a former Washington Mutual branch inherited by J.P. Morgan was transformed recently into a 7-Eleven convenience store. About 30 miles away in Morris Plains, N.J., a former WaMu location converted into a Chase branch is directly across the street from another Chase branch.

J.P. Morgan says it decided to keep both branches because neither is large enough to accommodate customer demand. As of Dec. 31, J.P. Morgan had 5,154 branches, a decline of 320 branches, or 5.9%, from a year earlier.

Another push to dump branches is coming from the growing popularity of online and mobile-phone banking. Last summer, Bank of America Corp. told investors that the nation’s largest bank by assets planned to reduce the size of its branch network by about 10% due to shifting customer preferences.

“The number of banking centers may ultimately decrease in the future, but we do not have any ultimate size in mind,” a Bank of America spokeswoman says. The Charlotte, N.C., company had 6,011 retail branches at the end of 2009, down 2.2% from 6,149 in 2007.