U.S. Bank accelerates branch closings as more customers go digital

U.S. Bancorp has shuttered about 400 branches in the last three months as temporary closures made during the pandemic are becoming permanent, Chief Financial Officer Terry Dolan said Wednesday.

The $553.9 billion-asset parent of U.S. Bank set out almost two years ago to trim its network of branches and create a leaner operation. With the country still in the grips of the coronavirus pandemic, plans were accelerated in the fall as more customers were turning to digital channels to manage accounts, open new ones and even apply for loans.

Minneapolis-based U.S. Bank had more 3,000 branches in mid-2019 but by September 2020 that figure was down to 2,700. It had just over 2,400 by the end of the year, according to U.S. Bank’s financial filings, and has continued eliminating branches in January. The bank has said it expects to see up to $150 million in savings from the cuts.

Dolan said in an interview that the work is largely complete. He added that most of the branch closings have been in middle- and upper-income neighborhoods and that very few have been in low-income areas.

U.S. Bank is hardly alone in speeding up the pace of branch closings: Banks closed a record 3,099 branches across the country last year, according to data tallied by S&P Global Market Intelligence.

Dolan said that customers’ increased use of technology was the factor in deciding to close so many branches in recent months. For example, about 56% of U.S. Bank’s loan sales were completed digitally in the fourth quarter, up from 34% during the same period one year before, according to the bank’s financial report Wednesday.

“All of that optimization is really driven by how customer behaviors are changing,” Dolan said. “We have rolled out some good digital capabilities over the years. COVID has helped accelerate the adoption.”

While the total number of branches has declined on net, U.S. Bank is still expanding its presence in some markets, including Charlotte, N.C., where new locations are performing even better than expected, executives told analysts on the bank’s fourth-quarter earnings call Wednesday.

U.S. Bank reported net income of $1.5 billion during the fourth quarter, up 2.1% year-over-year. Its earnings per share of 95 cents met right at analyst estimates. The company’s $5.75 billion in net revenue increased 1.5% year-over-year but came in slightly below what analysts had expected.

Unlike some of its rivals, the company opted not to release loan-loss reserves to help boost fourth-quarter earnings. The bank reported $8 billion in allowance for credit losses at the end of the year, nearly double the amount from one year before and roughly flat from the previous quarter.

Dolan said on a call with analysts that management wants to see restrictions on local economies ease and new COVID-19 cases to decline before deciding to release reserves.

Overall results were particularly lackluster in payments, as fourth-quarter revenue declined 15% year over year to $799 million, in part due to sharply lower volumes of debit and credit card transactions. Piper Sandler analysts said in a note to clients that U.S. Bank’s revenue trends look weaker than had been forecast and investors might put the company’s shares under pressure following the fourth-quarter results. The shares were trading at $45.48 late Wednesday, down 5.4% from Tuesday's close.

The industry as a whole is facing pressure to grow revenue at a time when interest rates are historically low, and Dolan said he expects more banks will need to pursue acquisitions to hit growth targets.

In recent weeks, rivals PNC Financial Services Group in Pittsburgh and Huntington Bancshares in Columbus, Ohio, have struck major deals, with PNC reaching an agreement to buy the $104 billion-asset BBVA USA and Huntington agreeing to buy Detroit-based TCF Financial. That deal would boost Huntington's assets from $120 billion to $168 billion.

U.S. Bank was an active acquirer of failed banks during the financial crisis but has not made a whole-bank acquisition since 2012. Dolan said it would be open to doing a deal, either for a smaller bank or a technology or payments company. Earlier this month it cut a deal to acquire a debt servicing and securities custody portfolio from MUFG Union Bank.

“In the banking industry you’re going to see M&A activity pick up,” Dolan said. “We have the ability to take a look at anything that comes along.”