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February 14, 2022 FOCUS: Banking & Finance

Big banks accelerate branch closures, while small lenders expand geographic footprints with new locations

HBJ Photo | Steve Laschever Ion Bank CEO David Rotatori.
By Michael Puffer

The great American bank branch shakeout continued in 2021, with lenders closing a net 59 brick-and-mortar locations in Connecticut, according to new data compiled by S&P Global Market Intelligence.

But the closures weren’t evenly distributed among banks. Larger national lenders accounted for most of the losses, while smaller, mutual banks tended to maintain, or even grow their brick-and-mortar presence.

Bank of America, which saw its deposit base surpass the $1-trillion mark last year, led the state in branch closures. It reduced its footprint by 17 offices, followed by Webster Bank (14), KeyBank (eight) and Liberty Bank (seven), according to the S&P Global report.

Meantime, no community lenders in Greater Hartford closed a branch last year, according to the report.

“It’s a ‘Tale of Two Cities’ right now is the best way to put it,” said George Hermann, president and CEO of Windsor Federal Savings, a community lender with $708.4 million in assets. “The institutions like ourselves, … we are filling in the needs in the communities. We are growing and opening branches as opposed to other places that are looking strictly at their bottom line and consolidating.”

Windsor Federal opened branches in Windsor, South Windsor and Suffield in the past eight years, Hermann said. It now has an eight-branch footprint in eastern Connecticut.

Technology and innovation

There has been a 30-year trend of banks pruning underperforming branches, according to John S. Carusone, president of the Hartford-based Bank Analysis Center, an industry consulting firm.

This has been driven by industry consolidation and the rise of online banking, which has reduced the need for in-person services, he said.

Connecticut’s slow growth, the prolonged low interest rate environment and a continued drive for efficiency are additional factors in branch consolidation, Carusone said.

Across the U.S., banks closed nearly 4,000 branches in 2021, according to S&P.

In Connecticut, the number of branches operated by federally-insured banks has declined nearly 19% over the last decade, according to Federal Deposit Insurance Corp data. As of June 30, there were 1,058 bank branches in the state, FDIC data shows.

In the past six years, the main culprit of branch closures has been the loss of smaller banks – with under $1 billion in deposits – to mergers or acquisitions, Carusone said. Typically when they are purchased, the acquiring bank will close branches that overlap with its existing footprint.

“This group saw a reduction of 14 banks, down from 33 banks in 2016 to 19 in 2021, and a reduction of 97 branches,” Carusone said.

Meantime, banks with between $1 billion and $10 billion in deposits added a net of 26 branches since the beginning of 2016. Banks with more than $10 billion in deposits shed 83 branches in the same six-year period.

Bank of America spokesperson Vanessa Cook said the bank is constantly adapting its branches and ATMs to fit customers’ changing needs.

That includes consolidating branches where there is significant overlap and opening new locations with the “latest technology and innovations” where there are high-growth opportunities.

Bank of America customers now perform 90% of their banking online, Cook said. Even so, branches remain at the core of the bank’s strategy.

Bank of America plans to update ATMs at, or perform renovations to, 40% of its Connecticut financial centers by 2025, Cook said.

“Our goal is to provide the right network for our clients to do their banking, including financial centers and ATMs, and online, mobile and telephone banking,” Cook said.

Hermann and David Rotatori, president and CEO of Naugatuck-based Ion Bank, said smaller, mutual banks don’t feel the same pressure to increase short-term profits like larger, publicly-traded lenders.

That gives community banks more leeway to maintain brick-and-mortar locations, or even open new branches if they sense competitors are shrinking their presence in a particular community.

A number of Connecticut banks — Torrington Savings, Thomaston Savings, Dime Bank, etc. — have opened new Greater Hartford branches in recent years, looking to take advantage of bank mergers that wiped out smaller competitors.

“I don’t have shareholders saying: ‘Hey, you’ve got to cut these expenses and close these branches because you’ve got to add profitability to the bottom line this quarter,’ ” said Rotatori, whose bank has $1.8 billion in assets. “As a mutual bank, we think three years out, five years out. For us today, size is getting more and more important. And so, we think growing is the best answer.”

That doesn’t mean small banks haven’t economized. Hermann said newly-opened branches have smaller footprints (about 1,200 square feet) and less staff than they did in the past.

Technology is taking a greater share of customer service, Hermann said, but consumers, particularly commercial borrowers, still want the option of in-person transactions, particularly for more complicated and high-value business, such as taking out a mortgage or commercial loan.

Marketing outpost

Hermann said he doesn’t see his bank as a direct competitor to money-center institutions like Bank of America, which operate on a different level.

“We all fill a different niche,” Hermann said. “Our customers will not be serviced in the same way. There are larger multinational companies, there is no way we can service them. We don’t offer trust services. We don’t offer credit cards.”

Hermann said his bank underwrites loans up to $10 million, although it might partner with another bank to offer financing packages as large as $20 million.

Ion Bank opened two new branches in 2021 – one in the Unionville section of Farmington and another in South Windsor. The South Windsor location is the 151-year-old bank’s first venture east of the Connecticut River.

Ion will close a redundant branch on Rubber Avenue in Naugatuck at the end of March, but has applied to open a new brick-and-mortar location in Southington this year.

Ion can’t match the billions in marketing of a large national bank, Rotatori said. Ion’s entire annual budget is around $40 million, of which $1.5 million is devoted to marketing.

With revenues under pressure from shrinking overdraft fees and interest rate margins, Ion must grow to cover overhead costs, Rotatori said. One way to do that is by expanding into new markets, and having a physical presence is key to drawing customers and business. The bank in November announced plans to buy New Jersey-based Lincoln Park Bancorp for $7.5 million, giving it its first presence in The Garden State.

Rotatori said his bank expects to spend about $2 million building the new Southington branch, and another $500,000 annually to staff it with four employees and to pay other operating expenses.

“I would love to say we will just do this digitally, I won’t open a branch in Southington so we don’t have all of the added cost,” Rotatori said. “But we know the acceleration of adding customers will be more significant with building a branch and bringing in bankers who have relationships in Southington already.”

He added: “As much as people don’t go to the branches as often, they like to know there is one available if they need it.”

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