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November 30, 2020

Pandemic will lead to branch closures, but physical locations remain key for many bankers

Cynthia Merkle is the CEO of Union Savings Bank.

Connecticut bank branches have been declining in number for the past decade, and closures reached new highs during the past two years.

Now, the COVID-19 pandemic — currently in its second wave — is creating new challenges for in-person banking that could lead to further shrinkage of banks’ brick-and-mortar footprints.

But don’t expect a mass wave of branch closures in the state either.

Despite more consumers banking online in recent months, bankers say brick-and-mortar outposts remain key assets that allow for more complicated and high-value business with customers, such as issuing mortgage or commercial loans.

“We still believe in the importance of brick and mortar, as we believe our branches serve as billboards and represent convenience for so many customers,” said Union Savings Bank CEO Cynthia Merkle, who oversees 25 branches, including one in Canton.

Union Savings, which has $2.7 billion in assets, has no plans to open new branches in 2021, but will renovate its Roxbury branch, she said.

George Hermann, CEO of $647.2 million Windsor Federal Savings, said branches don't need to be as large as they used to be, but they are still important.

“You need to have a presence,” said Hermann, adding that his eight-branch geographic strategy remains largely unchanged by COVID-19. “It’s still an important part of the business model.”

Despite the pandemic, Ion Bank has no plans to put the brakes on a Hartford County expansion it began several years ago, said CEO David Rotatori.

The Naugatuck-based bank will soon open a new branch, its 19th overall, in the Unionville section of Farmington, and Rotatori said his team has been scouting potential branch locations in South Windsor and two other area towns.

“COVID has sped up many facets of our technology platforms -- online banking and bill pay are way up, but people still want to know that they have a branch they can go to,” Rotatori said.

For mid-sized local banks, branches are especially important for getting customers in the door.

“Let’s face it, we don’t have the advertising budget the larger banks do to bring in new customers online,” Rotatori said. “That physical presence is still our best tool.”

A slow burn

Over the past 20 years, Connecticut banks have nearly tripled the deposits they hold, but because of mergers and acquisitions, that money is spread among fewer and fewer players.

That consolidation has also led to the closure of many bank branches.

Connecticut has lost about five bank branches per year since the turn of the century, according to Federal Deposit Insurance Corp. data.

However, the losses have been concentrated over the past decade, when the state’s net bank branch count fell by an average of approximately 20 locations per year, compared with an average net gain of 11 branches per year during the prior decade.

The declines in Connecticut brick-and-mortar bank offices reached new highs in 2019 and 2020, with lenders closing a net total of 30 and 35 locations, respectively.

Many of those recent closures were the result of mergers and acquisitions. For example, People’s United Bank shuttered approximately 30 branches over the past two years following its purchases of Farmington Bank and United Bank.

Branches have been dwindling nationally in recent years as well, but there’s no evidence right now that the pandemic has accelerated the closures.

According to a data analysis published by Forbes in late September, the Office of the Comptroller of the Currency received 893 branch closure notifications across the country between March and August of this year, down from 967 over the same period in 2019.

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