The acceleration of bank branch closures comes as the Minneapolis-based company, and the nation’s fifth-largest bank, now experiences three-quarters of all transactions and more than half of all loans through its website or app. The shift to digital banking sped up during the COVID-19 pandemic, executives added.
“While physical branches and personal interactions will always be important, we need fewer branches today than we did even a few years ago,” Andy Cecere, U.S. Bancorp’s CEO, told investors and analysts as he discussed third-quarter results. “And the branches of the future need to be more advice centers than locations where transactions take place.”
Terry Dolan, the bank’s chief financial officer, said in an interview that the closures shouldn’t be too disruptive to customers given that many have already been temporarily closed because of the pandemic. He added that many branches being closed, which include locations inside grocery stores, are near others.
He added that it’s hard to estimate how many employees will lose their jobs because the bank is offering them other opportunities. In recent months, for example, many employees at these branches were redeployed to help with processing Paycheck Protection Program loans.
Executives said the closings will lead to savings of about $150 million, some of which will be reinvested into digital initiatives as well as into remodeling branches. After the next round of closures, U.S. Bank will have roughly 2,300 branches in the United States.
At the same time, U.S. Bank has been opening some new branches retooled for the digital age that puts customer service and advice front and center while putting less emphasis on transactions. The new formats, for example, don’t have teller lines.
Dolan said the company expects to open roughly 100 new branches across its network over the next couple of years.
On Wednesday, U.S. Bancorp also reported a 17% decline in third-quarter profit as it set aside another $635 million for possible loan defaults due to economic challenges from the pandemic. That would also cover expected losses from a $1.2 billion credit card portfolio it recently acquired from State Farm, the company said.
That overall provision for credit losses in the quarter was smaller than the $1.7 billion it set aside in the previous quarter.
“The economy is showing signs of recovery, but consumer spending remains below pre-COVID levels, the unemployment rate is high by historical standards and the outlook remains uncertain,” Cecere said. “However, we are well-positioned to navigate through a more challenging economic and interest rate environment.”
The bank expects the U.S. unemployment rate to get a little worse in the fourth quarter and will rise to 9.1% due to recent layoffs, before coming back down next year, Dolan said. Loan defaults are expected to start showing up sometime next year, he said.
“But the picture looks better today than it did even 90 days ago,” Dolan said. “There’s a couple of reasons for that. One is the stimulus is being effective. The deferral programs put into place as part of CARES Act have been quite effective … They built kind of a bridge to help consumers get through the worst of the pandemic.”
U.S. Bancorp’s net income in the third quarter was $1.58 billion, or 99 cents a share, compared with $1.91 billion in the same quarter a year ago. The results were better than expected, with analysts having forecast 91 cents a share. And it was an improvement from the previous quarter when the bigger provision for credit losses brought down net income to $689 million.
Total revenue rose less than 1% to $5.96 billion.
Net interest income, which accounts for a little over half of overall revenue, declined by 1.6%, mostly because of lower interest rates.
Noninterest income rose 3.7%, fueled by gains in mortgage banking as more consumers refinanced their homes to take advantage of the low rates.
Average total loans in the quarter were 6.4% higher than a year ago, driven by loans through the Paycheck Protection Program and the growth in residential mortgages.