U.S. Bancorp plans to shutter an additional 15% of its branches by early 2021, resulting in cost savings of around $150 million, as the global pandemic continues to push consumers toward digital banking, the Minneapolis-based bank’s CEO said Wednesday.
The fifth-largest U.S. bank already had a commitment to close 10% to 15% of branches by early 2021 as part of its branch transformation initiative. U.S. Bancorp has already closed 10% of its branches, meeting its previous goal, and will be committing to closures of an additional 15% by early next year, CEO Andy Cecere said in a quarterly earnings call with investors.
“While physical branches and personal interactions will always be important, we need fewer branches today than we did even a few years ago,” Cecere said. “And the branches of the future need to be more advice centers than locations where transactions take place.”
Around 75% of the branches selected for the new closures announced Wednesday have already been closed for the past several months due to COVID-19, Cecere said.
“They really are resulting in a permanent closure,” Cecere said. “Again, all of this reflects changes in customer behaviors and activities. We know we saw an acceleration of digital transactions and sales — you saw the sales numbers on lending activity —and that only accelerated during the COVID period and that is, the result is what we’re doing.”
This cost savings plan comes as U.S. Bancorp saw another increase in digital active customers. As of August this year, 76% of the bank’s total active customers were banking digitally. This is an increase from August 2019, when 72% of the bank’s clients were using mobile and online banking tools.
Additionally, 76% of the bank’s transaction happened digitally, while only 24% of the total transactions happened in either a branch, ATM or phone in the three months ending in August this year. During last year’s comparable quarter, only 67% of the transactions were executed digitally.
The decision to nix extra branches arrives as U.S. Bancorp also saw an increase in non-interest expenses primarily due to its acquisition of the State Farm credit card portfolio in the third quarter of 2020 and costs related to the COVID-19 environment, the bank said. This quarter, the bank recorded an expense of $3.37 million, which was up 1.6% quarter over quarter and up 7.2% year-over-year.
However, U.S. Bancorp reported an earnings per share for the third quarter of $0.99, beating the Zacks Consensus Estimate of $0.93. It recorded a net income of $1.58 billion in the third quarter, down compared to last year’s third-quarter profits of $1.9 billion, but up compared to second-quarter profits of $689 million.
“Our results, during this challenging economic environment, are a testament to our diverse business mix and consistent approach to credit risk management,” Cecere said.