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This Week in Retail Banking | May 2, 2020

Moving Forward: Strategies for Branch Shutdowns, Real Estate

Across the country, many people are now accustomed to working from home during the COVID-19 pandemic, prompting businesses to realize that face-to-face contact may not be as important as they thought. The deployment of video conferencing and other work-from-home strategies has been successful for many employers even as the economy has been hit hard by stay-at-home orders.

The upshot: banks need to close more branches. It will be harder than it has been in the past because most of the easy decisions have already been made. And this time around, changes in the way Americans shop and work will have a big impact on the future of the branch network.


The industry has been steadily closing branches since 2009, with the branch count reducing by about 1-2% per year. Transaction volumes have been declining by about 6-7% per year and consumers have started to much more aggressively adopt digital channels, including for account opening. Customers aren’t as tied to these branches as they used to be – most banks experience less than 5% in deposit attrition from these closures.

The stay-at-home orders have given banks the ability to dictate the operating model for the first time in years and we can expect that there will be a long transition back to “normal”. These conditions create an opportunity for banks to guide consumers toward a longer-term omnichannel strategy and finally rip off the band-aid on consolidation strategies that would have taken longer to achieve under normal circumstances.

Average Teller Transactions per Household/Small Business

Source: Novantas SalesScape; Novantas analysis; Note: Txns and HH/SB’s represented at a per-branch level and actual branch count is decreasing across the period

Few “No-Brainers” Left

A Novantas analysis of more than 1,000 branch consolidations over the past three years finds that 70% of them were “easy” closures – meaning they had high operating expense, low deposits and low sales. The other 30% were much more difficult and, for the most part, banks got these wrong. This provides an important lesson for the next wave of shutdowns.

Banks would have been better off closing branches that had high operating expense and high deposits because it would have freed up near-term operating expense at a time when deposit attrition was declining. Instead, banks closed locations that had very low operating expense and few branches nearby. The result: a significant loss of deposits and loss of nearly all sales.

While banks should be looking at this opportunity to reduce the network, especially at a time where non-branch banks (direct banks and neo-banks) are seeing increased consideration, banks need to ensure they close branches that will generate near-term savings and don’t sacrifice growth down the road.

Financial analysts and executives believe that it will be wise to take write-offs for branch overhauls in the second or third quarter of 2020. That means banks that want to close a branch by the end of September must decide by the end of June. Analysts are expected to be comfortable with banks taking these charges to get their house in order post-COVID. As a result, the banks will emerge with a much more sustainable non-interest expense base.

How To Think About Branch Closures

Source: Novantas Analysis, Novantas’ PriceTek, Closures from Jan 2017 – Dec 2019

Reinvesting for Growth

Novantas has found that banks typically need to re-invest 30-50% of the savings from branch consolidations into growth initiatives in areas like marketing, sales force and digital capabilities in order to ensure that the bank doesn’t shrink. When evaluating opportunities for reinvestment, banks don’t necessarily need to reinvest in the same market where reductions took place. Instead, reinvestment should be made in markets with the best opportunities for efficient returns, or where strategic investments are desired.

As a framework for investments, bank should develop market-based strategies to categorize which markets are ripe for harvest, which are appropriate to protect and where the bank would like to invest for growth.


Banks should view the slowdown in retail foot traffic as an opportunity to take greater control of the real-estate portfolio. As vacancy rates increase in many cities, there will be opportunities to grab first-rate locations that wouldn’t be available in normal times. This will be advantageous to banks that have been hesitant to secure branch locations that aren’t in prime areas.

Banks will also have opportunities to renegotiate existing leases at lower rates and/or with greater flexibility. Every leased location should be investigated to understand the opportunity to renegotiate terms, build out costs of relocating to better locations and assess the anticipated impact to foot traffic in the area.

Novantas estimates banks that aggressively manage their real-estate portfolios should be able to realize occupancy savings of almost 5% of the leased portfolio – even before getting to additional savings from branch closures.

Market type also makes a difference. A bank may consider securing real estate in a work center where traffic volumes are low now and vacancy rates are rising because there will likely be a significant bounce back as some people return to physical offices. On the other hand, there are separate considerations for space close to a mall or a department store where traffic has declined, and volumes will likely remain depressed for a longer period of time due to social-distancing protocols. Indeed, branches in these locations should be fully analyzed because traffic may never fully return to these areas.

It is important to realize that real-estate decisions and staffing decisions don’t need to move in tandem. Banks that have vowed to avoid layoffs may be hesitant to close branches. The roles of many employees are already shifting as call-center volumes surge and banks deploy community staffing. Many of these branch decisions, therefore, can be made even as the bank retains staffing levels.

Consumer Visitation Trends (% Change vs Jan. 30 – Mar. 4)

Sample of Work Centers

U.S. Retail Stores

Source: Novantas Analysis, NovaLocation, PlaceIQ


Americans who received stimulus funds have begun to withdraw some of the money from the checking accounts, but are leaving most of it in place for now, according to data from the Novantas Comparative Deposit Analytics program. The withdrawn funds represent an average of just $213 of the $1,683 that recently flowed into accounts.

Bank customers who didn’t receive stimulus funds showed a modest increase in overall balances and continued to see a shift from CDs to non-maturity deposits.

Novantas expects to get more intelligence into these trends in coming weeks, particularly after data reflect bank balances after monthly bills were paid at the end of April and beginning of May.

A full weekly deposit tracker is available to CDA clients. Contact Adam Stockton at for details.

Consumer Household and Checking Account Production (Sales per Branch per Week)

Industry Consumer HH Production*


Source: Novantas’ Comparative Deposit Analytics, representative sample of banks submitting weekly
Note: Average reflects all bank branches, does not exclude closed branches


Royal Bank of Scotland became the latest traditional bank to shutter its online-only unit, announcing it would wind down the operations of Bó and merge it into its other online platform, called Mettle, that focuses on small business. NatWest, a unit of RBS, launched Bó in November.

The Small Business Administration said that hedge funds and private-equity firms aren’t eligible for relief under PPP.

Overseas banks scrapped dividends and set aside billions of dollars to cover anticipated losses related to the COVID-19 global pandemic.

The Federal Reserve suspended the Regulation D limit of six transactions per month on transfers and withdrawals from savings and money-market accounts.

Treasury Secretary Steven Mnuchin warned that small businesses that borrow more than $2 million under the PPP program will face audits before the loans are forgiven.

Mastercard said contactless transactions with debit cards and credit cards jumped 40% in the first quarter as shoppers tried to steer clear of germs in the check-out line.

Community lenders received eight hours of exclusive access to submit PPP loan applications to the SBA on Wednesday.

Florida took the top spot from California as the state with the most weekly unemployment claims.

Online lender OnDeck said it plans to reduce loan-origination volume by more than 80% in the second quarter while it concentrates on liquidity and the preservation of capital.

Stay up to date on the latest banking trends

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+1 (212) 953-4444

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