More bank branches closed in Michigan than in 45 other states in the years following the most recent financial crisis.
The state ranked fifth in the U.S. for bank branch closures from 2008 to 2016, according to the Washington, D.C.-based National Community Reinvestment Coalition (NCRC). In that time frame, 380 bank branches closed statewide, or about 12 percent of all offices in Michigan.
In a report that cites the decline of some 6,000 branches over eight years from a little more than 95,000 offices nationwide, the NCRC raised concerns about how some rural and urban markets in the U.S. are underserved and consumers and small businesses have trouble accessing basic financial services. A dozen states each had more than 200 bank branches close from 2008 to 2016, according to NCRC data.
Some markets lost 10 percent to 15 percent or more of their bank offices during the period the NCRC analyzed. In Michigan, the number of bank branches in Wayne County alone declined 15.8 percent with 64 closures from 2008 to 2016.
The organization did not offer specific causes driving the trend, although the period coincides with a dramatic rise in consumers using online and mobile banking technology.
Still, the report illustrates how some markets in the nation are caught up in a dramatically changing industry that’s increasingly serving customers digitally with fewer physical locations.
“The days of having one on every street corner are over,” said Rob Bondy, a partner in the Grand Rapids office of Plante Moran PLLC.
A need to trim costs and boost earnings as well as mergers and acquisitions are among the drivers behind branch closings in Michigan. Following a transaction, the successor bank will generally close offices in markets where branches overlap or are in close proximity.
The growth of digital banking alone in the last decade has steadily eroded the number of transactions occurring at bank branches, according to bankers MiBiz spoke with for this report. In turn, banks have had to strike a balance between the cost of operating and staffing a costly branch network and needed investments in digital banking that customers increasingly want.
“What we want to do, ultimately, is blend the best of technology with people to provide service for our customers,” said Brad Kessel, president and CEO of Independent Bank Corp. “You have to continue to re-evaluate and look at that equation and how do you get it done.”
After selling or closing more than 40 offices in the years following the Great Recession, the Grand Rapids-based Independent Bank today operates 63 branches in 21 counties across the Lower Peninsula. Prior to the 2008 financial crisis, Independent Bank had 106 branches.
As it sought to rebound from the recession, Independent Bank in 2012 sold 21 branches — 16 in eastern Michigan and five in the Battle Creek area — to Chemical Financial Corp. Other branches that generated low customer use were closed or consolidated with nearby offices.
“What we were seeing there was just each year a reduction in the amount of branch traffic and people coming into the branch to make deposits or cash checks,” Kessel said. “At the same time, we’ve seen year-over-year increases in the use of both internet banking and mobile banking. The mobile banking option for our bank continues to be the fastest-growing channel that we have.”
Where the bank closed an office, it was able to serve the local customer base through another office nearby, he said. Several of the closings came in rural markets that lack growth or have a declining population, “and that’s where it gets tough,” Kessel said.
Independent is one of many banks closing offices in Michigan in recent years. Fifth Third Bank and Comerica Bank have reduced the size of their branch networks. Huntington Bank closed 34 branches in Michigan and 107 in five states following its $3.4 billion acquisition of Akron-based FirstMerit Corp. Huntington also plans to lay off 129 workers at a branch and call center in Holland to improve operational efficiencies following the FirstMerit acquisition.
Most recently, Chemical Bank said it intends to close or consolidate 16 branches this year to increase “the efficiency and our retail delivery network as we adapt to the changes in the way our customers interact with us,” President and CEO David Ramaker told analysts last month.
“We will continue to review the locations across our footprint to make sure that our branch distribution supports our future growth,” Ramaker said.
The Midland-based Chemical Bank previously closed 34 branches and now has 210 offices in Michigan, plus 37 in northeast Ohio and two in northern Indiana. The bank reported total assets of $17.6 billion.
The trend of branch closings, both in Michigan and nationally, worries the NCRC, which advocates for increased flow of capital to traditionally underserved markets. The NCRC argues the reduction of branches around the U.S. disproportionately affects low-income people in urban and rural markets and “impedes small business lending.”
“Cities and towns and rural communities weaken as branches close,” NCRC President and CEO John Taylor said in a statement accompanying the organization’s report. “Economic opportunity is made possible first and foremost by banks. Branches are the tip of the spear for that activity. Take away the branch and you are shutting down economic opportunity for those very people and businesses which made the branch viable in the first place.”
The NCRC says 86 new bank “deserts” — or markets that are underserved — were created around the U.S. from 2008 to 2016.
Banks aren’t alone in reducing their branch networks. The number of credit union offices in Michigan has declined to 1,046 as of December 2016 from 1,054 branches 15 months earlier, according to data from the National Credit Union Administration.
Patricia Herndon, senior vice president of government affairs with the Michigan Bankers Association, said that while banks are clearly reducing their footprints, they are not abandoning markets in the state.
Today’s technology allows banks to serve more customers with fewer branches, Herndon said.
“Fewer branches do not necessarily mean less participation in the market,” she said. “We have technology that’s putting people in touch with their bank more and more, but just not in a physical sense.”
REACTING TO MARKET FORCES
In trimming their branch networks and investing more in online and mobile services, banks are responding to market forces and consumer demands in the digital age, especially to the younger generations that grew up doing daily tasks on their smartphones, Bondy said.
Digital channels allow banks to serve consumers without the costs of operating and staffing branches.
“It’s been a trend where you can expect completely declining foot traffic offset by more than increased (digital banking),” Bondy said. “Actually they’re touching more consumers but with much less physical presence. Their customers are just doing it digitally and I don’t expect that to slow down any time in the near future.
“The challenge is taking budget money and reinvesting it in brick and mortar versus the technology that is starting to replace that.”
Bondy and others say you can expect banks to continue to thin their branch networks and put more emphasis on digital banking services in the years to come. However, no one sees the day when bank branches are completely replaced by technology.
Financial institutions that are adding branches — including United Bank of Michigan, which added a Jenison office in 2016, and Consumers Credit Union, which this month opened a new branch in Battle Creek — are typically using less real estate and mixing technology into their designs.
Consumers Credit Union, for instance, has a drive-thru ATM with an interactive teller at its new Battle Creek office, its sixth to use the technology.
A report last fall from Jones Lang LaSalle IP Inc. noted that new offices will use less square footage, perhaps as little as 1,500 square feet versus today’s average of more than 5,000 square feet.
In some instances where banks close offices, they’ve sought to serve the market with a virtual teller ATM that provides a video conference with a teller working from a centralized call center.
Bondy tells of a bank he works with in Indiana whose CEO told him that it replaced branches with drive-up virtual teller ATMs. The customer traffic at the virtual teller ATM is “much more significant” than what the branch previously handled.
In several markets where it closed a branch, Independent Bank installed traditional ATMs to handle routine transactions for customers. The bank also opened a call center in Belding to serve customers who use telephone banking, Kessel said.
Independent Bank is now considering deploying virtual teller ATMs, Kessel said.
“I can see us investing in some of those,” he said. “There are efficiencies that can be gained there and we can leverage the call center that we already have set up.”
However, the NCRC argues that deploying more technology can’t completely replace the loss of physical offices for some communities.
Remote deposit for cashing a paper check or doing a transaction online are one thing, NCRC’s Taylor said. He argues that there remains a need for bank offices for customers who need more than basic transactions.
“You may be able to deposit a check with a phone, but try developing an ongoing relationship with that internet branch in order to procure a small business loan or a mortgage or even different types of consumer credit,” Taylor said.
Editor’s Note: This story has been changed from its original format to note that Independent Bank is headquartered in Grand Rapids, not Ionia.