Fifth Third Bank’s proposed acquisition of Chicago-based MB Financial could mean 20 percent of the combined company’s local branches close by the end of next year.
A cost-saving move aimed at eliminating “branch overlap” resulting from the $4.7 billion merger, the proposed closures would accelerate a broader trend: Banks nationwide are steadily closing branches as customers shift to online banking.
The growth of digital banking and the widespread use of smartphone banking apps has led to an 8 percent decline in the number of U.S. branch banks since 2009, according to a report last year from commercial real estate firm JLL. The report projects a 20 percent reduction in branch locations over the next five years.
“Increasingly, you can do just about everything you can do in a branch on your phone,” Bankrate.com senior analyst Robert Barba said Tuesday. “We’ll see fewer branches as a result of that.”
The merger of Cincinnati-based Fifth Third and MB Financial, if approved by regulators and shareholders, would give the combined company 20 percent of the middle-market commercial relationships in Chicago. The banks say creating a bigger local business bank to better serve midsize firms is the aim of the union. But it also would create a large retail footprint, with 239 Chicago-area branches initially.
Fifth Third has 148 locations in the Chicago area, and MB has 91. Looking to create a projected $255 million in net cost savings, Fifth Third President and CEO Greg Carmichael said Monday the bank would shed up to 50 locations within a year of closing the deal.
“As banks buy other banks, one of the things they often look for is, How can we cut costs?” Barba said. “MB had a very full branch network, and they’re seeing the opportunity to cut costs there.”
But Fifth Third, which has $142 billion in assets and 1,153 banking locations in the Midwest and South, has been reducing its retail footprint for years, both nationally and in Chicago.
Since 2014, Fifth Third has reduced its total number of branches by nearly 170, according to regulatory filings. There were 27 branch closings in Chicago over that same time frame, Fifth Third spokesman Andrew Hayes said.
Also Monday, Itasca-based First Midwest Bank announced plans to close 19 locations by year’s end in response to “a greater number of our clients relying on our online and mobile applications.”
Nationwide, banks have reduced the net number of branches from 91,900 in 2016 to 89,900 last year, according to a JLL report from earlier this year.
Driving that trend is the smartphone, with more than half of Americans using at least one banking app, according to a Bankrate report.
Fifth Third is not ready to write off bricks-and-mortar banking just yet, however.
“We believe that the right balance between digital and personal interactions will build strong customer relationships,” Hayes said Tuesday in an email. “Customers want to use digital for some things, such as balance checks, and they might want to use their phone to deposit a check … and they might use the branch to talk about a home equity line (of credit).”
Likewise, Bankrate’s Barba said he thinks the physical bank still will be the best place to open a new account. But he said it may morph into something closer to a support center for online banking.
That evolution won’t slow the branch closures, Barba said.
“We’re going to see quite a few consolidations as people rely more on digital services and the branch becomes much more of a place for learning how to use all those digital tools — kind of like the Apple Genius Bar of banking,” he said.
Some of the 50 Fifth Third-MB Financial branches now planned to be closed might have gone away without the merger.
“We can’t speculate on whether any branches would have been closed anyway,” Hayes said. “The most important thing is that even with the 20 percent expected branch closures, customers of both banks will have access to a much bigger network of branches and ATMs than they have in the past.”
Twitter @RobertChannick
