The pace of branch closures at U.S. Bancorp has picked back up after slowing in the months prior to the December 2022 close of its blockbuster acquisition of MUFG Union Bank NA.

In the first quarter, the Minneapolis-based company closed 28 branches, two more than the amount it closed in the last three quarters of 2022 combined. Slowing closures while waiting for regulatory approval of a deal and then resuming them once it closes is not an unusual trend, said Paulina Gonzalez-Brito, the CEO of the California Reinvestment Coalition (CRC), which expressed concerns about the U.S. Bancorp deal and branch closures in a letter to regulators.

"It's not surprising that a bank would slow down or stall bank closures during" an M&A process, Gonzalez-Brito said about the closure trends. "I think they want to put their best foot forward for a merger and acquisition for the regulators."

During U.S. Bancorp's deal approval process, regulators raised questions about the combined companies' branch strategy, a document obtained by S&P Global Market Intelligence from a request under the Freedom of Information Act showed. The document shows that the Office of the Comptroller of the Currency (OCC) asked U.S. Bancorp about branch closures and customer retention in a February 2022 request for information. The OCC also requested information related to U.S. Bank and Union Bank's "discovery" efforts on branch closure decisions and asked the company to respond to public comments on how closures impact low- to moderate-income customers.

Potential branch closures in the U.S. Bancorp-Union Bank deal were an often-cited concern in public comment letters to federal regulators after the tie-up was announced in the third quarter of 2021. During the next five quarters, the rate of branch closures dropped significantly for U.S. Bancorp, which had been an industry leader in branch closures.

U.S. Bancorp averaged 12 closures per quarter from the fourth quarter of 2021 through the end of 2022. In the five prior quarters, U.S. Bancorp averaged 112 branch closures per quarter. U.S. Bancorp closed 178 branches in the first quarter of 2021 after closing 295 branches in the fourth quarter of 2020, largely driven by the pandemic-driven shift to digital channels, which was an industrywide trend.

While branch closures have been common throughout the sector, U.S. Bancorp was one of the most active closers among the 20 largest banks in 2019, 2020 and 2021 based on the proportion of closed branches to active branches at the start of each year. The bank ranked fourth in 2019 and second in both 2020 and 2021, but it dropped to 12th in 2022 as closures slowed and the Union Bank deal pended.

The slowdown in closures coincided with the completion of a plan to close between 10% and 15% of its branches between mid-2019 and mid-2021, U.S. Bancorp spokesperson Jeffrey Shelman said in a statement.

"We announced the Union Bank acquisition shortly after the 2019-2021 branch closures was complete," Shelman said in an email. "There is naturally going to be a slowdown after we completed those activities."

However, Shelman did not address questions about whether there was a connection between the slowdown in closures and regulators' questions about branches in the merger application process. Shelman referenced a blog post from U.S. Bancorp that stated the bank is currently working on closing U.S. Bank and Union Bank branches that "are very close to each other."

Cost savings, customer behavior motivate closures

Branch closures are a common lever banks use in mergers to achieve projected cost savings, but community groups often raise concerns that closures could disproportionately impact low- to moderate-income communities.

As such, large deals tend to garner public comments about the Community Reinvestment Act and the convenience and needs factor, which includes branches, said Joseph Silvia, a member at Dickinson Wright PLLC who advises financial institutions on M&A and regulation.

But M&A cost savings are not the only reason for branch closures. For instance, digital banking adoption — which only accelerated during the COVID-19 pandemic — gives banks more reason to shutter locations.

"Many banks of all sizes that are kind of looking at their branch network and trying to determine what they need," Silvia said. "Certainly from a cost perspective, branches cost a good deal to maintain and to keep personnel involved and all that kind of stuff."

Community benefit agreement

Ahead of its deal approval, U.S. Bancorp reached a community benefit agreement with the CRC and the National Community Reinvestment Coalition to not close, for five years, branches in low- to moderate-income or middle-income majority minority communities that are more than one mile from another branch. The bank also agreed to open five branches over five years in these communities and open or preserve five other branches in these communities. Gonzalez-Brito said CRC is working with the bank on opening those branches.

Still, the CRC is concerned about U.S. Bancorp resuming closures, particularly if they impact low- to moderate-income customers. The group wants regulators to hold banks more accountable, like including provisions such as the ones in the community benefits plan in merger approval orders, Gonzalez-Brito said.

"We're definitely concerned with U.S. Bank branch closures as well as with other banks closing branches, and unfortunately we have seen this occur again and again," Gonzalez-Brito said.