Connecticut will lose dozens of bank branches in the next couple of years as several lenders shutter locations, including supermarket branches made unprofitable by small margin spreads.

With the pandemic keeping many customers away from branches and accelerating the adoption of online and mobile banking, more branches could close as banks adapt to changes in consumer behaviors.

But even as some lenders close locations, branches remain important to customers, and several community banks have recently expanded their footprints.

“There may be a time when having a branch in town just doesn’t matter, but today is not that day,” said Jeff Marsico, president of the Pennsylvania-based consulting firm The Kafafian Group. “Individuals and small businesses still rate as the highest reason they select a bank is because of its location.”

Unprofitable Locations Culled

One problem banks face is the ongoing low interest rate environment and the profitability of their branch deposits.

“When the low end of the yield curve is zero, the spread that banks could derive through deposits is low,” Marsico said. “In fact, many deposit products are unprofitable right now.”

The latest branch casualties include Stop & Shop locations. Bridgeport-based People’s United Bank announced in January that it would start in 2022 to close 140 Stop & Shop branches in Connecticut and New York. Providence-based Citizens Bank announced plans in the fall to close 40 Stop & Shop branches in Massachusetts and Rhode Island.

Locating branches inside supermarkets – with their built-in foot traffic – peaked in the 1990s, Marsico said. Around that same time banks began to see a shift in branches from primarily transactional activity to also include consultative interactions.

“People considered in-store branches just as a place to cash a check, do a transaction,” Marsico said. “They never really took it seriously, from my experience, as some place to go and sit down and talk about their goals and objectives and map a plan, learn how to do proper budgeting … while people were walking by shopping for milk.”

These branches were plagued by low deposits, limiting the revenue that could be generated from the spread on those deposits, Marsico said. Supermarket branches have persisted because lower operating expenses at these locations often offset the reduced revenue, he added.

Now these branches have also been affected by shifts in retail behavior, which have accelerated during the pandemic. Many shoppers have been making orders online for delivery or pickup, diminishing the traffic coming to those branches, Marsico said.

Stop & Shop is not the only retail chain losing branches. Berkshire Bank announced in December plans to reduce its footprint by 18 percent by closing branches in Connecticut Massachusetts, and New York while selling its Mid-Atlantic branches. The planned closings so far include two branches inside Walmart stores in North Windham and Lisbon.

While diminished, supermarket branches still have a place in banking. Citizens plans to keep many of its Shop & Stop branches, including about two-thirds of its Massachusetts in-store branches. Citizens also said in a statement it would retain ATM kiosks at the closed branches and install virtual teller machines at some locations.

People’s United said it continues to negotiate a contract with Stop & Shop.

Digital Shift Evident

During People’s United’s conference call to discuss fourth quarter earnings, CEO Jack Barnes pointed to the shifts in retail behaviors as well as the acceleration of online and mobile banking as reasons for closing branches.

Barnes said customers of the Stop & Shop branches were 13 percent more digitally active than other customers, with only 10 percent of deposit balances associated with Stop & Shop branch customers who did not use a digital channel in 2020.

“Although our Stop & Shop relationship has provided meaningful value to the bank and its customers over more than two decades, this decision provides us the opportunity to further optimize our branch network while providing the same level of personalized service across each of our channels,” Barnes said.

In a report released in January called “The Front-to-Back Digital Retail Bank,” Boston Consulting Group found that 15 percent of survey respondents in the U.S. had enrolled in online banking for the first time during the pandemic, while 13 percent of U.S. respondents had enrolled in mobile banking for the first time.

Across the globe, BCG said survey results show a 12 percent reduction in branch visits, which is expected to reduce further by 26 percent after the pandemic.

Community Banks Expand

Connecticut stands to lose other branches in addition to the supermarket locations. Along with the two Walmart branches expected to close this month, Berkshire Bank closed its Newington branch last month and plans to shutter locations in Vernon and Windsor.

Waterbury-based Webster Bank will reduce its branch footprint by 17 percent, closing 29 locations in Connecticut, Massachusetts and Rhode Island, including 16 in Connecticut. TD Bank last week announced plans to close 81 U.S. branches, including six in Connecticut.

Still, many banks remain committed to branch networks, and some Connecticut banks have recently expanded, including Newtown Savings Bank, Ion Bank, Jewett City Savings Bank, Torrington Savings Bank and Windsor Federal Savings Bank.

Norwich-based Dime Bank recently opened its first Greater Hartford locations in Glastonbury and Manchester.

“The community banking options here in Manchester and the Greater Hartford area are very, very limited so we took the opportunity to look around and say, ‘Geez, we want to give consumers a choice,’” Dime Bank President and CEO Nicholas Caplanson said at the opening of the Manchester branch in December.

Before three sister banks – Winsted-based Northwest Community Bank, Litchfield Bancorp and Collinsville Bank – merged in January, they opened two new branches in 2020. Northwest Community Bank expanded into Simsbury and Collinsville Bank into Farmington.

Stephen Reilly, president and CEO of the newly combined bank, told The Commercial Record last month that while it did not expect to add more branches in 2021 while working on the merger, the bank is already looking at a couple of markets for future expansion.

“While the industry is in many areas shuttering branches, we still have an interest in expanding, and there’s potential for us to increase branches in the future as well – very methodically,” Reilly said. “Branch banking is much different than it used to be, but nonetheless that’s part of our plan as well.”