Is Huntington Bancshares Making a Big Mistake?

With the growth of online and mobile banking, nearly every major lender has decided to cut back on brick-and-mortar locations. The most notable exception is Huntington Bancshares (HBAN -1.64%), which has increased its branch count by 45 locations, or 6.6%, over the last year. The question that remains to be answered is whether or not the Ohio-based regional lender will live to regret this decision.

The ongoing contraction in physical bank branches is a function of multiple factors. Above all, it's a reaction to previous overexpansion. "Over the last 20 years, the U.S. has witnessed a massive branch boom with no precedent in any developed country," the private consulting company Celent discussed in a recent report on the topic.

The figures shared by Celent paint a stark picture. Since 1970, the number of domestic bank branches has increased by 280% while the population of the United States has grown by only 52%. As you can see in the figure below, this has increased branch density to 270 branches per million people, versus a previous estimate of 107 branches per million.

Beyond this, the proliferation of online and mobile banking renders physical branches obsolete in many respects. At most banks, customers no longer need to drive to a branch to deposit a check -- they can do so on their smart phones. And if they need to transfer money from one account to another, they turn to the Internet.

It's for these reasons that many of the nation's largest lenders have recently announced programs to shrink their physical footprints.

Among Huntington's closest competitors, for instance, KeyCorp (KEY -2.67%) said earlier this month that it had "originally set out to consolidate 5% of our franchise by the end of the year and now believe the number is closer to 7%." And the chief executive officer of PNC Financial (PNC -1.64%) told analysts that it will "close up to 200 traditional branches this year."

Given these trends, in turn, one can't help but wonder whether Huntington is being a shrewd contrarian, or is simply behind the times.