By Saabira Chaudhuri and Emily Glazer 

The number of U.S. bank branches has fallen to the lowest level since 2005, as banks ramp up online services and work to cut costs, federal data released Monday show.

The branch drop was the fifth in a row and the biggest one-year decline recorded in at least two decades by the Federal Deposit Insurance Corp.

The number of branches in the U.S. dropped to 94,725 as of June 30, down 1,614, or 1.7%, from a year earlier and down 4,825 from the peak in 2009, according to the FDIC data.

Large and small banks have been cutting back on their branches while spending more on mobile capabilities. Catering to changing customer behavior, banks also save money when customers transact business over their phones or laptops.

Among the largest banks, Bank of America Corp. saw the biggest decline in branches, to 5,094 from 5,399, according to the FDIC data.

Thong Nguyen, co-head of consumer banking for Bank of America, recently said the bank wants "to follow where the customers really want to go," noting that mobile-banking users have been growing by about 20% over the past few years while traffic at branches is down 10% or more.

Bank of America's branch reduction has been the largest contributor to the bank's roughly $4 billion in cost savings over the past few years, according to analysts at RBC Capital Markets.

Citigroup Inc., which is cutting Citibank branches outside major metropolitan areas, saw total U.S. branches fall to 958 from 1,031. Most recently, the bank agreed to sell 41 Texas branches to BB&T Corp.

A representative for the bank said Citigroup in the past two years has also opened 19 new branches and renovated 89 others.

Wells Fargo & Co. was the only one of the four biggest banks to increase branches from last year. The number of Wells Fargo branches rose by 17 to 6,310 as of June 30.

Bank branches fell in all but a handful of states, with Florida, Illinois, Ohio and Pennsylvania among those showing the biggest declines, according to the report. Slight gains were reported in Hawaii, Massachusetts, Montana, Rhode Island and Wyoming,

Not every bank agrees that closing or selling branches is a good idea.

"Anybody closing branches since the end of the recession when the value of money has been zero is overlooking the need to value the branches and the deposits they generate over a longer cycle," said U.S. Bancorp Chief Executive Richard Davis in a recent interview.

Bank of America said that 85% of purchases of financial products like checking accounts, loans, individual retirement accounts or other types of financial investments are still conducted in branches. In response, the lender has been investing in automated teller machines with live tellers available through video chat at about 100 branches. The bank has also said it would deploy videoconferencing technology in about 500 branches.

J.P. Morgan Chase & Co., which saw branches fall slightly, to 5,679 from 5,694, has ATMs at about 450 branches featuring a new technology where customers can deposit bulk checks and get withdrawals in different denominations, rather than relying on tellers.

J.P. Morgan's new ATMs include the future capability to scan a bar code so customers will be able to make credit-card payments starting in early 2015 and mortgage and other payments later, said Barry Sommers, chief executive of J.P. Morgan's consumer bank, in a recent interview.

Wells Fargo, meanwhile, launched a minibranch store layout last year in Washington, D.C. At three branches, the walls fold in at night so only the ATMs are exposed to customers. The bank will likely open more of these branches in dense markets like San Francisco and New York, said Jonathan Velline, who leads store strategy at the bank.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Emily Glazer at emily.glazer@wsj.com

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