With Bank of America cutting branches, who's left behind?

Aug. 22, 2012
With Bank of America cutting branches, who's left behind?
Kirsten Valle Pittman and Gavin Off | The Charlotte Observer

CHARLOTTE, N.C. -- ]

More than a year into a plan to shutter hundreds of branches across the country, Bank of America is eliminating more locations than any of its peers, from affluent big-city neighborhoods to rural areas.

Nearly a third of the closures last year occurred in low- to moderate-income communities. And while that's roughly in line with the percentage of such branches in the bank's overall network, it worries some banking experts and consumer advocates, who say eliminating bank branches has a disproportionate effect on the poor and their neighborhoods, removing important community anchors and raising the cost of banking.

At a time when big banks across the country are stepping up efforts to cater to their most profitable customers, advocates worry that others could be left behind.

"The impact to the local economies could be devastating," said Mark Williams, a former bank examiner who teaches at Boston University. "As banks pull out, banking needs of the poor do not disappear; these needs are simply picked up by predatory payday lenders and pawn shops."

Bank of America said the closings, part of the efficiency initiative Project New BAC, will allow it to streamline expenses and better serve customers' changing banking habits. The Charlotte-based lender is ramping up mobile and online offerings, enhancing existing branches and ridding its network of the duplication that resulted from decades of mergers.

Bank officials also say they continue to maintain - and add - more branches in low- to moderate-income neighborhoods than other big banks. Branches in those neighborhoods, where the household income is less than 80 percent of the geographic area's median income, made up 27 percent of the bank's total network at the end of 2011. That compares with 24 percent for Wells Fargo and 23 percent for JPMorgan Chase, data from the Federal Deposit Insurance Corp. show.

Since 2009, 38 of the 117 branches Bank of America has opened - about 32 percent - have been in those lower-income neighborhoods.

The nation's second-largest lender by deposits has shed a net 262 banking centers since the beginning of 2011, according to its financial statements. A Charlotte Observer analysis of federal regulators' branch closing data and U.S. Census figures found about 53 percent of those closings have occurred in neighborhoods whose median income lagged the countywide median.

Of those, about 17 percent occurred in areas where the household income was less than half of the county's, the data show. The bank closed a branch in a neighborhood of Wilmington, N.C., last year, for instance, where the median income was just $16,100 per household, well below the $48,550 county figure.

Closures in low- to moderate-income neighborhoods, calculated by a different method under federal regulators' guidelines, made up 31 percent of Bank of America's branch closures in 2011, according to data the bank provided to regulators. The data weren't available past the end of 2011.

Bank of America isn't the only large lender to trim branches amid economic concerns, regulatory pressures and lingering duplication after a string of mergers and consolidations.

U.S. banks and thrifts closed more than 760 branches in the year ending June 30, the third straight year of declines after a long period of expansion, according to a report from banking research firm SNL Financial.

But Bank of America closed more branches than any other bank during that time, the researchers found. Its 157 net closures were more than double the level of the next company on the list, International Bancshares.

Wells Fargo, which bought Charlotte's Wachovia in 2008, closed a net 44 branches in the same period, by comparison. JPMorgan Chase added 219.

Bank of America assembled one of the nation's largest networks of branches through years of acquisitions, with U.S. banking centers peaking at more than 6,000 at the end of 2007 after it bought Chicago's LaSalle Bank. It now has about 5,600 branches.

In spring 2011, chief executive Brian Moynihan said the bank would reduce its branch count by about 10 percent. A few months later, the CEO said the bank planned to eliminate 750 locations in the next few years, a decline of about 13 percent, as it works to slash $5 billion in annual expenses from its consumer operations.

The bank is shedding branches through sales, in addition to closures: In April, it announced it was selling 15 locations in Maine to a community bank and later sold about a half-dozen branches in Iowa, the lender's first such sales in more than a decade.

Consumer banking executive Katy Knox told the Observer that Bank of America is looking at its entire network to determine the "right number" of banking centers. That's part of a multi-year plan to consolidate and sell branches, as well as invest in new and existing branches.

The bank plans to expand its coverage in top metropolitan areas and other places where it has a strong customer base and strong presence, she said. It's also ramping up technology and services and adding specialists who can "serve as a bridge to refer people to other parts of the bank," in some existing locations.

In early 2011, for instance, the bank began testing "specialty" branches in Los Angeles and Washington, D.C. A similar flagship store in Charlotte, unveiled this year, is brimming with high-tech features: Tablet computers for making service requests and learning about new products. Online appointment booking. Access to financial advisers, small-business bankers and mortgage specialists and other perks, all in a sleek space at the base of Bank of America's headquarters tower uptown.

The changes highlight a shift in consumer preference and bank strategy, executives have said. Year over year, foot traffic at Bank of America's branches has been consistent, for example, but over-the-counter transactions are decreasing, Knox said. People are increasingly visiting banking centers to use ATMs and other services on-site; meanwhile, mobile usage is "exploding" across all demographics.

"In any retail network, you have to look at your network and adjust it as it makes sense, based on the changing market," bank spokeswoman Anne Pace said.

She said the bank considers multiple factors beyond raw numbers, from economic conditions to the "changing dynamic of our customers."

Bank of America has been expanding its mobile banking services in recent months: It has begun offering mobile check deposit, among other features, and last week announced it was making its BankAmeriDeals program available to online and mobile banking customers nationwide, allowing those customers to earn cash back for using their credit or debit cards. In May, the bank surpassed 10 million mobile banking customers, establishing it as the dominant player in that arena.

And it's hiring more employees who will interact directly with customers at branches. The bank will have hired 1,000 new small-business bankers and 1,700 financial solutions advisers by year's end, Pace said.

The changes mean that when a branch closes, it doesn't necessarily put customers in that area at a loss, she said. The bank is bringing more services closer to its customers, Pace said. And in some cases, big banks close branches to eliminate duplication, not to exit an area altogether - meaning another location might be a few blocks or miles away.

Still, critics worry that the shift will leave smaller and less affluent markets behind. According to a recent report from the National Community Reinvestment Coalition, a Washington, D.C.-based advocacy group, bank and credit union branches increased by 1,000 in middle- and upper-income neighborhoods from 2007 to 2010 while falling by 530 in low- and moderate-income neighborhoods across the U.S.

"The bank branch, more so than any other business, is an anchor tenant for a neighborhood," coalition CEO John Taylor said. "It not only serves the purpose of making credit and investments and banking services available, it also serves as the draw for other businesses."

When a branch closes, small businesses often move down the street to the mall or to other neighborhoods, he said. And "hybrid lenders" - from payday lenders to pawn shops - take their place, offering banking services at higher costs.

Williams, the Boston University expert, said federal regulators should take a more aggressive stance in enforcing the Community Reinvestment Act, signed into law more than three decades ago to combat discrimination and encourage banks to serve their communities.

Beyond serving customers or anchoring neighborhood shopping centers, visible bank branches are critical for encouraging upward mobility, educating people about banking principles and the importance of saving, he said.

"Think about the community you grew up in," Williams said. "The branch was a community center."

Adam Rust, research director at the Durham, N.C.-based advocacy group Reinvestment Partners, said smaller banks are sometimes picking up the slack when large banks close locations. PNC Bank, which recently entered the North Carolina market, is adding ATMs in Harris Teeter grocery stores across the state, for instance, replacing Bank of America machines, he said.

But community members and advocates remain concerned about a pullback in banking centers, Rust said. Business owners are among the most upset, he said, occasionally calling him to complain about having to drive miles away to deposit cash at the end of the day.

"When people call me, they're always surprised that it happened," he said. "They can't imagine why a bank wouldn't want to be in their community."

BIG BANKS' BRANCHES:

Charlotte-based Bank of America plans to close 750 U.S. branches over the next few years, as it streamlines operations and cuts costs to better serve customers. Here's how the bank's U.S. branch network stacks up against its peers.

-Bank of America: 5,594

-Wells Fargo: 6,210

-JPMorgan Chase: 5,563

-Citigroup: 1,044

SOURCE: Bank financial reports and data from the Federal Deposit Insurance Corp.