-
Bank of America is expected to close 750 branch offices nationwide. Community banks covet B of A's prime real estate, including Umpqua and First Niagara.
September 13 -
Banks with assets of less than $10 billion are exempt from the Dodd-Frank Act's restrictions on debit interchange, but even those who are exempt from the law are still bracing for what they see as its inevitable effects on their checking accounts and other operations.
September 6 -
Community bankers say they'll continue offering free checking for the foreseeable future, even if they're not entirely happy about it. If they followed the big banks by adding fees or changing terms, "we'd lose the accounts," says one local banker.
August 29
Count the Durbin Amendment's restrictions on interchange fees as yet another reason for banks to close branches.
International Bancshares Corp. in Laredo, Texas,
(Along with the planned closures, International Bancshares plans to cut about 500 jobs.)
A closer look at International Bancshares suggests, however, that interchange limits may simply be a contributor to the decision, if not a scapegoat for a decision to close 21% of its branches. That's important to understand as industry observers watch for similar moves by other banks.
"It's not necessarily that Durbin is forcing banks to close" branches, said Jim Schlegel, a senior product manager at ACI Worldwide Inc., a New York company that licenses debit-card software to banks. "But it's yet one more thing to drive that trend."
A key reason why banks would consider closures is that many branches are too small to justify the cost, said Christopher Marinac, an analyst at FIG Partners LLC. He said that is the case at International Bancshares and that others could soon follow its lead.
"I absolutely expect banks to close small inefficient and ineffective branches," Marinac said. "It is time to focus here."
For industry observers, it is undeniable that the
Cuts are coming from many places. SunTrust Banks Inc. and USAA Federal Savings Bank, among others, have eliminated debit-card rewards. Wells Fargo & Co. said last month that it would charge some customers $3 a month to use debit cards.
Still, the Durbin Amendment is just one factor that will drive a branch rationalization, Marinac said. Too many small banks, or those with $1 billion in assets or less, operate branches that generate insufficient deposits to justify their existence, he said.
International Bancshares' in-store branches hold a small portion of the company's overall deposits, Marinac said. Their small size was dragging down ratios for the entire company, which had a deposits-per-branch ratio of less than $26 million at midyear, Marinac said. He estimated that a branch should have at least $40 million in deposits to be reliably profitable.
Ken Thomas, a Miami-based economist and branching expert, said branches with less than $10 million in deposits are "usually unprofitable." (About 90% of IBC Bank's in-store branches were in that category at June 30, 2010, based on data from the Federal Deposit Insurance Corp.)
Marinac, referring to FDIC data, said the median deposits-per-branch figure was $42 million for the more than 3,000 banks nationwide with $100 million or more in assets.
International Bancshares will close 54 branches located inside H-E-B grocery stores in more than two dozen Texas cities, and a branch located inside a Randall's grocery store, according to a company press release.
Nixon on Wednesday would not say how much revenue he expects International Bancshares to lose due to reduced interchange fees, saying that such information is "proprietary." He said the company could have eliminated some free services, but instead opted for shuttering branches. "Our customers have indicated they prefer to keep free checking products and services," he said.
Nixon declined to say whether the branches to be closed were too small to justify their cost. He also declined to say whether the in-store branches performed worse than traditional branches. "When they eliminated the debit card interchange revenue, that was a critical source of revenue that supported these branches; that seriously damaged the viability of these branches," he said.
Bank of America Corp.
Richard Bove, an analyst at Rochdale Securities, wrote in a note to clients earlier this month that B of A does not need the branches slated for closure, nor the deposits that they hold.
In the case of International Bancshares, there is an issue of branches inside grocery stores. Thomas said he has never favored such locations because their deposit balances are too small to produce a profit, despite less overhead.
Many big banks over time have closed the in-store branches they have acquired through mergers. Such branches are tough to staff, and they're subject to problems outside a bank's control, he said.
"Who wants to work in one with screaming kids, grocery carts all over the place and the smells of groceries, versus a nice, quiet, professional bank office," he said. "There are also potential union problems if store workers go on strike."
