You Got Your Wish. Bank of America Is Leaving Your Neighborhood
Love the thought of Bank of America leaving your neighborhood? It turns out, that's exactly what it's doing.
Bank of America has been unloading branches at an impressive clip over the past few months.
In April, it sold 11 branches in Michigan with $450 million in deposits to Huntington Bancshares . A little over a month later it unloaded 13 more branches, this time with $500 million in deposits, in another sale to Huntington.
Two weeks later, we learned First Tennessee would be buying 13 branches from Bank of America in the middle and eastern parts of Tennessee with $660 million in deposits. And just this week, Bank of America sold another $500 million in deposits and 10 branches to HomeTrust Bancshares while First Community Bancshares bought another 7 with $440 million in deposits.
Altogether over the last two months, Bank of America has unloaded nearly $2.6 billion in deposits across 54 branches throughout Michigan, Tennessee, North Carolina, and Virginia.
So does this mean Bank of America has officially lost it? Is it giving up?
I'd argue just the opposite, as these moves are likely to mean big things -- in a positive way -- to the bank, its investors, and even its customers.
The reason for optimism
While the price wasn't named in all the transactions, if we conservatively guess Bank of America received a 3% premium for those deposits, it means it netted roughly $75 million in proceeds from the sales. But when you consider it had revenue of nearly $90 billion last year, $75 million won't exactly move the needle.
But what really matters to the bank is it will be saving dollars in expenses as a result of having fewer branches to operate. As my colleague Jordan Wathen noted:
From first quarter 2013 to first quarter 2014, the bank cut 294 branches. Noninterest expense fell by $180 million per quarter during that time. This is significant; it's equal to roughly 7% of Bank of America's first-quarter pre-tax income. And I think it's only just the start of additional cost-cutting measures necessary to drive down the bank's on-going operating costs.
A back-of-the-envelope calculation would suggest unloading the 54 branches would mean another $33 million in cost savings each quarter. That means after just 2 years, Bank of America would be looking at more than a quarter of a billion dollars in savings.
Although it may miss out on revenue from fewer relationships with customers, it's important to note Bank of America has $1.1 trillion in deposits.
And it isn't as though those customers would be prohibited continuing their relationships with Bank of America.
But what about the benefits to Bank of America's current customers? When discussing the cost cuts over the last year in its consumer business, Brian Moynihan, its chief executive officer, said:
"Reduced costs ... allows us to continue to invest in other areas to further improve customer satisfaction and grow sales."
While the bank will miss the relationships it no longer has, the benefits will extend to its current customers as the savings will be used to improve their satisfaction.
The key takeaway
At the end of March, Bank of America had 5,095 branches, and said it was seeking to get to below 5,000 by the end of the year. It looks to be halfway there, and the key thing to know is these moves will likely benefit all those who have money parked at Bank of America as an investment or a bank account, and the benefit will be biggest to those with both.
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The article You Got Your Wish. Bank of America Is Leaving Your Neighborhood originally appeared on Fool.com.Patrick Morris owns shares of Bank of America. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and Huntington Bancshares. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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