How Bank of America Ditched 1,597 Branches Across the U.S.

By Rachel Louise Ensign and Coulter Jones Features Dow Jones Newswires

Bank of America Corp. pulled all of its branches out of Indiana four years ago when it sold off a group of antiquated storefronts in Rust Belt towns. Later this year, the lender is returning but this time is targeting affluent customers in the state's largest city, Indianapolis.

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The Charlotte, N.C., bank, the nation's second largest lender, has gotten rid of around 1,600 branches since the financial crisis as it seeks to rekindle sagging profits and focus on major metropolitan areas. The reductions are roughly equivalent to shutting all the Citigroup Inc. and Capital One Financial Corp. outlets in the U.S.

The strategy would represent a stark change for any big lender, but it is a particularly striking departure for a bank built over decades on the idea of offering a coast-to-coast network in areas urban and rural.

"Bigger is indeed better," former Chief Executive Hugh McColl said when the bank was formed in 1998 by the merger of NationsBank Corp. and BankAmerica Corp.

But strains from the financial crisis led to a different approach. In 2009, the bank had branches in 725 U.S. counties, roughly one out of every four nationwide. In 2016, it was in 253 fewer counties, according to a Wall Street Journal analysis of bank regulator data.

Bank of America no longer has a branch in places like Elkhart, Ind., Dodge City, Kan., and Florence, S.C. In the Utica, N.Y., area, where there were 12 branches in 2009, there are now none.

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"You can't be everywhere," said Dean Athanasia, co-head of the bank's consumer unit, in an interview. Nevertheless, he said the bank's footprint, with 4,542 branches, covers 80% of the U.S. population. "I don't think we were optimally positioned before."

In most counties the bank left, it sold at least some of its branches to smaller lenders, limiting the harm to that community. In nearly a quarter of the counties, Bank of America simply closed the branches, directing customers to other locations, sometimes dozens of miles away.

Meanwhile, Bank of America is opening new branches in a number of big metropolitan areas where it previously didn't have them, a rare move for a big bank in recent years.

With its emphasis on more urban markets, the bank in part is adapting to demographic changes. Many rural areas have struggled with population decline and lower male labor-force participation as highly educated young workers flock to urban centers. But the bank also is grappling with the fallout of the financial crisis. New restrictions on overdraft fees also hit consumer-banking revenue, and a determination to avoid the mistakes of the subprime era led to a new focus on creditworthy customers.

Branches have also lost much of their reason to exist because routine transactions such as depositing checks and transferring money are increasingly done on computers or phones. Banks can't get rid of branches altogether, however, because many customers still pick their bank based on whether it has a nearby branch. Important product sales still happen there.

Older Bank of America branches were typically dominated by a long row of teller windows. In the newer branches, the tellers are sometimes in the basement. The new branches emphasize big-ticket purchases, with customers taking out a mortgage or addressing an account issue waiting on midcentury modern couches and checking in with a staffer holding an iPad.

When a banker emerges, he or she is expected to greet the customer by name, usher them into an office and slide the glass door shut. Many new branches feature a room devoted to Merrill Edge, an investing service for people with up to $250,000 in assets. Branches in new and existing cities are getting the layouts.

The approach stems in part from two big acquisitions. After dozens of traditional bank deals, in 2007 Bank of America bought U.S. Trust, a private bank that targets clients with millions to invest. The next year, it agreed to buy Merrill Lynch & Co. in the heat of the financial crisis.

Bank of America was hit hard by the financial crisis, receiving some $45 billion in aid from the U.S. Treasury. As a part of a plan to further stabilize the bank, Chief Executive Brian Moynihan announced plans in 2011 to cut $5 billion in annual costs in the consumer unit and related areas.

Pulling out of the rural branches was one way to reach the goal. The typical urban branch easily clears its roughly $900,000 annual operating cost with revenue of about $2.5 million, compared with $1.4 million for the typical small city or rural outpost, said Jon Voorhees, a Bank of America retail executive from 2004 to 2015 and now an industry consultant.

Once money became tight, "why would I want to invest to rebuild" in the less populated areas "when I could build a branch in Manhattan?" he asked.

The bank said revenue is just one a number of factors it looks into when evaluating a branch, including deposit balances and client satisfaction.

Bank of America inherited some of its rural branches through deals that also included big-city locations. In the cities where the bank is opening its first branches such as Indianapolis, Denver and Minneapolis, it already has Merrill and U.S. Trust customers. In the Indianapolis area, there are about 128,000 wealth-management and commercial clients.

Overall though, the bank has cut 1,597 U.S. branches since the beginning of 2009, which includes closures in counties where the bank maintains a presence. Of the counties Bank of America has left from mid-2009 through the middle of 2016, more than 95% were outside metro areas with 1 million or more people, the Journal analysis shows. The bank's increasingly urban network looks more like those of New York-based J.P. Morgan Chase & Co. or Citigroup.

Through the changes, Bank of America has continued to add consumer deposits -- $55 billion last year. While revenue has been falling in recent years, profits have hit their highest point since 2006. And earnings at the bank's consumer unit, which includes its branches, increased 8% last year.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com and Coulter Jones at Coulter.Jones@wsj.com

(END) Dow Jones Newswires

September 17, 2017 07:14 ET (11:14 GMT)