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You Got Your Wish. Bank of America Is Leaving Your Neighborhood

Patrick Morris
June 15, 2014

Love the thought of Bank of America (NYSE: BAC) 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 (NASDAQ: HBAN). 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.