Banks withdrawing from in-store branches


The number of bank branches located within groceries and other neighborhood stores continues to dwindle as banks and thrifts search for ways to gain operating efficiencies, according to a study released March 12 by SNL Financial.

Even as the economy stumbles toward recovery, the number of so-called in-store banks has declined fairly dramatically, down from 6,145 to 5,750 over the past four years, according to the SNL report.

“Some banks have done very well with them but overall there have been mixed results,” David Kerstein, president of bank consultancy for Peak Performance Consulting Group in Austin, told SNL.

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In-store branches have been paths to growth, particularly for banks in metropolitan areas. North Texas has 167 such branches, behind only the Chicago metro area with 315, Los Angeles with 177 and the Phoenix-Mesa-Glendale, Ariz., metro area with 169 and ahead of the metro areas centered by Houston (164), New York (149) and Atlanta (135).

The largest banks seemed to have cut more in-store branches. Bank of America has closed 42 in-store branches since mid-2011, including 17 in Albertson’s grocery stores. That brings its in-store branches to just 89. International Bancshares Corp. of Laredo has closed 58, with 53 of those closures coming at groceries operated by H.E. Butt Co. of San Antonio, owner of H-E-B and Central Market groceries.

IBC, parent of the International Bank of Commerce, blamed its closures on limits placed on debit interchange fees.

The reasons for the retreat lie in the unique nature of in-store branches. They offer banking companies significant advantages and some acute limitations, according to the SNL report.

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First, they are fairly low-cost, enjoy high foot traffic and are often very convenient for banking customers.

But they also have limited space, can be overwhelmed by foot traffic and are often too cramped for bankers to spend time consulting with customers to better understand their banking needs and to sell additional services.

But if some banks are backing off their aggressive expansions of branch banks, others have found them to be a boon.

Woodforest Financial Services, the parent company of Woodforest National Bank based in The Woodlands, has used its agreement with grocers such as Wal-Mart to fuel rapid growth, though the company has closed five in-store locations in the past 20 months. Woodforest National Bank now has 719 in-store branches, the second-largest number in the country behind U.S. Bancorp’s 766 locations.

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And First Community Bancshares Inc., based in Killeen, has opened 65 in-store branches in the past 20 months, more than any other bank in the country, according to the report. That brings its total to 282. Those include 31 in Wal-Mart stores and 29 in H.E. Butt outlets. Still, 93 percent of Community Bank locations are in-store.

Most of the closed branches of all bank brands had deposits of less than $10 million, making them the smaller cousins to traditional neighborhood branches with drive-through windows and larger banking staffs. 

The landlord retailers are reluctant to discuss the ventures. Kroger and Wal-Mart both distance themselves from their bank tenants, describing them as partners in a real estate transaction.

“Kroger continues to have some very successful in-store banks,” said Gary Huddleston, a spokesman for Kroger’s Texas-Louisiana division. “However as we open new stores, we have found less appetite from the banks to locate in our stores. Thus we have utilized the space for other services like Starbucks, sushi, Fred Meyer Jewelers, etc.”

In its southwest division, Kroger plays host to Amegy, Associated Credit Union, Bank of Texas, First Community Credit Union, Woodforest National Bank and the First National Bank of Granbury.

Wal-Mart has third-party banks in more than 1,700 stores as an added convenience to its customers, a Wal-Mart spokeswoman told the Fort Worth Business Press. That’s out of more than 3,800 supercenters nationwide. Wal-Mart has about 250 bank partners, which include national and regional banks as well as credit unions.

For the retailers, the agreements can be a double-edged sword. When Woodforest National Bank was accused of deceptive advertising practices and in 2010 forced to pay $32 million to affected customers and a $1 million civil penalty, the retailer was forced to distance itself.