By ALLISSA KLINE
akline@bizjournals.com | 716-541-1612

Banks in Western New York are assessing the impact of recent federal changes in overdraft protection services and, in some cases, trying to figure out how to make up lost revenue.

Evans Bank N.A. is creating or enhancing certain services to fill in, at least in part, the anticipated gap in overdraft fee revenues. The Hamburg-based financial firm estimates its overdraft fee income, already dipping down 10 percent to 15 percent in recent quarters, will drop another 5 percent to 10 percent in future quarters.

"We're looking for other lines of business to replace some of the (overdraft) fee income," President David Nasca said. "But we do that anyway. We continue to look for other revenue channels that will enhance the bank's value for shareholders."

Banks in general are set to lose some overdraft fee revenue now that they must get customers' permission before charging such fees when customers make ATM withdrawals or debit card purchases without enough money in their accounts to cover the purchases. Previously, many banks automatically provided protection to customers and charged anywhere from $10 to $38 per overdraft. But new rules put in place this summer require customers to actively "opt in" to receive the service and, not surprisingly, many customers aren't choosing the protection.

A report last month by financial industry watcher Moebs Service said banks and credit unions lost $2.3 billion in revenue during the first quarter of 2010 as a result of the new "opt in" regulations. Moebs anticipates that overdraft fee revenue for the entire year will drop 4.6 percent, from $37.1 billion in 2009 to $35.4 billion in 2010.

More Evans customers chose overdraft protection than expected. Forty-four percent of customers, which represents 77 percent of the bank's overdraft income, opted to receive the service, Nasca said. But that's not enough to maintain previous revenue levels.

So the bank may try to replace overdraft fee income through two initiatives: employee benefits products and services and cash management services. The bank has already rolled out employee benefits products to new and existing commercial clients, Nasca said, and it may offer cash management services to the same group.

Buffalo-headquartered M&T Bank Corp. also anticipates a slip in overdraft fee revenue. Rene Jones, executive vice president and chief financial officer, said earlier this year that the bank expects a 10 percent to 15 percent decline in overdraft fees for the third quarter.

M&T would not provide figures or percentages related to the number of customers opting in to overdraft protection, but Vice President Sarah Sember said the numbers are "coming in about where we had anticipated."

First Niagara Financial Group Inc. and KeyBank N.A. also declined to talk about the number of customers choosing protection. First Niagara spokesperson Leslie Garrity said "most of (the bank's) customers" are choosing to opt in and "many have opted in to ensure that they still have the convenience of this service."

Revenue-wise, KeyBank isn't worried. Gary Quenneville, president of Key's Western New York district, said the fees charged for overdrawing at ATMs and points of sale are "probably not a significant portion of revenue" for the bank.

The Cleveland-based bank is providing options for customers who don't want traditional overdraft coverage. The bank allows clients to use lines of credit attached to checking accounts or advance money from home equity loans to cover any overdrafts. It developed a new system for customers who frequently overdrew their accounts whereby those customers pay a monthly $10 service fee that covers up to two overdrafts per month.

It's still new, but Quenneville expects it to be a popular service for those who constantly overdraw.

"I think it's going to gain in popularity," he said. "I have an idea this would be a pretty good (option) because it's fairly less expensive than paying regular overdraft items individually."