Branches play an important—but changing—role in the typical bank’s retail strategy. Increasing digital adoption may make consumers more apt to deposit a check using a smartphone camera than through a teller, but they still want to visit a branch for advice: A Celent survey published in May 2018 found more than three-quarters of customers want to meet a banker face-to-face to discuss a topic in-depth. Very few—just 12 percent of millennials—say branches are unnecessary, and prefer all-digital interactions.
And that has many banks evaluating whether to expand their branch network, even in today’s digital age. In Bank Director’s 2018 Technology Survey, 54 percent of responding executives and directors said their bank plans to add branches.
Before you move forward with building or acquiring your next branch, here’s what you should keep in mind.
Understand how the role of the branch fits within the institution’s overall delivery channel strategy, advises Jim Burson, a managing director at Cornerstone Advisors. “Start with, what are your growth objectives as an organization, and then second, how do you envision the role of the various channels supporting that growth objective.”
These goals will differ by bank. Burson says one of his clients prizes a branch’s “billboard value”—it lets customers know the bank is physically located in their market. That CEO values a big sign and a tiny lobby. “That’s a very clear objective for a branch. So, when they [build] new branches, if they can’t get the signing ordinance they want from a community or they can’t get the visibility they want when people are driving down the street, it’s off the table—that location is gone,” says Burson.
Before purchasing property and breaking ground on a new branch, a feasibility study should be conducted, advises John Smith, chief executive officer of retail banking consultant DBSI. Understand the deposit and loan opportunities within a desired market, and if there is room to gain market share for your bank.
“Every market we go into, we look at it strategically,” says William Stuard Jr., the CEO of $1.1 billion asset F&M Financial Corp. The branch should be within an hour or two of the bank’s headquarters in Clarksville, Tennessee, so the footprint is easy to manage.
Geographic expansion starts with a lending team. “We don’t go in and just get a building and try to start from scratch,” says Stuard. The bank’s Hendersonville, Tennessee branch started as a mortgage office, then a loan production office before the bank built a full-service branch in the town’s growing commercial area in 2017.
Taking an incremental approach to branch expansion appears to be a common method for testing the viability of a market.
William Chase Jr., the CEO of Memphis, Tennessee-based Triumph Bank, with $784 million in assets, says starting out with a loan production office helps the bank get into a market faster. “It’s a lot easier to go through the process of finding some nice office space and get an LPO approved,” he says. “Time is money.” And a full-service branch takes time to build.
He also credits commercial real estate expertise on the board with making smart financial choices on property.
Bassett, Nebraska-based Sandhills State Bank, with $242 million in assets, seeks to fill in the gaps in its sparsely populated area in Nebraska. When big banks pull back from the market, “it offers a great opportunity for community banks to fill that vacuum and pick up more deposits,” says CEO David Gale.
The bank’s current investors bought what was then a $28 million asset bank in 2010. The bank’s initial expansion occurred by sending lenders into new markets. These lenders’ first offices were, in fact, a pickup truck. “Our first three branches in 2010 out of the gate were built around lending talent and started out as loan production offices out of their pickups,” says Gale. Once lenders hit $5 million in loans, the bank would add an office in the market. At $10 million, they would open a branch and hire more staff.
Recent expansion has occurred through acquisition: Bank of Keystone in 2016, and in early 2019, the bank will purchase three western Nebraska branches from Western States Bank. At that point, Sandhills State Bank will reach $310 million in assets.
The pending branch acquisition (which is awaiting regulatory approval) will help the bank diversify its agricultural loan portfolio and acquire more deposits to fuel its loan growth. Like many in the industry, the impetus on deposit growth makes a branch acquisition more attractive than starting out organically with a lender in the market—though Gale does express a preference for organic growth.
Bank leaders hungry to acquire branches need to pay attention to opportunities in their markets. Gale has worked to build relationships with other bank CEOs, and this directly led to the the bank’s upcoming branch acquisition. In today’s competitive M&A market, bank CEOs need to be proactive to position their bank to pick up branches.
Improve the branch experience.
More consumers would switch banking providers over a poor branch experience (47 percent) than a poor digital experience (36 percent), according to the Celent survey.
When asked about specific branch experiences that would prompt them to switch, 68 percent cited ill-equipped banking associates, 55 percent long wait times and 49 percent impersonal service, meaning the bank doesn’t know the customer or understand what they need. Wealthier customers are even more sensitive to these oversights.
Some banks are solving this problem by adopting a universal associate or universal banker model.
“[Create] a relevant environment where you’re viewed as a place to get advice from,” says Smith of DBSI. “Today’s financial institutions are primarily still transactional.”
Because universal associates are capable of doing more for the customer—from service to advice—the customer has a better experience, and the bank can reduce its headcount in the branch. The universal banker model can also present a better career path for the employee, which should result in lower employee turnover.
But to make it work, universal associates should be properly trained, and the branch should be designed to make the most of the new model.
At Triumph Bank, universal bankers are “empowered to do almost anything that a customer would need,” from cashing a check to opening an account to financial planning options, says the bank’s human resources officer, Catherine Duncan. “We’ve got people that want to stick around and want to grow with the company. You empower them to make decisions … it keeps them engaged, it keeps them feeling valued.”
In addition to training these employees, the bank created an manual that serves as a go-to guide for any questions the associate might have, so they don’t have to run to a supervisor or another employee, and instead can help the customer confidently and immediately.
Triumph’s newer branches are designed without teller rows, and universal associates greet customers at the door.
At Sandhills, a lightly-staffed model works better in its sparsely populated market. The bank leverages technology to reach its rural customers—mobile adoption exceeds 50 percent, says Gale, which is on par with JPMorgan Chase & Co.—and you won’t find a drive-thru lane. “We want to talk to our customers,” he says.
Branch transformation initiatives should align with the bank’s overall objectives for its branch network, says Burson. And banks should evaluate their branches—old and new—to determine they’re meeting these goals. Too frequently, a branch is built, and the business case for that expansion isn’t revisited. “They don’t manage to the objectives,” he says. And that’s a big mistake.