The Case for the Big Branch

I had a very interesting conversation with a bank client today. He called me to discuss, among other things, his bank's expansion strategy. During the discussion, I mentioned that I had recently driven by one of his branches and that it was the biggest in town. What he said about it inspired this post.

Being the biggest branch in town, in terms of square footage, is not something cheered among industry pundits these days. Indeed, if I were to summarize the sentiment, it would be that future branches would be much smaller, but with big a** signs. Those were another bank consultant's words, not mine.

This CEO isn't buying it. He said that since that branch underwent a $1.5 million renovation, its deposits grew by 40%. In prior years its deposit totals had remained in a relatively tight band. He opined that it is "amazing what visibility, access, and egress" does for a branch. He also said that his business owner customers demanded a nearby branch.

But he did not think the branch had to be in the same town as the business. The next town over would due.

Now that makes sense to me. If it costs, on average, $600,000 per year in operating expenses to run a standard branch, wouldn't it make sense to build a large, marquis-type branch in every other town that cost $800,000 per year? By abandoning the every town strategy, you effectively save $400,000 per year.

I looked at a few banks that I know that do very well with their branch networks but were not clients so I can opine based on public data and not inside knowledge. One such bank, First National Bank & Trust of Newtown (PA), had a similar branch as my client's (see photo).

This is FNB&T's New Hope office. It is two towns, or nine miles, from the nearest office. The New Hope office is an end cap to a very nice strip mall that has excellent traffic patterns and easy access. According to FDIC data, the branch grew from $41 million in deposits at June 30, 2007, to $70 million at June 30, 2012, a 70% increase.

Lest you think that price promotions drove their growth, this bank's time deposits as a percent of total deposits declined during that time. Oh, and time deposits/total deposits is currently 18%. So, even though I can't tell the exact deposit composition of the New Hope branch from public data, I would doubt that CD's drove this branch's growth. It is not in FNB&T's DNA.

Before we jump hard onto the mobile is king bandwagon, perhaps we should pause to think about what my client told me today. It only took 10 minutes of non-scientific perusing to find another bank's branch to validate his strategy. Perhaps, then, the branch is not dead.

~ Jeff