Physical branches, sometimes questioned as less relevant in a digital world, are proving to be force multipliers for community banks. Their sheer physical presence matters.
“Branches signify to these markets that we’re here for the long haul and we’re serious about being in these markets,” says Gregory Wall, CIO of $550 million-asset Community State Bank in Union Grove, Wis.
That presence can be invaluable in the current banking environment. James Beckwith, CEO of $3.4 billion-asset Five Star Bank in Sacramento, Calif., says that the failures of Signature Bank and Silicon Valley Bank (SVB) in early 2023 underscored the importance of projecting stability. “There was a crisis of confidence [in the banking industry], and having the physical presence in your markets and cities where customers are is even more important now than it was a year ago,” he says.
Beckwith adds that branches offer unique opportunities for community banks to expand both their reach and services. In fact, in the wake of the market disruption, Five Star seized the day and announced plans to open a branch in the San Francisco Bay Area.
“It’s a great banking market,” Beckwith says. “We felt it was a good time to get into that market, and you’re not going to be able to do it without a physical presence.”
Branches aren’t disappearing, but they are evolving as community banks become more sophisticated in using them to their best advantage. Kevin Blair, president and CEO of NewGround, a design-build firm, observes that digital experiences are transactional and that people move and migrate rapidly, whereas the physical world drives relationships.
“Bankers want that kind of relationship business,” he says. “The goal is to create a customer experience so that it’s more than just a branch where you go to do transactions. You want a branch that attracts people, and they want
to go to the physical location.”
“Our retail staff are more engaged and are empowered to make [product and service] recommendations based on relationships they have with customers.”
—Mark Nettesheim, Falcon National Bank
The benefits of branching out
While it’s true that consumers increasingly handle simple transactions, such as checking balances, digitally, they usually want to talk to a person face to face for more complex issues.
“What’s walking through our doors are the more complicated transactions, such as questions on return items or fraud on debit cards,” reports Dan Combs, senior EVP, chief investment officer of First State Community Bank (FSCB) in Farmington, Mo.
Josh Carter, director of retail for the $3.8 billion-asset community bank, notes that this has opened doors for stronger relationships that strengthen the bank’s market position.
“We’ve built relationships with our customers. It makes deposits a lot stickier,” he says. “We may not have the highest CD rate in town, but we hold those relationships because of having locations where our customers live.”
To make branches more conducive to building relationships, banks are renovating and updating their physical spaces. In general, designs are shifting to a more open aesthetic.
Jim Caliendo, president and CEO of PWCampbell, a design-build firm that specializes in the financial services industry, says, “Branch design is becoming more open for counseling opportunities and sitting across from clients.”
Altoona First Savings Bank in Altoona, Penn., is currently working with PWCampbell to create designs that will be used initially on its headquarters and then at some of its five branches.
“Instead of having 25-foot teller stations, for example, we’re designing pods that will take up significantly less space and provide an opportunity to move into those areas for confidential conversations,” explains Troy Campbell, president and CEO of the $300 million-asset community bank. “We are focused on relationships, as opposed to transactions, in our banking, and this will reflect that commitment.”
Open spaces and room for conversations comports with a vision of banking that’s more retail‑oriented. According to Caliendo, banking remains a people-to-people business. “You just don’t get people as customers because you have the best
rate,” he says. “Service is involved. The people are the key. The look of the space, the feel, the perception, all of that is the street value your branch presents.”
The State of branch Activity
According to J.D. Power, bank customers are slowly starting to return to their branches, nearly reaching the number of branch visits regularly made prior to the COVID-19 pandemic (2017–2019).
Changing branches, changing roles
The increased emphasis on in-depth customer interactions is affecting branch staffing practices as well. In St. Cloud, Minn., $900 million-asset Falcon National Bank has moved tellers away from a transactional role to full-service retail bankers.
“Our retail staff are more engaged and are empowered to make [product and service] recommendations based on relationships they have with customers,” says Mark Nettesheim, chief sales officer.
Altoona First Savings Bank is also moving to more consultative roles for frontline staff, and this has affected both its recruitment and hiring decisions. “We’ve historically looked to hire people with banking experience,” Campbell says.
“Now we are looking at how we can attract people who haven’t had banking experience but are really strong on the retail, customer side of things.”
Branch design reflects bank strategy
Strategists are recognizing how to use design to communicate the bank brand more effectively. NewGround’s Blair argues that branches are not really about the physical buildings but about the bank’s business and retail strategy.
“It’s about what the bank is trying to accomplish at that site, who they’re trying to serve and how we speak to that,” he says. “The branch should be a branded experience that serves who they want to serve as customers and creates an experience that attracts and retains those customers.”
NewGround recently partnered with FSCB, which has 56 branches mostly in rural Missouri, to create a consistent brand style.
“We’ve done a lot of acquisitions of [five to seven other financial institutions],” Carter explains. “NewGround has helped us build out a ‘kit of parts,’ that is, various design elements that each branch can adapt for their interior.”
As part of the branding strategy, NewGround helped FSCB create a “community wall” filled with local history, pictures and mementos.
“Many of our communities have a rich history, and people are proud of it,” Carter says. “FSCB has been in many of those locations for years and years and has been integral in growing some of that history. It took some work on our part to come up with the local history and pictures, but we felt it was critical.”
Branches often are part of an “omnichannel” experience, with digital technology playing a big role in a physical branch’s services and appearance. “The expectation today is a combination of digital and physical location,” says Nettesheim. “Customers want big bank convenience but small bank relationships. We’ve enhanced our offerings and increased electronic services [to keep up with customer needs]. We have a focused mindset on allowing customers to bank how and when they want.”
PWCampbell devotes much of its efforts to helping its clients integrate technology into the branch. “We use screens based on what the bank would like the customer to see in the branch,” says Caliendo. “It might be advertising products and services with rates. It could be a message from the president to the customer.”
Five Star Bank recently introduced TVs that carry the bank’s own programming in its branches. Messages about the bank’s core values, employee recognition, work anniversaries, testimonials and even local weather are included. “It’s an internal branding process,” Beckwith points out. “We want to be a high-tech, high-touch bank that leads with relationships.”
Altoona First Savings Bank has plans for using monitors to advertise the bank’s products but also to advertise for its customers. For instance, it might promote a local restaurant or other local business. “Some of the small businesses don’t have a whole lot of budget. We see this as a value-add and a way to build those relationships,” Campbell says.
FSCB has equipped some branch drive-thrus with telemonitors to improve efficiency as well as the customer experience. Instead of a teller’s window that is barely visible to the far lanes, the drive-thru customer sees the teller’s face directly. “It creates a heightened level of customer service, because you’re face to face,” explains Combs. “It’s actually more personalized.”
Some community banks are leasing branch space to allied professionals and small businesses. This further integrates banks with the community. “We’ve been partnering with other professional businesses [to support small businesses], such as insurance agencies, appraisal companies and title companies,” says Falcon National’s Nettesheim.
Falcon National is recognized as a preferred SBA lender, and hosting these allies underscores its commitment to small business. “Our customers really do appreciate that we’ve built an ecosystem that supports small business,” Nettesheim
adds. “We’re thinking outside of just banking in ways to support them.”
Location, location, location
There’s no question that physical branches are a big investment, so whether and where to build them looms large in bankers’ strategic thinking. As part of its services, PWCampbell provides demographic studies of new markets. The firm analyzes markets by census tract, age, education, household growth and income to identify which locations will minimize risk.
“It’s taking the whole network of redoing existing branches and opening new branches and looking at that in a holistic way,” Caliendo explains.
While banks have traditionally built and owned branches, that’s becoming prohibitively expensive in many circumstances. NewGround’s Blair lists some of the hurdles to building new branches: “The cost of construction is expensive, land costs are skyrocketing and permitting is horrific.”
Given those obstacles, leasing space may be a less risky way to test a location. “Leasing space in a nice retail market is less expensive and faster to market. You can move and pivot more rapidly. Speed to market is critically important,” Blair says. “Those that get in quickly into a new neighborhood will gain market share faster.”
Recently, FSCB saw an opportunity to be a financial partner in Discovery Park, a development in the city of Columbia, Mo. The development is primarily a walk-in space that combines several buildings, retail space, restaurants and apartments, catering to young professionals. “They’re building a community where people can live, work, do their shopping and go to restaurants, all within walking distance,” explains FSCB’s Jennifer Lee, COO.
FSCB moved out of an old branch and leased space in the development. “We wanted to be the financial partner for the community they’re building. This expands our footprint in a cost-effective way,” Lee adds.
Community bankers continue to realize the critical role physical branches play, even as those branches evolve to meet the changing needs of the community. “A financial institution is such a critical piece of a small community,” observes FSCB’s Carter. “Without that player in the community, that advocate to provide funding for the municipality, the school districts and so forth, it’s hard for the community to grow.”
A unique community partnership
When Community State Bank, a community bank in Union Grove, Wis., renovated its Union Grove location in 2018, it embarked on a partnership with Shepherds College, a post-secondary school for students with intellectual and developmental disabilities. The Union Grove location houses the Shepherds Community Cafe, which is staffed by graduates and volunteers from the Shepherds College culinary arts program. The café, which offers coffee and pastries, gives students an opportunity to get work experience.
“It’s busy every single day,” Wall reports. “For our regulars, it’s the spot where they start their day. Staff and teachers from the college have meetings there. A lot of our employees start their day in the café.”
The café has two community rooms that local organizations can use free of charge. “The community rooms are set up with Wi-Fi, a flat screen and anything a small business would need to hold a working meeting,” Wall says. “Local businesses utilize it quite a bit.”
All of the cafe’s menu items are available for an “at will” donation. The bank covers the expenses, receiving some of the donations, but also giving a portion to Shepherds College. “We didn’t put this together as a revenue stream for the bank,” Wall says. “It’s a piece of our culture and a hub for the community.”