Are more branches better? Community banks weigh in

Farmers and Merchants bank exterior

Farmers & Merchants Bank in Miamisburg, Ohio, plans to open a fifth branch in nearby Springsboro, where it will be the only community bank.

With an increase in online traffic and challenges to in-person banking, community banks may be asking themselves if new branches are necessary. But many bank leaders report they’re investing in new branches because they’re strategic tools for growth.

By Roshan McArthur


Quick stat

16%

of community bank executives said they plan to open more branches in 2021, while 70% say they’ll maintain their existing branches

Source: Independent Banker 2021 Community Bank CEO Outlook survey

Over the course of the past year, many banks—and businesses of all kinds—have seen their operations become increasingly digital by necessity. In an already shifting banking environment where many transactions often no longer require a physical presence, this has called further into question the branch’s role.

However, in Independent Banker’s 2021 Community Bank CEO Outlook survey, 70% of bankers told us they would maintain their existing number of branches, and 16% said they plan to open more this year.

So, why are branches still important to the way that community banks serve their customers? Many banks report today that their branches often have a reduced staff and are more focused on higher-touch services like small business banking or mortgages, but they still serve a primary purpose. Beyond the transaction, the branch may be a bank’s most important tool for engagement, and this is especially so for community banks.

“The younger generation, when applying for a mortgage, have questions and like to look someone in the eye, not via Zoom or Skype, and know they are receiving an honest answer.”
—Joseph Coccaro, Bogota Savings Bank

Keeping a personal touch

For Joseph Coccaro, president, director and CEO of Bogota Savings Bank in Teaneck, N.J., the fundamentals of relationship banking haven’t changed. “Our current client base still loves to speak with someone face to face,” he says, “and the younger generation, when applying for a mortgage, have questions and like to look someone in the eye, not via Zoom or Skype, and know they are receiving an honest answer.”

The $745 million-asset community bank has been around since 1893, but its geographical expansion only started relatively recently, when it opened its first branch in Teaneck in 2004. Last year, however, the community bank saw large-scale changes, not only forming a mutual holding company and a charitable foundation, but also merging with a smaller mutual savings bank, Gibraltar Bank, and closing on the purchase of a former Wells Fargo branch in Hasbrouck Heights, N.J.

The new purchase is a 15,500-square-foot, two-story branch and office that allows Bogota Savings Bank to move retail operations and accounting departments from a leased facility, while generating rental income from four tenants that lease space. Hasbrouck Heights is a market that the bank had been trying to enter for more than a decade, and Coccaro feels it is well positioned to achieve significant growth because its primary competitors are national banks.

“All have strong deposits and loan customers, but none of them are born-and-bred true community banks,” he says. “The addition of this new location and Gibraltar’s branches will allow us to expand our market area greatly in an efficient manner. One of the locations is in Newark, N.J., and [that branch] will allow us to gain a presence in a large minority metro market.”

“[A branch] is a huge billboard or reminder that we are a part of the community.”
—Shon Myers, Farmers & Merchants Bank

Serving the community

Farmers & Merchants Bank in Miamisburg, Ohio, was established in 1923 to serve residents and small businesses often ignored by larger banks, and that mission is still going strong. The $225 million-asset community bank plans to open a fifth branch this September in nearby Springboro, Ohio.

Farmers and Merchants Bank interior

When it’s safe to do so, Farmers & Merchants Bank plans to invite customers to hang out in its newest branch.

“Once the account is open, there is very little need to visit a physical branch, but it is a huge billboard or reminder that we are a part of the community,” says Shon Myers, Farmers & Merchants Bank’s president and CEO. “We decided to open a branch in a nearby community that we have been able to generate business in, which also puts us into another county.”

It may seem foolish, he admits, to open in a market that already has nearly a dozen banks and credit unions, but the area’s other community bank was acquired several years ago.

“We really feel we can make a big impact in the community as the only community bank,” Myers says. “Clearly, with 11 other options, we want to do something different that will also show how we support the community with this space, combined with our service and our actions.”

The new branch will focus on small business, as well as growing core deposits to fund loan growth. It has a large room with a stone fireplace, comfortable sitting areas and a good Wi-Fi connection that the community bank will make available to small groups and students to use during the day or to larger groups for events in the evenings.

Meeting customer needs

Bank of Vernon, which serves rural western Alabama and eastern Mississippi, is seeing similar expansion. Chartered in 1911, the $200 million-asset community bank has opened two full-service branches since 2017. The first, in the growing community of Caledonia, Miss., filled the gap left when the city’s last bank moved out some 20 years ago. Its second branch is in the nearby larger city of Columbus, Miss. A third location will open second quarter in East Columbus.

Bank of Vernon
Bank of Vernon

Bank of Vernon innovates in and out of its branches, from biometric self-entry boxes to online and mobile banking.

“Our primary objective is to promote community development and services within our target markets,” says Andy Johnson, Bank of Vernon’s chairman, CEO and chief financial officer. “We maintain a view toward improving social and economic conditions by the provision of financial products and services that are enhanced by the physical branch. The bank offers modern mobile and online services needed for a touchless transaction, but we understand the physical branch offers a better platform to build relationships and truly understand the needs of our customers.”

The main benefit of the expansion, Johnson says, is more access to primary deposit accounts, which allows the community bank to deploy more capital in its target markets. Another has been that it allows Bank of Vernon to spread out its personnel during the pandemic. He adds that half of the community bank’s Paycheck Protection Program (PPP) loans were a direct result of the Mississippi branch locations.

Other benefits for customers include safety deposit boxes and self-service coin machines, which proved helpful during the recent issues with coin circulation. “We have moved forward with biometric self-entry boxes in our newest branch,” Johnson says. “This is another offering that reaches a segment of the market not touched in the online world. Each product and service provides additional opportunities to improve relationships and outcomes with customers, and in many cases is their first banking relationship. This would not be possible without the physical branch.”


Shape-shifting branches

Gina Bleedorn, chief experience officer at Adrenaline, an agency in Atlanta that works with financial institutions on branding and branch design, believes a physical banking presence is as significant as it has ever been.

“The importance of the branch has not changed today, versus six months ago, versus even six years ago,” she says. “But the reason it’s important has changed. And it’s not a new change. Everyone knew it was going this way, but COVID has sped up that shifting reason.”

Those reasons are convenience and peace of mind. “The reason the branch exists today and should exist tomorrow is the same foundational reason it began in the first place: as a place where you can be in physical proximity—or perceived physical proximity—to your money,” Bleedorn says.

However, she says, branches need to take on a new shape. They need to become smaller and more efficient, with a more consultative format. There should be less room for physical transactions, with universal staffing and as many automated transactions as possible, whether those are teller cash recyclers, video tellers or both.

Bleedorn believes community banks need to expand their perceived presence within their communities, which may mean opening new locations but also closing branches to ensure that the remaining branches are located strategically. This may mean creating an array of efficient branch formats that work together, following a hub-and-spoke model.

“It’s really about opportunity,” she says. “How much room, in and around every branch, is there for growth? That’s the key.”


Roshan McArthur is a writer in California.

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