A wave of branches

Not only are branches alive, they are kicking. A glance at the records of state banking agencies shows a steady stream of branch applications being filed. For example, in the last six months, 10 applications were filed in Colorado and nearly 20 were filed in Iowa. Banks in Illinois have proposed 22 branches in half that time. While some of those can be counted as relocations, they all add up to the idea that banks are making moves with branches. And it's not just the big banks that are tinkering with their markets.

A few recent examples: Northeast Security Bank, Sumner, Iowa, a $36 million institution, is building an office in Decorah, Iowa. First Community State Bank, Staunton, Ill., a $40 million bank, is branching into Edwardsville, Ill. The $125 million First United Bank, Englewood, Colo., is moving directly into Denver.

Kansas has seen a spike in branch activity since it changed its laws. "I can assure you that bricks and mortar are alive and well in Kansas," said Jim Maag, president of the Kansas Bankers Association. "Kansas was almost the last state in the union to allow branching on an out of town basis. We went from one extreme to another. We went from highly restrictive branching rules to absolutely wide open. The result has been that we've had a dramatic increase in the last decade in the number of banking facilities. Today there are almost 1,400 brick and mortar offices in the state."

"More and more branches are going up in Iowa," said Chuck Yagla of Kirk Gross Company, an architecture firm in Waterloo, Iowa. "After Iowa changed its branching laws, we've seen quite an increase. Branch building is taking up a lot of our time." Yagla said the company has also designed branches in Nebraska, South Dakota and Colorado.

Banks want their branch to reflect

the style of the main office, said Yagla. A challenge lies in taking advantage of the image upgrade a new facility allows while balancing a bank's established aesthetic.

Yagla said the majority, however, are looking simply to build a stylized version of the main office. Boutique branches are gaining in popularity and are proving to be a good way to update a bank's image while retaining its branded look. Boutique banks have things like an Internet cafe, sitting areas featuring CNN, sit-down tellers and contemporary architecture. Over the last five years, 12 percent of banks surveyed by the American Bankers Association had opened a boutique branch.

As for practical considerations, "Most banks want their branch to be a full service facility," said Yagla. "They want two or three offices for managers and lending people. They want a small conference room. They want a vault and safe deposit boxes. Basically, they want it to be like the main bank, just smaller. Fewer banks are being built with basements. Imaging technology has decreased the need for storage space."

HTG Architects, Eden Prairie, Minn., has seen a sharp increase in the number clients seeking branch designs. Jeff Pflipsen, the firm's executive vice president, said boutique elements are indeed becoming common. One element Pflipsen recommends is customer planning centers. "In their simplest form, a bank has a table with a computer on it. If you put this by the waiting area, people will use it and it becomes a good way to cross-sell. These ideas aren't new, but they are really catching on."

Scott Voigt of TurnKey Associates, Waterloo, said every new bank employs boutique features to one degree or another. "If they don't ask for it up front, we educate bankers about the advantages," said Voigt. "The technology to cross-market is out there. Bankers have usually been very receptive to the possibilities. Really, it's about efficiency and utilizing the space as best you can."

Pflipsen said banks are building all these new branches in high growth areas where location is of the utmost importance. HTG recently designed a branch for Citizens Community Bank & Trust, Hutchinson, Minn. In order to be part of a pocket of growth, the bank built the facility less than two miles away from an existing branch and moved that branch into the new building

"The growth in Hutchinson was moving south," said Pflipsen. "They felt it was important to get in front of one of those big boxes, which in this case was a Target Store. They spent the money to move a mile and I think in the long run, it was the right move for them. They wanted to focus on the small businesses that were also popping up around the development."

Location is probably the biggest concern, Voigt said. "On several occasions, we've seen Hardees buildings being converted to bank branches. After Hardees went bankrupt and closed a number of their restaurants, a few banks noticed that the company had done a good job of locating its buildings in high traffic areas. We've seen more than one bank negotiating with Hardees for their facility."

Banks are also building outside of their immediate market. Maag said he's seen similar activity in Kansas. As in Iowa, much of this is due to loosened branching laws.

"When we went to out of town branching, nobody was really expecting the smaller community banks to branch into the larger communities. It's become a phenomenon," said Maag. "And all this happened after Branches, continued fom page 18

people said branches are a thing of the past, but so many new ones are popping up. Johnson County, which is the border county to Kansas City, is one of the 50 most affluent counties in the United States in terms of per capita income. They now have almost 200 banking facilities in the county. They are almost like gas stations in the 1950s. There's one on every corner."

Because a bank can move into a new area doesn't always mean that it should. Maag said he's seen a good number of banks get trounced in a new market. These banks simply didn't do enough homework, said Maag. "Many branches have been very successful, but some have gotten burned. If you don't know the market, what tends to happen is you attract all those customers that nobody else wants. What a lot of banks are attempting to do is to go in and buy an established bank with a customer base instead of trying to build one up from scratch. That's obviously safer."

The 2003 American Bankers Association community bank competitiveness survey indicates that bankers view the branch as their leading delivery channel. Looking three years ahead, bankers responding to the survey still see branches remaining the key point of contact with customers. Nearly 80 percent of the surveyed banks have branches and 30 percent had seen their network increase in the past year. Business oriented banks are especially aggressive branchers, with 43 percent increasing their network last year.

Bricks and clicks was a nice catch phrase commonly used a few years ago by upstart technology venders. Community bankers responded to the change, but are clearly choosing the beaten path of bricks and more bricks. With all the good numbers banks posted last year, it's hard to argue with the strategy.

"The thought for a while was that young generations would bank by phone and computer and never go to a branch. It turns out they want both," said Pflipsen. "I'm 40 and I go into the bank at least once a month. Maybe 50 years from now branches won't be used as much. Maybe. But it's going to be a long time coming."