Branch Banks’ Death Rumors Are Exaggerated

Stone Bank opened this new branch in Little Rock in the spring of 2018.

Like ink-on-paper publications, brick-and-mortar bank branches are taking much longer to die out than predicted when the millennium was new.

In Arkansas, in fact, the number of new bank offices appears to have popped up in the past 12 months after a decade in which the count declined by more than 10 percent.

The Federal Deposit Insurance Corp. website listed 1,385 bank offices in the state as of June 30, a figure that included full-service branches and limited-service locations like loan production offices. That’s 40 more than the FDIC’s snapshot of deposits found on June 30, 2017.

Nationally, more than 1,100 new branches were opened in the same 12-month period, although that does not represent a net change in the total.

Whether or not those figures hold firm when the official summary of deposits is issued in October, banking observers in and out of the state still point to the importance of branch locations in attracting and retaining customers — even those who rarely walk through the doors.

“I think a lot of the smaller banks in rural markets, if they aren’t ready to be sold, they have to find a solution. And that might mean moving into urban areas,” said Marnie Oldner, the CEO of Stone Bank of Mountain View, which has done just that.

While other banks have crowded into the Stone County seat — “Seven banks are now competing in Mountain View for the same little population,” she said — Stone Bank has sought out new and bigger markets to conquer. It opened a new full-service branch in White Hall last year and new branches in Harrison and Little Rock this year.

The Arkansas State Bank Department approved 29 branch applications for state-chartered banks in 2016-17, according to Commissioner Candace Franks, and 13 new branch or branch relocation applications have been submitted this year. An applicant typically has up to 18 months to open an approved location.

“Probably part of this is due to improving economic conditions and banks looking for other areas to foster organic growth,” Franks said in an email to Arkansas Business.

Of the 45 offices opened in Arkansas between July 1, 2017, and June 30, 2018, 16 are full-service branches. Another 17 are limited-service loan production offices belonging to Bank of England, which brands them as Bank of England Mortgage offices.

The FDIC lists the acquisition date of all 17 as April 30, but Senior Vice President Brad Canada said that doesn’t mean they all opened the same day.

“We typically open offices each month, but March was a busy one for us,” he said in an email.

A slowdown in the mortgage industry when interest rates popped up early this year was an opportunity to pick up talent for BOE, which was chartered in 1898. As of March 31, it had $308.7 million in assets and $48.6 million in equity capital.

“We’ve always been known as a strong company because of our bank’s age and capital ratios, so we grow at a faster pace than normal in the lean times,” Canada said. “We open offices around a strong manager as opposed to targeting locations, so as a company, we’re very spread out.”

Looking Forward
A standard joke among bankers is that branches have become expensive billboards in the age of ATMs, digital wallets and smartphone banking. Oldner, the CEO of Stone Bank, says there’s more than a little truth to that.

“The banks are billboards in a sense. It tells the community we are here, we’re solid,” she said.

Completely online lending is working for a few banks around the country, Oldner said, citing Live Oak Banking Co. which has $3.4 billion in assets out of one office in Wilmington, North Carolina, and was the leading Small Business Administration lender in Arkansas in fiscal 2017. But for community banks like most chartered in Arkansas, only a local presence will attract new customers, she said.

Numerous consumer behavior studies have found that even the infamous millennials choose their banks based on geographic location. A 2016 study by Kasasa, a financial services company based in Austin, Texas, determined that 90 percent of young adults said a convenient location was important when choosing a bank or credit union, and 77 percent said they wanted banks with both online and physical options.

And this is true, Oldner said, even though millennials may visit a branch only once or twice a year. “So they don’t use them, but they choose them based on the branch.”

Bankers, like retailers that also offer e-commerce options to customers, are rethinking what the brick-and-mortar locations should be and do, Oldner said, pointing to Nordstrom, the venerable department store chain that is experimenting with the Nordstrom Local concept. These are 3,000-SF stores — compared with 140,000 SF in a full-size store — that offer limited, individualized services, like makeup application, tailoring and fitting rooms to try on garments that will then be ordered online.

“I think in banking, we’re similar. We want to be interactive. We want to be inviting — in ours we’re trying to have coffee bars, places where they can plug in their devices, where we can sit down and have a less formal conversation,” Oldner said.

One thing new branches don’t need, she said, is multiple lanes for drive-through customers. “Drive-throughs that used to be just booming, where you’d have four or five or six lanes, now you don’t need but one.”

And while banks are working through the branch concepts of the future, they are also working on making online banking less frustrating, which Oldner said was a side effect of the regulations that are in place to assure that money is as secure as possible.

“You’ve just got to protect each transaction, so you have to lock it down pretty tight. And when you lock it down tight, it can seem cumbersome. Getting your satisfaction with online banking has sometimes been hard for a customer,” she acknowledged. “But we’re going to get better and better and better, and so are other banks. I don’t know what that means for brick and mortar, but right now I feel like I have to invest in it.”