A bank’s locations used to be pretty important to customers. But with many people, especially millennials, choosing to bank on their mobile devices as they do almost everything else, the bank branch is under pressure to stay relevant. Bank branches, once the staple of the banking experience, haven’t become obsolete — and banking executives say that won’t happen anytime soon, if ever — but they are disappearing.
The Federal Deposit Insurance Corp. reported that the number of bank branches in the United States fell from 11,971 in 1995 to 6,270 in 2015. In Arkansas, the number peaked at 1,513 in mid-2008 but has steadily fallen to 1,365.
“The successful organizations in the future will build an entirely new model,” said Phil Baldwin, president and CEO of Citizens Bank of Batesville. “Remember Blockbuster? That same type of disruptive technology is in place in business commerce, including banking. The successful bank in the future will be able to look around the corner and create something new.”
Baldwin, whose bank has been in expansion mode, said the future will have to include a hybrid banking experience. Bank branches will serve an important role that both complements and is supported by mobile banking services.
“I think the new technologies are allowing people to bank in a much different way than they used to, especially the younger generation,” Baldwin said. “For folks who are younger than 40, I do think having a strong social media and technology-based presence with mobile applications is really important.
“The older generation really felt like it was important to have a personal relationship with their banker. I think younger folks are more interested in having that relationship through technology. As you look out into the future, I think you’ve got to have both.”
Branching Out, or Not
Baldwin’s Citizens Bank paid $21.8 million last year for Parkway Bank of Rogers and moved into Parkway’s branch on Pinnacle Hills Parkway. Citizens, with assets of $736 million as of March 31, had also recently moved into Hot Springs, Arkadelphia and Monticello.
“The Rogers expansion — you want to be part of a growing, very dynamic market area,” Baldwin said. “You realize when you come into that market, you’re going to be the littlest bank in town. That’s OK. There’s a lot of growth opportunity in a market like that.
“In Arkadelphia, the market is not as large as Rogers so the dynamics are different, but in the end it is the same type of decision. We felt we could provide banking services that would be sought after by people in those markets.”
Arkansas’ other Citizens Bank — Citizens Bank & Trust of Van Buren — is also planning an expansion of his $375 million-asset bank in Crawford County. CB&T announced in early July it would open a branch in Cedarville on the site of a former barbecue restaurant that has been razed.
CB&T has seven branches, all in Crawford County, but CEO Keith Hefner said the bank’s internal metrics approved the Cedarville investment. A similar expansion in Mountainburg was successful with the development of a $13 million-deposit branch.
There is debate in banking circles as to the level of deposits that justify a branch — $15 million, $20 million are popular opinions — but Hefner said the Cedarville branch was “definitely justified” because it’s an underserved area with growth potential.
“There was a void in facilities to bank; we have several existing customers up in that area,” Hefner said. “We feel like we’re providing a better service to them. We’re trying to position ourselves for the future. We have somewhat of a proven model that this will work.
“The other thing — everyone is getting a lot of press about online banking and banking by phone. But there is still data out there that would support that one of the major decision factors is because of the presence of a branch — even though they don’t use it. I don’t think in Crawford County, Arkansas, you’ll see branch banking go away.”
In the saturated northwest Arkansas market, Simmons Bank of Pine Bluff closed a $3.2 million-deposit branch July 1 on Wedington Drive in Fayetteville. There is a $6 million-deposit branch a couple of miles away on Martin Luther King Jr. Boulevard.
Where to Bank
Hefner believes Citizens Bank & Trust’s expansion in Cedarville will foster loyalty in a growing population area. But surveys have shown that bank locations are becoming less important to a consumer’s decision about where to take his business.
Accenture’s North America Consumer Banking Survey in 2015 showed the No. 1 reason, at 38 percent, that people chose a bank was the quality of its online banking services. In 2013, location was the No. 1 reason at 36 percent; in 2015 it had fallen to 28 percent, tied with low fees.
Bankrate’s Financial Security Index in December reported that 45 percent of bank customers had visited a branch in the previous 30 days.
“We are much more diligent in making our branching decisions based on the way people bank these days,” said Greg Stanfill, Arvest’s director of community banking. “In the past we saw a growing community or growing area, and we probably wouldn’t do quite the level of due diligence that we do today to determine whether we put a branch there. I think you’re going to see fewer branches going up and greater emphasis on this technology in the way we deliver this technology.”
While the number of branches has dropped in Arkansas since 2008, the amount of deposits has grown every year with the exception of a small drop from 2012 to 2013. In 2008, total deposits in Arkansas banks were a little more than $47.1 billion and, in 2015, that amount had risen to nearly $56.5 billion.
“It is a rapidly changing industry, and we have to think completely different than the way we used to think,” Stanfill said. “It’s a two-edged sword. We are providing all these services to customers that allow them to not have to come into the bank. As a result, we never get to really build relationships like we used to. This has always been a relationship business.”
Hefner is convinced the math works for his bank’s move into Cedarville. There’s only one way to be sure.
“We’re building our branch network and hopefully it will pay off,” Hefner said. “Call me in two years, and we’ll see. If I answer the phone, you’ll know it worked out.”
*Deposits in thousands.