A Smarter Approach to Branch Growth

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Intro: This is Believe in Banking, a podcast series for decision makers, influencers, and leaders, featuring experts taking on the financial industry’s most pressing issues with insight and empathy. The podcast features information and conversations designed to enlighten and empower.

Gina Bleedorn (00:17): Welcome to our Believe in Banking podcast. I’m Gina Bleedorn, President and CEO of Adrenaline.

Juliet D’Ambrosio (00:24): And I’m Juliet D’Ambrosio, Chief Experience Officer at Adrenaline.

Today we are going to talk about something that I feel like has been on the industry’s mind, absolutely in industry headlines so much recently, and that is the branching boom that we are experiencing. We’re seeing it play out in real time in front of our eyes. And it’s interesting to think about there were so many years of closures of consolidation. And who knew that here in what we call it the big ‘26 that the industry is seeing such a resurgence in branching? There have been more than 1,000 new branches opened annually over the past three years, and most of the new-to-bank relationships are still originating at the branch. So, we know that branch closures versus net openings have both evened out, and we’re seeing that resurgence happening, but we also see that branching is just critical to the kind of relationships – both deposit gathering and loan generating – that are so critical to success.

So important is branching to success actually that we at Adrenaline have been honored to partner with Curinos on a new industry report. It’s called “How De Novo Expansion is Reshaping Retail Banking.” And there’s no better way to get into this subject, I think, than by talking about a real example of a client that Adrenaline works with VeraBank and their recent investment in a de novo branch. And Gina, I’d love for you to give us a little bit of perspective before you talk about this particular branch, just about VeraBank in general and about our relationship with them.

Gina Bleedorn (02:23): Yes. Well, VeraBank’s CEO, Brad Tidwell, was actually one of our first Believe in Banking podcast guests. We have over a decade of history partnering with VeraBank, and Brad was actually, he was from East Texas but was a Chase banker for a while, and then he came back to his hometown to be the CEO of what at the time was Citizens National Bank of Texas or one of the many Citizens National Banks of Texas. Over our journey with them, they expanded into the Austin area and had to rename because there was another Citizens National Bank of Texas that was already there. And so VeraBank is their ownable name, and they have been growing with that name the past 6-7 years.

And actually the relationship began when Brad came to the bank, he realized there was a lot of modernization and bringing in TCRs and optimization that he needed to do in his current footprint, and so that was done first. Then over time that changed into expansion, and that’s a journey that many banks have been on. So this latest expansion was in the growing market of College Station, Texas in a growing development area and a great area of opportunity. It is adjacent to their current footprint, so that’s always smart de novo strategy, although incremental new market de novo. Completely new geographically separate market de novoing is something we are seeing, and helping some clients with, as well. But this was adjacent and moving investment in the bank into where the opportunity is – so where they’re going to get the greatest return. And this particular project was notable because it was the first two story building that Vera had ever embarked on.

Based on the market opportunity, the money was worth spending, and the lot was not all that big, so there had to be a lot of creative solutioning. But the end result is really an incredible 360-degree billboard. And as you are thinking about your own de novo strategies, few things are more important once you have selected the location than maximizing billboard presence at that location. And if you’re lucky enough to have visibility all the way around the branch, like this particular branch does, you better maximize that. So when you see this, it looks like almost sort of a sculptural work of art from any angle that you look at it from, but it’s really modern and feels right for the area.

Something to think about with de novoing is that the brand that you were at your founding needs to evolve with the market, and then be very sensitive to the market you’re going into. So all of those things are present in how VeraBank approached this particular site in that it’s still absolutely their core brand essence. It’s pulling together things from other sites, other new builds that they’ve created, using materiality, use of color, but at the same time, it’s pushing new bounds of modernism and new elements of architecture.

Something else with their brand in particular that was done: their colors are teal and orange and so they really are ownable colors, but because of the nature of what they are really bright kind of playful colors, we have to be careful in their usage. And so something that this building did was bring in materiality with a very warm, almost orangey type of redwood that looks orange but without being orange and looks really classy, and then using a little more of the teal along with using a lot of white color space. So again, it’s ownable color space to them, but brought to a new market in a way that feels modern and feels like it’s integrated into the Texas community in which it sits.

So this was an incredible success of a branch. It’s probably the proudest physical thing they’ve ever done and built. And ultimately, this is what you want to think about as you are de novo expansioning, making maximum visual impact while also carrying forth elements of your brand that you need to preserve, but accommodating and evolving them into the market you’re going into.

Juliet D’Ambrosio (06:47): You know what’s interesting as you unpack the story of VeraBank College Station de novo, which is the third de novo that Adrenaline has been lucky enough to partner with them on, this is really a strategy that they have embraced. De novo expansion is thinking about how smaller branches, shrinking footprints actually have bigger expectations on them, and we’re seeing that across the board with the industry. And in fact, Curino’s data supports that, as the average square footage for any post 2020 build, so it’s only been about six years, has declined by about 25%. Our average is about 3,500 square foot for de novos, and you can compare that with an existing conversion around 4,700 square feet. Staffing models are leaner as well, averaging about 3.6 full-time employees. It’s funny when I say that I think of three and a half little icons of a person.

Of course, that’s not the case, but these smaller footprints are helping to do a couple of things. They’re reducing costs. They’re enabling faster deployment. But they still have to support that you mentioned the word modernization, those changing consumer expectations, advisory, relationship building. They have to have areas for consultation. They have to be able to have tech-enabled experiences. They are doing great jobs and VeraBank is certainly at the leading edge of this areas for community gathering.

And so the question becomes what does a successful modern branch experience look like? And then how do we design that in these footprints that maximize the branch in its ability to deliver on consumer expectations? And to the point that you were making earlier: how does it act as a brand billboard? From every single vantage point, how does this translate and communicate and celebrate the experiences and the different experiences that this branch will ultimately provide? And the billboard effect that we talk about continues to matter, especially as we see national bank expansion in both de novos and in existing places continue to be more of a, I’m not going to say competitive threat, but more of competitive pressure for community banks.

So when we look at how community institutions need to consider their de novo strategy, we think about this sort of three viewpoints or three areas to consider. Are you going to build here? Do you need to defend your market position? Or are you going to concede and focus on your areas of strength? Gina, I’d love to hear you talk a little bit about what we’re seeing from the national players here and what their expansion plans look like.

Gina Bleedorn (09:58): Well, a number of them have been leading the way. Chase and Jamie Dimon were out in front. They came out even pre- COVID with pretty aggressive branch expansion plans, particularly just in going to new markets and de novoing by market. And they have continued those and when they come into a market, they cover it. They do a good job because they understand the function of critical mass and what that plays in the idea of perceived convenience and, “Oh, you’re suddenly everywhere I need you to be so I’m going to consider you.” BofA has a bit more of an incremental branching strategy where they’re going into top select DMAs, and then we’ve got all kinds of others. Wells Fargo is now getting back into the game after some things they’ve been through. PNC, Fifth Third and on and on also obviously some major acquisitions going on, creating some new megabanks that are entering top-10 with Huntington with Fifth Third and all of these are expecting to gain 8% or more in branch share that will translate into 10% of a shift in their favor of deposit share over time.

For example, Chase, when they rapidly in Boston, DC, and Philly, they had zero branch share and they went right up to four to 5% with that idea of critical mass and their deposit share followed after that within a three-year period.

Juliet D’Ambrosio (11:27): It’s clear that the big banks are making big plays into branching. And so I’m so curious about exploring, and I think we do that in our report, how do community financial institutions respond? There really is a difference between the goals if you’re Chase and you can put a branch on every corner, but if you are a community institution – a smaller bank, a credit union – you just can’t achieve massive footprint everywhere. So how do you make the right decisions around that? How do you understand whether you are going to build, whether you’re going to defend or whether you’re going to concede, Gina, I’m curious about the conversations that you are having with clients and with the industry around how they are making those decisions and what kind of data is helping to create clarity around their path?

Gina Bleedorn (12:26): Yeah, there’s been a maturation and a sophistication evolution over the last few years that’s really coming to market in a bigger way now. So what used to be just about where is there the most fair share opportunity gain for me? And that’s still part of the puzzle. So I understand my current performance, but what could my potential performance be? And so that’s the type of database consulting we have done for many years of figuring out where to prioritize into which expansion market do I go into and where can I optimize what I have? And I will mention that still needs to be a thing, and  please be mindful of markets where you have full share, but maybe there is not that much potential. Do not overinvest in those markets and then also be mindful of markets where maybe you have some newer sites that are in lesser density that you’re underperforming in, but perhaps there’s potential that’s massive in that market.

That doesn’t mean you’re failing, it means you need to adjust your strategy: do more, do different. And then you’ve got high-performing and high-potential markets where you better keep performing and defend. And so all of that is still very much relevant and the way you need to be thinking about leveraging data to make decisions. And that type of data is drawn from FDIC, it’s drawn from S&P, and we have specific ways as do other companies that do similar things of bringing those forth into decisioning metrics. So where do I grow? Where do I defend? And of course we partner with Curinos on leveraging their best-in-class data to help clients make those decisions.

But the other thing I want to mention, and it kind of goes into that build, defend and concede. The answer to “do I build, defend, or concede?” is yes, in that you probably need to do all three depending on the market. And so this gets into the idea of archetypes, what we call branch archetypes. We’ve always heard there’s not a one-size-fits-all approach and we’ve heard for probably decades now we’ve talked about hub and spoke having big branches and small branches and that’s kind of it, but the more advanced version of that is in archetypal planning based on the market you’re in. So for instance, maybe you have an opportunity to build new and that’s going to be where there’s very high potential. Ideally it’s adjacent to a current footprint that you have so you can leverage the network effect of what you already have, but you’re extending that like VeraBank did into an adjacent market to get new pool and it’s worth investing there. But in other markets, maybe you just need to be defending your market share but not over-investing because maybe you are the owner of that market, maybe that’s one of your legacy markets, maybe that’s where you were founded, but maybe other entrants are coming in now and you need to protect the turf you have. That is a different type of branch archetype.

If you’re going to build, it’s probably doesn’t need as much square footage. It absolutely needs to be a billboard. It needs to have high modernization. It needs to have high market relevance. And it needs to be staffed with more business development and go outers finders than it does more of line of business staff where in a defend market you may need more officing, you may need more hoteling, you may need more community space, and then conceding that could be what ends up looking like a very minimal format where you’re not exiting a market, but you’re spending the least amount possible, but in the right way where you have a very focused footprint that’s just designed to keep a certain type of small business client serviced or it’s just designed to defend or to keep your retail clients happy.

And so what’s happening now is getting surgical. So yes, have data to make decisions about where you can grow and invest and where you can save and optimize, but then have strategy around what the delivery looks like based on what market it’s in.

Juliet D’Ambrosio (16:48): Gina, I love the discussion around branch archetypes, and it comes down to I think a question around even if you have the best market, the highest growth potential market and you have a branch that is too small or is not built for that importance, you won’t be able to maximize the opportunity there. Same thing that if you have a beautiful flagship in a market that just doesn’t have the potential there, you’re not going to win. So it really is about matching the type of branch and that investment to the market potential, and I love the definition of that as being very, very surgical. And so when we think about answering the questions about what you prioritize.  Do we prioritize today network expansion? Are we prioritizing the design of branch experience and how we evolve staffing and even tech to integrate into those experiences? Do we prioritize brand differentiation? And the right answer is really all of the above that when we think about the right branch expansion strategies and this includes de novos

It has to be cohesive and you have to incorporate brand visibility, the ability to build the kind of relationships that are relevant to those markets. And as we’ve talked about, the competitive landscape is heating up. I think it also comes down to the realization that customers and members do not separate channels from one another. They do not see the branch and the brand and the digital experience as separate channels. They see it all as just one way of accessing you, their financial institutions. And so when we look at the ability for community financial institutions to really separate from the pack and begin to make the most of the branching boom that’s happening, the idea that it comes down to experience that you are designing for, the relevance of the spaces to the market and what the institution is able to provide and ultimately the connections that are made.

Credit unions and smaller community banks simply cannot compete on scale, but what they can compete on is offering something that the customer or the member feels seen, understood and has their needs met in ways that are highly personalized and relationship driven. And so backing out of that customer standing at the center of the experience, that’s the biggest answer to what we are designing for. Who is that customer? How are their needs or expectations changing and what can we as a credit union or a community bank deliver that only we can? And so this branching boom, those that are going to win are not going to be the ones that just have a bunch of branches and build more and more and more, but the ones that have a deep and profound understanding of why branches matter and what their purpose is in ultimately delivering value. And it’s something that we are so proud to be a part of.

Gina, I’d love to sort of close us out in the exact way we came into this discussion. We talked about VeraBank. Who’s another great example that you can tell the story of their de novo strategy and design all coming together to build growth?

Gina Bleedorn (20:29): So another bookend example… We mentioned a community bank. I’ll mention a credit union. VACU in Virginia actually just had a big merger with Member One Credit Union and really growth focused. They just recently de novoed as well, and we had partnered with them on a series of fit-outs in downtown and greater Richmond that were all successful, built a new kit of parts and look and feel expression of their brand, but then it was extended and needed to be extended in a ground up form. And this is very different than Texas. Now we’re in Virginia and actually a new commercial development called Courthouse Landing in Virginia. That’s a high growth area under construction now. And this is a very different looking branch. It’s smaller. It’s not as big as Texas, and we do know that lots of things are big in Texas, but it was a completely different expression of a completely different and credit union brand, but all the principles were the same.

Maximizing visibility, honoring the local community, extending brand presence from where they already were and equity into a new site, and then maximizing visibility on the site. So we were able to face it through traffic. We were able to create street facing glass displays that inside out are projecting from the brand and ultimately this becomes a new North Star beacon for de novo expansion for a credit union. And as we think about really both of those stories and everything else Juliet and I have talked about, there is a lot to think about. This is a tough time to be figuring out what you need to do with retail and with your branches because you need to do something and you need to do it fast and there’s a do I go fast or do I go well? And you kind of have to do both.

So as you think about what you really need, think about it this way and the report covers this, but the winning institutions will have a disciplined strategy. I can’t say enough about the importance of having a strategy for your branch network and most of the clients we work with initially do not. So you must have that. The idea of then archetypes or whatever you call them, having different types of delivery models for different purposes is a necessity moving forward. And then you need to be able to execute, but not just execute a building, you need to be able to execute at scale because if you’re starting over every time, you can’t go fast and so you have to think and scale and then Juliet talked about this well, having differentiated experiences that only you can deliver true to you, true to your brand, true to your culture and then that ties in with the last element of having incredible alignment with your brand and the branch experience so that everything about who you are and what you’re standing for is coming forth in what is by far the most expensive channel that you have.

Outro: You’ve been listening to Believe in Banking, a podcast series created to empower decision makers, influencers, and industry leaders in financial services.

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