Branch Costs and Size Are Changing

By Steve Reider

New branch survey finds branch costs increasing, size decreasing.

In 2003, Bancography surveyed financial institutions across the U.S. about their branch construction plans. We repeated the survey in 2006 and 2013 (deferring during the recessionary years when branch construction slowed dramatically), and recently completed another iteration. The study surveyed banks and credit unions across the U.S. about their branch deployment plans, including number of planned branches, cost, and size of those branches. Sixty institutions joined the survey, including 33 banks and 24 credit unions (three respondents replied anonymously), from all regions of the country and spanning all asset tiers except the largest national banks. The respondents maintain networks ranging from two to more than 300 branches. Our findings follow.

How many branches will your institution add next year?

Branching continues to increase incrementally rather than exponentially, as about three-quarters of the respondents plan to add only one or two branches in the next year, and only five respondents intend to build five or more branches. Across the survey panel (including institutions that reported that they were not planning any branches in 2017), planned branch additions represented 5% growth relative to current branch counts.  Although that statistic does not address net network change as it does not consider planned branch closings by the same institutions, it suggests that much of the branch contraction in recent years has arisen from the largest tier of banks.  Seventy-five percent of institutions plan to build traditional branches, 52% plan to build inline branches (i.e., branches within ‘strip’ shopping centers), and 9% plan to build in-store branches (the proportions sum to more than 100% because some institutions plan to employ more than one format).  Non-traditional branches, i.e., inline plus in-store, retirement home, and other specialty formats, represent 40% of planned new branches.  These proportions remain similar to those reported in the 2013 iteration of the study.

What is the average square footage of the planned new branches?

The average size for planned freestanding branches was reported at 3,400 square feet (sf), but this was skewed by three institutions planning branches of more than 12,000 sf. Omitting those outliers, average square footage for freestanding branches was reported at 2,700 sf, down from 3,000 sf in 2013 and 3,500 sf in 2006; the median was 2,500 sf.  Planned bank branches (excepting the 12,000+ sf outliers) averaged 2,400 sf versus 3,100 sf for planned credit union branches.  Despite continuing declines in the average branch size, five respondents are designing branches in the 4,000 – 5,000 sf range.  Among the planned inline branches, the average reported size was 2,100 sf, with the median at 1,700 sf, consistent with the 2013 survey and consistent across both banks and credit unions.  Planned sizes ranged from 900 sf to 4,000 sf, with six responses exceeding 3,000 sf.

What is the average land cost of the planned freestanding branches?

Reflecting the wide regional disparities in land costs, this question always shows great variance. Responses ranged from $300,000 to $2M, with a median of $850,000 and an average of $930,000.   Likely reflecting the rebounding of the real-estate market, the average well exceeds the $675,000 average in the 2013 study, but lags the $1.1M level from the 2006 survey in the peak of the branch-building boom.

What is the average construction cost of the planned branches (including building, furniture and equipment, i.e., everything but land?

Reported freestanding branch costs ranged from $500,000 to $3M (with one response at $4.5M for a larger facility) and averaged $1.5M, up slightly from the $1.3M and $1.4M of the 2013 and 2006 surveys. However, recall that average square footage declined to 2,700.  Accordingly, average cost per square foot increased to $570 from $440 in 2013; with a median of $530.  Costs ranged from $200/sf to six responses at more than $800/sf.

For inline branches, reported costs ranged from $200,000 to six responses at more than $1.2M, with an average of $700,000 (up from $530,000 in 2013) and a median of $650,000. Cost per square foot ranged from $120 to six responses at more than $600, and averaged $360 (median $290), up from $275 in the 2013 survey.

What are the planned initial staff levels for new branches?

For freestanding branches, respondents reported an average starting staff of 6.1 full-time equivalent employees (FTEs), with two-thirds of responses falling in the 5 – 8 FTE range. For inline branches, respondents reported an average starting staff of 4.8 FTEs, with two-thirds of responses falling in the 3 – 5 FTE range.

The survey also addressed various equipment and configuration elements:

  • Image-enabled ATMs are becoming standard equipment, with 80% of respondents planning to use the technology in most or all new branches, compared to 68% in the 2013 survey.
  • Teller cash recyclers (TCRs) are also becoming standard: 71% plan TCRs in most or all new branches; and only 13% have no plans to use TCRs. TCRs appear to have supplanted teller cash dispensers, as only 27% of respondents plan to use TCDs in any of their new branches.
  • Only 36% of respondents plan to install safe deposit boxes at any new branches, with 13% planning boxes for all branches and another 23% planning to install boxes in some new branches. Traditional dual-key vaults remain twice as common as single key, self-service vaults.
  • Video remote tellers are also gaining acceptance. Twenty-two percent of the surveyed institutions will use video remote tellers at all new branches, twice the level reported in the 2013 study; and 24% will use the technology at some new branches; but 46% have no plans for video tellers (compared to 57% in 2016).
  • The universal-agent model is under consideration at many institutions: 49% of respondents plan integrated teller-CSR (universal agent) workstations in all new branches, up from 42% in 2013; and only 22% plan to install traditional teller lines in all new branches, down from 30% in 2013. The remaining institutions (21% of respondents) plan a mix of operating models.
  • Thirty-six percent of respondents plan to outsource at least some proportion of branch construction projects to design/build firms, turnkey providers that manage all aspects of the construction process. Twenty percent will utilize design/build firms for all branch projects, 64% will hire and manage their architects and general contractors internally, and 16% plan a mix of construction management methods.

Steve Reider is President of Bancography, based in Birmingham, Ala., and provides consulting services, software tools and marketing research to financial institutions.