Most banks build branches in communities where people already live, but First Banks Inc.'s current strategy is to open branches in areas where it expects people will be moving.
The $9.2 billion-asset St. Louis company has nine branches on the drawing board in four states, and several will be located in what is now farmland, said Joe Jaworski, First Banks' director of corporate real estate.
Suburban sprawl is occurring, "whether you support it or are against it," Mr. Jaworski said. His company chose its sites according to permit data for residential and commercial construction. "If they're going to build houses, they are going to need grocery stores and banks and all sorts of things."
There are other advantages to opening branches in less developed areas, he said; land is cheaper, for one, and the first bank that sets up shop in a new area often has a leg up in attracting customers and recruiting employees.
In May, First Banks plans to begin construction on a site in Pearland, Tex., about 20 miles from Houston. Mr. Jaworski said that 5,600 housing construction permits have been issued within three or four miles of the site, and 17,000 lots have been approved for housing in that area, but that the growth is not evident by looking just at the site.
First Banks owns a similar plot of land in Lincoln, Calif., about 33 miles from Sacramento, he said.
It plans to start construction in June on a freestanding branch there that will be part of an upscale shopping center. Like the Pearland branch, the Lincoln one is expected to open in the fall.
"If you went there last year when I was looking at the site, housing permits were approved, and we knew where some units were going to go, but it was literally like being in the countryside," Mr. Jaworski said.
Not all of First Banks' branches will be built in undeveloped areas. The $22 million that the company has committed to branch building in the next year will also pay for some in populous neighborhoods, like the Chinatown sections of Los Angeles and San Francisco.
Also, "I do have 10 other sites that we are probably about 30 days away from announcing," he said.
First Banks has historically expanded through acquisitions. It has bought 12 banks in the last five years and has deals pending for two others. It now has about 180 branches, in Missouri, California, Texas, and Illinois.
Though it has not ruled out buying more banks, Mr. Jaworski said that building branches is really the only way to get a foothold in areas that are still relatively undeveloped but seem destined for growth.
"The high-growth areas are in areas where there aren't banks to purchase. They are cotton fields, wheat fields, and corn fields; there aren't buildings there yet," he said.
Getting into an area ahead of development also lowers real estate costs. Some banks in the crowded areas of the Northeast, for example, have slowed their branch building because real estate costs are so high.
Clifford Y. Davis, the president and chief retail strategies adviser of NCBS, a banking consulting firm that was created by National Commerce Financial Corp. of Memphis and is now a division of the $169 billion-asset SunTrust Banks Inc., said First Banks is not the first company to open branches ahead of development. But he said the strategy is more common for companies in other industries, particularly grocery stores. (SunTrust, of Atlanta, bought National Commerce in 2004.)
As long as bank executives are patient, the strategy makes sense, as a means of not only attracting new customers but also hanging on to current ones, Mr. Davis said.
"The typical consumer is not going to drive by five banks to get to yours," he said. "Banks are expanding to be closer and closer to their consumers."
