An increasing number of community banks are looking to do more with less when it comes to their branches.
First Financial Northwest in Renton, Wash., and First of Long Island in Glen Head, N.Y., are the latest examples of smaller institutions that are opening smaller offices in their quest to gain more customers. In many instances, the locations are the size of a modest apartment.
The $1 billion-asset First Financial's newest branches range from 1,200 to 2,000 square feet and are staffed with just a handful of employees. Two branches share a manager. The company is compensating for the reduced staffing with more technology; the branches feature an iPad bar and an iPhone-esque wall screen.
"The whole concept of the thing is to introduce technology to our customers," said Joseph Kiley 3rd, First Financial's president and chief executive.
Executives at First of Long Island, meanwhile, noted during a recent conference in New York hosted by Keefe, Bruyette & Woods that it has built smaller branches — some as tiny as 700 square feet — as it has expanded. A spokeswoman for at the $3.4 billion-asset company declined to comment further.
The interest in opening smaller locations could be tied to some degree to the characteristics of the markets where First Financial and First of Long Island are focusing their expansion efforts.
First Financial has been expanding around Seattle, which has a booming economy and rapidly rising real estate values. The same can be said for sections of Queens and Brooklyn, where First of Long Island wants to open branches.
First Financial and First of Long Island are by no means the first banks to get creative with branch sizes.
Umpqua Holdings in Portland, Ore., and Wells Fargo in San Francisco are among larger banks that have pioneered smaller locations. Overall, the size of branches located in bank-owned buildings decreased by nearly 15% between 2009 and 2013, to about 3,000 square feet, according to Bancography.
"The economics just don't work anymore by building these large branches," said Collyn Gilbert, an analyst at KBW. "You've got to be much more efficient in the branch structure."
While branches are getting smaller, they still provide value, industry experts said.
"I think it is still the recognition that you want to have a channel where you can continue to originate deposits," Gilbert said.
"The branch still remains the primary venue for opening an account," said Steve Reider, founder of Bancography. "In general, branching … still remains the most effective way for a small organization to expand the customer base — and to do so profitably."
A smaller branch should be less expensive to run, Kiley said, making it easier for a bank to justify keeping the location open.
First Financial's new branches can operate at an annual cost of $250,000 to $300,000. In comparison, the typical branch can cost nearly twice as much, Reider said.
The real difficulty facing some banks is dealing with their old-school branches.
"The greater challenge is retrofitting current branches to an operating model that mirrors today's demands," Reider said.
"If you go on a diet and you lose 20 pounds, it's pretty easy to take your suitcoat to the tailor's and … alter it," Reider added. It's not so simple, he said, to take down an 8,000-square-foot branch "built in 1920 largely out of stone and materials that don't really just snip apart with scissors."