Worcester-based Commonwealth National Bank formulates its expansion plans with goals extending between three and five years into the future.

More than half of community bank leaders have business plans that project two to five years into the future, a shorter timeframe than business plans found in many other industry sectors, according to recent research conducted by Nsight and funded by NewGround, an international design/build and retail services firm for the financial industry in Chicago. Local bank executives agreed with the findings, saying that for banks in particular, rapid market and technology changes necessitate shorter-term business plans. However, many of the leaders of Bay State banking institutions also say maintaining a long-term plan is important, even if it is subject to many changes along the way.

Worcester-based Commonwealth National Bank, with $212 million in assets, which has been open for three years, tends to look ahead between three and five years when planning branch expansions. The bank has set a goal of building two new branches per year.

“It’s a matter of getting a physical presence” in the region, said Charles Valade, president and chief executive officer of Commonwealth National.

The NewGround research found that 19 percent of community banks have business plans that look only one year into the future. Another 4 percent of banks have business plans that project six to 10 years out and 3 percent have plans that include plans and strategies looking ahead 11 years or more. NewGround President Kevin Blair said short-term plans could be detrimental when it comes to expanding branch offices.

“If banks are expanding their branching network without a long-term business strategy, then this could be a costly mistake,” Blair said. “Community bank boards need to ask themselves ‘are we just following the trend of branching’ and ‘do we have a sound strategic service delivery plan that justifies the investment?’ It is impossible to answer these questions unless banks have a business plan that looks five to 10 years into the future.”

Valade said Commonwealth National will look ahead one or two years when reviewing potential acquisitions. But the overall strategic vision of the bank tends to focus on longer periods of time.

“We tend to look longer-term in what our plans are,” Valade said.

Arlington-based Leader Bank, which has $154 million in assets, is in the midst of expanding, opening its third branch just last week. Bank President Sushil Tuli said determining which markets hold the most potential and which areas have lesser concentrations of banks are a few of the aspects reviewed when devising an expansion strategy. Leader Bank’s management began planning for the new Central Square, Cambridge, location a year ago, but Tuli said three-year plans are typical for the bank.

“[A three-year plan] is easier to predict” than longer-term projections, Tuli said, adding that rapid changes in technology make very long-term planning difficult.

Regulators, he said, also request a three-year business plan from banks. Going beyond three years is generally not part of Leader Bank’s strategy.

“If we predict for five years, you don’t know what’s going to happen,” Tuli said.

Like Commonwealth National, which devised a plan to open a certain number of branchs each year, Leader Bank has a similar goal. Tuli said the bank plans to open one branch each year. With the Central Square location opening up, Tuli said he will now start planning where the bank will expand to next.

According to Blair of NewGround, banks need to have a strong strategy when deciding whether and how to expand.

“Some banks are making less per branch than they were before their expansion and that is a direct result of poor business strategy,” Blair said. “Presence doesn’t pay bills. Community banks that want to build freestanding brick-and-mortar branches need to determine the revenue upside quite carefully. Another option to building expensive free-standing branches is to start expansion by leasing a storefront space to gauge your customer base potential in that area. If the market looks ready, then you can easily transition that storefront into a brick-and-mortar branch.”

When expanding, Danversbank tends to look at locations where it will be noticed. Kevin Bottomley, president and chief executive officer of the $1 billion institution, said the bank scouts out downtown areas with heavy traffic and clusters of small businesses.

For larger community banks like Danversbank, planning tends to go beyond the five-year mark. Bottomley said smaller banks may have limited strategic horizons, but Danversbank tends to look ahead between 10 and 20 years.

The bank has also gone even further by planning beyond two decades. Bottomley said establishing core values, core purposes and the goal to be a $100 billion bank in 30 years was planned about six or seven years ago.

Once the long-term, big-picture plan was in place, a “classic” three- to five-year strategy was created by looking at specific product lines and services. Bottomley said management determined where it expected the bank would be in five years and what could be changed to achieve the goal. It’s called “scenario planning.”

“[Scenario planning focuses on] what do you have to do to get there,” Bottomley said, adding the bank must decide what it wants to do and then execute the plan. “It involves how [you can be] efficient in executing business plans.”

‘Balancing Point’

Deborah McLaughlin, chief financial officer at Slade’s Ferry Bank in Somerset, said that reconciling where the bank planned it would be and where it ends up is important. The bank, which has approximately $549 million in assets, tends to look three to five years into the future. Going beyond that may cross a line between what is realistic and what is essentially “a wish list,” McLaughlin said.

Every two years, Danversbank creates a new three- to five-year forecast based on income statements and balance sheets. Bottomley said one key goal the bank set for itself has been achieved.

“We really decided on our business model, i.e., becoming a commercial bank, a long time ago,” Bottomley said.

Commonwealth National executives have spent the last three years establishing the bank in the community. Growing an in-house residential mortgage business is part of its future plans. Currently the bank provides home financing through a third-party relationship.

While residential lending now has been identified as an area of potential growth, when the bank first opened it focused on small-business lending, with five commercial lenders on staff.

“We saw opportunities [in the area to offer commercial lending],” Valade said.

Middlesex Savings Bank in Natick also looks for available opportunities when drafting its strategic expansion plans, said Jim Briand, director of marketing.

“We look at how the competition set has changed,” Briand said. “We’re looking to see who’s on the move and what they’ve done. We’re looking for a long-term strategy that can lead to organic growth.”

With market research, the bank will find locations that fill in gaps in its existing footprint, as well as places where there is a need for a larger community bank.

“We look for opportunities where we think we would bring a unique proposition,” Briand said. “We prefer not to be a ‘me too.'”

With more than $3 billion in assets, Middlesex Savings generally sticks with a three-year strategic plan that is updated annually. Briand said the bank does consider the longer term, but calls three years a “nice balancing point.” While the bank looks at a variety of factors when planning, Briand said the hardest part is knowing what other banks are doing.

“The toughest thing to project is competitor changes,” Briand said.

Changes in technology and the interest-rate environment are other elements that make planning a challenge.

“You have to think through various scenarios,” Briand said.

Planning isn’t hard, McLaughlin of Slade’s Ferry said, but being able to monitor and adjust to the changing marketplace is crucial.