Branches And The Bottom Line

A peer group comparison of branch expansion and financial performance.

 
 

The number of credit union branches nationwide declined from 21,036 in September 2012 to 20,983 as of September 30. The number of credit unions fell by 278 over the same time period. As people turn to mobile and online channels to conduct financial transactions, credit unions are weighing the benefits of expanding their branch network.

The Comparison

To determine the impact a new branch can have on financial performance, CreditUnions.com conducted a peer group comparison. The first group was composed of 134 credit unions with $250 million to $1 billion in assets that opened a new branch within the past 12 months. The second group included 388 credit unions with $250 million to $1 billion in assets that did not open a branch within the last 12 months. Credit unions in the first group had an average of 11 branches; credit unions in the second group had an average of eight branches

The Results

Credit unions that opened a branch within the past 12 months reported asset growth of nearly 5.0%; credit unions that did not open a branch reported asset growth of 3.1%. Loan growth was more than two percentage points higher at credit unions that opened a branch while member growth at the credit unions that opened at branch outpaced their peer comparisons by more than three percentage points.

BALANCE SHEET METRICS
Data as of September 30, 2013
© Callahan & Associates | creditunions.com

 

Credit Unions $250M-$1B That Opened A Branch

Credit Unions $250M-$1B That Did Not Open A Branch

Average Asset Size

$519,300,797

$471,387,371

Average No. of Branches

11

8

12-Month Asset Growth

4.98%

3.11%

12-Month Loan Growth

8.36%

6.23%

12-Month Share Growth

4.78%

3.07%

12-Month Member Growth

4.12%

1.14%

12-Month Capital Growth

1.62%

1.67%

Loan-to-Share Ratio

72.98%

68.98%

 


Source: Callahan & Associates’ Peer-to-Peer Analytics

Credit unions that opened a branch reported strong growth in their balance sheets over the past year, showing that investing in the branch network can lead to stronger growth. New branches can quickly attract members; however, those members might not bring their complete financial relationship at the onset. Credit unions that opened a branch have similar member relationship numbers to credit unions that did not open a branch.

Share draft penetration is one of the most important metrics in determining how engaged a member is. The financial institution where a member has their checking account is likely to be the primary financial institution. Share draft penetration, the number of checking accounts divided by the number of members, was slightly lower at credit unions that opened a branch and held fairly steady over the past year. Despite reporting above average member growth, these credit unions have not seen an increase in members becoming full-fledged members.

MEMBER RELATIONSHIP METRICS
Data as of September 30, 2013
© Callahan & Associates | creditunions.com

 

Credit Unions $250M-$1B That Opened A Branch

Credit Unions $250M-$1B That Did Not Open A Branch

Average Share Balance

$9,278

$9,357

Average Loan Balance

$13,042

$12,827

Average Member Relationship

$15,439

$15,320

Share Draft Penetration

54.68%

54.96%

Auto Loan Penetration

18.27%

16.86%

Mortgage Penetration

4.74%

4.46%

Credit Card Penetration

13.85%

15.14%


Source: Callahan & Associates’ Peer-to-Peer Analytics

Credit unions that opened a branch also have higher operating expenses, perhaps partially due to the upfront costs associated with opening and maintaining a new facility. Total operating expenses grew 7.4% annually at the credit unions that expanded their branch footprint, whereas they increased only 3.3% in the comparison group. The operating expense ratio, calculated by dividing the total operating expenses by average assets, was 15 basis points higher at credit unions that added at least one branch.

A new brick-and-mortar location can increase awareness and attract new members, but it doesn’t guarantee increased or deeper relationships with new members. However, the larger member base provides opportunities to turn those members into engaged members through customized products and services and the outstanding customer support for which cooperatives are known.

 

 

 

Dec. 16, 2013


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