Branching At The Helm

A Q&A on brick-and-mortar strategies with the CEO of OnPoint Community Credit Union.


The predecessor of OnPoint Community Credit Union ($3.2B, Portland, OR), Portland Teachers Credit Union, was founded by 16 school teachers in 1932 to serve the education community. But a 2005 name change and an expansion to a community charter set the stage for the credit union to become a true power player in the Portland area. In an ongoing branch buildout that has more than doubled the number of its locations in the past six years, OnPoint has expanded its service to non-metro outliers like Deschutes County in 2009 and Crook and Jefferson counties in 2011.

The credit union believes in the branch model, but not in a one-size-fits-all approach. There is a cost for OnPoint to invest in such rapid growth.  Land and building assets owned by the credit union grew by more than 1200% year-over-year in 1Q 12, according to Callahan & Associates’ Peer-To-Peer software, largely a result of its decision to purchase and build locations versus lease them. But OnPoint is also making significant, calculated steps throughout this expansion to make sure that investment pays off.

The branch network is responsible for a majority of the astounding 4,000 new members the credit union adds every month and has contributed to an impressive 1.1% ROA in 2Q 2012.

CEO Rob Stuart shares the details of OnPoint’s multifaceted branch selection and operation strategy, outlines how the branches interact with the larger service network, and passes along lessons learned from the rapid expansion of OnPoint’s physical footprint.

Tell me about the rapid development of your branch network in the past few years. Where does the credit union stand today?

Rob Stuart: I started at OnPoint in 2006 and we had 10 branches at that time. By September of this year we’ll have 22 branches total, including three brand-new ones built this year.  We’re also looking for one more potential location for 2012.  Not all of this activity has happened this year. It’s been much more of a long-term process.

In what areas is OnPoint becoming more reliant on online and mobile channels and where is brick-and-mortar still king?

RS: The way we view our contact points is that it’s not just one or the other, it should be a combination of both and you have to drive both at the same time. We don’t just focus on mobile banking for a time, then say we’re done with that and are now justgoing to focus on branches. Our belief is that our members, and the consumers we’re trying to attract to become members, want to be able to access the credit union any way they want, any time they want. At one pointit could be the phone channel, the next it could be through mobile, ATMs, online, social media, tellers, or another representative in the branch.

For us to be relevant, we need to have all delivery channels available. Our opinion is that to maintain relevancy you have to be able to deliver on all fronts, all the time.

As these various contact points evolve, has OnPoint’s strategy for the placement and operation of your branches changed over time?

RS: In certain circumstances, yes, but primarily the fundamentals we look for when placinga new branch location remain unchanged. The first thing wedo is look to areas we believe have the potential to be servedby OnPoint, or by the credit union industry. Then we use a partner DMA (Database Marketing Agency) to overlay existing and potential new members in population concentrations across a 3-5 mile radius from that location.

We review atremendous amount of demographic data and if that meets our expectations, then we say, “Ok, this is a place we want to be. Now we need to find the facility.”

We look at locations that we can rent and locations that we can acquire, but it doesn’t need to necessarily be a traditional location. It could also be something smaller, like an in-store. We’re not just looking for 5,000 square-foot locations. We’re looking at all the different opportunities that will allow us to best serve each market area.

In 2012 we covered the full gamut, both purchasing land and building a branch as well as leasing a location that is in the build-out phase right now. We also just recently opened an in-store location through a partnership with Safeway. If we had our choice we would always lease. We are a huge believer in leasing over owning locations because of the flexibility.

Of the 22 locations we plan to have at the end of this year, we only own two of them. We chose to purchase the one location this year because of pure cost of funds. Financially, the move made sense for the membership.

What other demographic factors and data points are on your radar during the location survey process?

RS: We really aren’t using any new concepts that credit unions haven’t heard of. We look at existing members first and potential new members second. Then we look at traffic patterns and competition in the area. Because our original SEG was tied to education, we’re still very involved in the education community and always survey our potential in that regard.

We also determine the word-of-mouth potential of a branch move. For example, Bank of America is currently exiting its in-store locations across the country. We recently had an opportunity with one of those locations where Bank of America closed on one day and OnPoint was in and open for business in less than 30 days.

We’re very much a service-driven organization, but we’re also a sales organization. We plan for our in-store locations to bring in around 50 new members a month. In the first month, that newest location opened 150 new members. Institution-wide, we’re growing at 145 new members per day.

How much of that new growth is coming from branches versus other channels?

RS: There are a lot of factors at play within that, including our additional strategies like refer a friend and group banking. But the majority — around 3,000 a month — do come in through the branch channel.  We also have an open and fund strategy online so that people can go online to become members,and we gain around 200 members a month that way. We also pick up around 150 a month through our Credit Union Direct Lending (CUDL) strategy. But we’re not just growing members to grow members, they also have to be profitable members.

Q: How is onboarding success and the potential for profitability affected by where the relationships start?

RS: The branch is critically important in this regard. We’ve developed a service and sales process called ORB (OnPoint Relationship Building) that every one of our new account representatives and loan officers go through. It’s all about relationship banking and relationship pricing because we’re in the business to drive value for members.

We get these members to sit down with a representative or go through the virtual channel where we have real follow up conversations at day 14 and 45 of the relationship. We can easily cross-sell them five, six, or seven services they need. Those types of members add value to the institution right off the bat.

It’s about growing members by adding location and touch points, but at the same time cross-selling services, not just accounts. You have to back all of it up with a world class service strategy. But if you can do it successfully, those members will add immediate profitability to the bottom line of the institution.

How does that profitability feed back into the branch network and other channels?

RS: The faster you grow those members in those locations and the faster you grow those cross-sell services, the more profitability you add. And that’s the key to building out branches, because obviously there’s a huge expense in doing this. You have to make them profitable fast. Our goal is 18 to 24 months. If you can achieve profitability in that timeframe, the branches don’t have as big a drain on your ROA and you can continue to sustain a strong, long-term build-out strategy.

Q: What’s your experience with pioneering branch locations in a new community versus filling out your presence in an existing market?

RS: We’ve been headquartered in Portland for 78 years, so we have a strong presence here as well as in Vancouver, WA. Now we’re picking locations wherewe have an opportunity to infill around some of our larger locations. In certain scenarios in the Portland metropolitan area, this could mean relying more on an ATM strategy, or it could be an in-store strategy, or it could be a traditional branch.

Before the recession, the city of Bend, OR experienced the highest increase in real estate values of any community in the country. Unfortunately, this escalation in property values was followed in 2008 and 2009 by the biggest decrease in property values. In that market, you soon had 60% of the consumer population relying on banks operating under a cease and desist order from the federal regulator.

We did a demographic look at our current and potential membership there and realized we were the largest credit union in Bend who couldn’t actually do business there because our charter didn’t cover it. We told our regulators in Oregon that we had a significant member base that currently lives in Bend, and that it made sense for us to go into that market.

We’re safe and sound, we had the ability to lend in the market, and we knew we could make a difference. So the state of Oregon did grant the charter expansion. Although we leased in that market, we decided to go all in by opening three locations in the area all on the same day.  We hired a tremendous amount of local people, created a big splash in the community, and have seen immense growth from the community as a result.

What impact have you seen in your key metrics as a result of this ongoing branching activity?

RS: We figure a new traditional location will cost us about $750,000 for the first year and a new in-store would costs about $350,000. However, we’d anticipate and expect member growth of around 100 per month for a new traditional location and around 50 a month for an in-store location.

Currently, we cross-sell around 3.6 services per household. Obviously when you’re doing a branch build-out it’s going to have an impact on efficiency, so we have seen some impact there but it can be reduced based on the speed of profitability. We expect that in that 18-24 month time frame.

Getting a location to operating in the black versus operating in the red is just the first hurdle. The whole idea is to get to acceptable levels of return on investment, but a branch build-out also requires building the infrastructure to support the branches. You have the building expense but also the back office expense like IT, operations, and compliance. Our view is that the branch doesn’t need to just become profitable in and of itself, it needs to support and cover the back-office infrastructure as well.

What are the elements of your branch scorecard for gauging success?

RS: Our top concerns would be member growth, cross-sell of services, and service scores. We have a formal service shop program. Other obvious things include loan growth and the loan pipeline.

Tell me about your ATM strategy and how it complements you’re growing branch footprint?

RS: We have a partnership with Diebold so we lease all of our ATMs. We upgraded all of the technology back in 2008 and grew the fleet from 20 machines to close to 55. Roughly 40% of our ATMs recently had to be upgraded as a result of the new Americans with Disabilities Act regulations, but the rest were already compliant.
For ATMs, we look at areas where we have significant member growth and also where some of our most important SEG groups worked before we converted to a community charter. This includes places like Portland public schools as well as Oregon Health & Science University, a training hospital that’s here in town. We have ATMs all throughout the state as well. We have a branch down in Eugene, OR and to support and augment that branch, we’ve placed a fairly substantial network of units throughout the University of Oregon campus and its sporting venues.

Are you at peak branch capabilities now or will you expand more aggressively in the future?

RS: We’ve been trending around three to five branch location additions a year, but that doesn’t necessarily mean we’ll commit to doing five in 2013. It’s all about what makes sense on a case-by-case basis.