Build a Strong Branch Network

America First Federal Credit Union added six new branches in 2007 to its existing 70.


America First Federal Credit Union added six new branches in 2007 to its existing 70. Developing and instituting a clear branching strategy has grown its network and realized returns in member, loan and share growth all above industry and peer group averages. For America First, it starts with the spokes, creating a network of convenience in a specific region. When the spokes (or the in-store branches) reach capacity, America First then builds a hub — a traditional, stand-alone branch — to deepen member relationships and become the central part of that region's network. America First's branching strategy in urban areas includes locating branches within two miles of each other.

Finding Opportunities for In-store Branches
The credit union has utilized local grocery stores and area Wal-Mart locations to build 43 in-store branch locations. To expand its network, the credit union looks at local development and analyzes offers from stores offering leased space. Grocery store locations, though, only increase convenience for those who use the store. When looking to new areas, in-store locations can build a membership base that is self-sustaining. For in-store branches to be successful there must be at least 600 square feet for the space, according to Randy Halley, SVP of Branch Operations. For most locations, this results in a modest teller line, two loan desks and an enclosed manager's space.

Many credit unions find it difficult to establish a presence with a national retailer. America First has relationships with two vendors, Financial Supermarkets, Inc. and IBT, to help it secure contracts with large grocery stores while other brokers help with Wal-Mart deals. Many local chains offer in-store branch spaces directly to America First.

While in-stores gain new members, brick and mortar branches increase member penetration, deepen relationships, and build a community presence. Since America First normally has a significant member base before building a traditional branch, the design includes receptionist desks to handle traffic and assist members who, at first, may be unfamiliar with the layout. Standard architectural features are incorporated but each branch is tailored to its location.

Given its market, America First has focused on one aspect of a traditional branch structure. Roughly 50% of transactions (by volume) are conducted through drive-up lanes. By reducing teller space in a new branch and expanding the drive-up lanes, the branch can sit on roughly a 1/4 of an acre less land, saving the credit union money and expanding opportunities on smaller pieces of land. In the most popular branches, the credit union has installed drive-up lanes with two bays. Halley says, "Without drive-up lanes, convenience decreases for our communities and members, especially families."

Looking Forward
In pursuing its branching strategy, the credit union has built a mix of in-store locations (43) and traditional brick and mortar locations (33). With 76 branches at various stages of growth, Halley focuses on a few key factors in determining success. The first is the number of transactions. Members need to come into the branch and then member service representatives will be able to assist them and deepen relationships and wallet share. While deposits and loans help determine immediate profitability, transactions and traffic stimulate member and branch growth benchmarks. For growing branches, Halley likes to see 10/10, or $10 million in shares and $10 million outstanding in loans. A traditional branch that may be approaching maturity and exiting the quick growth stage should have $20 million in shares and $20 million in loans. When benchmarks are reached credit union executives will consider adding additional branches to further develop the region's network. While the branch network has expanded quickly, for the most part it has expanded organically. As branches grow and reach their member capacity peak, determined by space limitations and financial measurements, benchmarks are adjusted.

While not every credit union has the resources (or need) to build more than 50 branches, the decision about which branch type to build and where to locate new branches is crucial to any strategy for gaining members and deepening relationships. For existing branch locations, ensuring success means recognizing performance and improving where necessary.