Financial Benefits Of Branching Out

Credit unions with larger branch networks have higher expenses and higher income levels.


Branches, along with associated employee costs, must not be just transactions centers. They must enable the institution to grow its membership base and balance sheet.

While new branches are important for credit unions entering new markets, building a sales culture and developing area business can help existing branches and propel the broader institution. That said, some credit unions choose to limit physical locations to serve members through virtual networks, shared branching locations, or call centers.

And there is a difference in financial performance between the two models.

The chart below shows credit unions with $250 million to $500 million in assets with at least nine branches. These credit unions fall in the upper third of the peer group by number of branches. Similarly, the “smaller branch network” group reflects credit unions in this peer group with four or fewer branches. This number of branches indicates the lowest third of the peer group. The entire peer group is shown as well for comparison purposes.

Peer Group Comparison
Data as of December 31, 2011
    Branch Networks in the Top Third
Asset Based Peer Group Average Branch Networks in the Bottom Third
(4 or Fewer)

Number Of Credit Unions

  Total Assets $376,558,699 $356,144,148 $332,657,199
  Branches at Year-End 2011 12 8 4
  Branches at Year-End 2006 9 6 3



Members 1.30% 1.27% 0.88%
Shares 5.66% 5.37% 5.16%
Outstanding Loans 1.10% 1.33% 1.03%
Loans Granted YTD 5.44% 5.20% 2.97%
Operating Expenses 3.46% 4.00% 3.37%


Members 2.46% 1.88% 1.08%
Shares 8.02% 7.44% 6.56%
Oustanding Loans 4.49% 3.63% 2.42%
Loans Granted YTD 2.50% 1.75% -0.18%
Operating Expenses 5.58% 5.02% 4.06%

Key Ratios

  Average Member Relationship $12,501 $13,859 $16,313
  Accounts Per Member 2.29 2.33 2.40
  Members Per Employee 333 353 409
  Loans/Shares 72.90% 68.68% 61.72%
  Non-Interest Income To Total Income 30.14% 27.01% 20.93%
  Fee Income Per Member $104 $92 $67
  Efficiency Ratio 73.69% 72.83% 70.88%
  Operating Expense Ratio 4.05% 3.52% 2.81%
  ROA 0.67% 0.62% 0.55%
  Net Worth Ratio 10.06% 10.46% 11.02%
Source: Callahan & Associates' Peer-to-Peer Software.

Credit unions with larger branch networks posted higher rates of balance sheet growth, but for outstanding loans and shares, the difference between peer groups was relatively minor.

One significant difference in the annual growth rates is the year-over-year change in the amount of loans granted year-to-date. Credit unions with larger branch networks increased originations 5.4% while credit unions with smaller branch networks increased them 3.0%.

Credit unions with smaller branch networks grew operating expenses by a smaller percentage than their peers both annually and over the past five years.

Credit unions with smaller branch networks have deeper member relationships. The difference is visible in both balances and the number of accounts. These credit unions hold more than $16,300 in combined loan and share balances per member, which is well above their peer averages. The number of loan and share accounts also exceeds the other peer groups.

Even with additional accounts, the members-per-employee ratio, which measures productivity, is better with the smaller branch network credit unions. The number of front-line employees required to staff branches is the main driver. This is also certainly responsible for the significantly lower efficiency ratio.

However, credit unions with larger branch networks have a higher ROA. Ultimately it comes down to non-interest income.  There is little difference in the share draft penetration ratio between groups (not shown on chart). Credit unions with larger branch networks recognize higher levels of fee income and other operating income. The variance in this area is not simply just higher fees, it is more diverse sources of non-interest income including interchange, mortgage banking activities, and member transactions.

Larger branch network credit unions also post slightly higher levels of loan interest income generated from a higher loan-to-share ratio. The combined effects of interest and non-interest income relative to expenses can be seen in the efficiency ratio. While smaller branch network credit unions have better values the variance is minor (3.96%) compared to the variance in the operating expense ratio (44.1%).

Ultimately, higher levels and diverse sources of income generate a higher ROA level at these credit unions. Each credit union’s delivery model is guided by the Board of Directors and the value passed back to members should determine its success.




May 7, 2012


  • Your data reads December 2012
    Steve Cimino
  • Steve - thanks for the comment. As much as I'd like to bend the laws of time and space, this data is as of December 2011. We've updated the chart date to the correct year.
    Lydia Cole, Author