Peer Group Comparison: Impact of Branch Expansion

Among credit unions between $250 million and $1 billion in assets, 40% opened a new branch in 2007. Did their performance differ significantly from the 60% that didn’t open a branch?


Credit unions added 558 net new branches in 2007 to reach 20,848. 742 credit unions added at least one branch, in 2007 although not all were new. Security Service Federal Credit Union ($4.4B in San Antonio , TX ), for example, gained nine branches though various mergers and acquisitions.

Credit unions open new branches to increase access points for current members and attract new members with convenience. The costs of opening a branch can be high. Most estimate that a new brick and mortar branch may cost around two million dollars. Did credit unions that opened a branch in 2007 see an impact on their growth?

New Branch Impact
To determine the impact of new branches on results we looked at all credit unions with assets of $250 million to $1 billion at December 31, 2007. Of the 468 credit unions in that asset range, 193 reported at least one new branch in 2007. How did they compare to their 275 peer credit unions that didn't open a branch in 2007?

Both sets of credit unions had an almost identical average asset size at December 31, 2006, yet in 2007, credit unions that opened a branch saw 9.2% asset growth, while their peers who didn't open a branch had 4.9% asset growth. Credit unions with new branches also had higher member growth in 2007 (5.5% vs. 0.9%). Additionally, credit unions with new branches posted a 50% increase in share growth while credit unions that didn't open a branch saw no change in their share growth rate over the previous year.

Operating expenses are higher at credit unions that expanded in 2007. Total operating expenses grew 12% for branching credit unions versus 5.8% for credit unions that maintained their branch levels between 2006 and 2007. The Operating Expense to Average Assets ratio was unchanged at 3.4% for the no new branches group. While those that added branches increased to 3.7%

Branches appear to be effective at gaining new members; however, credit unions that do open new branches do not see high value relationships immediately, but may have accelerated growth as the branch matures. Credit unions that didn't open branches this year recorded higher average share and loan balances both this year and in 2006. Credit unions that opened a new branch in 2007 saw only slightly higher growth in the average share balance over their peers with 3.34% and 3.26% respectively. Growth in the average loan balance however was larger in new branch credit unions (4.3%) than the no new branch credit unions (4.0%). Through 2008, credit unions with new branches may see deeper penetration levels and higher average member relationships from the new members generated by the new branches.

The analysis above does not take into consideration new branches opened in previous years. Additionally, the actual opening date of the branch impacts the analysis. For example, a credit union that opened a branch on December 2007 was included in the analysis but the results would be negligible.

How One CU Expanded in 2007
America First Credit Union ($4.1B in Ogden , UT ) added six new branches in 2007 to their existing 70. The credit union understands how to integrate into a new market when building new branches. A new urban area branch will be in a walkable, downtown area and not have a drive-up. America First's branching strategy in urban areas includes locating branches within two miles of each other. In all areas, as the credit union's in-store branches mature and reach capacity, they fill in the hubs of the “hub and spoke” approach with retail and traditional branches. Randy Halley, SVP of Branch Delivery at America First, views in-store branches as sources for gaining new members, while brick and mortar branches increase member penetration and build deeper relationships.

As credit unions search for ways to deliver their products and services, branching will remain at the forefront of the discussion. Other considerations such as ATMs and Kiosks, Mobile Banking, Remote Deposit Capture, will continue to evolve and may impact the industry in a significant way.




March 10, 2008


  • Enjoyed this article. I open branches for the credit union and liked the data that was provided.
    Chris DeWitt
  • Just the information I was seeking! Thanks.
    Marion McCaskey