Choosing to increase the number of branches may result from an expansion of a community charter, deciding to increase convenience for current members, or looking to target underserved areas or “poorly served” markets, where the national and super regional banks provide expensive products and poor service. Once a credit union decides to expand its branch network, some key issues must be considered.
Think About Local Trends
Arrowhead Central Credit Union ($1.1B in San Bernardino, CA) recently redesigned its branch expansion strategy to optimize branch site location. Currently at 22 branches, Arrowhead plans to open two new branches each year for the next decade. Arrowhead's team uses a very specific formula that accounts for member and business penetration in the area as well as larger macroeconomic data that may predict that potential profitability of the branch based on products and fees. Prior to using the formula, Arrowhead identifies areas with strong housing starts and high levels of business license issuance.
Use Macroeconomic Data
Crowe Chizek recently completed an in-depth branch performance survey utilizing branch level data from over 90 financial institutions ranging from $250 million to $45 billion in assets. Their findings document that branch area demographics can factor heavily in a branch's profitability and member penetration. Branches in higher income areas sell 2.5 times as many personal money market accounts per employee than branches located in lesser income areas. Personal loan sales decrease with density and income.
Reach the Poorly Served
Another consideration for opening a branch is bank market share – and the credit union's ability to convert current bank customers. Using the FDIC's website, anyone can search for bank market share by state, county, town, zip code or a MSA (Metropolitan Statistical Areas). The data provided can shed light on current residents' banking preferences and offer opportunities to gain traction in a new market. These statistics though, do not consider the under-served.
According to a recent report from the National Community Reinvestment Coalition, 21% of all U.S. households have no relationship with a bank or credit union. The study cites a survey of banking executives compiled in American Banker, which found that 69% of financial institutions polled was not pursuing unbanked or under-served consumers. From the credit union perspective, consider Kinecta Federal Credit Union's ($4.4B in Manhattan Beach, CA) recent success with its new payday lender CUSO, Nix Check Cashing. As of November 30, 2007, 12,000 Nix customers have opened accounts with Kinecta. A formal membership marketing campaign will start early in 2008.
As credit unions look to expand their branching networks, executives should strategize about the credit union's plans for the future. Beyond reaching a specific demographic, other considerations include branch type and capitalizing on the first 90 days of operations. Adding branches continues to be a key strategy of growth for many credit unions. As of September 30, 2007 those credit unions that opened at least one branch in the past year experienced 10.5% share growth and 5.4% member growth year over year. The industry as a whole had 5.2% share growth and 1.25% member growth.