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Are Branches Dead? No Way, According To Performance Data

The case against future branch growth is well documented. But are branches dead? Data from a comprehensive credit union industry study suggests the complete opposite: those who have added branches in the last five years significantly outperformed those who didn’t, and along every metric that matters.

If pundits and banking industry prognosticators are right, branches have been sitting on death row for a long time — “Just a matter of time,” they keep telling us. But decades have passed and the debate over the fate of branches still rages. Now with mobile banking renewing doubts in the brick-and-mortar channel, branch proponents have felt like there was little they could do but pray for the proverbial pardon.

Exoneration for banking’s venerated channel may have just arrived, and in the form of a study from Momentum, a branch design/build firm. The study, developed in partnership with The Financial Brand, compares performance metrics for credit unions that added branches against those that didn’t across a five-year period (2007-2012).

Performance Data Suggests Branch Networks Should Grow

Have credit unions that have increased their number of branches over the last five years performed better than those that did not increase their network size? Do they add more members? More assets? Does branch network growth improve loan origination growth? The answer to all these questions appears to be “yes.”

By every measure — asset growth, member growth, loan growth and ROA — credit unions that added branches vastly outperformed those that didn’t. And while the study doesn’t paint a clear cause-effect relationship between branch growth and bottom-line performance, the data is extremely compelling.

The analysis produced several intriguing findings regarding the potential link between increases in branch network size and financial overall credit union performance.

Across all asset groups, credit unions that increased their branch network by at least one branch from Q2 of 2007 and Q2 of 2012 had an asset growth rate two times greater than credit unions that did not increase network size.

Among the 193 credit unions with assets exceeding $1 billion, the combined assets of the 152 credit unions that increased network size was more than $421 billion versus $86 billion for those that did not. The membership growth of those that increased the number of their branches was more than three times that of the those that did not.

Raddon | Strategic Guidance for Accelerated Growth

Similarly, credit unions that increased their branch network by at least one branch had a total increase in membership of 65.4%. Seven out of every ten credit unions that increased their number of branches realized membership gains. Meanwhile, credit unions that had zero branch growth or decreased network size saw membership shrink -.08%.

Data indicated that credit unions who grew their branch network generated a greater increase in loans per full-time employee. During the five-year period, these credit unions increased loans originations per FTE by 10.14%. Alternatively, credit unions that did not increase their branch network saw loan originations per FTE decrease by -28.56%.

Of the 832 credit unions with under $100 million in assets that added at least one branch between 2007 and 2012, 49.61% had an ROA higher than their peers, while only 41% of the 3,880 that didn’t add any branches had an ROA higher than their peers.

Landmark Study Establishes Strong Correlation Between Branch Growth and Performance

Using NCUA 5300 call reports, every credit union in the U.S. was assessed through the lens of branch growth, with those who added at least one branch during the last five years falling into one group, and those with flat- or negative branch growth falling into another. The following data points were then collected and analyzed for each of the two groups:

  • Increase/decrease in total assets
  • Increase/decrease in total members
  • Increase/decrease in total branches
  • Increase/decrease in loans originated per FTE
  • Increase/decrease in loans outstanding
  • Above/below peer group average Return on Assets (ROA)

The study breaks down results along five separate asset tiers (the number of credit unions included in each asset tier is indicated in parentheses):

  • Less than $100 million (5,640)
  • $100 million to $250 million (698)
  • $251 million to $500 million (350)
  • $501 million to $1 billion (216)
  • $1 billion + (193)
Raddon | Strategic Guidance for Accelerated Growth

With a total of 7,097 credit unions, this study is likely the first, and most exhaustive of its kind ever undertaken in the credit union industry.

Among all credit unions, 1,693 added at least one branch between 2007 and 2012 (23.9%). The other 5,404 either maintained or decreased the size of their branch network.

Only 832 (14.8%) of the 5,640 credit unions with less than $100 million in assets added a branch during the period studied. But the percentage of credit unions adding branches increases sharply as you move up through asset classes. In the $100 million to $250 million range, just about half of all credit unions added branches. By the time you reach the $1 billion and up club, nearly four out of every five credit unions were adding branches at some point in the last five years.

The study acknowledges that many factors beyond a credit union’s number of retail branches have a significant influence on its financial performance including local and state economies, competitive intensity, mergers, field of membership, or marketing budget. Nevertheless, the data suggests branches deserve at least a “stay of execution,” if not a full pardon.

Bottom Line: The analysis indicates a strong correlation between increases in retail branch network size and growth along key select measures (total assets, membership, and loan originations). Regardless of asset size, credit unions that had a net increase in the number of branches between 2007 and 2012, experienced greater increases in total assets, members, and loans originated per FTE.

All content © 2017 by The Financial Brand and may not be reproduced by any means without permission.

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  1. I’d be curious to know how many of these added branches were added due to mergers or acquisitions? (Which carry member and asset growth along with them).

  2. Rajashekara V Maiya says:

    Yes we agree on the importance and the renewed focus on branch, which is necessary for advisory, personal touch. Please go through the attached link, which also provides insights into future of bank branches-

  3. It’s interesting that so much scrutiny has been given to the so-called “dying branch”, yet data like this shows that branches can actually fuel better performance. The key distinction is that the successful CUs have developed a strategic plan that includes extensive market research and that outlines how its network will integrate with new branches.

  4. Great article. The data makes one pause for a moment and ask the question, “is it really about the branch itself, or is it about the ability of CU management teams to develop and execute a solid strategy?” Just adding branches hasn’t made these CU’s perform better. The performance difference comes from teams of leaders that do extensive market analysis, weigh the competitive landscape, have an operational platform that can support additional branches, and that commit to developing and training strong managers.

  5. Janice,

    As with any study that analyzes existing data collected by third parties, one cannot draw a cause-and-effect relationship. All a researcher can do when using third-party data is draw correlations. In all fairness, it’s no more accurate to say “adding branches leads to growth” than it is to say “performance is the result of exceptional leaders and solid strategies.” One can draw inferences, but this study doesn’t “prove” anything.

    The only scientifically reliable way to establish cause-effect relationships is to craft a study from scratch, one that sets out to test a specific theory, like “Does adding branches lead to growth?”

  6. Editor,

    I don’t disagree with you, and in fact I think we’re saying very similar things. My argument is that the data itself doesn’t tell the whole story and it’s not a simple formula of adding a branch = better performance. Additionally, I’m not suggesting that the report tries to make that connection at all.

    I’m simply trying to point out that by-and-large, the credit unions that have added branches and had positive performance are most likely led by management teams who understand how to execute on their growth plans. There’s a human element that drives branch network success that doesn’t show up in the data, and I just wanted to point that out.

  7. You’re right. Personally, I correlate those institutions that are adding branches with those that are lead by more aggressive, progressive executive teams. For instance, my hunch is that those in the “added branches” group have significantly bigger marketing budgets than their peers. They are probably more deeply involved in social media. They probably have had mobile banking tools for a while now. They spread their bets across the board. They are growing because that’s where their focus is, and has been. That’s my take, anyway. I think we’re in agreement.

    Jeffry Pilcher, Publisher
    The Financial Brand

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