Analysts Foresee Strong Branch Growth (With Thought)

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As credit union fields of membership continue to widen, credit unions are expanding their branching strategies. But it isn't being done as part of a building frenzy, according to facilities experts.

"Credit unions are becoming much more strategic than they were in the past," suggested Tom Lombardo of HBE. "They are putting a lot more thought into their branching than they were a few years ago. It used to be you'd see only the really large credit unions using this level of strategy, but now you're seeing it at a variety of asset sizes."

And that planning is going far beyond the typical, cursory examination of demographics. "It's not just age, population and income. They're looking at information that's more critical than what a demographer will offer," he related. "They are looking to identify members who are most likely to use your credit union versus who uses a particular consumer product. Some look at it from a standpoint of getting the most business, but others are looking to get a certain type of business."

For example, some CUs with high loan-to-share ratios may be looking for a branch that will reach out to more depositors, while other credit unions with strong deposits may be looking for more borrowers.

Women Having Effect

One demographic that will continue to drive branch strategy is the feminine factor. "Women as a demographic are getting more and more attention. They are doing a lot of the banking for their families, and they are bringing children with them," said Ned Compton of Cincinnati-based DEI. "I'd say about 90% of the facilities we build have a children's area."

"A lot of credit unions are changing their fields of membership, and that is driving a lot of this, as well," he offered. "We get a lot of calls from credit unions that have been sponsor oriented, and in the past, the branch strategy was to be located near their SEGs. Now when they go to a community charter, the marketing strategies are different, and so is the branching strategy.

"When you have a closed field of membership, you can achieve more with fewer people. When you go community, it's more labor intensive," he continued. "A lot of the single-sponsor credit unions tend to be high-balance, low-member credit unions, and that changes when you venture into a situation that requires greater accessibility on every level, at every channel."

It's not just that credit unions are becoming more savvy about how to choose a branch location-they're also upping the ante where retail merchandising and marketing are concerned, Compton advised.

"Credit unions are recognizing the need for retail merchandising, and they're building that into their marketing and their facilities," he related. "There's more awareness of the corporate branding strategy. It's not just a brand, it's a promise to your membership, and your facilities have to be part of that brand promise."

Continued Expansion Anticipated

The strengthening economy is also behind the increase in branches during 2004 and will help drive an even greater increase in 2005, Lombardo noted. "We've heard from a lot of credit unions complaining about the margin squeeze, but that could improve as rates rise, and that will help profitability and fuel expansion," he suggested. "I'd say 2005 will be as good or better (for branch building) as 2004."

Compton agreed, adding "2004 was a record-breaking year. Typically, you see a slow-down around the holidays, but right now we still have a lot of activity, so I think we're looking at a very robust 2005 that will be as good or better than 2004."

Like Lombardo, Compton pointed to the economy as one reason for his prediction. "The economy, while not stellar, has really been pretty good, pretty consistent," he said. "It appears that a window for a good economy has opened for a few years."

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