ATLANTA-As upheaval in the financial markets is causing ever-greater consolidation among even the largest of banks, there are increasing opportunities for credit unions snap up former bank locations-but is that the right way to go?
Credit Union Journal asked several facilities experts if the current consolidation fever in the financial world means the market is ripe for CUs to purchase former bank branches when mergers inevitably lead to closings.
John Hyche, principal and strategic consultant at LEVEL5, based here, said credit unions need to base their branch strategy on serving members well and "not a strategy that responds to a specific piece of real estate being available or not...When a strategy is in place, then opportunities can be evaluated."
Hyche offered the contrasting examples of two LEVEL5 clients: one in the Southwest, the other in the Great Lakes area. In both cases, the opportunities were within the credit unions' general strategies, and in both instances the vacant branch was 4 years old and up to current code.
For the credit union in the Southwest, Hyche said the branch was in a good location off a major interstate and near a shopping mall.
"That one shaped up as a great opportunity, not only for the location, but the bank that formerly occupied the space had $30 million in deposits," Hyche related. "The credit union had its strategy in place and was able to quickly evaluate and decide it was an opportunity to pursue."
The branch for sale in the Great Lakes area had been occupied by a local bank. It was off the beaten path; a mile away from the main retail location and not on the main corridor between the residential and commercial districts. The previous bank had generated just $2 million in deposits in four years at the location-Hyche noted it generally takes $25 million in deposits to support a freestanding branch.
"While the price was a great deal, it was a bad idea to buy that branch," he assessed. "How the branches were located, their visibility and accessibility, painted two very different pictures and two opposite decisions."Once a CU has made a decision to buy a former branch of another financial institution, the next question is what is the most cost-effective method of making the space its own. That decision is largely driven by the credit union's budget, Hyche said, noting examples where a financial intstitution simply moved into what had been a retail business, including the site of a Dairy Queen.
"One option is the 'hermit crab' approach-just fit into the shell-as opposed to spending money to substantially change the building.," he explained. "But when the former branch has a distinct look, it is worth investing to change the shape of the building so the credit union doesn't look like a First National Bank."
Would credit unions be better off simply building a new branch from scratch while picking a prime location? Hyche said if the CU can remove emotion from the decision, it is faster and cheaper to take over another building. However, he insisted, the building still has to "work." That is, it must accomplish the credit union's purpose.
Hyche recommends management ask several questions, starting with: did other businesses succeed at this location? and, will our credit union succeed here? "In the case of the bank location in the Great Lakes, the experience of the former tenant showed it likely would be a money-losing venture to move in there. Cheap and fast is not enough; is it a good business decision?" Hyche said.
He offered one last caveat on a location purchase decision: If another financial institution gave up on a branch, it probably is in a poor location. "Luckily, that information is out there. Check the numbers," Hyche suggested.With prices for raw land dropping, some in the design/build industry believe CUs should look into purchasing a parcel for a future branch, even if groundbreaking might be months or years away.
Asked about this concept, Hyche said it is a good idea for two reasons.
"All we do is work with financial institutions, and 70% of our work is in the credit union world, so we know it pretty well," he explained. "While the headlines you read can drive you to drink, for the most part the credit union clients we serve have dodged the worst of it. They have relatively clean balance sheets and can act opportunistically in the current climate. One reason to step forward is when you have a clean balance sheet while others are licking their wounds."
The other reason to consider "banking" land, he continued, is the condition of a CU's local market. "This varies around the country. A good piece of property is still a good piece of property. The thing we advocate to our clients is you've got to have a good location. We tell our clients who are tempted to compromise location for price they can't replace the cost savings with business-if people can't see you, they can't see you, meaning you'll have to pay a lot of money on advertising and billboards to drive traffic to your location," he said.
