CINCINATTI-Credit unions in multiple sections across the country are cutting expenses by shutting down branches and reducing positions, but these cuts may end up costing the credit union even more than they are worth, several experts warned.
The key, they said, is in making sure various operational cuts don't lead to significant losses in member service - real or perceived - and market penetration.
The problem with some of these efforts, according to DEI VP-strategic planning Arp Trivedi, is that most credit unions base decisions on what branches to close solely on current performance, transactions and sales volumes.
Outside Your Branch
"I think that's probably a little short sighted in that you need to look at not only what you are doing at the branch but what is going on outside of each one of your branches and find the champions," he said. "Then make a decision whether you need to exit that branch, reinvent that branch where it is or relocate it in the same market area but to a different corner because the retail corridor has shifted."
Tom Lombardo, national director of business development at Clayco Financial Facilities called branch strategy analysis "crucial" when making closure decisions in today's changing market. "Each credit union has to determine what [its] performance levels need to be, but the one thing I would caution is that performance is not the only criteria - sometimes activity is really important," he said.
"Just because a branch is underperforming doesn't mean it should be underperforming," concurred VP Paul Barrath, adding that CUs should also do an analysis of the marketplace, convenience of the branch and a review of the services, rates and employees there to find out if the facility can perform with the right tools in place before making a final decision.
Lompoc, Calif.-based CoastHills FCU is shuttering two of its locations to cut operating expenses, but the CU's SVP-Marketing Scott Coe told Credit Union Journal that the closures are a "proactive move" as both members and staff will move to remodeled or new facilities just a few miles away making the decision an easy one.
"We just spent a great deal of time and money to provide convenient, productive branch support 2.4 miles down the road in one case, and one mile in the other. The consolidated facilities have drive-through capabilities, drive-up ATMs, state-of-the-art lobbies, bi lingual staff, safe deposit boxes and twice the employees to serve our members. We were able to do this with minimal impact on member service, and through attrition and current open positions, we are confident that all affected employees will be able to continue working for CoastHills," Coe noted. "In simple terms: two less branches to run and incur the expenses therein, no layoffs, and minimal member service impact."
Coe conceded that while the CU is optimistic about economic conditions in the future, it is still "realistic about 2009" and is being affected by the housing crisis. CoastHills FCU has no further consolidation plans and will try to sublease the old buildings.
Facing Tough Decisions
CUs facing these tough decisions should not feel alone. While Trivedi noted there is no nationwide general trend, he pointed out that a number of other financial institutions are consolidating their positions in some markets and wholly pulling out of others but it is "very situational."
"Most of what we hear is not positive, though credit unions in general are weathering the storm better than most (FIs)," Coe added. "We didn't cause this crisis, but everyone is affected by it and must act proactively. That is what we did."
