How One CU Picked Branches To Nix

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RIVERSIDE, Calif.-Few credit unions have as much experience in performing cost/benefit analyses on branches as does the $726-million Altura CU here.

In 2010, after posting a loss of $5.8-million and operating in one of the areas of California hit hardest by the recession, it was forced to cut expenses. Among them were branches, and it eventually shuttered a branch inside a Walmart Super Center in nearby Moreno Valley and converted three other locations to all-electronic branches. The cuts resulted in the elimination of 26 jobs, and left Altura with 12 branch locations in Riverside County, four of which are all-electronic.

Mark Hawkins, Altura's CEO, allowed Credit Union Journal a glimpse into the steps that were taken in reaching the decision.

"A lot of things went into the process," he said. "We began by looking at which branches were the most successful, then the ones that were the newest. From the new ones, we looked at which had hit their targets since we opened them. We don't have that many branches, so it did not take long to make the determination."

Two key considerations: which branches drew member deposits and which branches were improving over time. Altura had financial data available that went down to the branch level, so Hawkins said it was "easy" to see which branches were not profitable-those most recently opened. Because of the recession, he explained, those branches never had a chance to fulfill projections.

Once it was clear which branches had been the least successful, they "very quickly" became the four Altura ended up closing, he continued.

Altura had 16 full-service branches just a few years ago, a number that is down to eight. According to Hawkins, in some cases the CU left markets because leases were expiring and it did not make sense to extend the lease or find a new lease to serve the same market.

At some of its former branch locations, Altura still owns the building. But because the real estate market is so depressed in what is known locally as the Inland Empire region of Southern California, selling is "not an option," Hawkins said. "There are a lot of costs related to staffing, so at least we were able to withdraw the people and save those costs. In some cases we might be able to lease out the space, but not yet."

Cost Of Closing

Terence Roche, principal for Cornerstone Advisors, acknowledges it can be "very hard" for a credit union to close a branch. He said real estate factors such as unexpired leases or the need to find a buyer for a building it owns, along with people costs in severance packages or employee relocation, add up to a period of approximately two years before a CU realizes a benefit from shuttering a branch (see related story).

Hawkins said Altura's management team considered the costs of closing, and made the decisions it did despite the fact some expenses remain on the balance sheet due to the leases involved, and other factors. Still, Altura will realize a net savings, he said, due to the related reduction in personnel expenses.

"In the case of one closure we have had to pay on a lease for the last 24 months, and it is still going, but we took away part of the costs," he said. "When the lease runs out, obviously we will save even more. It was an office that was no longer performing so it made more sense to close it down. There are a lot of things that enter into the decision, and not everything is equal."

Where Are They Now?

The former Moreno Valley Walmart branch was Altura's only such location and was one of its newest. It was not the poorest performer of the new branches, but Hawkins said it was "relatively easy" to get out of the lease, so the CU negotiated with Walmart and reduced its personnel costs.

One downside: with the branch gone, Altura will have to redeploy the ATM that currently is located at the store.

Meanwhile, the three newly all-electronic branches are an example of an imperfect situation that at least saves some expenses, Hawkins pointed out. The ATMs are already there, but the retail portion has been shut down. In some of these Altura owns the building and cannot simply walk away, "so it makes sense to just leave the ATM there for members who are used to going there."

"We just don't have people on-site to open accounts or close loans," he said. "Of course we had to weigh the cost of not having those services, but those branches did not have the same new account and loan activity our mature branches have. It is a difficult call to go there at all, but once you've made the call and you have some tangible metrics, it is easy."

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