MILWAUKEE-The ongoing financial crisis is good news for credit unions, says Ralph La Macchia, president of La Macchia Group.
What factors should credit unions be weighing when considering buying a former branch of another financial institution?
We do both building and remodeling. The first question is: why is the credit union doing it? Credit unions really have to do their homework for the market: is it overbanked or underbanked? Are there deals out there? Probably, but sometimes renovating to bring a building up to the standards of a bank is costly. Credit unions are on the front of a huge boom compared to community banks. The difference between credit unions and banks is credit unions do not have to pay stockholders, and right now credit unions are far better capitalized than community banks. With the economic turmoil, people are going to become more conservative and move back to community relationships.
Is it correct to assume a branch probably is in a poor location if another institution gave up on it?
The prime location from five or 10 years ago might no longer be the prime location today if there is a bypass, or if the median was changed and drivers no longer can get in. There is no pat answer. If I can buy an existing building, and it already has a vault and other conditions that lend it to being a financial , then it is better than building from scratch-if the building is in good condition and at a site that works. If it needs a lot of work, then perhaps it would be better to do selective demolition.
When banks are consolidating, they are going to look at several factors: which is closest, which is newest, which is the best performing. Their determination is not strictly determined by the building, it is determined by the capacity of the market, the footprint of the building, and what the capture will be. In consolidation the goal is to cut costs, so it doesn't make sense to have two branches within a mile. In that case, the branch that is closed is not necessarily in a bad location.
It all starts with doing homework and knowing what the credit union is looking for.
Is it cost effective to buy a branch of another institution? Or should they build a new branch in a prime locale?
If a credit union wants to completely change the look of a former bank branch, perhaps it can do so by changing the roof line with some colors. But sometimes the roof line looks like the old bank and it is difficult to not make it look like the old bank. There are things credit unions can do that are going to be driven by wanting to look different, or because of the value of a great deal.
With land prices dropping, is it a good idea to "bank" a location for the future?
If credit unions have intentions of building, prices are coming down on everything so it might be a good idea. However, commercial prices are not tumbling as much as residential, so it remains a 30-year decision on a particular market. We have not seen a tremendous pullback on expansion by credit unions. Some folks are scared, but others feel the time is right to go full speed ahead.
