How Many Branches Do You Need?
My firm, Glatt Consulting, recently released the latest Credit Union Industry HealthScore. The HealthScore system calculates overall credit union health by scoring/grading credit union performance across eleven different key ratios including Net Worth, ROAA, Operating Expense, Efficiency, Charge Off, Delinquency, Loans, Deposits, Loan to Share, Asset Growth, and Membership Growth. Grading is based on a five-point scale, with 0 reflecting poor health and 5 reflecting exceptional health.
One of the questions we had this quarter was about membership growth and branches, or more specifically, how many branches a credit union must have to drive accelerated, sustained member growth and credit union health.
We took a look at the data and would you believe the answer is … three or more!
Actually, the truth is that even single branch credit unions can drive membership growth, as might be expected, but the average growth in membership does accelerate the more branches a credit union offers to its field of membership. As we see in the chart below, credit unions with two or fewer branches average declining membership growth. It isn’t until credit unions hit three or more branches that the average membership growth rate turns positive, and for those with six or more branches we see a markedly better rate of membership growth.
When we look to the health of credit unions by branches, we see a similar message with the health of larger, multi-branch credit unions higher than the health of those with smaller branch footprints.
Regardless of how you parse the data, the fact of the matter is that the touted credit union membership growth is happening more at larger credit unions with more broad branch networks than at the smallest institutions with limited branch facilities.
Going forward, however, one must question the appropriate strategy. Should smaller credit unions build branches or invest in delivery system technology? For larger credit unions with substantial branch infrastructure, will the investment in brick and mortar be an albatross in the coming years? These are difficult questions to answer, and for many credit unions the path they plan to take is one of both physical and online branching – but this is a challenging strategy for small credit unions to adopt and execute exceptionally well.
At the end of the day, the correct decision is to take the path that best supports the credit union and its members, and here I am making the assumption that membership growth is good for members. This means that for the many credit unions experiencing negative membership growth (51% as of Q3), it is time to reassess current strategy and with specific regard to branching make a decision on whether branching, or the current branching infrastructure, will indeed contribute to long-term viability.