By Michael Downs, Vice President of Marketing, Momentum
As the debate continues around the future of credit union branches, Momentum and the Financial Brand recently conducted an analysis that produced several interesting findings to add fuel to the discussion. The study entitled “Five-Year Branch Performance Analysis” began with a few simple questions; Have credit unions that have increased their number of branches over the last five years performed better than those that did not? Did they add more members? Did they add more assets?
The study looked at National Credit Union Association 5300 call reports, using branch growth as a marker, with those who added at least one branch during the last five years falling into one group, and those with flat-or negative branch growth falling into another.
The following data points were then collected and analyzed for each of the two groups:
- Increase/decrease in total assets
- Increase/decrease in total members
- Increase/decrease in total branches
- Increase/decrease in loans originated per full-time employee (FTE)
- Increase/decrease in outstanding loans
- Above/below peer group average Return on Assets (ROA)
The study breaks down results along five separate asset tiers. The number of credit unions included in each asset tier is indicated in parentheses:
- Less than $100 million (5,640)
- $100 million to $250 million (698)
- $251 million to $500 million (350)
- $501 million to $1 billion (216)
- $1 billion + (193)
Regardless of the metric — asset growth, member growth, loan growth and ROA — credit unions that added branches vastly outperformed those that didn’t. Although the study doesn’t paint a clear cause and effect relationship between branch growth and bottom line performance, the data is extremely compelling.
- Across all asset groups, credit unions that increased their branch network by at least one branch from Q2 of 2007 and Q2 of 2012 had an asset growth rate two times greater than credit unions that did not increase network size.
- Among the 193 credit unions with assets exceeding $1 billion, the combined assets of the 152 credit unions that increased network size was more than $421 billion versus $86 billion for those that did not. The membership growth of those that increased the number of their branches was more than three times that of those that did not.
- Similarly, credit unions that increased their branch network by at least one branch had a total increase in membership of 65.4%.
- Seven out of every ten credit unions that increased their number of branches realized membership gains.
- Credit unions that had zero branch growth or decreased network size saw membership shrink -.08%.
- Among all credit unions, 1,693 added at least one branch between 2007 and 2012 (23.9%). The other 5,404 either maintained or decreased the size of their branch network.
- Only 832 (14.8%) of the 5,640 credit unions with less than $100 million in assets added a branch during the period studied. But the percentage of credit unions adding branches increases sharply as you move up through asset classes.
- In the $100 million to $250 million range, just about half of all credit unions added branches. By the time you reach the $1 billion and up club, nearly four out of every five credit unions were adding branches at some point in the last five years.
The study acknowledges that many factors beyond a credit union’s number of retail branches have a significant influence on its financial performance, including local and state economies, competitive intensity, mergers, field of membership, or marketing budget.
In summary, the analysis indicates a strong correlation between increases in retail branch network size and growth along key select measures (total assets, membership, and loan originations).
Regardless of asset size, credit unions that had a net increase in the number of branches between 2007 and 2012, experienced greater increases in total assets, members, and loans originated per FTE.
But, do these findings tip the debate in favor of the “pro-branch” camp? Not quite, but it certainly suggests that credit union branches deserve further deliberation before being sentenced to death.