What to Consider before Buying a Branch

by Tom Zayko

The expansion of digital channels, a decline in branch traffic and the current industry focus on controlling costs are all causing some financial institutions to reduce their branch network. Over 700 branches were closed in 2012 alone. Institutions with large branch networks, such as Bank of America Corp., HSBC and SunTrust Banks Inc., have all reported numerous branch closings.

This can be a great opportunity for community banks to gain market share. But given limited capital and changes in the ways consumers and businesses are using branches, how should banks approach this opportunity?

Too many institutions become focus on the real estate “deal” and sometimes overlook strategic implications of their investment. It is easy for buyers to be drawn in by features of a bank that are unrelated to generating profits, particularly when  there are other buyers competing for an attractive property.

Consumers and businesses still value the physical branch, but its utility is declining. Now customers are shifting toward greater use of non-branch channels, such as the call center, online and mobile. That raises the relative cost of the branch per customer served and makes for a tougher business case for a branch buyer.

Below are some essential steps to take before buying a branch.

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