A little while back I had an e-mail exchange with the CEO of anapproximately $200 million credit union--who shall remainnameless--that troubled me. In part, the executive was saying thatit was no longer prudent to branch and I didn't know what I wastalking about by promoting it.

I certainly don't mind people challenging my columns; that's whythey're here. I offered up the branch expansion philosophy of NavyFederal Credit Union but that was swept under the rug as somethingthat couldn't be done at a smaller credit union. Of course asmaller credit union wouldn't have to add three dozen branches in ayear, but to say it was not prudent to add branches at all I feltwas misguided.

Not only is that stand doing members a disservice, now Callahan& Associates has come out with data showing that branchingyields a great and multi-faceted return on investment. Granted, itwas a survey of credit unions between $250 million and $1 billionin assets, but lessons can be drawn from the results, even if on asmaller scale.

Of the 468 credit unions in that asset range, 193 opened atleast one new branch last year. These credit unions exceeded theirnon-branch opening brethren across several important categories,including asset growth, membership growth, share growth, and newmembers per branch.

From 4Q 2006 to 4Q 2007, credit unions that opened branches in2007 grew from $452.0 million in assets to $494.4 million,according to Callahan's, compared to non-branching credit unions,which grew from $452.5 million to $474.4 million in that same timeframe. (I also find it interesting to note that the non-branchingcredit unions also started out with higher assets, so to whatdegree does asset size really affect branching ability?) I'm nomath whiz like the folks at Callahan's, but that's nearly a 50%greater increase in asssets for those adding branches than thosewithout. The difference is really staggering but, of course, assetgrowth alone is not the only factor.

The credit union that added branches started ahead of the othersin the 4Q of 2006 with 3.0% membership growth versus 2.3% for thosewho did not branch in 2007. And while those non-branching creditunions' membership growth declined to 0.9% by 4Q 2007, the 193 whoadded branches experienced membership growth of 5.5%! While I'mcertain this is not the only factor for the sharp increase inmembership growth for credit unions adding branches, it certainlyspeaks volumes to me about, not only the value of a branch, butthat these credit unions must know what they're doing to thrive andbranching is a part of that.

In an era when credit unions are concerned about their grayingmembership and slow membership growth, these figures cannot beignored! The branching credit unions netted 271 new members perbranch at year-end 2007 as opposed to 53 for the non-branchingcredit unions. And the branching credit unions had more branches tobegin with, a mathematical factor likely to drive the average down,not up.

These credit unions also experienced share growth well abovetheir non-branching peers, moving from 6% growth to 9% growthbetween year-end 2006 to 2007 compared to a decline from 4.3% to4.2% for the others.

Admittedly, the operating expenses at the branching creditunions jumped from 8.0% to 12% versus a drop from 8.0% to 5.8% forthe rest. However, the operating expenses-to-average asset ratio atthe credit unions adding branches was only slightly above thenon-branching credit unions, 3.7% and 3.4%, respectively.

And the average share and loan balances for the branching creditunions were below their peers, which is to be expected when addingsubstantially more members after the branch opens. Consider,though, the cross selling opportunities those new branches aregoing to provide. 'Oh, you want a car loan? How about GAPinsurance?' 'You're opening checking and savings accounts? Here areour overdraft program and CD rates.'

I spoke with a number of industry experts regarding Gen Y duringCUNA's Governmental Affairs Conference. For all the talk aboutexpanding online banking and technology, particularly to attractGen Y, the branch is still an important venue for them and others.The thing about Gen Y, an executive from a core processor pointedout, is they want everything; they've been brought up in schoolsand sports where everyone gets a medal so no one feels like a'loser.'

So yes, Gen Y--a large potential pool of membership creditunions can draw from--wants mobile banking and online banking andbranches. An executive from a branch consulting firm explained theywant branches, but not their parents' branch. Gen Yers are lookingfor self-service kiosks and cozy, open waiting areas with coffeeand someone to ask about car loans after they've done some of theirown research. Additionally, greening up credit union branches andservices appeals to the socially conscious generation.

Gen Y wants the same good experience across the board--whetherit is online or in the branch.

--Comments? E-mail [email protected]