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Banks, CUs employing divergent branch strategies since 2014

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Banks, CUs employing divergent branch strategies since 2014

In the past two-and-a-half years, U.S. banks have made sweeping cuts to their branch networks while credit unions have taken a different tack.

On June 30, 2014, banks had 95,146 branches, but that number had fallen to 90,992 halfway through January 2017. At the same time, credit unions had grown their branch count to 21,205, compared to 21,070 on June 30, 2014.

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Randolph-Brooks Federal Credit Union has added a net eight branches since June 30, 2014. Mary O'Rourke, chief of staff for Randolph-Brooks, said in an interview that the institution is targeting emerging and new markets, including those along the growing I-35 corridor between San Antonio and Austin, as well as greater Dallas. However, since its recent expansion, the credit union has scaled back its branch growth to reevaluate its strategy and focus on new technology and other innovative ways to serve its membership outside of traditional branches, she said.

O'Rourke said Randolph-Brooks could have one or two branches under construction this year. While its research is preliminary, a part of its branch strategy re-evaluation includes consideration of satellite and vestibule-type locations, as well as interactive kiosks that would create a smaller footprint than traditional branches, while continuing to serve and meet the expectations of members.

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The banking space had a total of 99,552 branches on June 30, 2008. The industry saw a slight uptick the following year before beginning a decline that continues today. U.S. banks in 2016 collectively shuttered more branches than they opened for the seventh consecutive year. On the credit union side, there were 21,907 branches on June 30, 2008. That number fell as low as 21,070 in 2014 before beginning a rebound.

Joe Maloney, an analyst at Banks Street Partners, told S&P Global Market Intelligence there is no reason to expect the steady decline in bank branches to stop. For one thing, bank merger activity should remain strong in the near term and that will drive further branch consolidation, since geographic overlap and the cost savings that come from eliminating duplicate locations are often major drivers of M&A decisions. And, on the flip side, there are almost no new banks being chartered today that would result in a large number of de novo branches.

On an independent basis, banks do look to expand into new markets by opening de novo branches – that's not dead, Maloney said. But more frequently banks are looking to trim their branch networks and focus on their largest and most profitable locations. Bank investors, as well as whole-bank acquirers, appear to have a preference for "branch-light," commercially focused banks. They consider that type of institution to be more valuable, in general, than branch-intensive retail banks, he said.

The situation is likely somewhat different for credit unions, which, by their nature, have a much stronger retail and consumer focus. "Credit unions also have an explicit mission of serving their communities, and they may feel that community involvement necessitates a prominent physical presence," Maloney said.

O'Rouke said emerging technology has been a great tool for Randolph-Brooks to expand its reach while serving its members' needs, whether they are in its current markets or not. Digital offerings will continue to be strongly considered as the credit union looks for new ways to serve its growing membership. "However, as we continually seek to improve our members' experience we will also seek the best way to strike a balance with members used to traditional banking services," she said.

Maloney said technology is clearly reducing customers' use of and dependence on physical branches. The main factor that might slow or interrupt the trend toward fewer branches is dramatically increased competition for core deposits, he said. Right now, cheap funding remains abundant, but if interest rates rise dramatically the value to a bank of retail checking accounts will likewise increase, and the expense of operating a big retail branch network would be easier to justify.

"To be clear, I'm not predicting the imminent demise of the physical branch – customers do like the ability to go into a branch when they want to. I think branches will be with us for a while," he said. "Just fewer of them."

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SNL combines bank branch data along with demographic information, which can be accessed via the market demographics page under the U.S. market analysis section of a company's briefing book page on the SNL website or in SNLxl.