Some Simple Guidance Around Branch Closures – 6 Things to Consider
Many FIs today are evaluating branch closures as pressure to reduce expenses continue in today’s narrow margin environment. I’ve written extensively about how to analyze your branches, the markets they serve, and your customer’s behaviors. Based on some recent conversations with bank and credit union executives, I thought it made sense to reiterate a few key factors you must consider in making a branch closure decision.
If you have two branches near each other with a market, say less than two miles apart, they are likely cannibalizing each other’s business. Let’s say each branch has a $50MM deposit base but competitors average $75MM. Before you decide to close one, look at these factors:
Cross-branch usage: Analyze how many customers that use branch A, also use branch B, and vice versa. You will likely find that one of the two branches is used at a higher rate by the other branch’s customers than the other. In the example below, 50% of branch B customers are already using branch A, so closing branch B would have less impact on their daily lives.
Owned versus leased status: If one of the branches is owned and the other one leased you need to evaluate lease terms and any lease buyout costs.
Write-downs: If any recent investments have been made into either branch recently, you may still be carrying the depreciation on the books. Taking write-downs may offset any initial expense savings.
Capacity: Minimizing attrition means you’ve successfully retained the closing branch’s customers. Before you close make sure you have the capacity at the receiving branch to absorb the incremental transactional and account servicing interactions that come with a larger customer base. In the worst-case scenario, you don’t have the capacity and overrun the receiver branch leading to long teller queue lines and wait times to see account servicing representatives. This could upset BOTH branches’ customer bases and lead to even greater customer attrition. Make sure to include an analysis of combined ATM volumes too.
Branch functionality: If the closing branch had drive-up tellers or drive-up ATMs and the receiver doesn’t, you will be taking a highly valuable function from some customers. Consider adding a remote drive-up ATM site nearby.
Staffing: If you are successful at retaining the customers you likely need to retain the staff to handle them, or at least most of them. You may find some efficiencies in one busier branch than two sleepy branches.
Branch closures have been increasing in recent years. Like any business change, they come with some risks. Those risks can be mitigated by being smart about how you decide which branch to close and how you pre-stage the end-state network to take care of your customers.
