Many of us are comfortable and secure in knowing that the single most important decision in a branch network expansion plan is the branch site analysis process. Most are also confident in knowing the most critical components of organic network growth: location, location, and location. But, there are also some important factors that sometimes generate mistakes.

These should be carefully considered before proceeding.

• Believing you can compile the demographics, property information, and other necessary data without the assistance of bank real estate experts. Because this information must be integrated into the overall site analysis, using non-experts can miss important data.


• Dig for information regarding any proposed future development plans. While additional development may actually enhance your site, there is always the possibility that surrounding construction could actually drive away your customer base or direct them to your competition. Try to avoid a long term error that might be avoided through diligent investigation.


• Becoming overly fascinated with mall locations. This can be an easy — and justifiable — trap to encounter. Your demographics and other data indicate high pedestrian traffic flow, you realize the convenience factor is high (since your customers don't have to make a special trip to the bank), and there is a 90-plus percent occupancy ratio. What's not to like? Resist the natural temptation of becoming overly enamored with this apparently wonderful data. Dig a bit deeper. Is a new "super mall" scheduled to be built nearby in the next five to eight years? Could your mall lose a number of retail stores (and your customers) to the new entity? Is a major traffic/highway relocation project on the drawing board for the next decade? Do your homework to avoid a short-term success followed by long-term stagnation.


• Failing to thoroughly investigate the preferences, issues, and "personality" of your new community. While everyone needs financial services, being unaware of the nature of your community can quickly become a fatal error in your bank site analysis.

These are some of the major mistakes made by those who have gone before you. Make every attempt to avoid making a costly mistake in site selection by neglecting these issues.

There are a number of pitfalls that can prevent successful branch expansion. Avoiding these issues greatly enhances the results of your expansion strategy. Consider the following items:

• Lack of sufficient planning and data collection. While many risk the consequences of insufficient planning and preparation, you'll find it almost impossible to over-plan for your bank or credit union expansion activities. Going the extra mile before you commit major resources (funds, people, real estate, or other assets) to branch acquisition and expansion might save you many dollars and hours while minimizing the inherent risk.


• Falling into branch site analysis "traps." For example, you've done your homework and have found the perfect location to implement your branch expansion strategy. But you weren't aware of the massive development projects targeted for the next five years that may drive away much of your customer base because of inconvenience, lack of visibility, and new traffic flow patterns. The perfect location today may become the disaster of the next ten years. Learn what your community development and highway plans are projected to be.

Avoiding these common mistakes requires hard work, but the results will highly increase your success quotient. If you price your products and services properly, you can now reduce the break-even timeframe from 36 months down to around 18 months when you address the above noted issues correctly.

A bank market analysis should always be conducted before committing to a network expansion plan, whether you choose to accomplish your goal through branch acquisition or new builds. There are a variety of sophisticated theories regarding how to best perform this analysis, but there are some core issues and methods that should be addressed regardless of the details you choose to include. Here are some suggestions:

• Define your situation and goals. A successful market analysis can only be properly completed after you are confident with the definition of where you are and where you want to be.


• Analyze your current market share and goals. Honestly evaluate your current status and where your branch expansion plan should lead you.


• Collect information and data that directly relates to your goals. The Internet and the banking industry make voluminous amounts of data available. Concentrate on the information that is specific to your market strategy.


• Analyze, examine, and interpret the data you collect. Carefully study and interpret the information you assemble. Determine how the statistics relate to your institution and expansion plan.


• Design your plan. Your market analysis should provide you with useful data and sufficient ideas to create a successful expansion plan.

Follow these steps and you will create a bank expansion plan that imbeds you in new communities and market areas while minimizing risk and increasing income. The time spent performing this in depth bank market analysis will give you the confidence to execute your bank or credit union expansion strategy profitably.

All bank and credit union executives are aware that risk is inherent in all banking activities. Network expansion may carry more risk than product pricing and loan portfolios combined. However, just as students typically perform better when they do their homework, you can minimize your risks by performing your analysis homework.

When you evaluate establishing new branches, your analysis procedure should include the following items:

• Location, location, location. This classic golden rule of real estate is critical to your ability to get market share in a new community. Current and prospective members or customers must be able to find you when they want you (which hopefully is often). High traffic, foot and/or auto, ability to install adequate signage, and sufficient window space for marketing are all part of the location equation.


• Focus strongly on local demographics. What works well in the suburbs may or may not be effective in urban or rural settings. Your expansion analysis should be heavily weighted to collecting and evaluating all the demographic data you can acquire. Know what your community and its residents want and how they prefer your services to be delivered.


• Perform a thorough study of your local competition. Like politics, all branch competition is "local." Even national banks try to tailor their branches to connect to their communities. Study their local branches to learn exactly what type of competition you're facing. Develop a strategic plan that will hopefully neutralize any competitive disadvantages you uncover.


• Consider modifying, adding, or at least highlighting products or services that appeal to your new community.

There is, of course, little opportunity to remove all risk from new locations. But effective market analysis to find the correct site, to understand the nature of your local competition, to become familiar with your new community and its residents, and to modify or highlight products and services, where appropriate, should minimize much of the risk.

Whether you're a smaller credit union hoping to establish one new branch office or a large institution wishing to embark on a major bank expansion through mergers and acquisitions, successful branch expansion strategy plans should always include:

• A clear determination of how you will compete in the market, how you'll focus your products and services, and how you will display and reinforce your branding strategy in each new community. This is the "trigger" decision that will influence all other primary and secondary details.


• Envision a branch exterior and interior design and ideal location that will immediately be perceived as a positive addition to the community. This is not just an architectural decision. It is a decision that should be integrated with your mission, branding strategy, the "personality" of the community, and the nature of your competition in the new market(s).


• Decide on a primary and alternative channel strategy. Often the method of delivery of services is just as, if not more important than the pricing and nature of the services. Communities can sometimes differ greatly on their preference for delivery of service.

You must also still perform your bank or credit union analysis due diligence to maintain the justification for the level of investment and projected return on investment you desire. But, once you've given thought, discussion, and decision making to the above primary rules, you should be ready to proceed with your expansion program.

The one constant rule that applies to bank or credit union expansion into new areas is the golden rule of real estate: location, location, and location. Performing an exhaustive real estate site analysis and selecting the right location is never more important than as a component of your bank or credit union expansion strategy.

This analysis involves more than just the inherent traffic or appropriateness of your location(s) of choice. As a critical component of your analysis of the potential of this new market, prepare an in-depth study of your direct competition in the community. You may want to tailor your approach differently depending on whether you're the only show in town or in a "branch on every corner" community.

When you consider a network expansion, there are two primary methods along with a third that uses some combination of the first two. One of the core methods to expand your institution is through acquisition. The other option, moving into new markets and establishing new branches or making a successful branch acquisition from another institution, is the second most often used plan. Sometimes, a combination of both action plans, small acquisition and then expanding with new branches, becomes the most effective expansion strategy.

A merger and acquisition strategy is often effective because your increase in market share and growth is immediate, subsequent to closing the transaction. Obviously, this strategy can bring larger rewards than building one or two branches in a new business marketing area.

However, there is a caution that should be considered before you make a final commitment to conduct a merger or acquisition. During the time period between making your offer to purchase or merge and the closing of the deal, the investment market may change for the worse. Should this event, this branch expansion strategy might be more costly than the more conservative approach of establishing de novo branches or the purchase of excess branches from a competitor.

But, if you can live with this contingency and your branch expansion strategy is aggressive, an expansion through merger and acquisition should be strongly considered. If the transaction proceeds as planned, you'll enjoy immediate new market share.

Credit union expansion faces more obstacles than commercial bank strategy and needs to be considered a bit differently. The ability to raise and use capital for expansion is more available to commercial banks than to credit unions. As cooperative institutions, with all depositors/members having ownership, credit unions must carefully assess expansion strategies.

You might first consider the focus of your merger and acquisition strategy. You have the option of entering discussions with an "equal" for a merger or a "smaller" institution for a merger (which is really an acquisition). The approaches for this manner of credit union expansion vary somewhat depending on the institution you're working with.

You might target a smaller credit union that has one or more locations in a market area you'd like to penetrate. They may be interested if they are facing business marketing challenges caused by their smaller size. Sometimes this issue is sufficient common ground to discuss a merger. Targeting an institution of roughly equal size and product offerings for a merger typically is more complex. The key is to identify the added benefits that will accrue to BOTH institutions through a merger. Unless you are both smaller credit unions, lacking sufficient assets and resources to have a strong branch expansion strategy, other mutual benefits often must be identified. Decreased expenses, increased gross income, access to new member groups, wider footprint or other economies of scale might prove to be effective sources of mutual interest in a merger plan for credit union expansion.