Branch Expansion - Danger or Opportunity?

ATLANTA, December 11, 2008 – Assuming the fundamentals of your financial institution are on solid ground and growth has been in your long-term strategic plan, now may actually be the best possible time to revise your retail strategy and capitalize on the current chaos in the economy.

In John F. Kennedy’s words, “The Chinese use two brush strokes to write the word 'crisis'. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger - but recognize the opportunity."

The current economic crisis has certainly created a sense of danger for many organizations in the financial services industry. However, it has also created some of the best opportunities that we have seen in many years for financial institutions to expand and/or revitalize their branch networks. As a result, our company’s pipeline of retail branch design/build work is as healthy as ever, which seems surprising given the uncertainty in the market today.

Many of our clients, however, say it’s not so surprising after all, given the fact that most community banks and credit unions have managed their risk well, have adequate capital ratios, and can recognize the current market conditions as opportunities to move forward with their institution’s growth plans.

Specifically, the following market conditions have been particularly important in clients’ decisions to act now rather than wait.

Low Opportunity Cost. The opportunity cost for investing in fixed assets rather than other investments is very low due to low returns in the market today.

The Competition is On The Sidelines. Many of your competitors are either struggling or are caught up in the uncertainty of the economy and will be very slow to act. As Warren Buffet said bluntly, “Be fearful when others are greedy. Be greedy when others are fearful.”

Low Construction Labor Costs. With the slowdown in construction, availability of labor is up and, therefore, the cost of labor is down.

Building Projects Convey Strength in Uncertain Times. The market will perceive any building projects as a sign of the strength and soundness of a financial institution.

Acquisition Costs. With property values at a record low, now is a great time to purchase land for future expansion.

Mergers Create Opportunities. With a slew of mergers underway and sure to ensue, competitors will vacate branches, which will create the opportunity to acquire many of the market’s most attractive branch locations and buildings at rock-bottom prices.

Construction Material Costs Continue to Increase. Due to future increases in fuel prices and inflation, construction material costs will continue to increase into the foreseeable future, making it safe to say ‘the cost of construction today will always be less than the cost of construction tomorrow.'

Timing May Be Perfect. Completing a ground-up construction project, from acquiring the land through design and construction to move-in, can take up to 12 months. With that in mind, if you begin the process now, you should be moving in around the time most economists suggest we will be coming out of the current economic slowdown, making the timing perfect.

Before committing to expanding or revitalizing your branch network, we encourage you to consider the risks and opportunities relative to your institution’s unique circumstances and business objectives. By spending more time and energy than ever in the strategic planning phases of a project, you will make better decisions to help ensure the long-term success of your organization.