Top-Level Takeaways

• Superior Choice Credit Union hopes to make inroads in commercial lending through a bank acquisition in 2018.

• A bank acquisition expected to close this fall will help LGE Community move into a desirable market.

• Credit Union One in Ferndale, MI, collaborated closely with a bank before deciding to acquire it.

With the recent spate of community bank purchases by credit unions more than a half-dozen so far in 2018 a possible new trend is emerging that offers additional ways to capture market share and expand member benefits.

Whereas community banks and credit unions might serve similar consumers, especially in rural communities, the unique ownership structure of the cooperative model can make these unlikely pairings more attractive to both sides.

Two credit unions considering a merger must weigh the potential benefits and drawbacks for their member-owners, and the movement, in addition to all of the regulatory and financial aspects, says Chris Howard, senior vice president of Callahan & Associates. A credit union merger includes literally hundreds or thousands of voices with a legitimate stake in the transaction. With a bank, it’s a more straightforward transaction that ends with customers becoming owners. The fact that a bank acquisition can be simpler is pretty telling about the movement and demonstrates the importance of the cooperative structure.

Here, Superior Choice Credit Union, LGE Community Credit Union, and Credit Union One share their stories of bank acquisition and power of cooperatives at work.

A Value Proposition For Rural Communities

Superior Choice Credit Union ($414.4M, Superior, WI) announced it was purchasing $78 million Dairyland State Bank in February of 2018. The transaction is still in progress, but the potential benefits are clear for Superior Choice. The credit union’s geographic footprint will expand from six branches to 11 as it takes over the bank’s existing branch network, and the resulting organization will gain economies of scale.

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Through strategic growth, we’re able to provide a better value proposition for membership, says Gary Elliott, CEO of Superior Choice Credit Union. We’re here not only to deliver the highest level of service but also to offer high rates on deposits, low rates on loans, and low fees for members in our community. This acquisition will help us do that.

CU QUICK FACTS

Superior Choice Credit Union
Data as of 03.31.18

HQ: Superior, WI
ASSETS: $414.4M
MEMBERS: 27,049
BRANCHES:6
12-MO SHARE GROWTH: 5.8%
12-MO LOAN GROWTH: 9.4%
ROA: 1.48%

The credit union also plans to use the acquisition to expand its commercial lending efforts, specifically those surrounding agricultural loans.

For the bank’s customers, the Dairyland purchase will ensure residents in the five largely agricultural towns the bank serves have access to a local, community financial institution. And they’ll see the same familiar faces, as the credit union plans to retain the bank’s employees.

Consistency, particularly in a small town, is important, Elliott says.

Superior Choice provides desirable deposit products like its dividend-paying Amp Checking and Amp Savings accounts that offer high rates of 1.50% and 1.00% APY, respectively as well as a robust suite of consumer lending offerings that include signature loans and automobile lending. All told, members of these communities will gain access to more financial services while keeping their funds local.

Desirable Locations And A Commercial Commitment

LGE Community Credit Union’s ($1.3B, Marietta, GA) planned purchase of the $94.7 million Georgia Heritage Bank in Dallas, GA, is expected to close in the third quarter of 2018. The acquisition will expand LGE Community’s branch network from 11 to 13 and will help the credit union deepen its commitment to business and commercial banking, according to Chris Leggett, president and CEO of LGE Community Credit Union.

CU QUICK FACTS

LGE Community Credit Union
Data as of 03.31.17

HQ: Marietta, GA
ASSETS: $1.3B
MEMBERS: 108,408
BRANCHES:11
12-MO SHARE GROWTH: 4.2%
12-MO LOAN GROWTH: 6.4%
ROA:1.05%

The purchase of Georgia Heritage served as a second chance at the plate after LGE Community’s preliminary acquisition conversations with another bank several years earlier stalled.

Georgia Heritage had a branch in an area where we were looking to expand, which opened the door to this bigger conversation, Leggett says.

The bank is heavy into commercial lending in fact, that’s its primary source of business which makes it an attractive buy for a credit union that offers business loans but doesn’t have a large commercial lending presence in the community.

The acquisition will triple the amount of commercial loans Superior Choice holds and also bring needed commercial lending and banking expertise to the credit union.

One of the most valuable parts of the acquisition is gaining the relationships the bank has created in these communities over the past 13 years, Leggett says.

But the benefits of the purchase run both ways. LGE owns an insurance agency and offers investment services in-house, neither of which are offered by the bank. The bank’s business and commercial account holders can look forward to higher dividend rates on commercial checking accounts while consumer account holders will benefit from a wider array of consumer lending solutions. Plus, the bank’s customers will have access to a wider branch network, a better ATM network, and enhanced mobile and online banking.

And, of course, there’s the power of ownership.

Consumer and business account holders will not only get better products and services, they’ll also become owners of the organization, Leggett says.

Collaboration Leads To Acquisition

Credit Union One ($1.2B, Ferndale, MI) had an unusual partnership for several years with Hantz Bank before wading into the waters of acquisition. The Hantz Group provided financial planning services to Credit Union One members, and Credit Union One provided lending services to Hantz Bank customers much as it would provide indirect lending for auto dealers.

CU QUICK FACTS

Credit Union One
Data as of 03.31.17

HQ: Ferndale, MI
ASSETS: $1.2B
MEMBERS: 131,206
BRANCHES:20
12-MO SHARE GROWTH: 3.1%
12-MO LOAN GROWTH: 10.9%
ROA: 0.60%

Hantz Bank came to us when it realized it needed help with consumer lending, says Gary Moody, CEO of Credit Union One. We were a little surprised, but it made a lot of sense. The bank’s customers got superior consumer lending products and pricing from the credit union while the bank focused its time and resources on the commercial and mortgage lending it did best.

As the duo worked together, they realized they made good partners and looked for other ways to leverage each other’s strengths.

Given our asset sizes, it became clear we could do more from a cost, delivery, and member experience standpoint by combining the two institutions than we could by operating separately, Moody says.

The transaction is technically an acquisition, but Credit Union One is approaching it internally as a merger to ensure all staff members understand the goal is to meld the cultures.

We didn’t want to lose sight of the fact that we are a credit union, especially as we add expertise in commercial lending and other products traditionally offered by banks, Moody says. We felt comfortable with Hantz’s view of service because of our previous partnership we certainly wouldn’t have referred our members to Hantz for investment services if that weren’t the case.

The purchase is expected to be finalized later this year and will expand Credit Union One’s branch footprint into areas it felt would be beneficial to the membership, including Southfield, Ann Arbor, and Clinton Township. It will also help strengthen its already solid real estate lending operation. And, of course, there’s that commercial lending.

Why take the time, energy, and effort to build the systems and expertise in commercial lending when the bank already has them? Moody asks, harkening back to the reason Hantz started referring consumer loans to the credit union.

For Hantz’s customers, they will enjoy greater access to physical locations when the credit union’s 20-branch network joins Hantz’s six locations. They’ll also benefit from a pure technology and efficiency standpoint, as a combined institution with $1.4 billion in assets can simply offer a wider array of services to benefit them.

Is Your Team Making Time To Talk About Strategy?

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A Buyer’s Market

According to Superior CEO Elliott, careful due diligence is essential to ensuring a smart acquisition from the overall evaluation and analysis of the bid itself to the loan level data.

Due diligence will either augment or shed new light on your original bid, Elliott says.

To find potential purchases that might make sense for the credit union, Elliott says networking and simply listening to what’s happening is invaluable.

I discussed our goals with contacts throughout the state and let them know we were looking to merge or buy bank branches, Elliott says.

This networking is how Superior learned about the Dairyland Bank opportunity.

LGE Community CEO Chris Leggett advises credit union leaders to take a holistic view when considering bank purchases.

It has to make sense strategically and not be growth for growth’s sake, he says. Make sure you have specific reasons and a good rationale for why you want to buy a bank. For LGE Community, we’ll be able to serve one area where we have no presence at all today and move a branch in another area to a more visible location.

LGE Community doesn’t need Georgia Heritage’s deposits, but the commercial relationships and loan portfolio are strategically important, and the new locations will complement LGE Community’s current network.

Overall, I want to make sure a purchase like this is a good use of our members’ money, Leggett says.

Credit Union One CEO Gary Moody is a firm believer in unbiased third-party evaluation.

Because of our relationship with Hantz, it was important that we didn’t get enamored with the idea of buying the bank, Moody says. We wanted to ensure we were benefiting the members and using their capital effectively.

Whereas Credit Union One’s experiences with pre-purchase collaboration have been different from most purchase situations, Moody has no doubt that merger activity will continue, whether it takes the form of credit union to credit union or community bank to credit union.

Large banks aren’t interested in community banks, and the number of credit unions that want to merge with a billion-dollar-plus credit union is shrinking, Moody. This seems like a natural market progression.

However, just like with two credit unions merging, Moody cautions that bank purchases must make financial, operational, and cultural sense.

There is a heightened level of scrutiny and responsibility when buying a bank, the Credit Union One CEO says. But as community banks struggle with compliance and maintaining relevance, just like credit unions do, why would it not make sense to put the two together?