By Ray Birch
PARCHMENT, Mich.—The first credit union to buy three banks has found that often, picking up a bank can be simpler than merging in a credit union.
“I am not saying it’s more attractive to buy a bank than merge in a credit union, but bank deals are often easier to make happen. I think a lot of credit unions have not figured this out yet,” explained Advia Credit Union CEO Cheryl DeBoer.
The $1.7-billion Advia purchased Peoples Bank of Elkhorn, Wis., in 2017, and Mid America Bank in Janesville, Wis., in 2016. And as CUToday.info recently reported here, Advia also intends to buy $155-million Golden Eagle Community Bank in Woodstock, Ill.
DeBoer says banks “set themselves up to be bought,” and that their posture often is “about being purchased.”
“Credit unions don’t do that. CUs might talk about merger with someone, but then it becomes difficult, because they are not set up like a bank to be sold,” she said. “It’s shareholders versus members. Banks are there to make a profit for their shareholders; they sell the bank and move on. That is not what credit unions do. They exist to be a cooperative, to help members grow, but they are not positioned to be sold. They are structured very differently, as we know.”
Simple & Straightforward
Moreover, DeBoer said most bank deals are more simple and straightforward than merging in a credit union. She noted that logic runs counter to the thinking that bank buys are a challenge, which was the prevalent attitude among CUs when the purchase of banks first became a reality nearly a decade ago.
“When you talk to a credit union about a merger versus buying a bank, it’s a very different discussion,” DeBoer explained. “For example, the bank CEO enters the deal saying ‘I am going to sell this entity and some of my people might be kept, some people might choose not to stay…’ But when you deal with a credit union merger, the membership has to vote, they don’t want any of their people to lose their jobs...”
DeBoer said the fact Advia has become the first credit union to acquire three banks is not an indication it is more focused than other cooperatives on buying banks. Instead, she said the purchases reflect the credit union’s belief in growing through merger and acquisition. ACU has completed nine CU mergers since DeBoer took over as CEO in 2004.
“I am not a believer in the thinking, ‘Build it and they will come,’” she said. “That can be a very expensive and unsuccessful approach.”
DeBoer said that like many other credit unions seven years ago, Advia shared in a misconception.
“Most credit unions, including us, for a while did not realize we could do this kind of deal,” she explained. “Once we learned from our regulators that we could do this, we began looking into the opportunity and how it could work for us.”
To make it work, a credit union must have a strong capital position to begin with, said DeBoer.
“A bank buy is an automatic dilution of capital, whereas with a credit union merger you are bringing over capital—so your capital position typically increases,” DeBoer noted.
As other credit unions that have purchased banks have told CUToday.info, DeBoer said the purchase of a bank by a credit union brings with it some benefits not typically found in a merger, including obtaining management expertise it might have had lacking, as well as new and very different markets.
“It goes back again to talent,” she said. “Banks are generally heavy into mortgage lending or commercial lending, so we have gained a lot of commercial lending talent. Our commercial lending portfolio has grown since we have acquired banks, which we are happy to have happened.”
DeBoer said credit unions can be more attractive options for banks looking to sell, because CUs are cash buyers. “A lot of times another bank is offering the selling bank cash and stock,” she said.
DeBoer, who declined to divulge the prices Advia has paid for the banks it has purchased, said only, “We get them at a good price. We make a good deal, and we get a new market, existing business…”
While in the first year of a bank buy the CU may not see all of the benefits of the transaction as it will in ensuing years, due to things such as retention agreements, DeBoer said Advia has found bank acquisitions are generally profitable more quickly than a CU acquisition, saying bank buys are making money within three to four years.
Turning Customers Into Members
The CEO acknowledges picking up a bank comes with the task of educating bank customers about credit unions and the CU philosophy.
“A key message we share is that everything is still the same, basically the same products and services, but things just look a little different,” said DeBoer. “We spend lot of time on the front end of a deal talking to bank customers. It can take five to six months for regulators to approve a deal, so we use that time to ramp up with our new members. Then you have about six months after the deal is closed to convert bank customers to members. That’s the window. Well send a lot of communications to bank customers in that time, hold town hall meetings…You have to put the same information in front of people many times—you have to be patient with this process.”
When Advia buys a bank, it typically sees about a 10% runoff of the bank customers.
“Some people just don’t like change,” DeBoer said.
Key Piece of Advice
She emphasized that the CU must be very considerate of the feelings bank staff and customers are experiencing when undergoing the change.
“I have lot of people ask me for advice about bank buys, and I tell them the transition is key,” she said. “You have to be empathetic that their bank is changing over to a credit union and that these people will experience a lot of emotions during the transition period. You have to understand the people impact.”
DeBoer emphasized her job is to keep the credit union growing and “relevant,” adding bank buys are part of that process.
“We are always looking for the right fit and opportunity,” she said. “Bank buys are just an alternative means to expand. I tell people that credit unions in recent years have been adding bank members one at a time, so why don’t we add a bunch of them all at once and buy a bank?”