Often attributed to Abraham Lincoln, a twist on a popular quote states, “Things may come to those who wait, but only things left by those who hustle." In the case of its recent bank asset acquisition, Royal Credit Union ($1.2B, Eau Claire, WI) has proven it knows how to do both.
“This has been an 11-month process, with 23,000 hours of our employee’s time,” says Royal CEO Charles Grossklaus. Yet as Royal settles into its 11 new branches, with a total of $177 million in deposits, real estate loans, and other assets acquired from Wisconsin-based Anchor Bank, clearly the credit union considers it time well spent.
“And there are still so many opportunities out there,” Grossklaus adds.
On a size and scale that trumps anything the credit union industry has seen, the acquisition stands testament to Royal’s ambitious process of expansion and bodes well for growth in penetration rates already hovering around 65% in some communities.
The American Banker lists Royal’s acquisition as the third largest branch deal completed among banks or credit unions in 2010.
The acquisition signifies a new level of accomplishment for credit unions that want to capture market share. Undertaking such a large scale venture requires not just drive but also dexterity in navigating a potential cat’s cradle of regulations and required due diligence.
Royal’s executive team scouted potential acquisition opportunities; among their primary responsibilities was tracking the competition, bank and credit union alike. And when it came to acquisitions, size was not an issue.
The attention and effort required for an acquisition of $37 million up to $200 million tend to translate to roughly the same, Grossklaus says. “If you’re going to look at acquisitions,” he advises, “look at the big ones.”
After a detailed review and negotiation, the acquisition solidified in November of 2009, when Royal and Anchor Bank executed a purchase agreement. The bank was interested in shrinking its balance sheet by shedding some of its physical locations, deposits, and loans.
The bank assets complimented Royal’s existing five year plan, so the credit union compared the opportunity to its merger and acquisition filters, including: What was the financial impact? Did it fit within the geographic area? Were Anchor Bank’s customer's demographics similar? Would Royal acquire products and services that fit or enhance its product and service mix?
With heavy research and due diligence into the potential downsides of the acquisition, Royal’s staff recruited the assistance of outside consulting, accounting, and law firms and made nine separate visits to Anchor Bank’s headquarters through the course of the acquisition.
During this process, the credit union also set criteria for the kinds of consumer and real estate loans it would review and possibly purchase from Anchor Bank. Parameters included low loan-to-value ratios and little-to-no delinquency.
“Some of their products enhance our offering,” says Grossklaus. “But we avoided those that did not.”
Royal expanded its original bid for seven branches to include four more in desirable locations. In four of these acquired communities, Anchor was the only financial provider in the area, says Grossklaus.
It wasn’t an easy process, but by June of 2010, the acquisition was finally approved by all four regulators involved – NCUA, Wisconsin Department of Financial Institutions: Office of Credit Unions, FDIC, and Office of Thrift and Supervision .
“You can’t imagine the feeling when we got approval,” Grossklaus says.
Roughly 131 individuals handled much of the conversion process, with team leaders meeting once a week.
Using targeted notification in the community and “Eddie,” a staff tool that provides old to new product and service mapping information for new members, Royal expects only minimal member attrition of 5-10%, says Grossklaus. Royal secured 20,000 new members as a result of the acquisition and has since gained roughly 1,000 new members. The credit union also expects to add 5,000 new members through these branches by the end of the year.