Uneven mergers or acquisitions that compliment the needs of one institution while liquidating or diminishing the other are common in the corporate world. But credit unions can look beyond the shark-and-minnow perspective and identify opportunities to shift assets within the cooperative systems while benefiting everyone involved.
Eagle Federal Credit Union’s ($92M, Baton Rouge, LA) recent acquisition of a branch, from Pelican State Federal Credit Union ($192M, Baton Rouge, LA), including that branch’s members, loans and other assets, is a prime example.
After Hurricane Katrina, Pelican State acquired the hard-hit and struggling Chalmette Refinery Federal Credit Union to help continue operations at its sole location. But Pelican leadership eventually realized that the region was not a fit for Pelican State’s priorities and sought to find another credit union to take over the former Chalmette Refinery branch. So, it reached out to Eagle, a cooperative ally with a similar background, plentiful experience integrating new members, and the desire to serve more of the New Orleans area.
Eagle had taken in new members of its own as a result of Katrina, acquiring Louisiana National Guard Federal Credit Union’s only branch nearby in the Jackson Barracks area and setting up a temporary, then permanent, presence there. As of 2Q 2011, Eagle already possessed roughly 0.07% of the greater New Orleans market share, according to Callahan & Associates' Branch Analyzer. Their larger footprint in Louisiana includes two branches in Baton Rogue and five others.
“We have been growing slowly in that area, with a focus on serving the National Guard and had the intent of reaching further out in the community as our permanent location was completed,” says Ginger Manint, CEO of Eagle. “The opportunity to approach and serve several key groups in the area meshed perfectly with our business plans and will provide an immediate and positive impact on our balance sheet.”
5 Ways To Identify A Branch Acquisition Opportunity
Is the location in an area you want to grow?
Can you gain the support of involved SEGs?
Can you get buy-in from staff?
Do you have a strong enough capital base to handle quick growth?
Do you have the resources to train staff and serve new members at the same time?
Negotiations for the transfer of assets associated with the refinery location started in late 2011, and culminated with the branch reopening this month as Eagle. The small number of loans (less than 100 total) held at this location made review of credit files and other due diligence processes more manageable for Eagle’s staff.
“Interviews with credit union staff and SEG officials gave us insight into their priorities and the potential for success,” Manint says. “This open communication was essential for a smooth transition.”
In the end, Eagle purchased roughly 95% of the loans associated with the Pelican State branch, totaling around $760,000. Around 75% of the loans were secured auto, real estate or other loans, and the remaining 25% were unsecured personal loans.
The credit union immediately acquired 70 members whose loans were purchased directly, and Eagle provided them the five dollars necessary to open up a share account.
Joint mailing and communications efforts were an ongoing process throughout the acquisition. And while privacy laws prevented Pelican from sharing many of the members contact info directly, Eagle was able to have membership packets and a schedule of branch opening activities sent out from Pelican State on its behalf. Before the branch was even reopened, Eagle had gained another 80 new members.
This community could choose to do business with Eagle, maintain their membership with Pelican, or do both. “While we will have the advantage of a local presence, we fully expect to earn their business,” says Manint.
The branch location itself is owned by the refinery, eliminating any extra cost there. Some fixed assets like a vault, desks, chairs, and even the branch’s operating cash were purchased for around $2,700, and the transfer of Eagle’s own computers, equipment, signage, and even their local telephone number helped to minimize overhead.
Because the two New Orleans locations would largely support each other, the credit union plotted the branches’ development and tracked their progress jointly. “In this case, the combined efforts of two good operations are stronger when operated as a whole,” says Manint.
A new location would normally cost Eagle about $10,000 plus the cost of equipment like teller stations, vaults, and security. Instead, the credit union didn’t need to set up a new office, staff training was minimized, and signage only needed to be updated, instead of newly created, Manint says.
The most critical asset in play was the branch’s sole employee, who has been hired on by Eagle. “She is the face and personality of the refinery location,” Manint says. “The most important factor in serving this membership well is taking care of the staff they know and trust.” An upcoming core conversion will also provide the opportunity to offer new services and enhancements to better compliment these members.
“I can’t think of a better way to enter a market,” says Manint. “The response and growth has been immediate so we’ll focus on making sure we establish good roots and quality to go along with the quantity.”