How To Turn Bank Customers Into Credit Union Members

Three cooperatives share how they transitioned bank customers after the credit unions became part of the community bank-buying trend.

 
 

Top-Level Takeaways

  • Dozens of banks have sold assets, branches, or their whole operation to credit unions since United FCU started the trend seven years ago.
  • Keys to a successful transition include communicating clearly, keeping existing staff when possible, and learning from experience.

The acquisition of Indiana’s Griffith Savings Bank by United Federal Credit Union ($2.9B, St. Joseph, MI) made history when the $88.5 million transaction closed in January 2012 as the first purchase of a state-chartered, FDIC-insured mutual savings bank by a federally chartered credit union.

Since then, there have been 63 more deals involving 51 credit unions in 24 states, according to data from Callahan & Associates. Forty-seven of those deals have been announced since 2017 as what was a phenomenon has become a trend. 

Some deals have included taking over the whole operation, lock, stock, and assets. Others have involved a single location or market. But regardless of strategy, each institution had its own reason for buying and selling. 

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On the selling side, community banks find a buyer that does not face as much pressure to grow profits and that might be willing to pay a higher price. On the buying side, credit unions can quickly expand their membership, assets, and skill sets in areas such as business lending and commercial services. 

The Filene Research Institute examined the subject for a 2018 report that says the credit unions it interviewed “have found this a timely strategy for increasing economies of scope and scale.”

And although buying a bank might seem like a marriage of opposites, there is one major commonality. 

“Small community banks tend to have deep ties to their customers and take pride in fostering their communities’ growth and financial security,” Andrew Meyer, a senior economist at the St. Louis Fed, said in an April 2019 report titled Why Are More Credit Unions Buying Community Banks? “Other things equal, the owners of these banks might prefer to sell to an organization that has similar customer-oriented values. That is, they might feel that they have more in common with the culture at a neighborhood credit union than with the culture of a distant large bank.”

Indeed, highlighting the credit union difference while introducing themselves as the new financial partner for their customers-turned-members has been strategy No. 1 to credit unions entering the bank-buying market.

Communicate The Change To Soften The Transition

United actively communicated the coming change to the customers of the small Indiana bank who were about to become members of the billion-dollar Michigan credit union, relying on letters, information packets, and in-branch outreach to talk about credit union values, explain how it would transfer accounts, and more.

Terry O’Rourke, President and CEO, United FCU

“We were able to effectively communicate to Griffith Savings Bank customers the credit union difference and the United Federal Credit Union alignment with the values of the Griffith, IN, community,” says Terry O’Rourke, president and CEO of United FCU. “We were also fortunate to keep nearly all of the GSB staff, so members were greeted by familiar faces who were able to answer questions about credit unions, United, or the transition.” 

The Griffith branch marked United’s initial foray into nearby Indiana. Since then, it’s added four more Hoosier State locations in South Bend, Mishawaka, and Granger. 

Face To Face And Cyberspace

Royal Credit Union ($2.6B, Eau Claire, WI) has acquired 13 new branches from three different banks in the past few years, and it has held member town hall meetings and employee information sessions as early as possible after each acquisition. 

Brandon Riechers, President and CEO, Royal Credit Union

Those town hall meetings helped allay some natural fears, especially among bank customers who were already skeptical because of previous ownership changes, says Brandon Riechers, Royal’s president and CEO.

“From our experience, the customers — soon to be members — are worried about current bank employees because they have built relationships with each of them,” Riechers says. “That’s the No. 1 question we hear, and that makes it critical to have a clear, consistent message to share with everyone.”

Royal also maintained a web page for bank customers during the takeover process, and its member service center offered regularly updated FAQs.

Underpinning all that: A transition team that was free from other duties through the whole process.

Building On Experience, Adding Capabilities

Achieva Credit Union ($1.8B, Dunedin, FL) used what it learned from acquiring $165 million Calusa Bank in 2015 when it bought $127 million Preferred Community Bank in September 2019.

“We took a lot away from the experience,” says Janice Hollar, the credit union’s senior vice president and CFO. For example, the larger business members Achieva gained from the Calusa acquisition had service expectations that exceeded the credit union’s existing systems.

“We responded by working hard to develop systems to meet those expectations,” Hollar says. As a result, enhanced products and services were waiting for the business members who came along in the recent acquisition of Preferred Community Bank.

Meanwhile, retail members were happy to find the same staff inside the branches and online banking and mobile apps with Achieva that were better than what the bank offered, Hollar says.

4 Steps For Staffing

Three bank acquisitions have helped Royal Credit Union refine how it determines which employees are a culture fit for the cooperative and where they would best fit into the credit union’s branch footprint. Brandon Riechers, president and CEO at Royal, offers four best practices.

  • Provide a single point of contact at the beginning of the employment selection process.
  • Identify bank talent that is critical to a successful transition; offer stay bonuses through post-transition as needed.
  • Interview bank employees and offer jobs only to those who are the right fit from both a values and skills perspective.
  • Communicate offers, or that no offer will be forthcoming, in person.

Making A Mark In New Markets 

Becoming part of the credit union’s new community is crucial.

“We have staff members, many of them bilingual, located in the new market areas who work tirelessly to establish relationships with people from all walks of life in the community, within schools, and at local businesses,” says Hollar at Achieva.

Royal’s Riechers advises engaging early with the community. That includes joining chambers and other business associations and actively participating in and donating to events and local causes. He says such efforts at Royal have followed its Capital Bank acquisition in an underserved area in and around downtown St. Paul, MN. 

Janice Hollar, SVP and CFO, Achieva Credit Union

“In addition to Royal’s high deposit rates, low lending rates, and limited fees, we’ve been able to extend our robust financial literacy and community enrichment programs to make a positive impact in our new locations, especially for those of limited means,” Riechers says.

O’Rourke shares the sentiment that a bank acquisition is a values-driven business proposition.

“One of the best qualities about our membership is its diverse makeup,” the United CEO says. “With the Griffith Savings Bank acquisition, we understood the challenges of moving into a bank-heavy community, but we recognized the value United could bring to people who might not have known about the credit union philosophy and way of doing business.”

Adds Hollar at Achieva, “Reaching new markets means we can further carry out our core principle: Do the right thing.” 

Due Diligence And Backing Out

Riechers says experience has taught Royal some valuable lessons about buying banks. One is to close underperforming branches with negative trends when the acquisition is complete rather than wait for a turnaround that might never come. 

“We have a much more robust filter today that we apply,” the CEO says. 

O’Rourke at United, meanwhile, advises credit unions to tap into the experience of others.

“Surround yourself with advisors that have done this before and can provide expert guidance and advice,” he says. 

The veteran chief executive also says to make sure the credit union’s goals align with what the target market can offer. And, be willing to back out if the due diligence indicates that is the wiser course.

“There’s excitement in telling your employees and board you’re purchasing a bank, but remember that credit unions are here to serve their members and their communities,” O’Rourke says. “If the transaction does not achieve both of those in a measurable or incrementally improved way, your organization’s time and efforts might be best spent on other initiatives.”

Read more about credit unions acquiring banks in "Inside Sound Credit Union’s Much-Debated Bank Acquisition."

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Oct. 21, 2019


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