Bank Branch Acquisition Offers Credit Unions Another Option To Expand

As the recent acquisition of a community bank branch by Vocal Credit Union demonstrates, mergers aren’t the only avenue open to credit unions aiming to expand their reach and membership.

Vocal CU, a $30 million financial cooperative based in Helena, Mont. (https://vocal.coop), acquired the Dutton State Bank branch in White Sulphur Springs in October 2017 and in the bargain added Meagher County to its field of membership, an experienced commercial lender to its staff, and new members who have thus far accounted for $5.2 million in loans.

The acquisition grew out of a conversation between Vocal CU CEO Eddie Black and Dutton State Bank President Ben Ruddy, who were both in the Montana state capital testifying against a legislative bill. The bank is a “healthy, vibrant organization” that specializes in agricultural and business lending, Black explains. Its White Sulphur Springs branch wasn’t delivering on that front, but there is a demand in the community for consumer loans. Within a couple days, the two institutions had signed a nondisclosure agreement to further explore the deal.

Black quickly determined that if Vocal CU could produce $1 million in loans through the branch, it would break even on the acquisition. “Our model is to do small loans fast, even what I call $500 ‘people helping people’ loans,” he says. “We can do a loan like that in 20 to 30 minutes, while it would take the bank two to three hours.”

A branch acquisition may not be as complex as a merger, but it still entails a lot of time to work out the details and pass regulatory muster. “The agreement was that we would bring on all deposits and all loans we wanted at par value. We didn’t pay for any deposits or loans,” Black says. “The bank wanted to take care of the existing staff at the branch and to work out an arrangement that would serve the community better.”

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Vocal CU took on 90 percent of the loans on the books through the branch but passed on a couple large participation loans because it doesn’t do participations. It also assumed most deposits, but the bank maintains a few large CDs so that the credit union could maintain its net worth within acceptable limits. In all, Vocal CU brought over $4 million in deposits and $3.2 million in loans, the latter of which almost doubled in the 10 months since the acquisition was formalized.

Maintaining the staff, including the branch manager/commercial lender and consumer loan officer, was key to the arrangement’s success. “The 750 people in the White Sulphur Springs community are doing business with the people in the building, not the name on the door,”

Black says. “The branch manager and consumer loan officer are rock stars in that community, and we’ve supported them in supporting their community—which is what they wanted to do.”

Though Vocal CU continues to focus on consumer lending, it now has the expertise on staff to make small business loans. Examiners expressed initial concerns about the credit union buying the branch building, though the acquisition has gone well enough that the real estate purchase is now in the works as well.

Vocal is the first credit union and one of only two financial institutions currently operating in the community, and it is working hard to establish itself as a community presence. White Sulphur Springs is no stranger to the cooperative business model, with phone, electric, and food co-ops operating there. The credit union will also be participating in its Co-op Days celebration in September.

Black’s advice to credit unions that might be presented with an opportunity like a bank branch acquisition is to “be open-minded and do your homework.”

“In Montana, there’s not a lot of difference between community banks and credit unions. We’re all trying to serve our communities,” he adds. “Our existing relationship with Dutton made this arrangement easier to tackle, but it was still a tremendous amount of work. I’ve spent a lot of time in the last six months traveling back and forth to get to know the residents of White Sulphur Springs. We even had a board meeting there, so they could meet our directors. The connections we’ve made in that community make a difference.”