CAMILLA, Ga.-The latest bank to be acquired by a CU says it agreed to the deal to bring a new financial choice to this town-which is the same reason the credit union made the offer in the first place.
If the purchase and assumption is approved - the deal is now being submitted to the NCUA, OCC, FDIC and credit union state regulators in Alabama and Georgia-it will meet the expansion needs of the Dothan, Ala.-based Five Star CU and help the struggling $23 million Flint River National Bank provide expanded services to its customers.
Even more importantly-it will bring the first credit union into a town that has been dominated by banks.
The move by the $260 million-asset Five Star marks a growing trend of CUs buying small banks. There have been four other credit union acquisitions of banks during the last two years: In Baltimore, Municipal Employees CU is purchasing $61 million Baltimore-based Advance Bank; Wisconsin's Landmark CU acquired Hartford Savings Bank; Massachusetts' GFA FCU acquired New Hampshire's Monadnock Savings Bank, and the credit union that put everything in motion, Michigan's United FCU, acquired Griffith Savings Bank in Indiana.
What Drove The Decision
When Flint River National Bank agreed to sell to Five Star, the decision was also based on reasons not unfamiliar to many small FIs today-tough competition from larger banks and lack of scale to drive enough revenue and create necessary efficiencies.
Add to those troubles local farmers enjoying great crop prices in 2012, which negated their need to borrow and hurt the bank's agricultural lending, and CEO Scott Gatlin realized it was time to sell.
A Struggle
"It had been a struggle for the last few years," said Gatlin about Flint River, which in 2012 lost $995,000, according to its Dec. 31 Call Report. "There are only 28,000 people in this area, and you can really drop that down to about 18,000 when you factor out those over 65 who really do not bank a great deal and everyone under 18. I knew it was going to be hard from the start."
Gatlin came to Flint River in early 2007. "I could see how tough the market numbers were-as well as the competition-and knew that based on our size it was not going to be an easy go-and then the recession hit."
Include the mounting regulatory and compliance burden that all small FIs are wrestling with today, and Gatlin said to himself early this year, " 'Maybe we can hold on.' But I did not want to do that. I don't think that would have been right for our shareholders, who I want to give something back to, and to our customers. I think they will get something better here with a credit union."
That is exactly what Five Star CEO Bob Steensma believes in picking up the bank. "There is no credit union in this market and that differentiation alone, plus our favorable pricing, should make this venture go well from the start."
Steensma declined to disclose the sale price, saying only that the price is less than what it would cost to construct a new branch here. While Flint River lost money each of the last five years, Steensma said Five Star should be able to turn that around due to greater scale and because it will immediately dump the bank's burdensome, expensive IT contract.
"We do not assume that contract. It's a purchase and assumption, not a merger-where we would assume all that the financial institution has, including its debts and contracts," he said.
Under the agreement, FSCU will purchase all loans, investments, real estate, accrued interest receivables and other banking-related assets of FRNB valued at $21 million, after a discount to the loan portfolio agreed to by the parties. The CU will assume all deposits. The deal is awaiting FRNB shareholder approval.
"The price is a percentage of the bank's net worth. If the bank's capital drops before the deal closes, then that price gets lower," Steensma noted.
The Allure
What makes FRNB so attractive to Five Star is the bank extends the CU's reach into the central part of the state, an area Five Star had been targeting for a while, plus it entrenches the CU in agricultural lending.
"It gets us right into the heart of the agricultural base in this state," said Steensma. "We are interested in doing more agro lending and hired a gentleman out of the farm bureau in January. This is right in his wheelhouse."
Steensma said Five Star is currently evaluating staffing needs for its new location, adding Gatlin will likely move forward with the CU as a vice president. The credit union has 80 full-time staff, and the bank brings eight employees, including Gatlin. Decisions on the new board structure have yet to be made, according to Steensma.
A Heavy Wave Of Communication
Converting the 700 bank customers to CU members will be handled with a heavy wave of communication, using direct mail and in-branch conversations. "We don't think this will be that difficult a task. This is just like a bank buying them out, but we will use some different terminology," said Steensma, who added that a great deal of time will be spent on explaining the credit union difference.
Michael Bell, attorney and counselor with Howard & Howard, who played a key role in engineering the first credit union purchase of a stock-owned bank when Gardner, Mass.-based GFA FCU completed the purchase of Monadnock Community Bank, Peterborough, N.H., in 2013, expects that Flint River being stock owned won't pose problems.
In the GFA purchase, Bell told Credit Union Journal, a process had to be created so the CU never touched any of the impermissible assets of the bank during the transaction.
"We will use a very similar process here," said Bell, declining to expand on any further details. Bell has been involved in three other CU purchases of banks, and added that NCUA and the FDIC, now having worked through several CU/bank deals-one being stock owned-are more comfortable with the arrangements. He estimated the Flint River purchase could be completed in the next six to eight months.
As Bell has stated in previous reports (Credit Union Journal, April 29) there will be more CU acquisitions of banks in the coming months. He told the CU Journal that he is working with two other credit unions to buy banks, one in the Southeast and another in the Midwest.
"Those are just two, and they could be announced in the next few months or early next year," Bell said. "But there will be many more."
