Credit unions are buying banks, but can they keep the customers?

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The biggest challenge for credit unions that are buying banks may be retaining the sellers' clients.

The number of credit union-bank deals in 2018 rose by 50% from a year earlier, with nine acquisitions announced. Eight deals have already been announced this year.

Retaining customers is paramount in maintaining the value of these acquisitions, so a seamless transition is essential to success, industry experts said. That should include clear and frequent communication. Credit unions may also need to add capabilities to serve and retain commercial clients.

“Get the bank employees ready for your culture [and] have all technology integrations done," said Michael Bell, a lawyer at Howard & Howard in Royal Oak, Mich. "Be ready to hit the ground running."

Advia Credit Union in Parchment, Mich., is an experienced bank acquirer, purchasing the $83 million-asset Mid America Bank in 2016 and the $232 million-asset Peoples Bank in 2017. The key is to engage new clients right away to reassure them that staffing won’t change and to educate them about the value of being a member, said Nancy Loftis, Advia’s vice president of marketing and public relations.

Advia communicates “quickly and regularly” throughout the process to help members “navigate any changes they will experience,” Loftis said. Such communication includes in-branch benefit fairs for new members and marketing by direct mail, e-mail and website messages.

“We talk to them about what it means to belong to a credit union, the array of financial services we offer to both businesses and individuals, and our business model that is built upon returning earnings back to them in the form of great deposit and loan rates, easy and expanded network of account access tools and low service charges,” Loftis said.

After any acquisition, Advia tries to convey its mission of providing financial advantages, Loftis said. The credit union introduces higher deposit rates and special offers tied to the systems integration, including free checks or special offers on personal loans.

Despite these efforts, Advia still loses “a small percentage" of former bank customers, she added. “It is natural that people do not like change, but we feel the greatest level of attrition experienced is more likely due to a disengaged relationship prior to the acquisition.”

In general, credit unions shouldn’t worry about an exodus of customers after buying a bank, said Bell, who has been an adviser for most of the recent credit union-bank deals. The biggest runoff he has seen was about 5%.

“People don’t move their checking accounts,” Bell said. “The credit union is going to have the same or better products, rates or fees, so unless given a reason to move, nobody moves. There are a couple transactions that had more runoff than others, but that was because of some event — a debit card didn’t work over the weekend — that gave people a reason to leave.”

Still, credit unions may struggle to retain commercial clients. While credit unions have a long history of providing consumer products, there work with companies has been limited by a legislative cap on member business loans.

Many credit unions do not keep business development personnel from the banks they buy, which can lead to a loss of business, said Ben Loveless, managing director for bank consulting firm Sentinel Project Management. He points to a difference in the way banks and credit union are run.

“Banks hire individuals to develop a book of business, which goes with the banker,” Loveless said. “Credit unions have a field of membership, so they market to the field of membership without the need for a one-on-one connection with a credit union employee.”

As soon as a deal is announced, a seller’s business development people are hired by other banks, Loveless said.

“I'm not passing judgment on whether a credit union can support business customers, but I have not seen a credit union that made commercial banking services a focus in the purchase of a bank,” Loveless added. “It is an issue that needs to be high on the list of a credit union’s tasks when it looks to acquire a bank.”

For business members at an acquired bank, Loftis said, Advia reaches out with phone calls and personal visits. She said the credit union recently invested in a new commercial loan platform to better serve businesses and local municipalities added through commercial bank purchases. Advia has introduced enhanced products, such as digital cash management tools for daily ACH and payroll, an analyzed checking account, sweep accounts and more robust commercial loan options.

Verve, a credit union in Oshkosh, Wis., recently agreed to buy South Central Bank in Chicago, impressed by its strong business portfolio, said Kevin Ralofsky, Verve's president and CEO. It’s the first bank purchase for the $961 million-asset credit union.

“When we look at South Central Bank, it is an economical way to grow compared to long-term organic growth,” Ralofsky said. “It is in the Chicago metropolitan area, so it opens up a population-rich area for us.”

Because most of South Central Bank’s customers are businesses, developing trust with their main contact is the first priority, Ralofsky said. Todd Grayson, the $296 million-asset bank's president, will serve as a regional president at Verve, which should help with making decisions quickly at the local level.

Verve representatives are in the process of meeting the South Central Bank team to make sure that employees will be on board, Ralofsky said. Grayson and his team are reaching out to all large depositors to discuss the benefits of the acquisition.

“A lot of that is boots on the ground,” Ralofsky said. “We will have personalized conversations about what they are going to experience. It is a small community bank, so they already are used to personalized service. We picked a partner that is similar to us, so the difference will not take a long time to explain, which is why we picked them.”

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