The rare occurrence of a credit union acquiring a bank sparked a new business unit idea. Soon, these deals might not be so unusual.
It's not often Dennis Holthaus, even after 45 years in financial services, is interviewed by reporters from the New York Times and American Banker in the same week, much less at all.
But Holthaus has a fish-out-of-water story that attracts reporters: He heads up a new consulting group at Dunedin-based Achieva Credit Union to help credit unions buy community banks — just like Achieva did in 2015, when it acquired Punta Gorda-based Calusa Bank. Achieva paid $23.2 million for Calusa, or 1.36 price-to-book value, in a deal considered the first whole-bank acquisition of a bank by a credit union nationwide.
“It's kind of interesting that it's getting so much attention,” says Holthaus, executive vice president at Achieva. “It's the novelty of it. Who would have ever thought a credit union would buy a bank? No one.”
That's why the $1.5 billion-asset credit union created Achieva Merger Services, to guide others through the process. Achieva released a news statement on the unit June 7, and calls from multiple banking industry reporters quickly followed. “I hope all this attention leads us to getting some business,” says Holthaus.
In one sense, says Holthaus, a credit union buying a bank is like most other financial deals. The buyer wants to grow in another market, or leverage its brand with a new demographic. And for a community bank that seeks an exit strategy, courting a credit union increases the pool of buyers and offers a cash payout instead of a stock sale.
Yet there's a long list of reasons credit unions rarely buy banks. The business models and missions are different, for one. Each side traditionally targets a separate customer base. And each side also answers to different regulators.
Then there's the rancor among each industry's power players and lobbying groups. The gist: Some bankers believe credit unions, especially big ones, have an unfair advantage by not paying taxes. Credit unions, says the other side, get the tax breaks because the organizations are nonprofit cooperatives and traditionally work with a population underserved by banks.
It was under that backdrop that Achieva and Calusa executives met in early 2015. That deal worked, say officials for both entities, because the culture fit outweighed the type of institution.
That's the approach Holthaus intends to take with Achieva Merger Services — to start with culture when consulting with other credit unions that seek to buy a bank. The list of other steps to consider includes due diligence; pricing analysis; merger applications; regulatory advice; acquisition accounting; and integration of operations and technologies.
Another element is marketing and branding, in the difference between a credit union and a bank. (Holthaus recalls some Calusa customers initially balked at becoming an Achieva member because they mistakenly thought the credit union was a labor union.)
The regulation side of a credit union-bank deal, says Holthaus, could be particularly thorny. State agencies, where regulators tend to be more familiar with the institutions they cover, aren't the problem. But with the Achieva-Calusa deal, at first at least, National Credit Union Administration and Federal Deposit Insurance Corp. regulators were puzzled over why the deal made sense. “They wanted to keep us in our silos,” says Holthaus.
In addition to working through the regulatory side, and other merger basics, Holthaus and his team have some insider tips to offer fellow credit union executives when buying a bank. A big one: Know the nuances of the bank's payment structure and loan polices, especially with business customers, given many credit unions focus on retail and individual accounts. “You have to understand the commercial customer relationship,” says Holthaus. “You have to know that information before you close the deal.”