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

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Credit unions must work to keep accounts, especially those for commercial customers, after buying a bank, analysts said.

The number of CUs buying banks has increased in recent years. Nine of these deals were announced in 2018, up 50% from a year earlier. This year is on pace to top 2018’s total with eight acquisitions announced so far.

Retaining the customers is paramount in maintaining the value of these acquisitions. Retail customers of the bank are unlikely to switch financial institutions after the merger unless a hiccup occurs so it’s essential to make sure the transition happens seamlessly, experts said. That should include clear and frequent communication. Credit unions may also have to add capabilities to better serve and retain commercial customers.

“Get the bank employees ready for your culture, have all technology integrations done… be ready to hit the ground running,” Michael Bell, an attorney at Howard & Howard in Royal Oak, Mich., said of the transition after an acquisition of a bank is completed.

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 members 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.

The credit union tries to communicate “quickly and regularly” throughout the process to help members “navigate any changes they will experience,” Loftis said. Communication has included in-branch benefit fairs for new members and marketing by direct mail, e-mail and website messages.

“They may not have experience with being a member of a credit union, so 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.

Loftis said that after any acquisition, Advia tries to convey the CU’s mission of providing financial advantages. It introduces improved deposit rates and special offers related to the systems integration, including free checks or special offers on personal loans.

However, despite these efforts, Advia still loses “a small percentage of members who are former customers of the bank,” 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 a mass exodus of customers after buying a bank, said Bell, who has advised on the majority of credit union-bank acquisitions in recent years. He said in all the deals he has worked on, “catastrophic” runoff is 5%.

“People don’t move their checking accounts,” he 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 customers. Credit unions have a long history of providing consumer banking products but have been more limited in their work with companies given the member business lending cap.

Many credit unions do not keep business development personnel after bank acquisitions, which can lead to a loss of business, said Ben Loveless, managing director for bank consulting firm Sentinel Project Management. He said the reason is there is a difference between the way banks and CUs are run.

“Banks hire individuals to develop a book of business, which goes with the banker,” Loveless explained. “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 the pending purchase is announced, the target bank’s business development people are poached by other banks, Loveless said.

“I am 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,” he 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 from the acquired bank, Loftis said Advia reaches out with phone calls and personal visits. She said Advia recently invested in a new commercial loan platform to better serve businesses and local municipalities it has added through its commercial bank acquisitions. The credit union 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., agreed to buy South Central Bank in Chicago because of the target’s strong business portfolio, said Kevin Ralofsky, president and CEO of Verve. It’s the first such transaction 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 SCB’s customers are businesses, developing trust with their main contact is the first priority, Ralofsky said. Todd Grayson, current president of the $296 million-asset bank, will serve as a regional president for the credit union. That should help with making decisions quickly at the local level.

Representatives from Verve are in the process of meeting the SCB team to ensure the employees will be on board, Ralofsky said. Grayson and his team are reaching out to all large depositors to talk about 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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