By Ray Birch
DELRAY BEACH, Fla.—IBM Southeast Employees CU’s 2017 acquisition of Mackinac Savings Bank has had such a positive bottom line impact that the credit union recently pulled the trigger on a second bank buy.
As CUToday.info reported, IBM Southeast just purchased the $350-million The Oculina Bank in Vero Beach, Fla., pending regulatory approval. The bank is based approximately 100 miles north of IBMSECU’s headquarters.
CEO Michael Miller told CUToday.info that the acquisition of Mackinac was a perfect fit for the credit union in terms of what IBMSECU needed to grow, including bringing to the credit union staff who had expertise the CU required. A previous CUToday.info report shared how a new Filene study shows that credit unions that have acquired banks are outperforming their peers. The report also reveals that CUs are picking up banks with a very clear strategy in mind for the acquisition.
Miller explained that Mackinac, with a strong deposit base, is exactly what the credit union needed to fuel its annual 20% loan growth.
‘A Good Fit’
“The deal finalized May 31 of 2017 and we have been really pleased with this acquisition,” Miller said. “It is a good fit for us because it came with a very good deposit base, right in Palm Beach County where we have had a presence for many years. It was a $115-million bank and it had $90 million in deposits. Over the last few years we have been growing our loan portfolio at about a 20% clip annually, so we needed those extra deposits to keep lending to our members at that pace. The bank also had three offices well-positioned for us in our market. Again, in many ways, it was a perfect match.”
IBM Southeast had $822 million in shares at the close of 2016 and $939 million and the end of last year. The CU has grown assets from $940 million at the close of 2016 to more than $1.1 billion today.
“We had $677 million in our loan portfolio in 2016 and through the bank buy we grew to $826 million in loans,” said Miller, pointing to the CU’s very competitive rates and the extra money to lend. “In 2017 we grew loans by 22%.”
The Cultural Fit
Not only did Mackinac have the deposits IBM Southeast needed, it also had the right culture, according to Miller.
“They were really a credit union at heart,” said Miller. “They were a mutual savings bank, and a lot of community banks, I believe, operate with the same mentality as a credit union.”
Mackinac, too, was primarily a mortgage bank, said Miller, which has not gotten in the way of the credit union encouraging the bank’s former customers to take additional products with the CU.
“The bank was not a transactional bank. They were mainly interested in selling customers mortgages. Mackinac was not interested in moving checking accounts and a lot of other products. We believed we would be successful in getting our new members to take more products with us and we have,” said Miller, who noted IBM Southeast, overall, averages 3.1 products per member.
The Role of Rates
Michael Bell, attorney and counselor at Royal-Oak, Mich.-based Howard & Howard, who has been part of 22 CU/bank deals, including three mergers of a bank into a credit union, previously told CUToday.info that credit unions that acquire banks have little trouble giving former bank customers more products they need. He said the success is due to credit union rates being more attractive than their former banks’.
“Yes, our better rates have helped us here,” acknowledged Miller. “So we are getting more car loans, some credit cards and debit cards, checking accounts…”
What has also been a good fit for IBM Southeast are staff from Mackinac. Miller said that with the credit union’s dramatic, ongoing loan growth, it’s existing mortgage staff needed help.
“And we got some really good, skilled mortgage staff from Mackinac,” Miller said. “Our mortgage staff had gotten pretty lean. It was nice to add 18 people to the mortgage team to fill some important holes.”
Turning Customers into Members
Miller said the credit union has learned what it takes to convert bank customers into CU members. He emphasized that the steps in this conversion process take time.
“This is in no way a one-time event. You have to set up a process. We reached out directly to bank customers, of course, held in-branch promotions and went out into the community,” explained Miller. “For example, a number of customers live in Century Village, so we held events at their clubhouse. NCUA gives you six months to convert these customers into members, and you need every bit of that time.”
Miller is a proponent of credit unions buying banks. But he stressed, as did experts in the Filene study, that the credit union has to do its homework to make sure the bank buy is a strategic fit.
‘Be Very Careful’
“You have to be very careful about this,” he said. “But I see a lot of opportunities for credit unions to buy community banks that match with their needs.”
Miller said he first got the idea a few years ago to buy a bank when he talked with some community bankers during a local golf tournament.
“I was driving back from the tournament and passed Mackinac Savings Bank, which I drove by every day on my way to work,” recalled Miller. “I reached out to the bank’s president to see if they might sell, and as it turned out they were ready to sell.”