By Ray Birch
WHITE SULPHUR SPRINGS, Mont.—In a rare case of a bank and credit union working together to serve a small community, Vocal CU has acquired a branch of Dutton State Bank here and did not pay a dime for the business.
The credit union agreed to pick up an office of Dutton State Bank that has been losing money, believing it can turn around the branch’s fortunes thanks to the CU’s business model and the credit union difference.
“I happened to be testifying at the Montana legislature in March this year, and Ben Ruddy, CEO of Dutton State Bank, was sitting next to me,” explained Eddie Black, Vocal CU CEO. “We were shooting the breeze and began talking about our different business models. Ben then told me he had a branch in White Sulphur Springs that did not match the bank’s business model, was struggling, and asked if I would look at it.”
The thinking between the two, explained Black, is that the credit union’s business model might better serve the bank’s customers, and in the process could become profitable.
“I looked at the branch and determined it made sense for our credit union to acquire it,” said Black. “At the end of March we signed an agreement and that is what opened the door for this. It simply was two CEOs sitting down like friends and talking, determining that the credit union model was the right fit for this small town. Plus, we are a $25-million credit union and we know we need to grow to survive.”
Second Office
The acquisition of the branch, which Black said did not cost the Helena, Mont.-based credit union any money for taking on the loans and deposits, makes the White Sulphur Springs location its second branch. Vocal is renting the new office.
Black acknowledged that the state regulator is concerned about whether the credit union can make the branch successful.
“I am convinced we can,” said Black.
Vocal and Dutton State Bank reached out earlier this year to the bank’s customers, mailing approximately 500 letters explaining the deal and that the accounts would be moving over to the credit union at the bank’s current rates and terms.
“Of these $3.5 million in loans we are bringing over, we believe our operational efficiencies and $1 million in new loans funded by that branch will make it profitable,” said Black, who added that due to net worth concerns the CU will limit deposits from the new office to $6-$7 million. “And I do see the potential for growth.”
Where Black said he sees growth opportunity—and the bank did not—is in small consumer loans, which he said the townspeople need and the bank was not focused on. He also said the credit union’s quick loan decisioning is a dramatic change to Dutton’s loan approach. Vocal CU’s total loan portfolio is $22 million.
Different Approach
“When I met with the Dutton State Bank board they asked what the credit union can do different than the bank to make this branch successful,” Black explained. “I said that the credit union is completely happy making a $5,000 loan at 8% or 5%, and we can make that loan in a half hour. Our model allows us to do that.”
When the Dutton board heard that, Black said they were stunned.
“That’s because the bank does not think like we do,” he said. “They don’t want to do a $5,000 consumer loan, they want to do a $ 100,000 agricultural loan—and we did pick up some of those in this deal, as well as some business loans. But at the end of the day our niche is still going to be that small-dollar consumer loan, because we are very good at making them. With the help of technology we can turn a simple loan around very quickly—a loan with good collateral to a good member with a good credit score.”
Black said that Vocal, now with 4,000 members following the acquisition, has always been content to serve the small-dollar lending needs of its members and insisted again that is what the people of White Sulphur Springs need.
“We, too, are content to go after folks trying to get started, maybe don’t have credit . . . For example, one of our staff members who is 20 had never had a loan before and we treat him like he is a human being,” said Black. “We don’t treat him like he has poor credit. We treat him as middle-of-the-road solid C paper. We gave him a $5,000 loan to get a car so he can get back forth to work. Our loan officers regularly make these kinds of decisions on their own. They don’t need approval from the branch manager. Our parameters on our loans encourage loan officers to make loans.”
What also benefits the credit union is a strong collections program. Black said that Vocal moves quickly on delinquencies with the policy of working with members as long as they continue to communicate with the credit union and take steps to improve their financial position.
“But once they stop communicating with us we go after that vehicle,” said Black, noting that delinquencies currently stand at about 60 BPs. “People know we are pretty tough about taking the vehicle back if you are not current on your payments.”
The new Vocal location officially opened Oct. 2, making it the first CU to serve the town. Bank of the Rockies is the only other financial institution in the White Sulphur Springs, which has a population of about 1,000. Vocal’s office is staffed by three full-time and two part-time employees who came over from Dutton State.
Making Bank Staff 'CU People'
Black said it has not been difficult in the past few months to make the bank staff “credit union people.”
“First, I think a small community bank and a credit union have a lot in common, we just disagree over credit unions’ tax status,” said Black, who noted that the new employees went through the Montana CU Network’s certification program. “As soon as the new staff became aware of our better rates and offerings they understood the residents of White Sulphur Springs would be better served by a credit union, and that, in itself, helped them understand the credit union difference.”
These types of transactions can help a small town, said Michael Bell, attorney and counselor with Royal-Oak, Mich.-based Howard & Howard, who has been part of 15 CU/bank deals, including one merger of a bank into a credit union. “They truly are win/wins, for the selling bank and the buying credit union. By their nature and structure credit unions can often be successful in areas where banks cannot.”