GreenState CU scoops up 3 banks in 5 months on quest for scale

GreenState CU is rapidly expanding its total assets, geographic footprint and lending capabilities with a recent spree of bank buys.

The credit union's Oct. 25 announcement that it plans to acquire Freeport, Ill.-based Midwest Community Bank marks its third bank acquisition in 2021 and comes just five months after it struck two bank deals at once for Oak Brook, Ill.-based Oxford Bank & Trust and Omaha, Neb.-based Premier Bank on May 25.

With three deal announcements this year, GreenState CU now accounts for one-quarter of the 12 credit union acquisitions of banks announced in 2021 — a run of deals that has vexed banking industry groups. Along with its purchase of First American Bank in 2020, GreenState CU now has the most bank acquisitions under its belt of any credit union.

As GreenState CU looks to scale through inorganic growth, it has found acquisitions of banks easier and more straightforward than mergers with other credit unions, President and CEO Jeffrey Disterhoft said in an interview. In particular, when credit unions merge, the two parties often have to negotiate delicate social issues related to the name or management structure of the combined company, he said.

"With respect to the bank acquisitions, in some but not all cases, the highest bid wins. It's not terribly more complicated than that," Disterhoft said. "With respect to credit union mergers, there are a number of factors that need to fall into place. ... It's much more of a dance, and usually a slow dance, than the bank acquisition process, which they can come together a lot more quickly, it seems."

Riling industry groups

Banking industry groups long have opposed credit union acquisitions of banks, arguing that credit unions' tax-exempt status creates an unlevel playing field.

GreenState CU's announced acquisition of Midwest Community Bank will further expand its footprint in Illinois, a state it will enter through its pending purchase of Oxford Bank. The Illinois Bankers Association did not reply to a request for comment.

All three deals that North Liberty, Iowa-based GreenState CU struck this year were for out-of-state banks because in February 2020, after approving First American Bank's sale to GreenState CU, the Iowa Division of Banking barred state banks from selling to credit unions.

On Sept. 30, less than a month before GreenState CU's latest bank deal announcement, fellow Iowa-based credit union Dupaco Community CU announced plans to purchase Madison, Wis.-based Home Savings Bank.

Though Iowa-based credit unions cannot acquire banks chartered in the state, the Iowa Bankers Association is worried about credit unions growing through out-of-state bank acquisitions.

"GreenState has now acquired four commercial banks," IBA President and CEO John Sorensen wrote in an email. "The net result of these purchases is over one billion dollars in commercial and agricultural loans added to their portfolio. A far cry from their tax-exempt mission of serving people of modest means. It's time these large mega credit unions are held accountable to their tax-exempt purpose."

Expanding and scaling

Besides expanding GreenState CU's Illinois footprint, the Midwest Community Bank purchase will also double the credit union's mortgage operations, Disterhoft said. Bank deals are especially attractive because they allow GreenState CU to add new lending capabilities, particularly in commercial lending, and to extend its existing retail lending products to the banks' customers, he said.

"Invariably, when we do these acquisitions, we take on new staff and new processes and we learn new things as a result, whether it's [commercial and industrial] or other types of commercial lending that maybe we haven't done as much of," he said.

Disterhoft pointed to Oxford Bank's nationwide manufactured housing lending as a "completely new area" that the credit union looks to grow and expand upon.

Scale is also a driver for the credit union's spree of bank buys, Disterhoft said. GreenState CU has grown rapidly, reporting $7.97 billion in assets for the third quarter, up from $5.72 billion two years ago at Sept. 30, 2019. The combined total assets of Midwest Community Bank, Oxford Bank and Premier Bank as of June 30 will add about $1.5 billion in assets, according to S&P Global Market Intelligence data.

"GreenState is the king of the mountain when it comes to this non-organic growth strategy," said Michael Bell, partner and co-leader of the financial institutions practice group at Honigman LLP and GreenState CU's legal adviser. "They deliberately execute in an impressive fashion."

The credit union expects to cross $10 billion in total assets "relatively soon," and has already begun preparing for oversight from the Consumer Financial Protection Bureau, Disterhoft said.

Future M&A appetite

GreenState CU is interested in more M&A, either with banks or credit unions, but Disterhoft said he does not expect to strike any more bank deals in 2021.

The credit union also has been pursuing nonbank M&A to bolster its insurance and investment arms. It has engaged in conversations with insurance and wealth management companies, but has "not had much luck in finding the right acquisition targets," Disterhoft said.

GreenState CU's $20 million in outstanding secondary capital as of June 30 is helping to support the credit union's M&A appetite, Disterhoft said, calling the war chest "part of the process, but ... certainly not the driver of the process."

Disterhoft said he is not concerned about integrating the three bank deals in relatively quick succession.

"It's not like all three of them will close in the same month or even the same quarter so I think that bodes well for us to pull off successful integration," he said.