Iowa credit union is leading the way in M&A

GreenState CU’s organic growth has soared over the past two decades—now swallowing small banks is the strategy.

Credit unions are more active in the bank-buying business as a way to add scale in an ever more competitive financial environment.

One of the busiest buyer of them all is GreenState Credit Union, based in eastern Iowa. The institution, formerly known as the University of Iowa Community Credit Union, has purchased one community bank in its home state and two in Illinois in the past two years. Another deal for a Nebraska bank was recently terminated due to state opposition. This shopping spree comes after more than 20 years of mostly organic growth averaging close to 20% annually.

In becoming a serial acquirer, GreenState has attracted criticism from some community banks that say credit unions’ tax-exempt status gives them an unfair financial edge at a time when many financial institutions are considering acquisitions as a potential growth path.

BAI recently spoke to Jeff Disterhoft, GreenState’s president and CEO for more than two decades, about his credit union’s ambitious M&A plans.

The interview has been edited for length and clarity.

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BAI: What are you trying to achieve with your bank-acquisition strategy?

Jeff Disterhoft: We’ve always been believers that size lends itself to greater efficiencies through pricing advantages with our vendors and things of that nature. That added scope and scale really matter in today’s very competitive financial landscape. We’re also enhancing and expanding convenience for our member-owners, and we’re expanding our product lines. There are things that we pick up and learn along the way from the institutions that we acquire that we can bolt on top of our existing operations, so it expands the breadth of what we do for a broader set of people.

You’re doing all these deals during the time of COVID-19, which must create some unique challenges. What pandemic-related challenges have you and GreenState encountered on the acquisition front?

When COVID started hitting here in the United States, I don’t know that anybody really knew from an economic standpoint how things would feel in terms of unemployment, loan quality, those kinds of things. Aside from that, some of the bigger challenges that we run into are really more operational in nature. Little things like employee training—you’re talking about onboarding and training bigger groups of people, which presents a variety of challenges for us. Then there’s relationship building, whether it’s between department leaders, key clients, key credits, community leaders—all the things that you think would be a natural part of an acquisition. In some cases, they are definitely made more onerous by COVID.

Given where GreenState is in its digital banking strategy, how difficult will it be to get everyone at your acquired banks up to the same level?

We have a digital road map that we developed two years ago, and we continue to methodically make our way through it. I think we’ve got a good vision of where we’re trying to get to, and we have the resources to help us get there. At the same time, I think we all recognize that we can compete with digital delivery, but I don’t think we can necessarily win at it. Our budget for digital delivery is probably what Wells Fargo spends on paper clips. To think that we’re going to truly beat our largest competitors at digital, I just don’t think that’s reasonable. It’s table stakes to be really good, if not great, but I don’t see it as being the primary driver for consumer behavior.

Your deals have prompted complaints that GreenState has an unfair advantage due to its tax-exempt status and that you’re straying far from the credit union’s historic role of serving the underbanked. How do you respond to those complaints?

The first step is to acknowledge the fact that there are some folks we’re not going to be able to convince or change their perspective, and I both respect and understand those perspectives. I would probably agree that the credit union charter structure does have an advantage in that it does not pay state or federal income taxes, but as long as we are passing those savings back to our 350,000 member-owners in our rates on loans and deposits, then I think the charter is working the way that Congress intended it to. As far as serving the underserved, I think GreenState had more loan losses in 2019 than the largest five banks in the state of Iowa combined, which tells me that GreenState continues to take chances on people of low and moderate income.

Terry Badger, CFA, is the managing editor at BAI.

Learn how financial services organizations can prepare for and capitalize on M&A growth opportunities in the BAI Executive Report, “Bank M&A is here to stay”