Wisconsin-based Verve's acquisition of Chicago's South Central Bank is the second time in the past seven months that an out-of-state credit union has bought a local bank.
The parent of Chicago’s South Central Bank has a deal to sell to a Wisconsin-based credit union, becoming the second local bank to merge with an out-of-state credit union in the last seven months.
Oshkosh-based Verve Credit Union, which has $986 million in assets and serves nearly 60,000 members in a wide band of central Wisconsin from Lake Michigan west to the Mississippi River, is entering the Chicago market with the deal, announced this morning. Neither party disclosed the sales price, but they said it was higher than the going rate of about 1.5 times book value for community banks in Chicago.
That would put the price at more than $43 million, all in cash.
The deal gives Verve a valuable foothold in some of the fastest-growing parts of the city. South Central is a low-profile bank, but it has a branch in the West Loop office building that is Google’s Chicago home and another in Chinatown. All in all, the bank has five locations in the city, with headquarters at 525 W. Roosevelt Road in the South Loop.
Formed in 1965, South Central has carved a niche as a successful community lender tending to small, established businesses in the city. It had $296 million in assets as of March 31.
Todd Grayson, 55, South Central president and grandson of the bank’s founder, will stay on and serve as Verge's regional president for the Chicago market. The combined credit union will have $1.2 billion in assets and nearly 66,000 members in Wisconsin and Illinois once the deal closes, which is expected in the fourth quarter.
Verve CEO Kevin Ralofsky said he’s been hunting for a merger partner in Chicago for two years. “We looked at over 100 deals, and this was the one that really stood out to us.”
With market shares approaching 40 percent in its core Wisconsin markets, Verve needed room to grow. Chicago is the first truly urban market Verve has entered, so retaining Grayson was important to making the deal work, Ralofsky said in an interview.
Helping immensely is that Verve, unlike many credit unions, isn’t subject to a regulatory restriction on how much it can lend to businesses. It’s been a business lender for at least 20 years and so has been freed of the typical cap on the amount of business loans as a percentage of bank capital, Ralofsky said.
That surely won’t come as good news to Chicago bankers who chafe at what they perceive as the unfair advantages credit unions have and have lobbied aggressively but unsuccessfully to require credit unions to pay at least something in income taxes. Since credit unions are technically owned by their members, they are deemed non-profits and aren’t taxed. That enables them often to offer higher rates on deposits and better pricing on loans.
Traditionally, they are mainly lenders to their members, offering affordable mortgages and car loans. But over time they’ve eaten into the business lending arena that once was the nearly exclusive province of banks.
Grayson in an interview said there was competition to buy South Central from other banks. But Verve presented a compelling offer and a comfortable cultural fit, he said. The same employees will be staying on, although the bank will be rebranded as Verve.
Having a parent with assets topping $1 billion will enable the Chicago operation to serve larger business customers. Some of South Central’s current customers are growing to as much as $20 million in revenue, so they’re at risk of outgrowing the bank because of its size, he said.
Verve will focus at first on the integration, but don’t be surprised to see it pursuing additional acquisitions in the Chicago market. There’s plenty in the war chest, even after the South Central purchase. As of March 31, Verve had well over $100 million in equity not including reserves for loan losses. It earned more than $2 million in the first quarter alone.
And, of course, it didn’t pay any taxes on that $2.1 million in net income.
Observers have predicted more credit union purchases of local banks since Golden Eagle Community Bank in northwest suburban Woodstock sold to a Michigan credit union late last year. It’s a national trend, and Chicago has more small banks than most markets elsewhere in the U.S.
Verve was represented by McQueen Financial Advisors of Clawson, Mich., and Howard and Howard of Royal Oak, Mich., in the transaction. Paul A. O’Connor of Janney Montgomery Scott and James Kane of Vedder Price represented South Central.