ST. JOSEPH — The proposed acquisition of Edgewater Bancorp Inc. would give United Federal Credit Union greater expertise to further grow commercial lending.
Commercial loans today account for about 12 percent of United Federal’s $2.42 billion loan portfolio, or more than $291.4 million. The addition of Edgewater Bank’s commercial banking operations will enable the credit union to dive even deeper into commercial lending.
“We see it as a strong area of growth for us in the future,” said United Federal President and CEO Terry O’Rourke.
“What they bring is expertise, decades of experience, knowledge, relationships and reputation to help us advance our own commercial lending area,” O’Rourke said. “This partnership will help us take it to the next level.”
Under the deal, United Federal would acquire the assets and liabilities of Edgewater Bank. The acquisition would add to United Federal’s branch network in Berrien County, plus loan offices in Greenville and Fremont.
The deal would strengthen United Federal’s market position within its home turf. Both United Federal and Edgewater are based in St. Joseph.
“We’ll be a financial powerhouse here in Southwest Michigan,” O’Rourke said.
Edgewater Bancorp shareholders would receive $39.47 to $43.22 in cash consideration for each share of common stock, equating to a transaction value of $28.9 million to $31.6 million. Pending regulatory and Edgewater shareholder approvals, the companies expect the deal to close in the first half of 2021.
Richard Dyer, Edgewater’s president and CEO, would become community president and lead commercial banking for United Federal in Michigan and northern Indiana.
Commercial lending boost
The ability to grow the commercial lending side of the business and write larger business loans was among the drivers of the deal, Dyer said.
Edgewater Bank has a $3 million in-house and legal cap on commercial loans. Under United Federal, the lending limit would “increase significantly” and commercial borrowers now with the bank can access larger credits as they grow, Dyer said.
“That will allow me to take care of not only existing (clients), but pick up some new businesses that I know really well but we haven’t been able to be competitive because of size,” he said. “That’s a huge plus for me. It’s going to make a big difference.”
Edgewater Bank has five offices in Berrien County — Bridgman, Buchanan, Coloma and two in St. Joseph — with $249.1 million in total assets and total deposits of $195.9 million as of Sept. 30.
The bank has had to pass on opportunities or needed to syndicate larger commercial loan requests with other borrowers, Dyer said.
“I’m running into more and more instances where as my clients are growing, they’re outpacing my legal lending limits as a smaller community bank,” Dyer said. “Now I’ll have the size and the resources. I don’t have to excuse myself out of a relationship because it’s too large for me.”
Once the deal closes, bank customers can become members of the credit union. Four of the five Edgewater Bank offices will become United Federal branches. Edgewater’s Buchanan branch will close and consolidate into a nearby United Federal office.
Technology investments
Another key deal driver for Edgewater was the need for banks to continually invest in costly technology, Dyer said. The steady migration toward digital banking over the years has accelerated during the COVID-19 pandemic, he said.
“Technology is something that’s moving forward at a fast clip and through the pandemic it just escalated in pace. For a bank my size to keep up with changing technology, the cost of technology — both from an infrastructure and a personnel point of view — was very difficult,” Dyer said. “Through the pandemic, it just told us that technology is more and more critical, so let’s partner up with someone that does it really, really well.”
Dyer cites commercial lending as one example of the accelerated growth of banking technologies in the pandemic.
Before COVID-19, the bank rarely closed a commercial loan electronically. As “people still are slightly bashful about getting together,” the bank closed on an estimated 85 commercial loans electronically, Dyer said.
“The pandemic taught us that there were a lot of different ways — a better, convenient way — to handle some of these closings, and it was more convenient for our customers,” he said. “So let’s embrace it instead of running from it.”
United Federal has invested “very heavily” in banking technology in the last three years, and “that will benefit Edgewater and its customers,” O’Rourke said.
One of the largest credit unions based in Michigan, United Federal has more than 177,000 members and 37 offices across the state — with nine in Southwest Michigan — as well as in Arkansas, Indiana, Nevada, North Carolina and Ohio. As of Sept. 30, the credit union had $3.25 billion in total assets, $2.52 billion in total deposits, and $2.42 billion in total loans (including $291.4 million in commercial loans), according to a quarterly financial report to the National Credit Union Administration.
Community-driven deal
The deal between Edgewater Bank and United Federal took root as O’Rourke and Dyer — who have known each other and worked in the same market for years — began casually talking about it a year ago.
O’Rourke described it as “what-if” conversations focused on opportunities and challenges for both institutions. Over time, the conversation evolved and the two CEOs began talking about bringing the bank and credit union together rather than continuing to compete in the Berrien County market they share.
“The more we talked, the more we realized that through this partnership we could leverage each other’s strengths and areas of expertise,” said O’Rourke, who described the deal as “all about the community.”
“We both wanted to fortify that real local focus,” he said. “Together we can do more for the financial well being of everyone that calls Southwest Michigan home.”
Attorney Michael Bell of Honigman LLP, who specializes in credit union acquisitions of community banks, and Charley McQueen with McQueen Financial Advisors Inc. advised United Federal on the transaction. Edgewater Bank was advised by Luse Gorman PC and Donnelly Penman & Partners Inc.
The United Federal and Edgewater deal is the second this year involving a large credit union’s acquisition of a smaller community bank.
South Bend, Ind.-based Teachers Credit Union at mid-year acquired New Buffalo Bancorp Inc., the parent company of New Buffalo Savings Bank. The acquisition gave the $3.88 billion (assets) Teachers Credit Union three offices in Berrien County to go with a branch in Niles to serve the Michiana market and customers living and working on either side of the state line.
New Buffalo Bancorp said Oct. 28 that directors approved a distribution of $26.25 to shareholders under a liquidation plan they approved a year ago.
In Hastings, Grand Rapids-based Mercantile Bank Corp. plans to sell a branch office to Lake Trust Credit Union as part of an ongoing initiative to shrink its office footprint.
The deal with the Brighton-based Lake Trust Credit Union should close in early 2021 and includes the 4,300-square-foot office on State Highway 43 and about $16 million in deposits. Lake Trust will relocate an existing Hastings branch on North Church Road after remodeling the former Mercantile office.
