Some call it luck. Others call it making their own lemonade out of others’ lemons. And more and more credit union executives are breaking out the pitchers as they take advantage of banks’ sour times to snap up branch offices.

Just a few years ago, banks were so caught up in the race to lend money to anyone breathing that they seemed to be opening branches on every corner. Now a good number of those buildings are for sale. It’s not just that banks aren’t lending; many need to cut costs to maintain capital. And a flood of financial institution mergers means that acquirers need to unload branches that are practically on top of other offices.

Quenching His Thirst

Among the happy lemonade-makers is CUES member Marshall Boutwell, president of $158 million, 29,000-member Gwinnett Federal Credit Union. More than a year ago, Boutwell says, it became apparent that the eight-branch credit union needed an office in Windsor, west of its Lawrenceville, Ga., base. Subsequently, a Gwinnett FCU branch manager heard that a local bank wanted to unload an office in the town, and alerted Boutwell.

“Theoretically, it was a well-thought-out location for the bank,” Boutwell says. “They put some research into it.” Nevertheless, a large portfolio of non-performing loans meant the bank needed to get rid of the branch to cut jobs, save money and husband resources. But if the facility simply was closed, the bank would have to write it down to fair market value, an unappetizing prospect because that was well below book value.

Boutwell got in touch with the head of the bank, asking what he wanted to get out of it. The answer was $1.2 million to $1.4 million, considerably more than Boutwell was interested in paying.

“So I said, ‘Let’s do this another way,’” Boutwell recalls. He offered to lease the office for the same amount the credit union was paying for a branch about 10 miles away. If that would cover the bank’s carrying costs, he figured, the CEO would agree. He did.

But Boutwell was thinking beyond the basic economics involved. In the worst case scenario—if the CEO turned him down—Boutwell knew he would have made a friend with his reasonable attitude. In the best case, the bank would fail, and Gwinnett FCU would have had six months or more to test the location—and, as a leaseholder, the CU would have the inside track on buying the property from the Federal Deposit Insurance Corp., for 50 or 60 cents on the dollar.

During the three months it took the FDIC to approve the lease, the banks’ fortunes slid further. Eventually, as Boutwell had suspected it might, the bank failed. At press time, Gwinnett FCU was awaiting FDIC approval to purchase the branch. “We believe we have a deal,” Boutwell says, adding that it hadn’t closed yet. The price should be around $625,000 for the 3,600-square-foot, four-year-old facility—or about half the book value. And that includes furniture and equipment.

“Because we had the lease in place, we were in the driver’s seat on the purchase price negotiations,” Boutwell says. The terms of the lease, which were enforceable, effectively prevented the FDIC from selling to another financial institution, since no one would be likely to buy a facility subject to a 14-year lease. “Therefore, we negotiated up a little from a price that an investor would be willing to pay for a property with tenant.”

The lease means another benefit: The credit union will get credit at closing for half the lease payments it made over the past year. “All said and done, we figure that we saved $75,000 to $125,000 compared to what another bank or credit union would have been willing to pay for this facility.

Boutwell is evaluating other former bank buildings to fill one or two coverage gaps in Gwinnett FCU’s branch network.

Opportunity Found

Like Gwinnett FCU, Wichita, Kan.-based Credit Union of America knew what it needed when opportunity presented itself last fall.

“Early last year, we had had a market analysis done to look at branch distribution in town—what holes and gaps we had, competition, population density,” says CUES member Paul Meissner, SVP/chief financial officer. “We identified parts of town that would be good candidates for branches.”

The $327 million, 34,000-member credit union commissioned the report after the Wichita Eagle newspaper did its own study that showed the southern Kansas city was one of the most saturated in financial-institution branches among municipalities of similar size.

When Bank of America announced it was closing some 10 percent of its branches, nominally due to “changing customer preferences,” it included one Wichita facility that met CU of America’s location needs. Credit union executives priced other area properties, inspected the facility inside and out, and then President Bob Thurman, who is also a CUES member, submitted a bid.

What happened after that was interesting, Meissner says. Although the sale was supposed to be by sealed bid, after the deadline passed, BofA called to ask if the credit wanted to increase its offer. The CEO declined. Shortly, the credit union learned it already had the high bid.

Still, things moved quickly. The bid deadline was in August; the CU learned it had won in September, and the deal closed in mid-October.

Although BofA kept the facility open during part of the process, by the time of the actual purchase, it had shuttered the location. Only six weeks after it closed, the building re-opened as a CU of America branch.

The swift turnaround was possible because of advance planning. “We had set up the branch on our accounting system in advance, so if we got it, it would be in place,” Meissner says.

CU of America also got bids from contractors put together before the deal closed. Once the papers were signed, the credit union was able to move quickly on needed cosmetic work: paint where needed, new carpeting and reupholstering some good-quality furniture the bank had left behind.

There are just a few bank branches near CU of America’s new location: one directly across the street, as well as another about a half-mile west. By saturated Wichita’s standards, that’s not bad. And it has worked out well for the credit union.

That’s partly thanks to the site study. “We knew in general it was an attractive location,” Meissner says. “It’s kind of a sweet spot.”