Why fintech-heavy Grasshopper bought a small Michigan bank

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The fintech-focused Grasshopper Bank has finalized its acquisition of Dearborn, Michigan-based Auto Club Trust, a deal that gives it a strong source of deposits.

New York-based Grasshopper said Tuesday that the cash-and-stock deal boosts its assets by more than $400 million, bringing the company's total to $1.4 billion. Auto Club Trust had been a federally chartered savings bank and a subsidiary of The Auto Club Group, the second largest AAA Club in North America.

Following the deal's closing, the all-digital Grasshopper now provides depository and lending offerings — excluding credit cards — to more than 13 million AAA members and insurance clients in the former Auto Club Trust's 14-state territory. 

Michael Butler, Grasshopper's chairman and CEO, told American Banker that the deal is an extension of the bank's strategy to grow via niche business lines. The AAA members provide a rich source of deposits in an era of high interest rates and fierce competition among banks for funding.

"Niches for a bank our size are critically important," Butler said. "I can't just go fishing in the ocean. JPMorgan Chase is out there with a yacht, and I'm driving a small speedboat."

In 2019, Grasshopper became the first de novo chartered by the Office of the Comptroller of the Currency in the Northeast since the 2008 financial crisis. Grasshopper specializes in banking for small businesses, startups, venture capital and private equity; Small Business Administration and commercial real estate lending; and banking-as-a-service. 

The bank works with about 20 financial technology companies, Butler said. It provides these firms a full-service banking platform and in exchange, "we generate more customers," he said.

"As the industry evolves, the banks that understand the technology and are open to delivering it in different and evolving ways, we believe, will have an advantage," Butler said. "This also opens up an array of funding sources for us."

Michael Jamesson, a principal at the bank consulting firm Jamesson Associates, told American Banker that many small banks were spooked by a surge in deposit costs after the Federal Reserve raised interest rates several times to combat inflation in 2022.

In the years since, many banks have revamped or expanded their deposit-gathering strategies in hopes that increased funding source diversity will bolster their ability to compete for and hold onto deposits when future disruption strikes, Jamesson said.

"It's a lot tougher out there now than it was in past eras, and everybody is focused on deposits," he said.

Grasshopper announced the Auto Club Trust deal in October 2024. As part of the transaction, Grasshopper raised $34 million in new equity. Upon closing, the acquisition resulted in 31% accretion to Grasshopper's tangible book value. The bank did not disclose the purchase price.

Many employees of Auto Club Trust joined the combined organization, according to Grasshopper. 

Jai Raju, who had been chief information officer and chief information security officer for Auto Club Trust, is now Grasshopper's head of data. Raju will oversee a newly created business line intended to help the bank leverage data, automation and artificial intelligence.