By Ray Birch
KALAMAZOO, Mich.—Credit union purchases of banks are not only getting larger, they are beginning to increasingly reach across state lines, according to one person who believes the moves are strengthening both credit unions and communities but who also concedes the acquisitions will likely only draw more fire from the banking industry.
The latest such purchase is now underway. As CUToday.info reported, $7.1-billion GreenState Credit Union in North Liberty, Iowa, has agreed to simultaneously buy two separate banks in two states outside of Iowa. GreenState said it intends to purchase the $345-million Premier Bank in Omaha, Neb., and the $731-million Oxford Bank & Trust based in Oak Brook, Ill.
The combined assets of both banks make the deal the second-largest CU/bank purchase to date, with Jacksonville, Fla.-based VyStar CU agreeing in April to buy the $1.5-billion Heritage Southeast Bank in Jonesboro, Ga. That deal has drawn criticism from a number of banking industry groups.
Michael Bell, a partner and co-chair of the Financial Institutions Practice Group at Honigman, LLP, who is the pioneer of CU purchases of banks and who is representing GreenState, called the credit union’s move “wise” and “brave,” not only for doing two out-of-state deals at once, but also for recognizing how the agreements will likely draw even further attention from the financial industry trades and politicians.
As CUToday.info has extensively reported, most recently here, various banking trade groups have been stepping up their criticisms of credit union acquisitions of banks, telling Congress the deals are costing the Treasury tax dollars and telling state legislatures they are hurting communities.
As CUToday.info has also previously reported, the potential challenges that lie ahead for GreenState may be stronger than in Iowa, where the Iowa Banker Association has been bankers recently lobbied in Iowa for legislation that would make it very difficult for credit unions in this state to buy a bank within its borders and for a bank inside Iowa to sell to an Iowa CU. That legislation, however, did not pass in the latest session of the Iowa legislature.
Earlier, however, bankers were able to push through the legislature a bill requiring the former University of Iowa Community Credit Union to change its name.
Going East, Going West
“GreenState, the largest credit union in Iowa, is buying a $700-million plus bank in Metro Chicago and a $300-million plus bank in Omaha Nebraska,” said Bell, who has been involved in more than 40 whole-bank agreements, plus additional bank branch purchases. “They're going east and they're going west. It will be the first time a credit union has done two deals at once. We've had a number of credit unions do more than one buy over the years, and some almost back-to-back. But here, we're doing two at the exact same time.”
Bell said doing two deals at once is not more difficult, provided the credit union can meet certain criteria.
“It’s all about the credit union’s operations…either they have the bandwidth to do it or they do not,” said Bell. “From a regulatory perspective, this does not make the deals harder. We package them both together. You can do a safety and soundness analysis as a whole, which can be easier for the regulator than doing one analysis right after another.”
Bell called the agreements a clear example of “deliberate and impressive non-organic growth. I think there is a lot of strategy here. It’s not like GreenState said ‘Let’s do both of these deals at once.’ These purchases simply lined up at the same time. That’s where the bravery comes in. If you have two deals in front of you that make all the sense in the world, and it’s hard to choose which one to do; the brave strategist selects both.”
Michael Bell
Financial Performance
Both banks had been doing well in their markets.
Premier Bank has made the list of the Top 100 Healthiest Banks in America for the past six years, ranking 51st among the 5,267 banks analyzed in 2019. Premier Bank made over $4 million in 2020 and $2-million in 2019. Oxford Bank made $12.3 million in 2020 and $7.2 million in 2019.
GreenState Credit Union reported $48.7 million in net income for the first quarter of 2021, with capital of 9.9%.
“These are both great transactions for GreenState,” said Bell, who noted both banks bring commercial and business lending expertise and portfolios.
GreenState is hardly alone as a credit union in buying a bank, but despite the headlines the acquisitions are not common, said Bell, who noted that of the hundreds of banks sold each year the deals with credit unions remain a small piece of the business. Nonetheless, Bell expects the GreenState deal will likely raise the eyebrows if not ire of Iowa’s bankers, as well as bankers across the nation.
Should Be Ecstatic, But…
Bell argues, however, that the deal is good for the Hawkeye State and it would be a mistake were new legislation to arise that seeks to block such acquisitions.
“In my opinion, Iowa should be ecstatic, because a state-chartered credit union is getting stronger, getting more diverse and is growing and making a bigger impact,” Bell said. “That is not a bad thing for the state of Iowa, a state that typically supports its businesses.”
But he believes the trade groups will look to turn the opportunity into a “negative.” “They will find ways to say this is a bad thing for Iowa, when, in reality, this is just a good, strong, common-sense deal,” said Bell.