By Ray Birch
CHARLOTTE, N.C.—What's on the minds of bankers now with their national and state trade groups trying to block the sale of banks to credit unions?
“In my opinion, it depends on the geography and size of the bank,” says Sean Enright, a director at Hovde Group, LLC, who notes not all bank executives are in lock-step agreement with their trade groups’ stances against these deals.
Hovde is an M&A and capital markets advisory firm, and has advised more than 20 banks that have been purchased by credit unions. This article is part of a series in which other viewpoints on CU acquisitions of credit unions are shared. In the first article, two bankers whose banks were acquired shared their experiences.
Enright, in the first of a two-part series, told CUToday.info that more banks are challenging the viewpoint of their trade associations that selling a bank to a CU is bad for the banking industry, their local communities and the country. As CUToday.info has reported, for instance, here and here, various banking industry trade groups have turned up their attention on the deals, lobbying Congress and claiming the agreements steal tax money away from Washington every time a corporate income-tax-paying bank is acquired by a tax-exempt credit union.
“But if you look in certain areas of the country, such as Florida for example, we've been pretty successful in getting these deals across the finish line, and that has changed the outlook of a lot of bank leaders in that region of the country,” said Enright.
Enright acknowledged the majority of bankers were resistant to selling to a credit union when the deals began to be struck back in 2011, when United FCU in St. Joseph, Mich., acquired $81-million Griffith Savings Bank in Indiana, marking the first time a CU acquired a bank.
Driving the Change
The catalyst for change has been driven by numerous factors, but primarily by well-capitalized CUs that can make all-cash deals. That, in turn, has led to numerous deals being closed in recent years, with a paus during 2020 when the pandemic temporarily sidelined many of the sales. But that only led to a wave of such acquisitions as the market adapted to the pandemic.
As CUToday.info has reported, to date in 2022 five agreements between bank and credit unions have been closed, setting a record pace for the start of the year and likely leading to what will be a record-high number of deals in one year, a number that could exceed 20 by year-end, forecast Michael Bell, a partner and co-chair of the Financial Institutions Practice Group at Honigman, LLP, and the pioneer of such purchases.
Bell has has been involved in more than 45 whole-bank agreements, plus additional bank branch purchases.
“And more of these agreements are made as more banks and former bank executives talk,” said Enright. “It's interesting. For a lot of these deals we’ve done with credit unions in the past, we certainly had bank executives who said they would never have considered it. But they and their boards always decide to do what they believe is best for their shareholders.”
‘Couldn’t Be Happier’
Today, Enright said, there are many more bank executives who “couldn't be happier” with selling to a credit union.
“The credit union is able to pay these higher, all cash prices,” said Enright, explaining that in a cash deal the credit union can choose to pay the higher price for the bank since the credit union does not have shareholders, whereas in a stock deal the highest price a bank buyer can pay generally closely mirrors the price valuation of the bank buyer’s stock. “The bankers, too, know credit unions generally retain more employees and their benefits packages tend to be very attractive. They also don't try to force the cost-savings—such as branch closures—since they don’t have to consider shareholder value or meet the demands of Wall Street.”
Enright agreed with Bell that changing attitudes from bankers toward such combinations could lead to a record year for the sales.
Michael Bell
“More people in the banking industry are aware of these deals, and as we see more deals the more activity we're going to see…and more involvement from investment bankers trying to put together these kinds of deals, establishing relationships and connections with credit unions,” Enright explained. “All this helps increase activity.
“I think that's part of what we’ve seen over the last one to two years,” he continued. “Could we have a record year for these sales in 2022? Well, I think it already is—at least how we have started off the year. We have many deals in the pipeline. Now, how many will sell to credit unions, we don’t know. It will just depend on how things shake out.”
Smaller Banks Turn to CUs
Bell has previously told CUToday.info that smaller community banks are turning more to credit unions as the big banks move away from the smaller purchases, and Enright agreed, adding the large players are looking for bigger banks to gobble up, not only to improve their bottom lines but to meet Wall Street expectations and goose their stock prices
“Your smaller community banks don't have as many options in terms of who they can sell to now,” said Enright. “And, as I said, I certainly think there has been an attitude change toward selling to credit unions, and a lot of that has to do with more of these deals getting done.”