By Ray Birch
MONROE, Ind.—A bank has announced plans to purchase a credit union here.
The $700-million First Bank of Berne in Berne, Ind., intends to merge in the $18.4-million Adams County Credit Union in Northern Indiana, the CU confirmed for CUToday.info.
The acquisition plan follows eight years of credit unions purchasing banks and is in line with a forecast by several analysts that such acquisitions by banks of CUs are likely.
Terms of the deal have not yet been disclosed. Calls to First Bank of Berne were not returned.
Adams County CEO Jon Bell said the credit union will first convert to a mutual savings bank and then immediately merge into First Bank of Berne, the pathway for the agreement under Indiana law. The deal awaits shareholder, member, and regulatory approvals.
Bell said the credit union’s agricultural lending focus fits the banks’ needs.
Richard Garabedian
“It's a situation where we are a unique lender and we have a unique market. First Bank of Berne obviously operates in the same geographic area and they are familiar with the niche market we have,” said Bell. “It just made sense for us to look at them as a potential acquirer.”
Not a Surprise
Echoing comments he made in a previous CUToday.info report, Richard Garabedian, counsel with Hunton Andrews Kurth, LLP, who has been involved in a number of CU/bank agreements, told CUToday.info he is not surprised this deal is pending. He expects more will likely follow.
“I have had conversations with several banks about buying a credit union,” Garabedian said. “In fact, I know of a deal a couple years ago that would have happened had not the credit union’s chairman stepped in and got in the way.”
Garabedian thinks just as momentum has built for credit unions buying banks since 2011, when Michigan's United FCU got things started by acquiring $81-million Griffith Savings Bank in Indiana, momentum could build as well for banks buying CUs.
"Maybe bankers will see this can be done and more will choose this route to grow,” he said.
No Easy Task
But acquiring a cooperatively chartered credit union is no easy task. NCUA has put in place more stringent rules for such purchases for federally chartered credit unions. In a previous report he suggested bankers placing pressure on Congress to examine credit union bank buys might someday encourage Washington to influence NCUA to adjust its rules for banks buying credit unions.
Though rare, a bank acquisition of a credit union would not be a first. Garabedian said approximately five such deals have already taken place, the most recent a decade ago when Nationwide Savings Bank purchased the Ohio-based Nationwide Credit Union. He said most of the CU acquisitions have been made by mutual banks. Also, earlier this year, Alliance Bank, Waco, Texas, bought the loans but not the deposits of neighboring Texas Farm Bureau FCU.
A Record Year
As CUToday.info has reported, it’s been a record year for CU/bank buys, approaching 10, with more expected by year’s end, according to the pioneer of these deals, Michael Bell, attorney and counselor with Royal-Oak, Mich.-based Howard and Howard.
“There is a legal pathway for a CU to be acquired by a bank,” Bell said. “It was just a matter of time before it happened. The members can democratically select to be acquired—in the end it’s up to them. I can’t say it’s harder for a bank to buy a CU; there is a clear pathway to do so. They key is the democratic process and the CU members’ right to be informed and choose.”
In the wake of conversions and attempted conversions by credit unions to convert to for-profit banks, NCUA cracked down on disclosures and procedures for doing so, requiring a majority of members rather than a majority of voters, for example, to OK the deals.
Michael Bell
CU is Privately Insured
Since Adams County CU is privately insured through American Share Insurance (ASI), NCUA’s new rules around merger transparency, including publicly disclosing compensation being paid to credit union management and board members, do not apply.
Garabedian noted members get paid when a bank buys the credit union.
“If you buy a credit union, you're going to buy out its net worth at some premium, and then that's distributed to the membership,” Garabedian explained.
Adams County CU has just over 1,000 members, and while it has $18 million in assets, it does not have a website.
What could drive further interest in banks purchasing credit unions, according to Garabedian, is banks are already looking at smaller-size merger transactions. According to data from S&P Global Market Intelligence, the number of bank merger deals through Nov. 1 are up slightly (4%) over the previous year, but the dollar volume has significantly declined.
The American Banker pointed out that excluding BB&T’s $28.1 billion agreement to buy SunTrust, a combined $21.2 billion in deals have been announced this year—19% lower than at the same point last year. Less than 10% of the deals announced this year have involved sellers with more than $1 billion in assets.
CU is Profitable
ASI financial data on Adams County CU show the credit union has made money each of the last four years—$162,179 in 2016, $178,052 in 2017, $184,820 in 2018 and $182,565 through September of this year. Assets have remained stable, hovering near $18.5 million over the last four years. ACCU is capital rich, with net worth of 22.21%.
First Bank of Berne made $13.2 million in 2018 and $7.3 million through June of 2019.