By Ray Birch
KALAMAZOO, Mich.—The record-setting pace of credit union bank buys—five in a three-week period during August—has been spurred in part by the pandemic, says Michael Bell.
Bell, the pioneer of credit union purchases of banks, said the fast pace of the agreements, too, is simply a reflection of the owners of numerous banks now wanting to sell, and a foreshadowing of what will likely be a record year for such deals in 2022.
“This is certainly the hottest period ever,” Bell said. “I don’t think this year we will reach the record number of deals we had in 2019, which was 20. But I do think we might come close.”
Why that number won’t be eclipsed this year, explained Bell, is 2021 started slow for credit union purchases of banks due to lingering effects from the pandemic.
“And 2020 was a slow year for these purchases due to COVID-19,” said Bell, who has been involved in more than 40 whole-bank agreements, plus additional bank branch purchases.
Two Factors at Work
According to Bell, two factors are driving the torrid pace of acquisitions.
“I think this fast pace is due to a combination of factors,” said Bell. “The pandemic created a backlog and now these deals are finally getting released. Buyers and sellers are saying, ‘OK, we are largely through this pandemic, we can move.’ And, there is less uncertainty about the future today.
“I think the pandemic, as well, caused a lot of banks that were thinking about selling to finally come to a decision,” continued Bell. “I think some banks, such as family-run banks, that had become somewhat tired of running their operations and dealing with the pressures of a financial institution finally said they had enough. They said, ‘I am ready for an equity event. We want to enjoy life.’ Or, the pandemic just scared them. And after coping through the last 10 years, they said they are too tired anymore. Many, I am sure, were uncertain about the future, thinking what will happen from the pandemic, and when we get through this crisis? What’s next?”
Other Factors Favoring CUs
Michael Bell
Bell told CUToday.info the number of banks that are suitable and seeking to purchase other banks has been declining, which is only opening the door wider for credit unions.
“Bank partners also like all-cash deals, and they appreciate some of the other things that come with a credit union buyer—such as retention of most, if not all, staff; branches remaining open, and communities remaining an integral part of the business plan,” Bell explained.
Bell believes the quick pace of bank acquisitions strongly signals 2022 will be a record year, passing the 20 deals in 2019.
“I think we may see three or four more credit union purchases of banks by the end of the year. But what I am really seeing now is a lot of deals in the pipeline,” he said. “This is now one of the hottest periods for deals being presented, and that is a clear indication of what is coming in 2022.”
Deals Draw Bankers’ Attention
Bell agreed the current pace of the credit union acquisitions has banking trade groups even more focused on these transactions.
As CUToday.info recently reported, the Independent Community Bankers of America (ICBA) said with the number of credit union purchases of banks now passing 100, it is “renewing” its call for “policymakers to examine the loophole contributing to these tax-subsidized acquisitions.”
The ICBA said the recent acquisitions of $489-million Citizens Bank of Florida by $4-billion Fairwinds Credit Union in Orlando and then $93-million Tempo Bank by $1.6-billion Scott Credit Union in Illinois mark the 100th and 101st credit union acquisitions of community banks since 2003, more than one-fifth of which have come since 2019.
ICBA President and CEO Rebeca Romero Rainey in a statement said, “These transactions—facilitated by a tax exemption that allows credit unions to make inflated purchase offers well above the book value of the acquired banks.”
Challenging Bankers
But Bell challenged the ICBA’s position, stating, “They are incorrect. Tthe math doesn’t work that way. Credit unions cannot afford to pay more than banks.”
Bell also questioned the ICBA’s claim that there have not been more than 100 purchases of banks by credit unions.
“I think that is wrong. The number of agreements is less than 100, going back to when this all started, when United Federal Credit Union bought Griffiths Savings bank in 2011. But, they could be counting branch buys,” said Bell.
Yet even if the ICBA is correct, Bell said that total is just a small amount compared to the overall number of banks that have been sold to other banks over the last 10-plus years.
“Let’s put this in perspective—credit unions lose many, many more deals than they win,” Bell said.
Congressional Action? Unllikely
And despite the banking industry’s demands, Bell does not believe Congress will step in and get involved.
“I can't imagine Congress intervening, because in the end it just doesn't make sense to disrupt the marketplace with artificial restrictions,” he said. “The marketplace is open—if a bank wants to buy a credit union, which we just saw with Thrivent Financial’s proposed deal, they can. Why would Congress want to shut down one side, over-regulate on one side not the other? It doesn't make any sense. I have faith in Congress that they wouldn't consider such a thing, but I do expect the noise from bankers to continue.”
Despite all the noise, banks continue to see credit unions as attractive buyers, according to Bell.
“The politics have not chilled the market,” he said.