By Ray Birch
ROYAL OAK, Mich.—The coronavirus pandemic has caused a number of credit unions considering buying a bank to hit the pause button, according to Michael Bell, who believes that coming out of the health crisis CUs should see a bigger opportunity to buy bank branches.
Bell, an attorney with Royal-Oak Mich.-based Howard & Howard who pioneered credit union acquisitions of banks, said about half of the deals he has been working on have been tabled temporarily.
“Some have paused, while others are still plowing ahead,” said Bell. “I’d say it’s about a 50-50 split. We’ve closed a transaction in April. We are closing another in May, and we have more in the pipeline awating regulatory approval. . I’ve got new ones coming up, and then others who say, ‘Let’s take a pause.’”
Bell represented Tinker FCU, Oklahoma City, Okla., during its recent purchase of Prime Bank. The deal is set to close later this year.
Why some credit unions are now resting on bank deals, asserted Bell, is they are focused on helping their members through the health and economic crises.
“Everybody wants to focus on their own machine for a while, batten down the hatches and focus organically,” said Bell.
Credit unions are also concerned about their own bottom lines as they waive revenue-generating fees and defer loans, as many CUs have already told CUToday.info.
But Bell does not believe the pandemic’s economic fallout will lead to a significant decline in the number of credit unions out of bidding for banks.
“Credit unions that are looking to buy banks, and those that have recently lined up to do so, have large capital buffers that I don’t believe the pandemic—as long as it is not protracted—will drop to levels to take them out of these deals,” he said. “These are strong, solid credit unions.”
But the pandemic is expected to lead buyers to pay even more attention to value in any bank acquisitions.
“I don’t think the pandemic will impact how a credit union would value a bank, but the situation is cause for pause—simply because what we are experiencing now is unprecedented. I just think we need to get through a little more of this crisis and buyers will become very confident in their valuations. I think some credit unions are saying let’s just give this a month or two,” stated Bell, prior to Teachers FCU adjusting its agreement with New Buffalo Savings Bank.
Michael Bell
Terms in One Deal Change
Teachers Credit Union in South Bend, Ind., recently disclosed via a release on its website that it has changed the original terms of its purchase agreement with New Buffalo Savings Bank, based in New Buffalo, Mich.
The original terms of the transaction had shareholders receiving $28.42 per share in cash for each share of outstanding New Bancorp common stock. Under the revised terms, New Bancorp shareholders will receive $26 per share in cash for each share of outstanding New Bancorp common stock.
The adjustment in the per share price was based primarily on a significant increase in the termination cost of New Buffalo’s defined pension plan due to the decline in long-term interest rates, as well as significant economic and market uncertainties related to the COVID-19 pandemic, the CU stated.
Deal Called Off
Also, what would have been the biggest bank acquisition by a credit union to date has been called off, due in part to the coronavirus pandemic. The $746-million Apollo Bank, headquartered in Miami, and $10.4-billion Suncoast Credit Union in Tampa have mutually terminated a planned merger announced in December of 2019, the Miami Herald reported.
Bell forecast early this year credit union purchases of banks would be at about the same levels as 2019, when more than 10 deals were struck, or slightly higher. As CUToday.info reported, more than 30 sales of banks to credit unions have closed since 2011, when Michigan's United FCU got things started by acquiring $81-million Griffith Savings Bank in Indiana.
Pent-Up Demand
The pandemic will certainly limit those agreements for a moment, but Bell believes they will come back strong by the end of the year or early next year, assuming the pandemic is largely brought under control and there is no resurgence in 2020.
“There is going to be pent-up demand for these deals,” said Bell. “I think we could see a really strong year for these sales in 2021.”
Bell also contends there will be “pent-up” sellers.
“I believe there will be a number of banks coming to the table later this year who were looking to sell right before the pandemic hit,” said Bell. “I think a large number of sellers have hit the pause button, as well.”
Bell beleives more banks will be considering selling post-pandemic due to two reasons—downsizing to reduce expenses, and the health crisis and economic downturn making decisions clearer.
“As a result of this we'll see some banks downsizing, selling branches, giving credit unions a greater opportunity to buy branches,” said Bell. “I think this could be a much bigger opportunity for credit unions than in the past.”
Off the Fence
The pandemic will also nudge a number of bank sellers off the fence, according to Bell.
“I don’t think we will see a bunch of banks coming out of this pandemic selling damaged goods, although there will be some of that,” said Bell. “I don’t think we will be looking at fire sales. But what will happen is those who before the crisis were considering selling, but for whatever reasons were holding back, will finally make a decision.
“Yes, this crisis will certainly hurt some banks and credit unions in ways that will take them away from these agreements,” continued Bell. “But on the other hand, I think we will see more come to the table when this is all over.”