Credit union acquisitions of banks are only expected to multiply in 2022 despite fierce opposition from banking industry associations and some recent rejections by state regulators.
The business pressures on buyers and sellers to pursue the deals are too great, the offers are sometimes too rich for small banks to pass up, and persuading lawmakers to combat the trend is a tough sell, according to dealmakers and trade group officials.
Last year 13 banks agreed to be sold to credit unions — approaching 2019's record of 16 such announcements — and many more transactions are in the pipeline, says an attorney who has advised credit unions in more than 90% of bank-credit union deals since 2010.
“I expect 25-plus to announce” this year, said Michael Bell of the law firm Honigman in Detroit. “My prediction is based on the work and deal flow I am seeing. I spend most if not all of my time working on these deals, and I have never seen so much activity.”
But the banking industry in 2021 mounted perhaps its strongest opposition to such deals to date — and state regulators took their side in a handful of cases, though federal regulators and lawmakers are slow to do the same.
In December, the Nebraska Department of Banking and Finance
The same month, a Tennessee judge issued a
The Tennessee Department of Financial Institutions contended that the transaction was prohibited under the Tennessee Banking Act, while its counterpart in Nebraska said in that state's case, the bank failed to provide evidence supporting the legality of the deal.
Bankers say that when credit unions buy banks, they deprive communities of tax revenue and reduce Community Reinvestment Act-related lending. Unlike banks, credit unions are not required to comply with the federal CRA law.
“They are gobbling up banks and hurting local economies in the process,” said Shan Hanes, president and CEO of the $133 million-asset Heartland Tri-State Bank in Elkhart, Kansas. “Communities lose, states lose. It’s very, very frustrating.”
Small banks, meanwhile,
There were 208 bank acquisitions announced in 2021, nearly double the 111 announced in 2020. Last year was among the most active for bank M&A since the 2008 financial crisis, according to S&P Global.
“I think all the reasons for M&A remain firmly in place,” Thompson said.
Thompson said sellers looking for the best price are increasingly finding credit unions to be viable buyers because they pay cash and can often afford to pay more than banks do because of their lower tax expenses.
“But, no question, these deals draw the ire of the banking industry,” Thompson said.
Chris Cole, senior regulatory counsel for the Independent Community Bankers of America, said the banking industry lobby is still trying to garner enough support on Capitol Hill for its views. Lawmakers understand the argument against credit unions buying banks. “But there just isn’t the political will,” he said.
That said, the action in Nebraska provides hope that state regulators, concerned about tax revenue losses, will increasingly step in and block such deals, according to Cole.
“This recent news out of Nebraska is big, and we are hoping this mini trend evolves into a much larger trend and we can stop this once and for all,” Cole said.
Heartland Tri-State Bank holds the same hope.
“And what we ultimately need is a moratorium across the board,” Hanes said. “If a credit union wants to buy a bank and operate like a bank, it should pay taxes just like a bank. Otherwise, it’s a completely uneven playing field.”
GreenState Credit Union announced three bank acquisitions in 2021. But its president and CEO, Jeff Disterhoft, said pushback from the banking side is making those deals more difficult.
Before its fight in Nebraska, GreenState waged a similar battle in another Midwestern state. In 2019, the Iowa Division of Banking announced it intended to block
“Iowa’s superintendent of banking rendered an opinion that precludes state-chartered banks from selling to state-chartered credit unions, so we’re struggling finding banks in Iowa willing to challenge that opinion,” Disterhoft said. “Anecdotally, we’ve heard some banks are interested in selling to a credit union because credit unions are all-cash buyers. Unfortunately, the superintendent’s opinion doesn’t allow Iowa’s banks to do so.”
Bell said 2022 will be a pivotal year to see if the banking trade groups are actually finding any footing with their arguments against the deals.
“Last year they really ramped up the rhetoric, and this year it will either pay dividends for them or it will quiet,” he said. “It’s my prediction that small banks will prevail and their rights to choose to sell to a credit union will be preserved.”
Bell said bank associations are working hard to prevent their members from selling to credit unions, but are ultimately finding little success.
In 2020, the Colorado Banking Board
The 13 deals announced last year are a likely precursor to the volume to come this year, Bell said. He predicted that deals will be concentrated in regions and states that are home to a lot of small banks, including Georgia, Florida, Illinois and Wisconsin.
Most recently, Avadian Credit Union in Birmingham, Alabama,
There is considerable pent-up demand from sellers that would have looked for a partner in the last couple of years but didn’t because of the pandemic, Bell said.
“Community banks have fewer potential buyers overall,” he said. “Credit unions provide a nice option to enhance shareholder value.”
