VyStar Credit Union’s latest bank purchase deal sparked renewed criticism from bank trade groups, but CEO Brian Wolfburg isn’t planning to let up.
The $10 billion-asset credit union recently announced an agreement to
The deal is notable not just for the added heft it will give VyStar but because the bank being acquired is twice the size of the seller in the previous record for a credit union deal to acquire a bank. In late 2019 Suncoast Credit Union in Tampa, Fla., agreed to buy the $747 million-asset Apollo Bank in Miami, but that deal was
"If we don't continue to grow, if we don't continue to gain scale ... we are not going to have the resources necessary to provide the financial services that our members demand, and we are not going to be able to remain relevant," said Wolfburg.
Heritage Southeast would be VyStar’s second bank acquisition in two years, following a 2019 agreement to
"We have not lost our way on being a credit union," he said. "We are able to do some things — especially in small and underserved markets — that others who are looking specifically at ROI can't."
That includes a push to help bring underbanked consumers into the fold, he added. “We are moving into a lot of communities where we are going to be the only or one of two financial services institutions. And the fact is that our makeup, our model and our organizational structure with our members being our owners enables us to stay in those markets and make sure that people have access to financial services. That is what we're trying to accomplish."
Those good intentions haven’t stopped criticism from the Independent Community Bankers of America, which has
That’s not likely to stop the criticism, though, in part because the deal is so large. VyStar will pay $195.7 million in cash for Heritage Southeast, according to details released by Hovde Group, which advised the bank. The price valued Heritage Southeast at 184% of its tangible book value.
Wolfburg said the pricing was in line with what is typical for bank acquisitions when the seller's stock is held by very few owners.
"You could not have gone out and bought this institution on the market," he said. "It doesn't trade that way, so to look at the premium-to-share price is skewed a little bit."
The deal is a strategic transaction for VyStar, allowing it to expand its operations beyond Florida, which enhanced pricing for the seller, said Dennis Holthaus, a managing director at Skyway Capital Markets in Tampa.
Heritage Southeast does not have branches in Atlanta proper, but does have a presence north and south of the city, as well as in Savannah, Ga. Wolfburg said VyStar hopes to expand its branch presence around the city, as well as building more branches to bridge the gap between metro Atlanta and Savannah.
Holthaus said the seller’s size and the positive impact it will have on VyStar’s efficiency will also enhance the seller’s valuation.
"Because of these type of factors, I really don’t find the pricing unusual. A couple of years ago, a transaction like this would have probably been more like 200% of tangible book value," he said.
Leonard Moreland, Heritage Southeast’s CEO, said the bank was not necessarily looking for a merger partner, but Vystar's offer was too good to pass up. "The pricing side of it was hard to argue with," he said.
Moreland wasn’t worried about any possible stigma being attached to bankers who sell to credit unions. He said the lines continue to blur between banks and credit unions, and the skill sets are becoming more aligned. Right now, his focus is on helping staff integrate with VyStar.
"From everything I have seen so far, the [credit union] mission is very similar," he said.
Still, the deal has raised eyebrows.
In an April 6 note to clients, Laurie Hunsicker, an analyst at Compass Point, said VyStar's tax-exempt status could be one reason it was able to pay "such a rich price tag, raising an age-old question of how tax-paying banks can effectively compete against tax exempt CUs" that offer the same services.
Keith Leggett, a retired American Bankers Association economist who frequently comments on credit union issues, suggested VyStar “has been very aggressive [and] expansive,” and described the institution as “a small regional bank disguised as a credit union.”
Large credit unions — like many banks — are enjoying a surge in liquidity. "There's not a lot of loan demand, so they're asking, How can I deploy this cash?" said Leggett.
There’s some irony to the fact so many credit unions are acquiring community banks, Leggett said: "The benefits of the tax exemption are going to bank investors."
"Banks will talk sometimes about their corporate tax rate, but what they ultimately pay is a much lower rate than is published," said Wolfburg, adding that VyStar pays plenty of taxes in communities where banks have closed branches.
"We don't have shareholders that are out of town, out of state [or] out of country who are disconnected from the members we serve," he said.
More to come?
VyStar-Heritage Southeast is the second deal this year in which a credit union is buying a bank. Wings Financial Credit Union in Apple Valley, Minn., has agreed to
And while VyStar will have its hands full with the Heritage Southeast integration, Wolfburg said the credit union could still consider other bank options further down the road. "But they will have to be ones in which who we are and what we go to market with is going to be well received and a good fit," he said.
Holthaus suggested VyStar may be an outlier, since even among credit unions looking to buy community banks, most parties on either side of the transaction are not usually this large. And even among the largest credit unions, not all are looking at buying a bank, he said.
"I think the sweet spot for seller size will continue to be in the $100 million to $500 million-asset size territory, but there will always be exceptions," he said. He added that as the U.S. economy recovers and COVID-19 recedes, the number of deals announced will continue to increase because the strategic reasons for transactions have not changed.
This year may still see fewer announcements than pre-pandemic numbers, however, because credit union capital ratios are still under pressure due to the organic growth levels taking place in the industry, he said. Until the growth of deposits slows down and some money starts to go back out, capital ratios are going to stay under pressure, Holthaus said.
"Industry ROAs are not keeping pace with asset growth. It probably won’t be until next year that deal volumes will get closer to 2019 levels," he said.
Leggett described the deal as an "ideal acquisition" from Vystar's point of view. He said VyStar has been expanding its commercial book of business. Buying Heritage Southeast should accelerate the trend, he said.
But Wolfburg said VyStar and Heritage Southeast are on "equal footing" in commercial lending. He said VyStar has about 45,000 small-business customers.
"VyStar is a well-versed commercial lender already," he said. "And we offer the whole spectrum of products and services. This is not an inexperienced credit union buying into a commercial bank."
John Reosti contributed to this report.
