WABASH, Ind. — Beacon CU is acquiring Midwest Ag Finance, in a rare credit union-bank purchase and assumption.
The announcement comes following votes by both institutions' boards to move forward with the proposal.
The transaction, which remains subject to final approval by the Indiana Department of Financial Institutions, includes the purchase of assets and assumption of liabilities. Because Beacon is a privately insured state charter, NCUA approval is not required.
"We are very pleased to welcome the team of Midwest Ag Finance and their customers to the Beacon Credit Union family," said Kevin Willour, Beacon's CEO, in a statement. "Having developed an outstanding partnership with Midwest Ag Finance for the past 15 years, we recognize that they bring with them a strong reputation in agricultural finance, and we believe our two business models fit very well together. Our similar lending philosophies, along with the knowledgeable, experienced and adaptive staff from both organizations will provide for a smooth transition."
Willour added that the acquisition will expand Beacon's ability "to provide quality agricultural-based financial products and services to all corners of Indiana."
The $1.1 billion Beacon, which was originally formed in 1931, offers a full range of financial products, but specializes in the agricultural community.
Midwest Ag Finance was established in 1998 and describes itself as an "alternative to larger financial institutions and their one size fits all' approach to business." The firm offers farm real estate, equipment, operating, PSA guaranteed and commercial agribusiness loans; crop insurance and equipment leasing.
As part of the deal, Beacon will retain Midwest Ag's staff, including its current president and founder, Jerry Nickel, who will join Beacon's senior executive team.
"We started Midwest Ag Finance because we recognized that the agricultural community was in need of financial resources that were delivered in a consistent and dependable manner whether in good times or in bad times. To ensure that this legacy continues, it was critical for us to find a partner that was not only a stable, dependable lender, but more importantly, one that was deeply rooted in agriculture and shared this same vision. We can say with certainty that Beacon Credit Union is that partner."
Michael Bell, attorney and counselor at Royal Oak, Mich.-based Howard & Howard law firm, who is representing Beacon, called the deal "a wonderful transaction for Beacon, the state of Indiana and the credit union industry."
Bell added that Midwest and Beacon "are both exemplary Indiana institutions and this transaction assures that it will remain that way. This also provides further evidence for credit unions to examine non-organic growth opportunities. Beacon is a strong credit union and will become stronger through this transaction."
Although such a combination is somewhat unusual, the Beacon-Midwest AG transaction is not unprecedented. Bell has himself been involved in four previous transactions where a credit union acquired a non-credit union, including:
*On Jan. 1, 2012: United Federal Credit Union, St. Joseph, Mich., purchased and acquired Griffith Savings Bank; an Indiana state- chartered mutual savings bank. United FCU now has assets of about $1.8 billion.
*On Dec. 26, 2012: GFA Federal Credit Union, Gardner, Mass. purchased and acquired Monadnock Community Bank, a federally chartered savings bank in Peterborough, N.H. GFA now has assets of some $423 million.
*On Dec. 12, 2013: Municipal Employees Credit Union of Baltimore Inc., a Maryland state-chartered credit union purchased and acquired Advance Bank, a federal mutual savings bank, also of Baltimore. MECU has assets of $1.2 billion.
*On June 1, 2014: Five Star Credit Union, an Alabama state-chartered credit union based in Dothan, purchased and acquired Flint River Nation Bank, a national bank.
Bell told Credit Union Journal that the Beacon-Midwest Ag deal will not face the same magnitude of regulatory approvals as the aforementioned four transactions because Beacon is privately insured and "so they just need their state regulator" to pass the deal. In addition, the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency nor any other federal agencies are involved because Midwest Ag doesn't hold deposits and is only regulated by the State of Indiana.
With respect to the activities of state financial regulators, Bell noted that based on his experience with these transactions, each regulator treats each deal differently. "However, there are some commonalities," Bell said. "For the most part, the regulatory review will focus on power and safety and soundness. The credit union must show that it has the power and right to complete the purchase, and the purchase must be safe and sound. Each transaction is unique and is a bit of a question of first impression."
In addition, Bell said more similar transactions are in the pipeline this year. "This should be the first of a few announcements of this nature in 2015," he said.
Strictly speaking, Beacon's acquisition of Midwest cannot be classified as a "merger." Dennis Dollar, an Alabama-based credit union consultant, commented that combining a credit union with another financial institution other than a credit union would not be considered a "merger," per se, but rather a "purchase and acquisition (P&A)" of one institution's assets by the other.
"There are considerable regulatory hurdles in such a P&A, but it is certainly do-able," he said.
Mary Dunn, deputy chief advocacy officer and senior counsel at CUNA, commented that financial institutions face serious regulatory obstacles in such transactions because they have to be approved by all regulators overseeing the institutions.
Field of membership also comes into play, Dollar added, if it is a bank's assets that are acquired by a credit union, and this is one of the hurdles that must be overcome.
"It has been done, and we may see more of it over the years to come because community banks are facing serious regulatory hurdles and marketplace challenges and, like credit unions, are needing economies of scale through growth to compete with the mega-banks growing their presence in communities nationwide," Dollar stated.