DETROIT-Just how many more credit unions will buy banks over the next few years is unclear, but one thing is certain-there are more deals currently in the works.
One person involved in the transactions is also predicting that at least a few credit unions will, in turn, be purchased by banks.
Two attorneys who have been involved in agreements in which credit unions have purchased banks confirmed for Credit Union Journal that there are several potential deals in the pipeline. Michael Bell, attorney and counselor with Howard & Howard, who has been involved in three CU purchases of banks, said he is currently in discussions with eight credit unions across the country that are considering acquiring a bank. Richard Garabedian, a partner with the Washington-based firm of Luse Gorman Pomerenk & Schick, who represented Monadnock Savings Bank when GFA FCU acquired it (Credit Union Journal, March 2, 2012), is talking with three banks, he said.
"There is a great deal of interest from credit unions in this opportunity now," offered Bell, who said he is involved with a bank and credit union that may announce an agreement soon. "It's hard to say how many of these discussions will turn into deals, as there is no telling how discussions and negotiations will go. But there will be more credit unions buying banks in the next two years."
Bell stressed that market conditions support these arrangements, saying many credit unions are looking to grow through merger to not pay the price of starting a de novo branch and waiting years for payback. "Acquiring a bank has shown that these transactions can throw off cash to the bottom line right after closing. I think studies show that starting a de novo office can take at least five years to attain profitability."
Garabedian predicts at least two to three more deals in which CUs pick up banks will come to pass in the next two years. "We have a couple clients we are in serious discussions with now."
Purchases Driving Purchases
What is helping pave the way, said Garabedian, are the growing number of headlines about CU/bank purchases. Over the last 18 months Wisconson's Landmark CU acquired Hartford Savings Bank, Massachusetts' GFA FCU acquired New Hampshire's Monadnock Savings Bank, and Michigan's United FCU picked up Griffith Savings Bank in Indiana. Now Municipal Employees CU of Baltimore has agreed to acquire Baltimore-based Advance Bank (CU Journal, April 8).
"I think credit unions and banks are getting more comfortable with this," said Garabedian. "They are seeing more of these transactions completed, both by mutual banks and stock banks."
Bell says a growing comfort level from credit unions is surfacing in talks he is having with CUs today. "No longer do we really hear, 'Is this a good fit for me?' We are past that now. What we hear more is, 'How do we find our best candidate? What are the next steps?' That is where there is more attention now."
Garabedian reminded that the answers to finding the right fit come from paying attention to asset compatibility, field of membership and size. "That's a lot of what NCUA has looked at."
Both Garabedian and Bell feel that NCUA, having now worked through a number of these deals along with one for a stock-owned bank, is becoming more comfortable with the concept. Garabedian said the credit union regulator was flexible in the Monadnock sale.
"For example, the maximum maturity on a credit union member business loan is 15 years. Monadnock had some business loans with longer terms than that. But NCUA has provided some time to GFA to deal with those issues, possibly working things out on an individual basis for each borrower."
Interest in the Northeast
Bell said CU interest in bank buys is coming from all over the nation, yet he would not be surprised if there was a concentration in the Northeast. "Obviously certain parts of the country have higher concentrations of smaller thrifts, mutuals and banks," said Bell, adding that the "wheelhouse" for these buys are banks $150 million in assets or below, with one to three branches. "One great example is Massachusetts, where there might be more mutuals than any other state."
One aspect of these arrangements credit unions should always pay attention to is they take time, reminded Bell. "That is where there is disadvantage over a credit union merging with another CU. This will take six to eight months, primarily due to the fact five regulators must approve the transaction-NCUA, FDIC, the OCC and state regulators. "A CU to CU merger in some states can be done in 30 days."
Garabedian emphasized what most credit unions that have blazed this trail have said-considering banks as a merger partner simply gives the CU more choice. "A lot of bank executives know their credit union counterparts in their communities, that will facilitate discussions and potential marriages," said Garabedian. "I think, too, we will see a couple banks acquire credit unions in the next two years."