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Record year for bank takeovers by credit unions | Credit Union Journal

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Bank acquisitions by credit unions are only expected to increase in 2022 despite fierce opposition from banking industry associations and some recent rejections from state regulators.

Commercial pressures on buyers and sellers to continue deals are too strong, deals are sometimes too big for smaller banks to pass up, and persuading lawmakers to fight the trend is a tough sell, say dealmakers and business group leaders.

Last year, 13 banks agreed to be sold to credit unions — approaching the 2019 record of 16 such announcements — and many more deals are in the works, says a lawyer who has advised credit unions in more than 90% of transactions between banks and credit unions since 2010. .

“I expect 25-plus to announce” this year, said Michael Bell of the Honigman law firm in Detroit. “My prediction is based on the work and the flow of deals I see. I spend most if not all of my time working on these deals, and I’ve never seen so much activity.

But the banking industry in 2021 has mounted perhaps its strongest opposition to such deals yet — and state regulators have taken their side in a handful of cases, though regulators and federal lawmakers are slow to make any same.

In December, the Nebraska Department of Banking and Finance beaten down Premier Bank’s proposed sale of an $395 million asset in Omaha to the GreenState Credit Union of an $8 billion asset in North Liberty, Iowa.

That same month, a Tennessee judge issued a temporary injunction prevent the Orion Federal Credit Union, with $1 billion in assets in Memphis, from acquiring the Financial Federal Bank, with $774 million in assets, also based in Memphis.

The Tennessee Department of Financial Institutions argued the transaction was prohibited under Tennessee banking law, while its counterpart in Nebraska said that in that state’s case, the bank failed to provide evidence to the bank. support of the legality of the agreement.

Bankers say when credit unions buy banks, they starve communities of tax revenue and cut Community Reinvestment Act loans. Unlike banks, credit unions are not required to comply with federal CRA law.

“They’re gobbling up banks and hurting local economies in the process,” said Shan Hanes, president and CEO of Heartland Tri-State Bank, with $133 million in assets, in Elkhart, Kansas. . “Communities lose, states lose. It’s very, very frustrating.”

Small banks, on the other hand, sell to both major banks and credit unions as many sellers lack the scale to invest in the digital services that are increasingly in demand, said Jacob Thompson, managing director of investment banking at SAMCO Capital Markets.

There were 208 bank acquisitions announced in 2021, nearly double the 111 announced in 2020. Last year was among the busiest for bank mergers and acquisitions since the 2008 financial crisis, according to S&P Global.

“I think all of the reasons for mergers and acquisitions 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 due to their lower tax burdens. .

“But, without a doubt, these deals draw the ire of the banking industry,” Thompson said.

Independent Community Bankers of America senior regulatory adviser Chris Cole 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 raises hopes that state regulators, concerned about lost tax revenue, will increasingly step in and block such transactions, according to Cole.

“This recent news from Nebraska is significant, and we’re hoping this mini-trend will evolve into a much larger trend and we can stop it 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 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 the setback on the banking side is making those deals more difficult.

Prior to its fight in Nebraska, GreenState fought a similar battle in another Midwestern state. In 2019, the Iowa Banking Division announced plans to block Purchase of GreenState Credit Union of seven branches and related assets of First American Bank in Fort Dodge, Iowa, although this transaction was ultimately completed.

“The Iowa Superintendent of Banks issued an advisory that prevents state-chartered banks from selling to state-chartered credit unions, so we’re having trouble finding banks in Iowa willing to challenge this advice,” Disterhoft said. “Anecdotally, we have heard that some banks are interested in

sell to a credit union because credit unions are cash buyers. Unfortunately, the Superintendent’s Notice does not allow banks in Iowa to do so.

Bell said 2022 will be a pivotal year to see if commercial banking groups actually find footing with their arguments against the deals.

“Last year they really stepped up the rhetoric, and this year it will either pay them dividends or it will calm down,” he said. “I predict that the smaller banks will prevail and their rights to choose to sell to a credit union will be preserved.”

Bell said banking associations work hard to prevent their members from selling to credit unions, but ultimately achieve little success.

In 2020, the Colorado Banking Board blocked a $3.1 billion Elevations Credit Union bid to buy the $121 million Cache Bank & Trust assets from Greeley.

The 13 deals announced last year are likely a precursor to the volume to come this year, Bell said. He predicted transactions will be concentrated in regions and states that contain many smaller banks, including Georgia, Florida, Illinois and Wisconsin.

More recently, Avadian Credit Union in Birmingham, Alabama, agreed in December to buy Citizens State Bank in Vernon, Alabama.

There’s considerable pent-up demand from sellers who would have looked for a partner for the past two years but didn’t because of the pandemic, Bell said.

“Community banks have fewer potential buyers overall,” he said. “Credit unions offer a great option for improving shareholder value.”