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A tepid economy and regulatory uncertainty together make for strange bedfellows, as epitomized by recent deals to sell two banks to, of all things, credit unions. And along with the deals comes renewed debate on whether the nonprofit institutions should be taxed.
March 16 -
GFA Federal Credit Union of Gardener, Mass., has agreed to acquire Monadnock Community Bank, a troubled former credit union located in nearby Peterborough, N.H., in the second credit union deal for a bank over the past few months.
March 2 -
United Federal Credit Union in St. Joseph, Mich., has agreed to buy Griffith Savings Bank.
July 27
Fewer than 250 credit unions are equipped to buy community banks, according to an industry expert who has researched the potential for such deals.
David Bartoo, the president of Merger Solutions Group, says he believes there is potential for credit unions to acquire banks, though he also believes the potential for such deals is limited.
"Looking at the numbers, is the possibility there for more of these bank/CU unions to take place? Absolutely, and it will happen again," Bartoo told the Credit Union Journal, a sister publication. "Is it going to become a trend or more commonplace? I would not hold my breath on that."
Credit unions are believed to have a
There are more than 3,000 banks with total assets of $25 million to $100 million, Bartoo says. In comparison, there are 719 credit unions with assets more than $250 million in assets.
Of the 719 credit unions above $250 million in assets, only 516 are community chartered and have the ability to serve a bank's entire customer base. Only 221 of those credit unions have capital levels of 10% or more. Credit unions determine capital ratios by dividing retained earnings by assets.
"United was in a good capital position at 11%. If they acquire a bank and bring no capital over, they can absorb the hit," Bartoo says. "You have to have the cash base. I think someone should take their hat off to United for having an open mind and opening doors. I hope it works out well for them and the people who come over from Griffith."
Still, credit unions exploring the possibility of acquiring a bank are being offered some advice by Sterne, Agee & Leach, which conducted the valuation on Monadnock Community Bank prior to its acquisition by GFA.
"If you are looking at a bank, particularly if there is a stock component to it, you are best served to hire a financial advisor," says Bob Hutchinson, the head of depository institutions investment banking at Sterne Agee.
"But more important, the nature of the valuation should be in the context of not only what is the bank intrinsically worth, but how does the acquisition fit in with and enhance your current strategic plan," Hutchinson says. "The credit union should not look at a valuation in isolation. Look at how an acquisition of a bank can expedite, enhance, or further your plan. Look at the deal in the context of what kind of value you create for the credit union as much as you look at the kind of value that bank has achieved on its own."
Hutchinson says he sees a blurring of lines between depository institution partnerships, adding that it may be more cost effective at times for banks and credit unions to look across charters for expansion opportunities instead of spending money on de novo branching.
"We may be witnessing the beginning of a world in which mergers between different financial institution charters become more common," Hutchinson says. "Because if the arrangement enhances a strategic plan, that is meaningful. And with cost structures increasing for both credit unions and banks, I think looking at mergers and acquisitions across charters can be intelligent decisions."
