With more than a month remaining before the calendar flips to a new year, 2024 has already shattered the previous record for most credit union-buying-bank deals ever announced.
Most recently, Dearborn, Michigan-based DFCU Financial earlier this month announced its second whole bank acquisition in the Sunshine State with the purchase of Winter Park National Bank in Winter Park, Florida.
That deal was the 20th announced this year in which a credit union is buying a bank.
With six weeks to go in 2024, there remains the real possibility that this year could double up the 11 such deals announced last year.
Prior to 2024, the most credit union-buying-bank deals ever announced in a year was 16 in 2022.
So maybe 2024 is an aberration?
“I think it will continue in 2025,” said Michael Bell, an attorney at Honigman.
Credit unions have been making these acquisitions to diversify their portfolios into business lending and to expand their geographic footprints, among other reasons.
Bell and others on the credit union side like to characterize these deals as a “win-win”—credit unions can take their low-cost products into new markets without building branches and banks get an all-cash buyer that will keep the branches open and bank workers employed.
But Brad Bolton, President and CEO of $205 million-asset Community Spirit Bank in Red Bay, Alabama, told Tyfone the notion that credit union acquisitions of community banks benefit everyone involved simply isn’t true.
“In reality, these deals, often promoted by investment bankers, drive industry consolidation and limit consumer choice,” Bolton said.
At the heart of the matter might be the credit union’s tax-exempt status, which bankers say give CUs an unfair advantage when it comes to M&A.
Bolton, the former chairman of the Independent Community Bankers of America, said credit unions are leveraging their $2.2 trillion tax-exempt status “which grows with each acquisition as tax-paying bank assets become exempt and cost taxpayers $4 billion annually.”
On top of that, Bolton says the deals allow credit unions to expand beyond their intended fields of membership while sidestepping critical consumer protections like the Community Reinvestment Act, which ensures community banks serve the needs of low and moderate-income neighborhoods.
“Less than 10% of credit unions are located in economically distressed areas and only 13% serve LMI neighborhoods, highlighting the disparity” Bolton said. “If credit unions are going to act like banks, they should be regulated like banks. Congress needs to examine whether credit unions are still operating within the purpose of their original charter."
But Carrie Hunt, chief advocacy officer for America’s Credit Unions, the industry’s national trade group, said credit unions are growing because of their important role in the marketplace and their efforts to serve communities.
“As member-owned, not-for-profit cooperatives, credit unions reinvest their earnings to benefit members through lower fees, better loan rates, tailored community programs, and to help them reach their financial goals and live their best lives,” Hunt said.
Florida remains a popular market for credit unions keen on buying community banks as evidenced by the Winter Park transaction and ELGA Credit Union’s June deal to acquire Vero Beach-based Marine Bank & Trust.
According to an S&P Global Market Intelligence analysis, the state has been the site of more credit union purchases of community banks than any other.
But consumers, small businesses and communities are best served by having a “robust, fair, competitive” marketplace for financial products and services, Kathy Kraninger, CEO of the Florida Bankers Association and former Director of the CFPB, told Tyfone.
“Unfortunately, there are fewer and fewer community banks in that marketplace for a number of reasons, including out-of-state acquisition of taxpaying commercial banks by what should be member-focused, local, non-profit credit unions,” she said.
Bell, who estimates he has advised on more than 90% of credit union-buying-bank deals over the years, said in an interview that the coming change in presidential administrations is more of a macro/long term event and so should have little effect on M&A anytime soon.
“We didn’t start to see any impacts from the current administration until very recently, and I think those impacts were minor. It seems that the new administration will essentially do the opposite, and I do think in the long run it’s a help not a hurt,” Bell said. “That said, I think it won't be a major event. I think these remain driven by economic factors and the free market.”
The deregulatory philosophies of the new administration should be positive for M&A activity in general, said Daniel Prezioso, a partner with Olden Lane.
However, regulatory delays are already a factor for CU-bank deals and may be exacerbated by the potential for aggressive small government reforms.
Prezioso told Tyfone credit unions should also expect more competition for deals.
“Yield curve steepening is a consensus expectation for the Trump regime, and early results appear to validate it,” he said. “This is good for banks and bank stocks have been responding positively so far. If the initial market reaction forms a trend, bank stocks will gain favor as currency for M&A and compete more vigorously with credit union cash offers.”
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