Buying a Bank

by Michael Bell

Use this three-part litmus test to see if the transaction you’re considering makes sense for your credit union.

It can be done. A credit union can buy a bank.

In late 2010, one of my credit union clients approached me to inquire if it could legally purchase a mutual savings bank. At the time, I didn’t really know how to answer the question.

My partners and I reviewed statutes, regulations and related materials and couldn’t find anything that said it could not happen, which is exactly what we told the client. At the request of the client, we elected to move forward and, at the end of 2011, we completed what we believe may have been the first ever transaction of this nature.

Now that a model for such transactions has been created, we expect to see more credit unions purchasing traditional banks over the coming years. In fact, this trend has already begun.

Shortly after the initial transaction successfully closed, effective Jan. 1, 2012, another credit union client inquired about purchasing a stock-owned savings bank. After conducting the same level of due diligence, we determined that there was a way to complete this type of transaction. This particular transaction has received approval from four out of five regulators and we expect it to close at any moment.

Many small banks and/or thrifts across the United States are either “troubled” or “tired.” For many reasons, such as cultural similarities, willingness to provide continued employment for employees, and/or to keep branches open, sometimes the best opportunity for the survival of these banks to survive is through a credit union acquisition. Transactions of this nature focus on a pure numbers analysis and don’t include as many emotional issues (i.e. board seats, name change and the like) as a standard merger of two credit unions, making the pathway for credit unions one of quick and efficient growth.

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