Is buying a bank the best return on capital?

A case study of one CU’s merger philosophy and activity

Buying a bank is a little more complicated than merging with another credit union, CUES member Don Cates discovered, especially when regulators move the goalposts and a pandemic hits just before the completion of the deal. CEO of $1.9 billion 3Rivers Federal Credit Union, Fort Wayne, Indiana, Cates knew his CU had the capital to support growth and that it had been looking for a way to enter a new market within a two-hour drive of Fort Wayne.

In November 2018, $300 million West End Bank, Richmond, Indiana, caught his attention. “We weren’t hunting for a fire sale,” he explains. “We wanted a good performer and were ready to pay a premium when it was warranted. West End met those requirements. It was big enough to be worth the effort but not big enough to put us at risk.”

So 3Rivers FCU bid against other banks and at least one other CU and won. A CU buying a bank has a distinct set of financial advantages and disadvantages that need to be recognized, Cates emphasizes. There was a tax hurdle. A CU acquisition of a bank would have to be treated as a purchase and assumption transaction, creating a taxable sale for the bank.


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