Since January 1, 2023 at least 37 banks have either been acquired or have made plans to be acquired by a credit union. (The list seems to grow daily.)
Some of the acquiring credit unions are repeat customers, gobbling up small, community banks like candy.
There is one pending transaction that stands out above the others, however. A credit union that does not carry federal (NCUA) deposit insurance is seeking to acquire a federally-insured (FDIC) bank.
Credit Union Acquisitions of Banks Pick up Speed
Increased costs and regulation are forcing many small banks to look for buyers. Some are opting to be purchased by a larger bank, but increasingly these banks are finding credit unions are more in line with their values and operating methods.
On pages 2 and 5 we have listed all of the banks that we are aware of that are currently in the process of being acquired by a credit union along with all similar transactions completed since January 1, 2023.
As these transactions grow in popularity, we will not editorialize on each one. There are some, however, that deserve the attention.
The first is a pending acquisition of 5-Star Mid-Southern Savings Bank, FSB, Salem, IN by the unrated $1.5 billion asset Beacon Credit Union, Wabash, IN.
Established in 1891 as Salem Savings and Loan, Mid-Southern has actually been serving the residents of Southern Indiana in some capacity since 1886. Aside from the name and charter change, not much has changed over the years. In 2000, Mid-Southern added a second branch in Orleans, and then a third in Mitchell in 2007.
Mid-Southern SB is one of five banks operating brick and mortar branches in Salem, Indiana. While that may be a bit dense for a city of just 6,000, Mid-Southern is the only bank with a branch office in Orleans or Mitchell. That could be an issue when seeking regulatory approval for this transaction. As always, shareholder approval will also be needed. In this instance, we wonder if shareholders will agree to be purchased by a credit union that is NOT federally-insured. This lack of federal deposit insurance is why Beacon Credit Union is not rated by Bauer.
Beacon CU does have insurance coverage through American Share Insurance, and a lack of federal share/deposit insurance from the National Credit Union Administration (NCUA) has not hampered any of Beacon’s previous acquisitions. This is its first attempt at buying a bank, however.
The next CU-Bank acquisition we’d like to look at is the proposed purchase of 5-Star First Financial Northwest Bank, Renton, WA by the 4-Star Global FCU, Anchorage, AK. With $1.4 billion in assets, First Financial Northwest Bank is the largest target bank on our list.
That shouldn’t be a problem for the $11.4 billion asset Global FCU, the 19th largest CU in the nation. Nor should the fact that it is a cross-state transaction; Global already has members in all 50 states as well as abroad.
The deciding factor for shareholder approval may be the expected $23 + per share. Whether regulators will be as eager to sign-off is another story. It hasn’t been much of an issue yet, but as the target banks get larger, it could become one.
Next we have 4-Star Michigan State University FCU, East Lansing, MI, which completed the acquisition of two banks on September 1st after buying a troubled credit union in January. That’s a lot to digest in a short amount of time.
Zero-Star Gabriels Community Credit Union, East Lansing, MI had just $27 million in assets, but it was critically undercapitalized when it was purchased. With $7.8 billion in assets, Michigan State University FCU was able to take on the challenge with the loss of just one-star (from 5-Stars to 4-Stars).
Although, its profitability certainly took a hit. The addition of these two banks: 5-Star Algonquin State Bank, Algonquin, IL, a $143.7 million asset bank and 5-Star McHenry Savings Bank, McHenry, IL, with $324.1 million in assets, should help turn this credit union back to profitability.
5-Star Five Star Credit Union, Dothan, AL also completed two bank purchases this year, but without rescuing a credit union first. Both acquired banks were in excellent condition as was the acquiring credit union. The June numbers already reflect the merger.
