Credit Union Plays in Bank M&A
Anyone who has been paying attention to America’s community banking scene for any significant amount of time knows that the industry has been consolidating for decades now.
At the industry’s peak in 1923, there were 29,201 commercial banks in the United States. By 2012, that number had dropped to 6072, and small bank CEOs were hearing that they needed to grow their banks to $1B in assets or more to stay in the game and remain independent. As of March 2024, the number of banks in the US had dropped to 4577 — nearly 1500 banks had left the game, largely via consolidation into other banks.
Under-respected until recently, a new player had entered the consolidation game already back in 2012, introducing a trend that’s perhaps the hottest strategic opportunity available for banks that haven’t made it to the $1B in assets goal post, yet — i.e., sell to one of the over 150 credit unions Michael Bell’s Honigman Law Firm reports are looking to buy banks with $350M to $800M in assets.
A Brief History of Credit Union Bank Acquisition
The Father of Credit Union Bank Acquisitions
Credit unions weren’t acquiring banks before 2012, because they couldn’t see a way to do it given the technicalities of their charters and the fact that they have no stock with which to transact, just cash.
In 2011, attorney Michael Bell designed an M&A transaction model specifically to get around these technicalities, and piloted his model in the first ever credit union acquisition of a US bank. Following Bell’s playbook, Michigan’s United Federal Credit Union completed its acquisition of Indiana’s Griffith Savings Bank in January 2012.
Bell’s ingenuity opened the playing field for others, but he’s personally behind over half of M&A activity between credit unions and banks since the game began.
What’s Unique About The Credit Union Play
In a typical bank merger, the acquiring bank holding company purchases another bank holding company and then mergers the two subsidiary banks.
Due to the differences in their charters, credit unions can’t technically purchase banks. Instead, a credit union must purchase a bank’s assets, in cash, and assume the bank’s liabilities from the bank itself. Then, the bank’s holding company “collapses” the bank’s charter, assumes the bank’s excess capital, and distributes the capital to shareholders.
Timyan’s Two Cents
Bottom line, we’re far enough into the Bank Consolidation Timeline that small banks have fewer conventional options for merging their way up and out than ever before:
America’s biggest banks have no need for or interest in acquiring a little thing. Mid-market acquirers are busy merging together, and similarly uninterested in small plays. Most small banks don’t have the capacity to buy a similarly-sized bank, and are so spread out across the country, it wouldn’t make sense to do so even if they could.
Therefore, if you’re managing an underperforming bank with $350M to $800M in assets, please call Michael Bell’s Honigman Law Firm in Kalamazoo, MI and ask him which credit union would be most interested in acquiring it.
I actually shared Mike’s number with an underperforming banker recently! Excellent advice from the Timyan Bank Alert
The last paragraph sums it up very well - with under-performing being the key word. Lots of bankers that I know differ on what "under-performing" actually means - but as my grandmother used to say "If you have to ask the question, you probably already know the answer"....
Thanks Phil - spot on as always.