Bank takeovers are an effective way for credit unions to generate inorganic growth, says Mike Bell, attorney at law firm Howard & Howard.
“Growth is achieved through capital growth. That capital can be used to grow organically through acquisitions like this one, ”says Bell. “Ten years ago it was an idea, a hypothesis. Today it is a fact. “
In a breakout session at the 2019 CUNA Finance Council Conference on Tuesday in New York City, Bell described the benefits credit unions can get from taking over operational banks and bank branches.
In the past 10 years, Bell has assisted credit unions in more than 20 bank takeover transactions.
Bell said that there are three components to pricing when it comes to acquiring banks:
- Property. Sold at book or market value.
- Loans. Sold at par.
- Insoles. Sold at an additional cost.
Among the advantages of bank takeovers:
► Geography. Bank takeovers are an efficient way for a credit union to expand its geographic footprint, Bell says.
When credit unions expand their membership range, they typically turn to the NCUA on a speculative basis. In the case of bank takeovers, expansion is definitive. “Our business and marketing plan is for us to get this deal, and it’s not speculative. It’s set in stone. So it’s a simpler area of membership expansion. “
► Asset-liability management. Credit unions can target their searches for loans or deposits, Bell says. Bank takeovers are an extremely effective way for a credit union to increase liquidity. The banks’ core deposits are currently being sold at a premium of around 10%.
► Talents. Bank takeovers are a great way for a credit union to expand its operational expertise. Bell tells the story of a credit union that expanded its business from a portfolio of approximately $ 10 million in assets and “some rental properties” to more than $ 100 million and a full staff of commercial lenders. Other credit unions have expanded into real estate sales and agricultural loans.
► “Day one” sales. Bookkeeping and cost reductions on acquisitions and acquisitions, some related to the tax structure of credit unions, make most deals profitable from the time they are signed, Bell says.
The downside to bank takeovers is that they can be time consuming, as credit unions’ finance departments are devoted to reviewing many assets, liabilities, loan records, and contracts, much like they do with credit unions, Bell says. However, credit unions have the option to withdraw until the sales contract is signed.
Bank takeovers also remove an element that is sometimes part of credit union mergers: emotion.
“There is no discussion of future board seats or which headquarters will remain open,” says Bell. “These deals are about money. At the same time, you are helping your credit union grow stronger and offer services to a wider range of people. “
►Visit CUNA News for more conference coverage and get live updates on Twitter via @CUNA_News, @cumagazine and @CUNACouncils, as well as the hashtag #FinanceCouncil. Learn more about the CUNA Finance Council, a member-led professional society for financial executives in credit unions, at cunacouncils.org.