Garnet Capital Advisors Blog

August 23, 2017

Credit Union - Bank Acquisitions

EXCERPT: The recent agreement of acquisition of Encore Bank by Lake Michigan Credit Union demonstrates a growing trend in similar transactions. In recent years, deals in the form of credit unions buying banks have become more frequent. 

The not-for-profit status of credit unions makes it easier for them to enter all-cash deals as opposed to banks who are subject to much more stringent regulations.

Lake Michigan Credit Union has agreed to purchase Encore Bank in Naples, Florida. This is one of several of this type of acquisition that has taken place over the recent past.

The acquisition of Encore by the $5.2 billion-asset credit union came with a price tag of approximately $60 million. It's anticipated that the deal will be sealed sometime during Q1 2018. The Michigan-based credit union already oversees four branches in the Naples, Florida area.

This type of deal is not unique to Lake Michigan Credit Union. In fact, many credit unions have bought banks since 2012, with a few more deals currently in the works. While there have been a number of bank and credit union mergers and acquisitions over recent years, deals in the form of credit unions buying banks have become more frequent. 

In 2016, Advia Credit Union agreed to purchase Mid America Bank, a deal that included four Mid America Bank branches and over 3,000 of the banks' former customers. Within six months, the Michigan-based credit union bought its second Wisconsin bank - the $232 million-asset Peoples Bank in Elkhorn, WI.

At the end of 2015, Florida-based Achieva Credit Union finalized its acquisition of Calusa Bank. The intention of the credit union was to use the acquired bank as a means of expanding its services, an activity that is becoming increasingly common among credit unions looking to buy banks.

What's Behind the Emerging Trend?

Among the more significant differences between banks and credit unions is that the latter are owned by the members of not-for-profit cooperatives as opposed to shareholders, as is the case with banks. As such, credit unions do not have stocks and are not subject to the same income taxes as banks.

Is a strengthening trend on the horizon as more and more banks are being engulfed by credit unions?

The bottom line is that credit unions have more access to cash on hand compared to similar-sized banks and can more feasibly enter all-cash M&A transactions. Banks find offers such as these very attractive since it's much easier to value and distribute cash to shareholders.

Credit Unions and Banks Teaming Up With Loan Sale Advisors

Before any financial institution goes through with an acquisition, it's imperative that the books of the acquired company are well-balanced. All the numbers on loans must be up-to-date in order to avoid an accounting nightmare, as well as to steer clear of any regulatory violations. The assets on the loan portfolios should also be healthy and be divested of risky or poor-performing loans.

Since banks' tax-deferred assets are virtually of no value to credit unions, it's important to carefully scrutinize all assets prior to finalizing acquisitions. Working closely with an experienced loan sale advisor will ensure that all accounting and regulatory compliance is in proper order without assuming any unnecessary risk. 

At Garnet Capital, we work collaboratively with banks, credit unions and other financial institutions that wish to acquire or merge with others to strengthen their financial positions. We are also heavily involved in teaming up various types of financial institutions and lenders to form viable partnerships for all sides.

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