ROYAL-OAK, Mich.—A period of branch expansion by banks that has now led to many of those same banks “rightsizing” their operations is opening up more opportunities for credit unions to buy “pods” of bank branches.
Mike Bell, attorney and counselor with Howard & Howard here, who has been part of 15 CU/bank deals that includes one merger of a bank into a credit union, told CUToday.info there are several trends now developing related to credit union purchases of banks and bank branches.
“Larger banks, typically $500 million plus in assets, seem to be rightsizing and rethinking their branch footprint,” said Bell. “I am seeing increasing opportunities for CUs to purchase branches along with their associated loans and deposits.”
What has led to the moves is that many banks have been focused on mergers and acquisitions in the last 10 years and now some find their physical footprints are larger than their needs, said Bell.
“They are realizing they need to prioritize where they need to be,” Bell said. “They are now making sure their real estate footprint matches their business model.”
Not Just Branch Buy
As the larger banks make the decision to downsize their bricks and mortar, it is leading to more opportunities for credit unions to buy a pod of offices—generally about two to three—in one specific area, explained Bell.
“These deals are good for credit unions because they are not just buying a branch, they are getting the deposits and loans as well,” said Bell. “It’s like a mini whole-bank deal. And credit unions are great buyers for this, because they are offering all cash.”
The pod deals are good fits for credit unions because the bank wants to get out of a certain area that is not strategically important to them and the credit union often is looking to make a significant expansion into a new community, Bell added.
“These pods are much more valuable to a credit union than the bank,” said Bell.
Bell said the pod deals, exemplified by Montgomery, Ala.-based Guardian CU’s purchase of two SouthCrest Financial Group offices in 2016, are typically priced with premium on the deposits, which can range from as low as 1% to as high as above 10%, said Bell. As CUToday.info reported, Guardian paid a 5% premium.
“The most recent example is Marine Credit Union (La Crosse, Wis.) in April agreeing to buy five retail branch offices from $2.6-billion Bank Mutual Corporation (Milwaukee),” said Bell.
Bell said he is also seeing increased activity on the whole-bank side.
“I have not been able to find enough CU buyers to meet the demand,” said Bell. “So far in 2017 there have been seven solid opportunities in which I could not find a credit union buyer.”
Bell said the situation reflects just how many bank deals are becoming available to credit unions today, compared to when these deals first began when Michigan's $2.3-billion United FCU pioneered the purchases by acquiring $81-million Griffith Savings Bank in Indiana
Price Is Right
What’s driving more whole-bank sales, said Bell, is the price banks can get has been rising, to a point where now many banks that had been sitting on the sidelines are considering selling.
“Plus, some banks are just getting tired because the regulation situation is not getting any better, margins aren’t getting better and the slog continues for many,” said Bell.
Bell said the process of buying whole banks, bank branches and business units, such as mortgage originators and non-lenders, continues to get easier and quicker.
“As the regulators see more of these deals their comfort level increases and the review process gets smoother more efficient, shorter . . .,” said Bell. “It simply gets easier to do these deals as we get to the 18th, 19th and 20th times. There is no longer any guessing or speculation about the process. We know what the process is. Years ago when these deals started, the process was unmapped, now there is a map.”