By Ray Birch
ROYAL OAK, Mich.—NCUA has made a change to one of its processes that should bring more opportunities to credit unions seeking to buy a bank.
The agency has changed its requirement that calls for any proposed credit union purchase of a bank, or bank branch, with assets above $100 million to be reviewed by the agency’s full board. Now, that ceiling has been raised to $500 million, said Michael Bell, attorney and counselor at Howard & Howard, who pioneered these transactions and has been involved in a great majority of CU/bank deals.
What that means is any review of a credit union’s purchase of a bank or bank branch that is valued under $500 million will be reviewed by the respective NCUA regional office.
The key benefit from the move is the agency’s review of bank deals is typically 45 to 60 days faster when handled by its regional offices than sending deals to NCUA’s Alexandria headquarters for review by the board in a formal closed board meeting, according to Bell.
Bell said the change NCUA made was to an existing “internal delegation” that had been in place for many years.
“The internal delegation, which is not available for public review (and which Bell told CUToday.info he has not seen), dictates what a regional office is able to do. This one in particular provided that NCUA regional offices only had the authority to review bank buys up to $100 million,” explained Bell.
A Lot of Paperwork
By sending proposals to the NCUA board for review, significant time is added to the process because the regions must first do a lot of paperwork, said Bell.
“They have to prepare a special packet, which is extensive. And then they have to get the work done in time to get on a formal board agenda, and then they have to wait for the monthly meeting. It’s is a lengthy process,” he said. “Whether you are a credit union or a bank buyer, the seller always asks you how long will the deal take, and what is the risk of non-approval. The deal is always about price, but it’s also about getting the deal done in a timely fashion.
“Typically, if a deal is approved by the NCUA regional office, the deal gets done in four to five months, while having to work through NCUA’s headquarters can take six to seven months,” continued Bell. “Our time for approval can work against us when other banks are bidding, as they can tell sellers they can get the deal done faster. Cutting off a month, or month and a half, is significant in the eyes of bank sellers.”
Bell said that typically a bank can buy another bank and close the acquisition in about three months.
“This change along doesn’t equalize the timeframes but it does help,” he said. “We have more work to do to get us completely on equal footing and we will keep working toward that goal. However, I think credit unions we will be much more competitive due to this change. We will be considered in many more deals.”
More Deals Expected
Bell believes, overall, the move will increase the number of CU/bank deals, noting the pace of CU/bank buys has been increasing steadily each year. Since Michigan's United FCU pioneered such purchases by acquiring $81-million Griffith Savings Bank in Indiana in 2011, nearly 35 CU bank acquisitions (including banks that have merged into CUs) have taken place.
“This change by NCUA will get more agreements across the finish line by helping us win more bids. Credit unions are already an all-cash buyer, which banks like. This will make our offers even more attractive,” he said.
Bell said he noticed during the time he has worked on credit union acquisitions of banks that the deals have been taking longer when routed through Alexandria. He said he “tracked down the issue” and worked with NCUA to request that the agency raise the ceiling for bank buys needing board review, and they agency agreed.
CUToday.info reached out to NCUA for a response and the agency said it has “an internal threshold for requiring board review, and that is being raised.”