EAU CLAIRE, Wis.—Royal Credit Union announced it has entered into a definitive agreement to acquire Capital Bank, based in Saint Paul, Minn.
The $1.7-billion credit union said the move is being made to add greater bricks-and-mortar access for its current membership, as well as to extend the CU’s reach.
Under the terms of the agreement, Royal will assume approximately $35 million in total assets in the transaction. The deal is expected to be completed in the second half of 2016. The acquisition is still awaiting approval of state regulators, the FDIC, and NCUA.
Capital’s lone office, located at 1020 Rice Street in St. Paul, will become a Royal CU branch, giving the credit union 25 locations across Minnesota and Wisconsin.
“We are pleased to announce the planned acquisition of Capital Bank, which will provide more convenient access to our values-driven company in the Minneapolis-Saint Paul metropolitan area,” said Rudy Pereira, Royal Credit Union president and CEO. “Capital Bank is known as the ‘community bank’ within the city and we feel its current customers will be pleased by our commitment to providing exceptional financial value, great service and community giveback where the member comes first.”
Capital Bank President Michael Remmers said it has been “Capital Bank's privilege to serve our customers and the community. It is important that the residents and businesses in the North End continue to receive personalized and outstanding services from an organization that will remain an active presence and driving force within our community. We believe Royal is well positioned and has the commitment and resources to be able to continue to deliver those community orientated products and services of the highest quality and value, to continue to our tradition of exceptional service, and to remain focused on supporting the community. We look forward to continuing to meet the needs of our customers to ensure a smooth transition."
Royal CU has been expanding in recent years. It opened a new office in 2014 in Hudson, Wis., and merged in Sacred Heart Hospital Employees Credit Union in Eau Claire in the same year. The CU’s net worth has grown from 8.54% in 2011 to 11.19% at the end of 2015. Royal made $30.6 million in 2013, $16.4 million in 2014, and $19.1 million last year.
Unlike many banks CUs have acquired in recent years, Capital bank is not losing money, reporting net income of $204,000 in 2015 and $368,000 in 2014, according to FDIC data.
Michael Bell, attorney and counselor with Royal-Oak, Mich.-based Howard & Howard, is representing Royal.
Bell has been part of nine CU/bank deals, including one merger of a bank into a credit union.
Addressing why more of such deals have not happened, Bell said many sellers still don't realize the combination is possible.
“Banks below $500 million in assets are still not aware that there are credit union cash buyers in the marketplace—in every marketplace in all 50 states,” said Bell. “These cash buyers will hire most if not all of the staff, will keep all branches open and will support the community intensely.”
Many sellers that are aware of the opportunities still believe that the approval process will take longer than a bank-to-bank deal and that it will increase deal costs, added Bell.
“Both are misconceptions,” said Bell. “The approval process is just the same or quicker. Also, we have found that deal costs in transaction of this nature are substantially lower than bank-to-bank deals.”
Inter-industry “friction and semantics” are also preventing more bank/CU combinations, insisted Bell.
“Banks and CUs don't always get along, and sometimes this can percolate into a desire to not consider one of these transactions, which is unfortunate,” said Bell. “That said, more of these deals are happening and will continue to happen. Interest in these transactions is rising and the buyers I represent from across the country are eager to evaluate and close deals.”
If Royal’s deal is finalized, it will be the ninth time a credit union has purchased a bank since 2011, when Michigan's $1.6-billion United FCU pioneered such purchases by acquiring $81-million Griffith Savings Bank in Indiana.
In February, Advia CU in Parchment, Mich., announced plans to acquire Mid America Bank in Janesville, Wis. Last August, $607-million Avadian Credit Union in Birmingham, Ala., signed an agreement to purchase the $127-million American Bank of Huntsville, located in Huntsville, Ala. Last May, the $1.1-billion Achieva CU, Dunedin, Fla., signed an agreement to acquire the $165-million Calusa Bank based in Punta Gorda, Fla. The deal marked what is believed to be the first time in history a credit union merged with a bank, rather than do a purchase-and-assumption.
In addition to the United, Royal, Advia, Achieva and Avadian agreements, the other CU/bank deals to date: The $318-million Alabama-based Five Star CU purchased the $23-million Flint River National Bank in Camilla, Ga., and closed a deal with $47-million Farmers State Bank in Lumpkin, Ga.; the $1.2-billion Municipal Employees CU of Baltimore purchased local $61-million Advance Bank; Wisconsin's $2.1-billion Landmark CU acquired $190-million Hartford Savings Bank; and Massachusetts' $429-million GFA FCU bought New Hampshire's $83-million Monadnock Savings Bank.