Colorado banks and credit unions are arguing over a bill that would allow credit unions to purchase state-chartered banks.

A bill featuring a provision to allow credit unions to purchase Colorado-chartered banks is making its way through the state's general assembly. The credit union industry is arguing it will provide banks with more exit opportunity optionality, but banks contend that they do not want the option as selling to a credit union will harm lending in the state and open banks up to risk.

Merger optionality

Credit union-bank deals were barred in the state after the Colorado Division of Banking denied Elevations CU's attempt to purchase Cache Bank & Trust in 2020. But a bill that has made its way out of committee and is heading to the full House floor would overturn that decision and allow credit unions to scoop up state-chartered banks.

Credit union experts believe banks in the state will benefit from having more exit opportunities in the event of a sale as credit unions increasingly play a larger role in bank M&A nationwide.

"The benefit for Colorado state-chartered banks, obviously, is that they have more options when they're looking to sell their assets," said Joe Adamack, vice president of legislative affairs in Washington for industry trade group GoWest Credit Union Association, in an interview. "There's certainly banks themselves that want to keep options open and like the ability to have another choice when they're selling."

Right now, Colorado banks have fewer options for merger partners with the exclusion of credit unions, leading more banks to sell to out-of-state entities, Adamack said. Allowing these types of transactions will help to retain local community depository institutions, which will benefit "people in the state who want to retain access to a local financial institution, especially in rural and other underserved communities," Adamack said.

If the bill passes with the provision, Michael Bell, leader of Honigman LLP's financial institutions practice who advises on many credit union-bank deals, foresees more credit unions being involved in bank sale bidding processes in the state. Colorado has similar characteristics to states, such as Florida and Washington, that have seen the majority of these deals, Bell said.

"If you look at Colorado, it has similar attributes to states where we're doing these deals," he said. There are "parallels here, without question."

Colorado has a high percentage of community banks. According to S&P Global Market Intelligence data, there are 72 banks headquartered in the state, with 68 of those having less than $10 billion in assets.

Colorado has also seen a growth boom since the COVID-19 pandemic when people began migrating to the state, with the state's population increasing by 5.4% between 2021 and 2024. The state's population is expected to continue to grow another 4.4% between 2024 and 2029, almost double the US projection of 2.4% growth in the same time frame.

Those attractive demographics make the Colorado Bankers Association (CBA) concerned that these deals would escalate if the bill were to go through with the provision.

"Colorado traditionally outperforms, on an economic perspective or economic basis, all of our neighboring states," CBA President and CEO Jenifer Waller said in an interview. "We're an attractive state for people to want to do business."

Waller added that the provision can help a bank, but it would hurt the industry.

"An individual bank, yes, might get a higher [price] if they sell to a credit union. But the harm that does overall to the community and to the banking industry as a whole kind of outweighs that one selfish perspective," the CBA CEO said.

Eastern Colorado Bank COO and Branch President Megan Harmon says Colorado community banks already have plenty of exit opportunities, as evidenced by the fact that Cache Bank & Trust was bought by another bank after the credit union acquisition fell through.

"We're not asking to be given more choices. We're not asking to be allowed to sell to more people," she said.

Lending harm

One reason that Colorado banks and industry groups oppose the notion is the potential impact on one of the state's largest businesses: agriculture.

Historically, credit unions are primarily involved in consumer banking, with less of a focus on commercial banking services. As such, Colorado banks worry that credit unions scooping up banks with large agriculture businesses would harm those customers and the state's economy.

Commercial bank customers could be "swept into a credit union that maybe does or does not understand how agricultural and commercial loans work," Harmon said. "Customers may be put into a position where they will not be able to have their commercial and agricultural loans met net once they're purchased."

Greenwood Village, Colo.-based InBankshares Corp's leadership would not sell to a credit union for that exact reason.

"They don't have the expertise and knowledge to support businesses and to support agriculture, which is the backbone of our communities. ... I do realize that credit unions do make small business loans, but they just don't have the same background and training and ability to add value," InBankshares Chairman and CEO Ed Francis Sr. said in an interview. "I would not want to leave my customers stranded by selling to a credit union."

But credit union supporters argue it is common, especially in bank-to-bank transactions, for one institution to acquire another institution with new or niche products or lending capabilities.

"Credit unions are doing [these deals] to gain new talent and capabilities," Bell said. "I don't think you can find one example of the sky falling, if you look at the past 70-some-odd deals that have been done over the last 14 years, where something was bought and the lending was stopped or turned off."

Opening banks up to risk

Colorado banks also argue that optionality would open them up to legal risk. As nonprofits, credit unions are exempt from paying taxes, and bank lobbyists argue this gives them an advantage in bank bidding processes. Moreover, credit unions do not have shareholders like banks do, so they do not have to worry about deal metrics such as tangible book value dilution or earnback.

"As a seller, it's advantageous because they'll pay stupid prices because they don't have to worry about tangible book value," the InBankshares CEO said.

If a bank is going through a sales process and receives the highest bid from a credit union but chooses a bank buyer at a lower price, it could open the bank up to litigation risk, both Harmon and Waller said.

"I don't think it's as easy as a bank just being able to say, 'No, we don't want to sell to a credit union,' because you have a responsibility to your shareholders when you're in a purchase or being acquired position to get the highest rate that you can," CBA's Waller said. "I would be concerned, if this passes, if a bank declines a credit union offer that was substantially higher, they could set themselves up for litigation from shareholders."

Still, while banks may oppose these transactions publicly, some often warm up to the idea of selling to a credit union in a bidding process, Bell said.

"I would expect a great majority of selling banks to at least consider the strategy," Bell said.