Credit union-bank deals showed signs of life with two announced in one week, and advisers say more are on the way.
All In FCU and Nusenda FCU kicked off the month of June with their announced acquisitions of SunSouth Bank and Western Heritage Bank, respectively. The two transactions mark the third and fourth such deals this year as credit union-bank deal activity has been slow, much like traditional bank M&A. Uncertainty has kept most banks on the dealmaking sidelines, but credit unions' appetite has not wavered.
"The issue is not on the credit unions having an interest because that has remained strong," Greg Cunningham, senior vice president at Donnelly Penman & Partners, said in an interview. "It's just that the sellers have not been willing to come to the table and engage."
That dynamic created a "stalemate," Cunningham said, but banks are very slowly showing more interest in M&A. Both Cunningham and Charley McQueen, president and CEO of McQueen Financial Advisors, said they have seen a slight uptick in banks coming to the negotiating table, and credit unions are eager to pounce on deals that arise.
"From a credit union buyer standpoint, they remain ready and able. ... I just don't think that there's nearly as many opportunities that are presenting themselves as maybe what we've seen over the last couple of years," Cunningham said. "[But] we're starting to see a little bit more activity as of late with some opportunities presenting themselves."
McQueen has three credit union-bank deals set to be announced in the next 30 days.
Depressed stock valuations leading to less-than-expected pricing for sellers, interest rate marks and uncertainty have contributed to the slowdown in bank M&A. However, the recent uptick in credit union-bank deal activity is partly due to buyers and sellers slowly resetting their expectations.
"It's taken a bit for everyone to reset expectations," McQueen said. "The compromise is starting to come through, and we're seeing people start to get a bit more focused on how to get a deal done."
On top of that, credit unions are much more actively engaged in bank sale processes than they have been in the past.
"There's no question that if a community bank seller is coming to market, that credit unions are more likely than not going to be included in the process," Cunningham said. "Credit unions will continue to be a part of the M&A environment, and we would envision them being a healthy portion of community bank M&A into the future."
Activity still down from record levels
Still, credit union-bank deal activity is depressed compared to prior years.
With just four deals almost halfway through the year so far, 2023 is on pace to have about half of the record of 16 deals that were announced in 2022. The total assets of targets involved in the deals this year is down as well at just $607.5 million, from the record of $5.70 billion last year.
The four deals announced this year are relatively small, with the total average assets of the four targets standing at just $151.9 million.
Geographic diversification
Credit union-bank deals have been largely concentrated in the Southeast and Midwest, but Nusenda FCU's acquisition of Western Heritage bank marked a geographic expansion for these deals. The bank is located in New Mexico and also has branches in Texas, both states that have never seen such a deal.
Meanwhile, the All In FCU-SunSouth deal places Alabama as one of four states with at least seven of these deals. Alabama is now tied with Georgia for third place for states with the most banks targeted by credit unions since 2015 with seven deals each, while Illinois ranks second with 11 deals and Florida retains the top spot with 15.
