Pima FCU is the latest credit union to flex its purchasing power by announcing plans to acquire Republic Bank of Arizona at a price nearly double the seller's stock value in a state where M&A opportunities are scarce.

Pima FCU plans to acquire Phoenix-based Republic Bank of Arizona, a subsidiary of RBAZ Bancorp Inc., for $22 per share — a 91.5% premium to the company's closing price of $11.49 prior to announcement. It marks the second-highest premium among credit union-bank deals announced since 2023, behind only Hudson Valley CU's 118.9% premium offer for Catskill Hudson Bancorp Inc. in January.

The price was an offer RBAZ Bancorp could not resist.

"It is an excellent price," RBAZ Bancorp President and CEO Brian Ruisinger said in an interview. "I think it's reflective of our performance."

Credit unions can make more financially attractive offers to banks as they are tax-exempt and do not have to answer to shareholders like banks do, D.A. Davidson investment banker Nathan Ail said in an interview.

"It's created this environment where credit unions are stepping in and doing more bank acquisitions," Ail said. "At some point, the price becomes so compelling that a board of directors has to take a long look at it."

As traditional bank buyers continue to face M&A obstacles such as depressed stock prices and difficult-to-absorb purchase accounting marks on loans and securities, credit unions are striking a larger share of the industry's M&A deals than ever. So far in 2024, credit unions account for 21% of buyers in whole bank acquisitions as of June 3.

Arizona activity

The Pima FCU deal is the first deal targeting an Arizona-based bank announced in over six months. The transaction and A.E.A. FCU's planned acquisition of West Valley National Bank are set to dwindle the number of banks headquartered in the state to just 13. That number has fallen dramatically since 2008 following failures during the Great Recession and years of robust M&A activity with little to no de novo activity.

But M&A activity in the state has slowed as the number of sellers dwindled, with just eight deal announcements since 2019. Credit unions have begun playing a larger role in bank deals in the state, acting as buyers in half of the deals announced since 2019.

While there is significant interest among out-of-state banks in entering Arizona due to its demographics and strong economy, many Arizona bank sellers are opting for in-state buyers to preserve local banking services. That desire, plus the attractive prices they offer, have made Arizona credit unions more attractive buyers. In-state credit unions were the buyers in two of the other three most recent deals.

"It has typically been the case that credit unions were doing deals where there was not a buyer otherwise and kind of stepping in to fill that void," Ail said. "It's evolved now where they're doing deals that banks would be doing."

Finding an in-state buyer was important for Republic Bank of Arizona because the company has made its "local flavor" as an Arizona bank a core part of its brand and messaging to clients, Ruisinger said. As such, selling to an out-of-state institution would have been "disingenuous" to the company's history, the executive added.

"That local component is extremely important for us and Pima represented that," Ruisinger said.

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Ruisinger, who will remain with the combined company as Phoenix market lead after deal close, is eager to increase market share by blending the credit union's consumer-focused products and the bank's commercial expertise to expand customer relationships. The combined size of the companies and a larger legal lending limit of $15 million, compared to Republic Bank of Arizona's current $6 million limit, will only help.

"We couldn't be that full offering one-stop shop in the past," the CEO said. "To have access to a complete array of consumer products to go with our commercial was extremely appealing."