Credit unions pay up in latest string of bank deals

Credit unions kicked off 2024 strong, announcing a string of bank buys with hefty premiums.

Just one month into 2024, credit unions have announced four bank acquisitions, compared to 11 such deals in all of 2023. Credit unions are the buyers in nearly half of the 10 bank deals announced in January.

Not only did the speed of these announcements pick up, but credit union buyers are also paying higher prices. Three of the four deals that were announced in January came with high premiums compared to the bank's share price prior to announcement.

Pretty pricing

Hudson Valley CU agreed to pay $40.50 per share of Catskill Hudson Bancorp Inc., making the 118.9% premium to the bank's closing price prior to deal announcement the highest among credit union-bank deals since 2019.

Two of the other deals announced so far this year rank among the highest-premium deals since 2019: Global Federal Credit Union's planned purchase of First Financial Northwest Bank for a 69.4% premium on the low end of the per-share price range and Beacon CU's plans to purchase Mid-Southern Savings Bank FSB for a premium between 50.6% and 70.7% per share.

These deals have drawn the ire of banking trade groups, which argue that credit unions are able to pay more than bank buyers due to their tax-exempt status as nonprofits. Since 2019, credit unions paid a median 63.2% premium to the bank target's closing price, compared to a 21.4% premium among traditional bank deals in the same period.

While credit unions may have more cash on hand as a result of not paying taxes, these deals face financial hurdles that traditional bank deals do not, such as double taxation. Because credit unions do not have stock, these deals are structured as the purchase and assumption of assets and liabilities. If the selling bank is legally structured as a C-corporation, the deal will be taxed twice — once at the corporate level and again at the shareholder level.

Despite industry outrage, the Street applauded the pricing. Catskill Hudson got the biggest price boost, with the company's shares closing up 103% the day of announcement.

Separately, First Financial Northwest Inc.'s stock price closed up 48% on the day of the announcement while Mid-Southern's closed up 36%.

Sizable deals

Not only did the speed of announcements pick up and the premiums rise, but the deals announced in January were also fairly sizable.

Global FCU's announced acquisition of First Financial is the largest credit union-bank deal based on the bank's asset size of $1.53 billion at announcement. Moreover, all four deals this year have targets with at least $200 million in assets, compared to just three of the 11 deals announced in 2023.

As such, the total target assets for deals announced this year has already surpassed 2023's total of $1.88 billion across 11 deals. This year's $2.61 billion in total target assets is also more than halfway to the current annual record of $5.15 billion in 2022.

Geographic diversity

Some of the deals in January also brought geographic diversity. Catskill Hudson Bank is the first New York-based bank to be targeted by a credit union, while First Financial Northwest Bank is the third Washington-based bank to be scooped up by a credit union.