Florida has seen more credit union-bank deals than any other state over the last decade, and advisers expect more to come.
While a couple of state regulators have barred the transactions, others have shown little hesitancy approving the deals even as opposition from banking industry groups has intensified in the face of more large deals. Most state regulators who review the deals are only focused on evaluating safety and soundness, deal advisers said.
"[Regulators] don't want to get into politics. What they're looking for is the safety and soundness," Charles McQueen, president and CEO of McQueen Financial Advisors, said in an interview. "They're seeing this differently than the American Bankers Association is seeing it. As long as it's legal, and there's not a safety and soundness issue and the business plan is reasonable, they're okay with it."
Since 2011, there have been 48 announced credit union acquisitions of banks across 16 states. Among those deals, almost half of the bank targets were headquartered in just three states: Florida, Indiana and Georgia.
Florida, in particular, has seen a slew of credit unions buying banks. Eleven credit union deals with Florida-headquartered bank targets have been announced since 2011, constituting about 23% of all such deals in the past decade.
More could be on the way. Michael Bell, partner and co-leader of the financial institutions practice group at Honigman LLP, said he is currently working on negotiating five definitive agreements. Two of the potential bank targets are in Minnesota and the other three are in Illinois, Florida and Tennessee, he said.
McQueen said he is currently working on 14 potential credit union acquisitions of banks.
"We're quite busier than we've ever been right now," McQueen said, adding that the increase in activity is "90% related" to Biden's tax policy, which proposes an increase in capital gains tax that would affect all-cash deals. "He's jamming everyone that was thinking about selling their bank in the next three or four years to sell it now."
In Florida, Grand Rapids, Mich.-based Lake Michigan CU has developed a relationship with regulators after buying two banks in recent years. The credit union recently announced its acquisition of Tampa, Fla.-based Pilot Bancshares Inc. on June 16, roughly four years after it announced its acquisition of Naples, Fla.-based Encore Bank in 2017.
"Florida is a very open, competitive state. We have a very good working relationship with the state of Florida," Don Bratt, chief marketing officer of Lake Michigan CU, said in an interview. "They see the value of acquisitions like this for the citizenry of Florida."
Pilot Bancshares Chairman, President and CEO Roy Hellwege described the bank's initial merger conversations with The Florida Office of Financial Regulation, or OFR, as "supportive" and "positive." The OFR declined to comment.
But not all state regulators are as open. In 2020, two states barred state-chartered banks from selling to credit unions.
The Colorado State Banking Board in January 2020 denied Cache Bank & Trust permission to sell its assets to Elevations CU. Iowa followed suit two months later, in March 2020, when the state regulator vowed to "quickly deny" any more credit union deals after approving First American Bank's application to cease operations and sell its assets and liabilities to GreenState CU. In both instances, the respective state banking associations played a role by sending public letters protesting the deals.
"Those two states are in the sharp minority," Bell said. "The vast majority of states either have allowed this or have a regulatory framework that should allow this."
Lake Michigan CU's announced acquisition of Pilot Bancshares marks the fifth credit union acquisition of a bank announced this year, just one announcement less than the entirety of 2020. While deal volume is lagging from the record level of 14 such deals in 2019, the announced acquisitions are much larger.
The average total assets for bank targets in the transactions announced year-to-date is about $688.0 million, up from about $140.7 million in 2020 and about $280.9 million in 2019. The average total assets for the credit union buyers year-to-date is about $8.28 billion, up from $1.74 billion in 2020 and $2.40 billion in 2019.
Deal activity is showing no signs of slowing down, deal advisers said. "We're in the middle of a ton of these right now," Bell said.
