Credit unions continue to acquire banks across the US and the buying spree is once again on a record-setting pace.
Texas Dow Employees CU's announced acquisition of Many, La.-based Sabine State Bank and Trust Co. marks the eighth deal announcement involving a credit union buying a bank in 2024. With US bank M&A remaining subdued while credit unions stay hungry for deals, credit union-bank deals now make up 21% of all US bank deals announced through May 6.
The latest credit union-bank deal — one of the biggest announced — comes in a state that had not previously recorded such a deal and features a highly profitable target.
Geographic expansion
The Lake Jackson, Texas-based credit union will expand into Louisiana with Sabine's 53 branches. The deal is the first in which a credit union is targeting a Louisiana-based bank.
In some states, banking trade groups have appealed to lawmakers and regulators to block the combinations because they feel the tax-exempt status of credit unions gives them an unfair advantage when bidding against banks. The Louisiana Bankers Association has no plans to oppose the Texas Dow-Sabine deal or call for the state to bar such transactions. However, the association's CEO, Ginger Laurent, expressed some concern about credit unions buying banks.
"Whenever a tax-paying financial institution goes away, the ripple effect is felt within the communities they serve," Laurent said.
Texas depositories also have not had much exposure to credit union-bank deals. Texas Dow's acquisition of Sabine would mark the first time a Texas-based credit union buys a bank, and a credit union has yet to target a Texas bank. The state offers the potential for the tie-ups because it has a plethora of small community banks and attractive demographics.
"Texas is a great marketplace for banks and credit unions to voluntarily come together," said Michael Bell, leader of Honigman LLP's financial institutions practice who advises on many credit union-bank deals. "It's a marketplace ripe for these types of transactions."
Greater geographic expansion of credit union-bank deals has been a theme of the transactions in 2024. At one time, the transactions had been primarily concentrated in the Midwest and Southeast, but Washington state has accounted for three such deal announcements this year. In January, New York recorded its first credit union-bank M&A announcement with Hudson Valley CU's deal for Catskill Hudson Bancorp Inc. Also, the Texas Dow-Sabine deal is the fourth credit union-bank transaction announced in 2024 in which the target is based in a different state than the buyer.
Big deal, attractive target
With $1.31 billion in assets, Sabine is the second-largest bank targeted in a credit union acquisition. The largest was announced in January with Global Federal Credit Union's deal for First Financial Northwest Bank.
As a result of the two largest credit union-bank deals being announced in 2024, the year is on pace to set a new record for the most bank assets sold in a year to credit unions. This year's total sits at $4.80 billion, compared to the current record of $5.15 billion in assets in 2022. The number of deals is also rivaling the record of 14 announcements in 2022, with eight through the first four months of 2024.
On a pro forma basis, Texas Dow will have about $6.13 billion in assets, a threshold not many credit unions cross. As of March 31, just 60 credit unions had over $6 billion in assets, according to S&P Global Market Intelligence data.
Sabine is also the highest-performing target among the eight banks that have announced sales to credit unions this year. The Louisiana-based bank had the highest return on assets at 2.6%, net interest margin at 5.1%, and year-over-year loan growth at 13.9% among the eight targets so far this year. It also had the lowest efficiency ratio at 52.6%.
The Many, La.-based bank specializes in commercial lending within the oil and gas, forestry, timber and agriculture industries. In the merger news release, Texas Dow touted the commercial lending diversification, which has become a common strategy among credit union-bank deals as credit unions are historically more consumer-focused lenders.
