TWO BANKS LOOKING TO SELL IN GEORGIA, JUST SOUTH OF ATLANTA

Those of you who regularly read our Client Updates know that we have been on the front lines for a number of years defending the right of credit unions to purchase the assets and liabilities of a bank that is interested in selling.

While we do not broker such deals nor do we interact with the FDIC on behalf of a bank looking to sell, we do have credit union clients that have successfully completed a P&A of community banks.

We have guided those credit union clients, when needed, through some NCUA regulatory hurdles and – in particular – have assisted with the field of membership component that is always something that must be worked through when a bank sells to a credit union.

Recognizing our extensive credit union client base and our working knowledge of the credit union landscape, we do receive information from time to time about banks in the market to sell – particularly if they are open to selling to a credit union as more and more are willing to do in order to get their best deal.

Therefore, the purpose of this particular Client Update is to let you know that we have been made aware of two community banks south of Atlanta, Georgia that have reached out to several credit union sources about their interest in selling.

We do not know the names of the banks, nor anything about their terms.  It is our understanding that they are both in the $100 million asset range.

If you have a field of membership that puts you in a position to consider an expansion into the Georgia market and gives you the ability to qualify the bank’s customers as members of your credit union in conjunction with the purchase, let us know if you would like us to introduce you to the firm that is involved in the search for a purchaser on behalf of the banks.

As always, we are not advocating for any of our credit union clients to pursue this opportunity.  It is a credit union by credit union strategic call as to whether you are even interested.

However, we always have our ears to the ground and are looking for opportunities for our credit union clients to consider.

For most of you, this would not be a fit.  But for a few of you, it might be worth looking into.

And we’ll keep our antennae up for other such opportunities that might arise around the country.  Next time it might be a better potential fit.

So, let us know if you’d like an email introduction to the contact person for the potential bank sales in Georgia.

In the meantime, the entire issue of banks selling to credit unions is always on the front burner in Washington and in state capitals across the country.  Each state seems to be looking at the issue differently, both from a legislative and regulatory point of view.

Congress, being pushed by the banking lobby, is also paying attention to the issue.  Credit unions must be in a position to defend the industry’s position regarding banks selling to credit unions.

For your reading pleasure (or not, depending upon your thoughts on this issue), I am providing below a reprint of a Client Update I wrote on the subject in 2020.

This should at least provide you with some talking points on the entire issue of banks selling to credit unions.  Included in the past Client Update below is a opinion piece I also authored in 2020 for Credit Union Times on the subject.

Hopefully, this will give you some perspective on the issue whether you are interested in a bank looking to sell – or not.  This is, and will remain for the foreseeable future, a major credit union and banking industry issue worth monitoring.

TALKING POINTS ON THE ISSUE OF BANKS SELLING ASSETS AND DEPOSITS TO CREDIT UNIONS – ALSO KNOWN IN THE MEDIA AS ‘CREDIT UNIONS BUYING BANKS’

There has been a great deal of media attention, particularly within the bank and credit union trade press, about what the bankers are calling “credit unions buying banks.”

While we do not broker nor do we do the consulting work on actual sales of bank assets and/or deposits to credit unions, we have some credit union clients that have engaged in such transactions.

And, yes, we have assisted some of those with consultative services on the NCUA aspects of such a purchase, especially from a field of membership perspective for those customers of the bank who must now become members of the credit union purchasing their deposit accounts.

However, facilitating bank sales to credit unions is not a direct line of business for us.  We don’t have the banking contacts to make such transactions happen because, frankly, they all begin with a bank wanting to sell – not a credit union trying to buy.

Yet, buying assets and/or deposits that a bank is offering for sale is definitely a credit union strategic option that is well within the law, rules and regulations.  And we get a lead from time to time about a community bank for sale in a particular area of the country and share it with our credit union clients.

We are always in favor of protecting credit union strategic options.

As believers in the essentiality of credit union growth and supporters of the free market options that might provide strategic considerations at some point in time for a credit union to consider, we feel that credit unions need to at least understand the issue of banks selling to credit unions as it is drawing more and more attention – both in the media and even on Capitol Hill.

Anytime you interact with your Washington elected officials, it is very likely that your member of Congress or Senator may ask about it.

The banking lobbyists have been working the issue quite aggressively on Capitol Hill with a factually inaccurate approach that tries to create the impression that these purchases are somehow not-for-profit, tax-exempt credit unions forcing for-profit, tax-paying banks to sell to them in what amounts to a hostile takeover that the bank doesn’t want.

Nothing could be further from the truth.  And the true facts on banks selling assets and/or deposits to credit unions in a purchase and assumption (P&A) need to be shared.

I was asked a couple of years ago by Credit Union Times, based upon some recent statements I have made in recent presentations to the effect that “credit unions buying banks” is actually a misnomer, to author an opinion piece on the subject.

I have done so and it should run in the Times sometime between now and the GAC.

As I completed the opinion piece, I recognized that it contained some great talking points for our Dollar Associates credit union clients if you are ever asked to defend “credit unions buying banks.”

So, therefore, with that in mind, I am providing to you below a copy of my original opinion piece that ran in the Credit Union Times several years ago.

There are what we feel are some good talking points within the article, even if you never seriously consider a bank’s offer to sell its assets or deposits or find a purpose to use the column in its entirety.

Credit Unions Buying Banks:  The Great Misnomer

There has been a lot of press over the past several years about credit unions purchasing banks.  And the bank trade associations are crying crocodile tears to Congress over how wrong they feel it is that their own members are selling to – of all things and, heaven forbid – a credit union.

Well, it’s time for some perspective on this issue.  And some facts.

Let’s start with the fact that the term ‘credit union buying a bank’ is totally a misnomer.  A bank exists through its charter, and no credit union has ever purchased a bank’s charter.  That is not even allowed by law.

A credit union cannot buy a bank.

For the record, the transaction that has taken place about 35 times over the past eight years, each time upon the initiating decision of the bank as to who its board of directors chooses to sell the bank’s assets and/or deposits to, is not a credit union purchasing of a bank.   That would involve purchasing the charter.  The bank charter is never sold, nor is it transferred to a credit union that might buy some or all of its assets and/or deposits.

This action is a sale of a bank’s assets and/or deposits by the bank itself, in whole or in part, to a credit union that purchases and assumes the assets/deposits.  It is a purchase and assumption, not an acquisition.  Not a merger.  Not a hostile takeover.  It is a P&A of assets and/or deposits.

Totally legal.

Let’s make it clear.  A credit union cannot by law buy a bank, but a bank can choose to sell some or all of its assets and/or deposits to another bank or to a credit union.  It is a distinction with, frankly (because the bank trade associations don’t want to admit it), quite a major difference because the initiating party in the sale of such assets is in each and every case the bank, not once has it been the credit union.

Despite the way it is being portrayed by the banking trade associations, there is no such thing as a hostile takeover or unsolicited purchase of a bank against its will by a credit union.  As stated earlier, the law does not allow it.  Neither, frankly, does the structural difference between the two entities charter wise allow at the federal level for a not-for-profit, member-owned cooperative with a credit union charter to own a stockholder-owned, for-profit financial institution with a bank charter.

Thus, again for the record, these transactions are not credit unions buying bank charters – and, even more importantly, they are sales of bank assets and/or deposits to a credit union that were initiated by the bank itself.  There has never been a purchase of assets and/or deposits by a credit union against the will of the bank involved.

Will this continue in the future?

Whether there is an increase or a decrease in the number of banks electing to sell their assets and/or deposits to a credit union will be determined each year not by the number of credit unions willing to buy the assets or deposits.  It will be based 100% upon the number of banks looking to sell.

If bank sales are up in a particular year, then those banks are going to be looking for the best deal with the best premium value.  If that comes from another bank, they will obviously prefer to take that deal as most banks would rather not sell to a credit union.

But it must be recognized that a bank’s board of directors has a fiduciary responsibility to the stockholders to get the best deal when they decide to sell assets and/or deposits.  No doubt they would prefer to sell to another bank; however, if the best deal comes from a credit union, bank boards will continue to make the free market business decision that best fits their fiduciary responsibility to their stockholders.

If that means the best deal for the assets and/or deposits comes from a credit union, these transactions will continue as the bank investors are concerned more (as they should be) about the return on their investment than taking less dollars just to make a point that they disagree with the credit unions tax exemption.

If banks want to slow down the number of their own brethren selling their assets or deposits to a credit union, those same banks need to step up their offers to buy the assets and deposits of other banks in their entirety.

Banks, unlike credit unions, can buy bank charters.  It can be an outright acquisition, not a purchase and assumption.

Still, about 35 banks over the past few years have chosen on their own to sell assets and/or deposits to a credit union rather than their entire bank to another of their banking brethren.  Why?

The answer is simple.  Their fellow banks are offering less return on the investment made by the selling banks than a credit union is offering.  Because they want the best return on their investment, the bank boards are choosing the best deal for them.   It is the free market at work.

And how about the role of regulators?

Banking regulators need to be careful about overreaching into the free market by getting involved in telling the banks that they regulate or insure to whom they can sell their assets or deposits and that they should have to accept less than the best price for those assets simply to protect one type of financial institution over another on an asset sale.

Credit union regulators, who have thus far been responsible in allowing the marketplace to work as long as all laws, rules and regulations are followed, need to be careful not to begin telling the credit unions they regulate and insure what type of legal assets and/or deposits they can purchase as long as they remain both safe and sound and in full compliance with what the law and regulation allow.

For either regulator to get involved in trying to stop these legal, market-driven transactions simply because they think some others of those they regulate/insure don’t like them would be akin to the Federal Aviation Administration (FAA) taking over the flying of planes because American doesn’t like Delta buying a plane that United wants to sell – even though American doesn’t want to buy it at United’s price.

The FAA would leave sale that up to the free market.  Their job is to make sure the planes are safe, the pilots and controllers are certified and the airways are clear from dangerous traffic.  FAA should not start taking over for the pilots and controllers simply because they want to pick winners and losers between their regulated entities.

The market should be allowed to work, as long as all GAAP, laws and regulations (including the requirement that bank customers must be able to be qualified as credit union members and join the credit union) that are applicable to any federally insured institution are followed in order to ensure that deposit insurance is maintained with no interruption.

Again, no matter how the headlines may read, the fact is that credit unions are not purchasing banks.  That is factually incorrect.  A misnomer.

Banks are selling their assets and/or deposits to a credit union, when and only when the credit union offers the best deal in the eyes of the bank board as fiduciaries for the stockholders, in a purchase and assumption transaction.

Whether that activity increases or decreases year to year will be driven by how many banks are selling, how good the offers to purchase are from their fellow banks and whether the credit union purchase and assumption option works for both parties.

Just one more time before we close.  That is the free market at work.

CONCLUSION

Hopefully you found a few facts in this 2020 column that help you understand the issue that has been incorrectly labeled “credit unions buying banks” just a little bit better – and maybe you picked up a few talking points along the way if you are ever asked about it.

The information is still very timely, and the issues are basically the same as they were two years ago.

And, if you are interested in being referred to someone in a position to provide more information about the two Georgia community banks interested in selling, let me know be return email.  I would be more than glad to introduce by separate and confidential email you to the capital markets specialist that contacted me and is coordinating the potential sale.

Until next time.

Dennis Dollar