By Ray Birch
DETROIT—Credit unions that buy banks tend to be “different” organizations from their peers that choose instead to either grow organically or via mergers, says Michael Bell, who adds a new study from S&P Global supports his perspective.
As CUToday.info reported, credit unions that have not bought banks have reported better net interest margins (NIM) than those CUs that have completed acquisitions, according to new study from S&P Global Market Intelligence. S&P Global is reporting that its analysis of Q1 2024 data found the median NIM for credit unions that have not acquired banks was 3.89%, compared to 3.20% for credit unions that have bought banks and 3.25% for community banks.
“The study confirmed what I have always said--the credit unions that are buying banks tend to be different, from operations and profitability perspectives, than those CUs that do not engage in this growth practice,” said Bell, a partner and chair of the Financial Institutions Practice Group at Honigman, LLP. “There's more than 4,000 credit unions in the country, but only a couple hundred really engage in this activity of buying a bank.”
‘Just Different’
That doesn't mean those 200 are better or worse than their peers, said the pioneer of CU purchases of banks.
“They're just different than the others,” said Bell, who has been part of more than 60 whole-bank agreements, plus additional bank branch purchases. “If you're an organization that's buying banks, you're also an organization that before you ever bought a bank was different than your peers. I think the study, essentially, confirms that. The credit unions that are in this business are credit unions that are focused on growth, that prioritize growth and the statistics follow that trend.”
As CUToday.info has reported and S&P Global Intelligence has confirmed, it’s been a record year to date for such acquisitions.
A Record Year
Bell told CUToday.info that 2024 should be a record year for CU purchases of banks, expecting the final tally to be in the mid-20s, far exceeding the previous high.
“As I have stated in previous CUToday reports, the interest on the buying and selling side of these deals is increasing, as is the size of the buys,” Bell said.
Michael Bell
In addition, the S&P report further found the estimated deal premium for credit union-buying-bank deals announced since 2019 was 52.9%, considerably higher than the 21.8% median for bank-to-bank deals.
Bell has stated that typically when a credit union wins a deal, it has been paying from 1.3 times book at the low end to just over 2.0 at the high end.
"That has remained stable,” Bell said.
Positives Identified
The S&P study points to some positives for CUs that have bought banks. For example, deposit growth at those CUs has also rivaled and at times even outpaced similar growth rates at community banks. In addition, credit unions that have purchased banks have exceeded peers on member growth since at least the fourth quarter of 2018, according to S&P.
“That goes to what I was saying about the DNA of these buyers,” Bell said. “I think these CU buyers that are engaged in this business are heavily growth-focused and are growing their credit unions well, before they ever buy a bank. Growth is in their in their DNA, or in their operating history. And then when they buy a bank they're going to keep doing what they do.”
Regardless of the type of credit union purchasing a bank, Bell said the finding in the S&P analysis that it requires three to five years for a credit union to make back the cash outlay for the purchase has remained constant over the years.
“That is not changing,” he said. “That is what we see consistently.”
‘A Mistake’
Bell reiterated the profitability of credit unions that are buying banks is not affected by the decision to make the purchase.
“Again, I think it's a mistake to look at this study and say, ‘OK, once a credit union buys the bank these things will occur, this will be affected’,” he said. “The credit unions that are purchasing banks are just slightly different animals than those that are not, and they are just continuing to be who they are after the deal is closed.”