By Ray Birch
WASHINGTON— When the $385-million Avenir Financial Credit Union recently acquired $195-million Mission Bank, it drew attention due to the relatively close asset sizes of the two institutions. The deal resembled almost a merger of equals—something rarely seen among the more than 100 previous credit union acquisitions of banks.
Jeff Cardone, partner at Luse Gorman, which is representing Avenir in the deal, pointed to key factors that he said make deals involving similar-size institutions workable. .
Cardone acknowledged the similarity in asset sizes is unusual for a credit union acquisition of a bank.
“Credit unions like Avenir are somewhat of an anomaly in terms of their significant net worth and liquidity compared to their credit union peers,” said Cardone. “That is why smaller credit unions like Avenir can acquire larger institutions. Smaller credit unions with strong capital and liquidity are well positioned to acquire a larger bank while remaining well capitalized.”
Cardone said that, typically, when banks sell to credit unions their assets are 20% to 25% of the asset size of the acquiring credit union because acquiring credit unions need to ensure their pro-forma capital can support the acquisition.
“So, I expect these types of deals, where the credit union and bank have similar total assets, will remain limited,” Cardone said. “In assessing the pro forma net worth and risk-based capital ratios for a transaction, many credit unions cannot acquire a similar-sized bank because the deal math does not work.”
Cardone pointed to $839-million Zeal Credit Union last year agreeing to purchase $147-million Gogebic Range Bank.
“Zeal had a tremendously high net-worth ratio and therefore had the capacity to acquire a larger institution,” Cardone said.
Cardone added that many credit union-bank partnerships, like Avenir and Mission Bank, are a good match because each institution has complimentary business lines that provide members and customers with additional services, products and branch locations.
How did the deal happen, and why didn’t Avenir acquire a CU instead?
Jeff Cardone
“Credit union-to-credit union mergers are hard to put together because of the sensitive social issues that often have to be worked out,” Cardone said. “And the merging out credit union is giving away its equity for free, so the merging credit union makes significant demands that are not tenable. When banks sell to credit unions it's about pricing and less about social issues. Credit unions are all-cash buyers, which is attractive to banks.”
Cardone estimated the Avenir deal could receive regulatory approvals by the fourth quarter of 2025.
He added, however, that some uncertainty exists on the timing, since NCUA is going through a restructuring and is downsizing, noting that could lead to approvals taking longer because the NCUA is understaffed.
“But I am seeing the NCUA board delegate approval authority to the NCUA regional offices, so hopefully the application process will proceed more expeditiously despite the staffing changes at the NCUA,” Cardone said.
Cardone said credit unions this year are on pace to announce approximately 15 bank purchases. Last year was a record year for these deals, with 24.
Cardone addressed the bank trade groups attacks on credit union bank buys.
“These deals represent only a very small segment of overall bank mergers,” Cardone pointed out. “Since the first deal 12 years ago , there have been approximately 100 credit union-bank deals compared to 2,000 bank-to-bank mergers during the same time period. Many selling banks like to have credit unions in the mix to expand the pool of potential buyers, which helps create more value for shareholders. Preventing credit unions from acquiring banks will drive down valuations, particularly for smaller banks with very limited potential merger partners.”