More on the deal: The combined entity will have approximately $7.1 billion in assets, nearly $800 million in capital, and 33 branches across its footprint in Michigan and Florida.
Trendspotting: DFCU is the seventh credit union this year to announce its intention to acquire a bank.
What’s the opportunity? Credit unions are using their acquisitions of community banks to enter new markets in other geographic areas, add expertise and diversify its balance sheet, add members, drive economies of scale, and expand their commercial lending.
The deals may also be a defensive move—the credit union could buy a neighboring community bank to block a competitor from entering or expanding its presence in the credit union’s marketplace. Or credit unions could be seeking a bank’s more advanced digital capabilities.
In other words, credit unions make these deals pretty much for the same reason as one community or regional bank would buy another.
What’s the problem? Community bankers say credit unions are abusing their tax-exempt status to outbid banks in acquisitions and derive an unfair competitive advantage. And they claim these acquisitions have a negative impact on communities:
Legal pushback and lobbying efforts: Colorado and Iowa have barred state-chartered banks from selling to credit unions. And the Independent Community Bankers of America (ICBA) and other community banking groups have lobbied federal and state lawmakers to curb credit union-bank deals.
Will the trend escalate? When a credit union purchases a bank, multiple regulators are involved. The legal process is more complex, and the costs associated with the transaction are higher. So, as anomalous and alarming as they may appear, these acquisitions—relatively small in number—aren’t likely to become an existential threat to community banks. Bank-to-bank deals will continue to dominate M&A activity in financial services. Bell told Bankbeat that he expects no more than 15 to 20 such transactions annually: “These will always be in the minority and that will not change,” he said.
In the longer term, Biden's executive order regarding consolidation could be a signal that the executive branch may eventually take a look at credit union acquisitions of banks.