Ohio bankers take cues from other states as they fight 1st CU-bank deal

Ohio bankers are taking cues from other states to prevent the first credit union whole bank buy in the Buckeye state.

On April 29, Goshen, Indiana-based Interra CU announced its intent to buy substantially all assets and liabilities of Hicksville, Ohio-based Hicksville Bank. The same day, the Ohio Bankers League (OBL) published a press release opposing the deal, stating it would use "all available tools, including regulatory engagement, legislative action, and, if necessary, litigation."

Interra CU and Hicksville Bank representatives did not respond to requests for comment.

The deal is Ohio's first instance of credit union-bank M&A since 2019 and its first-ever outright buy. The first and only sale of bank assets to a credit union in Ohio was in 2019, when Lima, Ohio-based Superior CU Inc. bought a branch in Cincinnati from Fidelity Federal Bancorp.

The OBL was ready and waiting for this moment, President and CEO Michael Adelman said in an interview with Market Intelligence.

"We've been doing our research. We've been preparing for the state for years. We've known it was going to come, right? We've seen it playing out in other states," he said.

Since the deal was announced, the OBL launched a petition and sent representatives to the Federal Deposit Insurance Corp. in Washington, DC, to request that it deny the deal application. It also backed a June 10 Ohio Banking Commission resolution requesting an FDIC denial of the deal, and on July 1, it submitted a formal comment letter to the FDIC opposing the acquisition.

The League opposes the deal for a number of reasons, including the removal of Hicksville's depositors from FDIC-insured status, the expansion of the credit union beyond its field of membership and the loss of an institution required to comply with the Community Reinvestment Act. But at the heart of its argument is the clarity of the Ohio Revised Code, which specifies what institutions banks can merge with, but does not mention credit unions. The League says the omission makes the merger illegal.

"What makes it so objectionable is straight up, we just believe it violates Ohio law. So we're seeking the regulators to simply uphold Ohio law," Adelman said in an interview with S&P Global Market Intelligence.

The Ohio Credit Union League disagreed with the assertion.

"We're certainly aware that the bank trades in Ohio see things differently than we do. That's okay. And we intend to make the case very strongly from our perspective that this passes regulatory muster. This is, in fact, legal and is quite healthy for the local community up there in far Northwest Ohio," said Ohio Credit Union League President Paul Mercer in an interview.

While the OBL aims to use the law to prove the illegality of the buy, Mercer pointed out that there is no explicit prohibition of credit unions buying or selling banks in the state. He also pointed to the 2019 precedent allowing an in-state credit union to buy bank assets as a legal basis for the merger.

Since January 2015, there have been 112 announced acquisitions of US banks by credit unions, excluding terminations, compared to 1,949 bank-to-bank buys, according to Market Intelligence data. Also during that time, 16 attempted bank acquisitions by credit unions were terminated.

Some of those terminations stemmed from state opposition.

Orion FCU's 2021 attempted acquisition of Memphis, Tennessee-based Financial Federal Bank was held up in court proceedings for years after attempts to stop the deal by the state's bank commissioner. Despite the credit union winning the court cases, Tennessee legislators passed new laws prohibiting credit unions from buying Tennessee banks, thus terminating the deal after it had been pending for over 1,000 days.

With a similar rationale to the OBL, the Nebraska Department of Banking and Finance rejected GreenState CU's attempted acquisition of Premier Bank in January 2022, saying that banks could not sell to credit unions. Premier Bank appealed, but a Nebraska judge upheld the decision.

Other states passed legislation to prevent or complicate future deals, including Mississippi and Washington.

The OCUL is against potential changes to the law, Mercer said.

"We see no good reason why new laws would step in the way of a perfectly free market transaction. It's the board and the shareholders of Hicksville Bank that have chosen Interra Credit Union as the best path forward for their local community. We don't see any good reason why government would intervene on such a positive transaction looking forward that is both legal and highly beneficial for the local community," he said.

However, the OBL is exploring ways to make the laws surrounding credit union-bank buys in Ohio "even more ironclad," Adelman said. "We're definitely doing the research as far as, 'Hey, what does that look like?'"

But Ohio is halfway through an election year, with limited floor and committee time, so the OBL's first priority is the Hicksville Bank deal.

"That's the tree in front of me that I'm looking to chop down first," Adelman said.