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4 credit union deals announced in a week as bank M&A stalls

While bank M&A has come to a standstill, credit unions are still making deals happen.

Experts and deal advisers said it is easier for credit unions to make deals happen in the current environment because their deal terms do not involve stock like many bank deals. However, most of the deals were probably in the works before COVID-19 began spreading throughout the country, and credit union M&A will likely come to a halt soon, they said. But once the economic impact of the novel coronavirus is realized, deal talks will quickly speed back up for both banks and credit unions.

Within one week, four deals with credit union buyers were announced.

On April 30, Oklahoma City-based Tinker FCU announced its acquisition of all the assets and operations of Edmond, Okla.-based Prime Bank. The next day, Clarkesville, Ga.-based Habersham FCU and Gainesville, Ga.-based HALLCO Community CU announced they were beginning the process of merging the two entities. Plymouth, Minn.-based TruStone Financial FCU and Burnsville, Minn.-based Firefly FCU on March 4 announced their agreement to merge. On May 6, York, Pa.-based West York Area School District Employees FCU and First Capital FCU announced their agreement to merge.

Since COVID-19 began spreading throughout the U.S. and the Federal Reserve lowered interest rates, bank stocks have taken a hit and bank M&A has come to a halt. By law, credit unions are not allowed to issue common stock, meaning deals are all cash.

"When your term considerations are non-stock value related ... those deals can keep moving forward," Peter Duffy, a managing director with Piper Sandler, said in an interview. Duffy is currently working on three credit union deals that have yet to be announced. All three deals were under way pre-COVID and are still continuing during the pandemic, he said.

Potential credit quality issues could slow credit union-to-credit union M&A, said Charles McQueen, president and CEO of McQueen Financial Advisors. Without shareholders to buy out, credit union-to-credit union deals do not require negotiation on price. "Since there's no purchase price and it's just like a pure-stock combination, there's not much out here to slow that type of deal except credit risk," McQueen said in an interview.

Not all credit union deals are proceeding as planned. Uncertainty surrounding COVID-19's economic impact has weighed on many pending deals involving banks, including Suncoast CU and Miami-based Apollo Bank's previously announced merger. The companies terminated their merger plan due to uncertainty related to the ongoing pandemic, according to the Miami Herald.

Several unannounced credit union deals have either been terminated or paused. McQueen said the eight deals his company is advising have either been killed or paused until the ultimate economic impact from the novel coronavirus is known.

"It would be very difficult for me to give someone advice to move forward [with a deal] in this environment," McQueen said. "I would not expect to see any more transactions for the foreseeable future. I think these are just kind of left over from pre-COVID. I don't think this is a trend that will continue."

McQueen Financial Advisors advised Tinker FCU on its announced acquisition of Prime Bank. The deal came together before the novel coronavirus began spreading throughout the U.S., McQueen said.

For deals that have been announced, COVID-19 could slow timelines to better understand credit risk, Duffy, McQueen and Tom Rudkin, a principal with DD&F Consulting, all agreed.

But once COVID-19's impact on financial institutions' credit quality is clearer, deals will pick back up rapidly, including more credit union acquisitions of banks, experts said.

"As long as bank stocks remain down and we start to pull away from this virus, you'll see more credit unions stepping in to buy banks," Rudkin said.

M&A for both banks and credit unions will re-emerge by end of the year, Duffy said. "When we get through the other side of the next six months and there starts to be more clarity on the loan portfolios for banks and credit unions, I think that you'll see a very healthy environment for an increase in M&A activity," he said.

For many, the pandemic has reinforced the need for scale as depositories face an even tougher operating environment, and M&A is the best ways for credit unions to gain members, McQueen said. But McQueen thinks deals likely will not be announced until 2021.

"Deals happen when there is a limited amount of uncertainty," McQueen said. "I don't think there's going to be many more announced this year at all."