Deals involving credit unions buying whole banks are becoming more common than those involving branch-only acquisitions in part because banks in some markets are looking to add rather than divest offices.
Since 2012, there have been 15 transactions in which a credit union bought branches from a bank. Most recently, Apple Valley, Minn.-based Wings Financial CU in January agreed to acquire three branches from Chaska, Minn.-based KleinBank, a subsidiary of Klein Financial Inc. That branch deal is set to close around mid-year.
By comparison, there have been 17 deals announced since 2012 in which a credit union was acquiring a whole bank. And since 2015, 13 of 20 credit union deals have been whole-bank deals. North Augusta, S.C.-based SRP FCU agreed to acquire Sardis, Ga.-based Southern Bank in late November 2017, marking the sixth deal of that year. One of those acquisitions has since been called off, though — Berrien Springs, Mich.-based Honor CU and Ontonagon, Mich.-based Citizens State Bank of Ontonagon have terminated their proposed merger.
Wings Financial has been working to build out its branch network over the past few years, and the KleinBank deal filled in some gaps in its coverage northwest of Minneapolis. President and CEO R. Frank Weidner said in an interview that the dearth of transactions involving credit unions buying bank branches likely has do with the fact that many credit unions have already been actively building out their footprints, and more banks are looking to add branches rather than subtract.
For example, Bank of America Corp. has been adding branches in the Minneapolis market, he said. "There's a lot of folks looking to put branches out there and trying to find the right locations."
Wings has completed a few credit union mergers in its history, the most recent one in 2010, Weidner said. The credit union had $4.54 billion in assets at the end of 2017 and expects to grow, in part due to the recent branch acquisitions.
Michael Bell, a lawyer with Howard & Howard who has worked on several deals involving credit unions buying banks in recent years, said in an interview that part of the reason for the small number of branch deals is that banks just do not think about credit unions when they are looking for branch buyers. "I think that is a real problem," he said.
Most, if not all, investment bankers know that credit unions have cash to spend and are strong whole-bank buyers, but do not necessarily think of them when it comes to branch transactions. But with an increasing number of banks in some markets right-sizing their branch networks, that could begin to change, Bell said.

Weidner said the credit union will pick up roughly $40 million of the three branches' $70.5 million in deposits, as well as about 5,000 KleinBank customers in the branch deal. John Wagner, senior vice president of member experience, said Wings Financial will begin an effort to educate those bank customers not only about what a credit union is but what Wings Financial can offer. He said those customers will likely see better rates, both in terms of borrowing and saving, as Wings members than they did as customers of the bank.
Those bank customers fall within the credit union's field of membership that includes the 13-county Minneapolis-St. Paul metro area and automatically qualify for membership.
Wings Financial has branches in five states across the U.S., and Weidner believes there will be more opportunities for branch buys. He said the credit union would like to bulk up in the Midwest, and that could include an expansion into new, nearby markets. So, could that effort be aided by a whole-bank acquisition? "Certainly, if we saw the right opportunities with whole-bank acquisitions, we would definitely consider those," Weidner said.
Wagner said the ideal bank target would operate in a market Wings Financial is targeting for growth and would have a loyal customer base. And with community banks increasingly realizing the need for scale amid regulatory headwinds, more of those opportunities may come along, the executives said.

Another credit union that has acquired some bank branches and that could also be in the market for a whole bank is Marine Credit Union. In 2017, Marine bought five retail branches from Milwaukee-based Bank Mutual Corp. Marine President and CEO Shawn Hanson said it has looked at a number of whole banks, although it has not signed any deal for any of them yet.
Bell expects 2018 to see more credit union-buying-bank deals than last year. In fact, he said he expects to announce three such deals in the next 30 to 60 days and is working on more. The overall increase in M&A activity in the financial services space trickles into these deals materializing as well, and Bell said he has qualified and eager credit unions in 43 states looking to buy banks.
"We just need the chance to participate," he said. "We will either win or raise the price."
Did you enjoy this analysis? Click here to set up real-time alerts for data-driven articles on the U.S. financial sector. Click here for a refreshable template that combines the balance sheet and income statement of two or more credit unions. Users can also access a refreshable financial performance report that displays customized, multi-period financial trends and operating results for a credit union versus an asset- or state-based group of your choice. |

