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Weekly Recap: 1st CU-buying-bank deal of 2018 announced

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Weekly Recap: 1st CU-buying-bank deal of 2018 announced

The weekly recap features news on regulatory actions, mergers and other issues facing the credit union space. Send tips, ideas and chatter to ken.mccarthy@spglobal.com.

In the spotlight

In the first transaction announced in 2018 involving a credit union buying a bank, Dunedin, Fla.-based Achieva CU is acquiring Fort Myers-based Preferred Community Bank.

Terms of the deal were not disclosed. SNL valuations for bank and thrift targets in the Southeast between Feb. 14, 2017, and Feb. 14, 2018, averaged 159.57% of book, 168.84% of tangible book and had a median of 24.01x last-12-months earnings, on an aggregate basis. There were six credit union-buying-bank deals announced in 2017 although one of those was later terminated.

Attorney Michael Bell, who represented Achieva in its transaction, said in an email to S&P Global that there are more such deals to come in February and March.

Another credit union that has made no secret of its desire to buy a community bank is Arkansas FCU. President and CEO Rodney Showmar said in an interview last week the Jacksonville, Ark.-based credit union looked at three opportunities to buy a bank in 2017. He said Arkansas FCU ultimately passed on two of those deals but bid on the third one. The credit union finished in the runner-up position for that bank, Showmar said.

The credit union believes there are bank targets in its markets that would be a good fit for its needs, and those banks do not necessarily have to be extremely financially healthy. But community banks need to fit into a "tight box" of other requirements for the credit union to consider acquiring them. Arkansas FCU is especially concerned with a bank's geographic footprint and asset size. The credit union could only absorb an institution of a certain size without reducing its capital ratio too much, Showmar said.

In other news

* At its Feb. 15 board meeting, the National Credit Union Administration approved a final rule governing the methodology to be used for calculating distributions from the temporary corporate credit union stabilization fund. The board then approved a $735.7 million dividend payment to be made in the third quarter of 2018. The distribution will be based on the average quarterly insured shares reported by credit unions in call reports extending back to the beginning of calendar year 2009. The NCUA on Sept. 28, 2017, voted to close the fund and transfer its assets and liabilities to the share insurance fund.

* Prior to that meeting, Atlanta-based Pinnacle CU President and CEO Matthew Selke said there are many credit unions that are "livid" that the two funds were merged. Selke and other members of a group called the Coalition to Appeal NCUA Board Action also say credit unions were assessed almost $5 billion in premiums to fund the work of the stabilization fund from 2009 through 2012, and the NCUA is not refunding enough money. "So my point of view is a very muted thanks to the NCUA for returning some funds, but I'm really pissed that we are not getting our fair share that's due to our members," he said.

* Also during the NCUA meeting, staff said the share insurance fund posted a net loss of $229.1 million for 2017, primarily due to the increase in the provision for insurance losses. The net position of the fund was $15.7 billion at the end of 2017, and its assets increased to $16.7 billion at year-end primarily due to the transfer of assets from the stabilization fund.

* Fourth Corner Credit Union recently cleared a key legal hurdle to provide financial services to companies connected with Colorado's marijuana industry, but legal ambiguity at the federal level still stands in the way of the Denver-based credit union's ambitions to freely bank cannabis businesses. After four years of legal battles, the Federal Reserve Bank of Kansas City cleared Fourth Corner to access key capabilities, but only if the company promised to not bank any business that directly touches the production, distribution or sale of marijuana.

* The House voted to pass legislation that addresses threats of litigation under the Americans with Disabilities Act. The Credit Union National Association, which backed the bill, said credit unions have been facing increasing legal threats due to confusion over how the ADA applies to website accessibility. And although the ADA Education and Reform Act of 2017 (H.R. 620) does not directly address threats facing credit unions, CUNA believes it is a step toward clarification.