Late last year, Birmingham-based Avadian Credit Union acquired Citizens State Bank of Vernon, a deal expected to close no later than the third quarter of 2022. The acquisition raised Avadian’s assets to about $1.2 billion, and its locations from 17 to 19.
This type of transaction is part of a growing trend for credit unions to acquire banks, with a key reason being, according to The Financial Brand, credit unions’ desire to move deeper into small business lending.
As recently as 2007, according to The Financial Brand, no credit union purchases of banks were recorded. That figure stayed below 10 through 2017 but ballooned to 21 in 2019. In addition to Avadian’s acquisition of Citizens State Bank, Tuscaloosa-based Alabama Credit Union acquired Security Federal Savings Bank of Jasper in 2021, the latter worth $39 million in assets. And the trend of credit unions buying banks reached a fever pitch last August, when three different credit unions from across the country — the aforementioned Alabama Credit Union transaction, plus deals in Memphis, Tennessee and Eau Claire, Wisconsin — all bought banks within the same week.
“For community banks, it makes sense to sell to credit unions, as their customers gain access to member-centric financial services as opposed to that of a for-profit bank, or worse — no access to financial services at all,” says Patrick La Pine, president and CEO of the League of Southeastern Credit Unions. “Credit unions put people over profits and prioritize helping members achieve financial wellness and security, making credit unions the preferred suitor for banks looking to close.”
But that’s not all, La Pine says: 80% of banks’ sales to credit unions involve low-income designated credit unions, demonstrating the credit union’s commitment to reaching those who benefit most from locally focused financial institutions. It’s a win for local communities, La Pine says, because credit unions consistently reinvest in the communities they serve. And the banks emerge with a huge advantage — all-cash transactions, as opposed to stock they’d receive if purchased by another bank.
What are the benefits to a credit union making this acquisition? A credit union can fulfill its mission of reaching communities who are underserved or overlooked by other financial institutions, La Pine says.
“For credit unions acquiring banks, they are able to expand resources through purchasing an already mature small business lending portfolio, as well as gaining scale,” he says. “There is an additional benefit to the communities when a community bank is purchased by a credit union. Because credit unions are locally owned and locally managed, lending decisions are not made in another state or country — rather, they are made in their local communities.”
Avadian Credit Union’s purchase of Citizens State Bank is too recent to fully measure its benefits, says Stanton Davis, chief innovation and experience officer at Avadian.
“With that said, we have gone through an extensive due diligence process and definitely see this merger being beneficial in the long run,” he says. “The most compelling benefit is that the current customers of Citizens State Bank will have access to a full suite of consumer and business products, an array of technology such as self-serve ATMs that receive cash and check deposits, a mobile banking package that includes a multitude of services, online chat, online applications, and so much more. It is exciting.”
Davis says the key to a successful merger or acquisition is alignment, working closely with the other financial institution’s staff with one main objective in mind: To take care of the customer.
“The benefits of M&A can be multifaceted,” he says. “Benefits could be aligned with various strategies, such as branch and market expansion, acquiring the skillsets of a department — such as real estate or business services — or helping another financial institution continue to serve their customers in the best way possible.”
Davis points out that in 2021, there were between 10 and 15 credit union acquisitions of banks nationwide, so numbers remain relatively small, all told. But, with continuous growth in mind, this type of acquisition can prove advantageous.
“There are many factors that contribute to M&A activities,” Davis says. “One way to grow, of course, is organically through building new branches or obtaining new members via various communication channels. Building new branches is costly, and the turnaround time is long. In addition, many times you are starting without a book of business already assigned to that location.”
Simply put, he says, mergers and acquisitions are one of the fastest ways to grow. Historically, credit unions have achieved M&A growth by acquiring other credit unions; recently there have been several instances of credit unions acquiring community banks, including Avadian’s own purchase last December.
“Several factors are considered based on this strategy,” Davis says. “There are economies of scale, expanding new lines of business such as business lending, as well as financial institutions behind mandated by regulatory agencies to merge with a stronger institution based on financial stability.”
And, though it remains to be seen whether the specific M&A activity of credit unions purchasing banks will continue to surge into the next year, Davis says that “mergers and acquisitions will always be on the list of strategic objectives.”
Throughout the COVID-19 pandemic, credit unions looked for creative ways to support their communities and increase access to financial services, La Pine says. And the trend of credit unions buying banks has the potential to continue its way into the new year, with more activity as we drive deeper into 2022.
“Credit unions collectively worked to meet the needs of their respective members,” he says. “As financial institutions continue to navigate the pandemic and its effects, credit unions will continue to reach those who are unbanked. The trend line over the past four years is increasing, and I would expect that trend to continue into 2022.”
Rachel Burchfield and Art Meripol are Birmingham-based freelance contributors to Business Alabama.
This article appeared in the March 2022 issue of Business Alabama.