Released January 2025
Introduction
The financial institution industry saw 22 whole-bank acquisitions by credit unions announced in 2024, surpassing the previous record of 16 announced deals set in 2022. The transactions reflect credit unions’ strategic use of mergers and acquisitions to expand their footprints, improve member services, and strengthen financial performance. However, as credit union-bank deals grow in size and scope, the proposed transactions face increased scrutiny, including regulatory challenges and longer approval times.
2024: A Record Year with Growing Challenges
The past year saw larger deals announced, such as Global Federal Credit Union’s planned acquisition of the $1.5 billion First Financial Northwest Bank and Texas Dow Employees Credit Union’s announced purchase of the $1.3 billion Sabine State Bank and Trust Company. These deals were the first announced credit union-bank deals where the target had total assets greater than $1.0 billion as of the deal announcement date. In fact, the total assets to be sold in the announced 2024 credit union-bank deals amounted to about $10.9 billion, which was more than double the previous record for assets sold at $5.2 billion in 2022. We are seeing both an increase in the number of credit union-bank deals, and the size of the transactions.
However, not all deals come to fruition, partly due to increased regulatory scrutiny. Approval times for credit union-bank transactions have lengthened as regulators place greater emphasis on compliance, community impact, and field-of-membership considerations. The recently terminated deal between Atlanta Postal Credit Union and Affinity Bank serves as a good example, where discussions between Atlanta Postal Credit Union and state banking regulators led to the withdrawal of the deal application and ultimately the mutual termination of the transaction. This case highlights the growing complexities and challenges credit unions face in navigating regulatory processes for such deals.
Strategic and Regulatory Considerations
Credit unions pursuing bank acquisitions face distinct challenges compared to traditional credit union-to-credit union mergers. As highlighted in Wilary Winn’s white paper on Credit Unions Purchasing Community Banks, such transactions involve important strategic, tax, and regulatory considerations:
- Strategic Drivers: An acquisition can expand a credit union’s geographic footprint, diversify its balance sheet, or add specialized expertise, such as commercial lending capabilities. However, credit unions must evaluate whether the transaction aligns with their long-term goals.
- Regulatory and Legal Hurdles: Unlike credit union-to-credit union mergers, bank acquisitions require purchasing assets and liabilities, necessitating extensive due diligence and regulatory filings with multiple agencies.
- Tax Implications: Most deals are structured as taxable asset sales, which can result in significant tax burdens for the selling bank, particularly if it is a C-corporation.
- Regulatory Capital and Goodwill: Bank acquisitions dilute GAAP equity and regulatory capital, creating additional considerations for credit unions with limited excess capital. Furthermore, the resulting goodwill from such transactions can be significant, adversely affecting regulatory capital calculations.
Why Credit Unions Should Partner with Wilary Winn
As credit union-bank acquisitions grow in size, complexity, and scrutiny, we believe that partnering with an experienced advisor is critical to achieving a successful transaction. Wilary Winn has completed over 600 merger and acquisition (“M&A”)-related valuations, including multiple valuations of credit union-bank deals, and is nationally recognized for its expertise in guiding financial institutions through all aspects of the M&A accounting process. We recognize considerations like ensuring cultural fit, retaining customers and employees, and converting data systems are oftentimes the most complex challenges that financial institutions face as they pursue M&A activity. Thus, we strive to simplify the complex M&A accounting for credit unions that are pursuing bank acquisitions. Here’s how we can help:
- Preliminary Valuation:
Our comprehensive valuation services provide clarity on the financial implications of a potential bank acquisition. We estimate the fair value of the liabilities assumed, including the core deposit intangible arising from non-maturity deposits, the fair value of the loans and investments acquired, the fair value of the equity acquired, and the amount of goodwill or bargain purchase gain. This allows credit unions to better understand the accounting, combined balance sheet risk, and regulatory capital implications of a contemplated bank deal. Ultimately, this valuation provides credit unions with a solid foundation for strategic planning, complemented by a detailed analysis that is often used to support applications seeking regulatory approval. - Final Valuation:
Wilary Winn simplifies the complexities of Day 1 purchase accounting under ASC 805: Business Combinations. We help credit unions accurately record the fair value adjustments for acquired assets, liabilities, and intangible assets like goodwill and core deposit intangibles, that are required to be recorded on Day 1. Additionally, we provide a turnkey solution that details the ongoing journal entries that must be recorded for amortization or accretion of the transaction-related premiums and discounts. This ensures compliance and sets the stage for a smoother integration. - Ongoing Valuation Support:
After deal closure and the issuance of the final valuation results, our team provides ongoing assistance with purchase accounting adjustments, goodwill impairment testing, and amortization schedules.
Our reputation as a leader in M&A accounting advisory is built on proven results and a commitment to delivering value to our clients. With advisory experience spanning community bank acquisitions, credit union mergers, and FDIC-assisted transactions, we provide tailored solutions that address strategic, regulatory, and operational challenges. Please visit the following link to learn more about the M&A services offered by Wilary Winn: https://wilwinn.com/services/mergers-acquisitions/.