The agreement between a credit union and a bank is part of the trend

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Shreveport’s Barksdale Federal Credit Union recently announced that it will move into Arkansas with a deal to buy Greenbrier Bank, the first-ever credit union acquisition taking over a bank in the state.

Barksdale’s bid to buy HomeBank of Arkansas, which has five branches and about $78 million in assets, is unlikely to be the last bank purchase by a state credit union and industry analysts. claim that similar transactions could take place soon.

They cite a growing trend across the country for credit unions to acquire banks — this year is expected to set new records for cross-deals.

“I think you’ll see more activity in Arkansas,” said Randy Dennis, president of DD&F Consulting Group in Little Rock. “There is no doubt that there will be more opportunities for credit unions in Arkansas as well as across the country.”

Dennis’ company has deals in Alabama and Wisconsin involving credit unions and banks.

The transactions between credit unions and banks have drawn objections from the nation’s largest banking business groups, who argue that credit unions have an unfair tax-exempt status that helps them store cash to fuel acquisitions. One of the quirks of cross trades is that they are all cash transactions since credit unions do not carry inventory; they belong to their depositors or members.

Little Rock’s Arkansas Federal Credit Union, the state’s largest with $1.8 billion in assets, has considered several bank acquisitions but has yet to find one that fits the culture and the organization’s growth strategy.

“We’ve gotten to the second level of due diligence on all of this,” Chairman and CEO Rodney Showmar said. “Once you got in there, they didn’t meet our expectations or our strategy, so we walked away from those. We’re not against it. We’ve had three or four opportunities and we don’t. ‘ve not removed the trigger on one yet.”

The potential acquisitions were all banks operating in Arkansas.

Across the country, acquisitions of credit unions and banks have accelerated in recent years and hit a high of 13 deals last year with total assets of $5.96 billion, according to S&P Marketing Intelligence. . Efforts continue on this momentum and five transactions, including the Barksdale and HomeBank transaction, have been announced in the first months of 2022.

Industry consultant Mike Bell predicts more than 25 deals this year. “I’m sure we’re going to set a record this year for the most of these deals,” said Bell, financial practice group partner at Honigman LLP and based in Kalamazoo, Michigan. Bell was involved in the first credit union-bank transaction in 2010 and has worked on about 45 of the 50 transactions that have taken place since, he said.

Although the deals continue to gain traction, Bell points out that interbank acquisitions will eclipse those involving credit unions. “We will always remain the minority in these agreements,” he added.

For example, there were 190 bank acquisitions last year, the lowest level – excluding pandemic year 2020 when there were just 99 deals – since 2011, the data shows. from Stephens Inc. Banking Research Team Stephens expects more than 220 transactions this year.

The increase in acquisitions by credit unions has drawn criticism from the American Bankers Association and the Independent Community Bankers of America (ICBA), which have called on Congress to remove the tax exemption for credit unions.

Credit unions were created to support low-income consumers and focus on local communities, banking industry officials say.

“In recent years, credit unions have expanded this statutory mission,” said Michael Emancipator, ICBA’s regulatory advisor. “It doesn’t seem like the tax exemption is warranted if they extend beyond the very narrow focus of why Congress granted them the tax exemption.”

Credit unions, if free to buy and compete with banks, should be subject to the same regulatory, supervisory and tax requirements as banks, according to banking industry officials.

The industry has been lucky at the state level. Iowa and Colorado have banned state banks from selling to credit unions. Lawsuits are underway in Nebraska and Tennessee to block deals announced last year.

Arkansas, Emancipator said, has not been the focus of efforts to seek regulatory assistance — most industry efforts focus on the handful of states with the most credit union acquisitions and of banks. Since 2015, Florida has had the most deals with 12, followed by Georgia and Illinois with seven each while Alabama, Indiana and Wisconsin have all had five deals, according to S&P Capital.

Bank of Arkansas Commissioner Susannah Marshall declined to comment on the credit union buying trend as the department must rule on the proposed Barksdale-HomeBank acquisition. Terms of the agreement were not disclosed and it is expected to close in the third quarter.

Four variables drive credit unions to acquire banks, according to Bell. Credit unions want to expand their footprint, increase lending and deposits to diversify, add bank-trained talent, and ensure transactions generate revenue from day one. “Those are the four key strategies that are driving the majority of these deals,” Bell said.

Banks are interested in selling to credit unions because it adds another level of competition to the bidding process. Industry consolidation has dramatically reduced the number of banks, and therefore potential buyers, over the past 40 years.

“Adding a credit union to the process only increases the number of possible bidders,” Bell said.

The Federal Reserve Bank reports that there has been a steady decline in commercial banking for nearly 40 years, primarily due to mergers and acquisitions. There were 14,496 banks in 1984. Between 1984 and 2020, the number of banks decreased by 70%, with more than 10,000 disappearing during the period.

Arkansas federal leaders say a bank acquisition remains on the table and the company would be more interested in expanding its footprint — it operates primarily in central and northwest Arkansas — or developing a new one. loan portfolio in agriculture or small business loans.

“We’re going to focus on any opportunities that may arise,” CEO Showmar said.

Along the same lines, Showmar said the credit union would be interested in adding a bank that can boost talent levels and increase core skills. “When we enter a new market, we want to make sure we retain the talent that is there,” he added. “Acquiring or retaining good talent is particularly difficult in this market.”

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