Press Releases
OneAZ Announces Acquisition of 1st Bank Yuma
Press Release: 10.3.24
Acquisition substantially expands OneAZ's footprint to Yuma and Santa Cruz Counties with assets of $600 million
PHOENIX (October 3, 2024) - OneAZ Credit Union and Western Arizona Bancorp Inc., the holding company of 1st Bank Yuma, are thrilled to announce that they have entered into a definitive agreement in which OneAZ will acquire 1st Bank Yuma, assuming all assets and liabilities, in an all-cash transaction. This transaction was unanimously approved by both the boards of directors of OneAZ and 1st Bank Yuma.
Upon completion of the transaction, it will propel OneAZ to a total of over $4 billion in assets, serving over 220,000 members throughout Arizona. This acquisition will also add 1st Bank Yuma's 5 branches in Yuma, San Luis, and Nogales to OneAZ's thriving network of 20 branches, significantly expanding OneAZ's reach in Southern Arizona.
"With the acquisition of 1st Bank Yuma, OneAZ is taking a bold step toward fulfilling our commitment to driving positive change across Arizona," said Brandon Michaels, President & CEO of OneAZ Credit Union. "This partnership expands our reach into the rapidly growing markets of Yuma and Santa Cruz Counties, where we know we can have a positive impact on the local economy to ignite even more growth and prosperity for the community. 1st Bank Yuma has a proud legacy of community investment in Southern Arizona, and we're excited to build on their incredible work. Together, we'll drive economic growth and opportunity, ensuring that everyone in Southern Arizona has the chance to thrive and dream."
Wayne Gale, President & CEO of Western Arizona Bancorporation & CEO of 1st Bank Yuma commented: "We are excited to announce our decision to join forces with OneAZ and create a larger financial institution with greater resources. We share similar values, and our partnership with another Arizona-based financial institution extends our legacy of meeting the needs of our customers, while being a strong partner with the communities in Yuma and Santa Cruz counties. This strategic transaction enables us to offer our customers a wider array of products and services. We believe that this partnership is a good fit not only for our customers but also for our dedicated employees, and the communities we proudly serve."
The acquisition of 1st Bank Yuma is driven by our shared values and aligns OneAZ's growth strategy and capabilities with the rapidly evolving banking landscape of Arizona. By combining the organizations, OneAZ will gain critical expertise and capabilities to further ignite growth in the local economy, and drive prosperity for all Arizonans. Furthermore, 1st Bank Yuma has well-established community outreach and financial education programs that provide support to dozens of nonprofit organizations in Yuma and Santa Cruz counties. This enables the OneAZ Community Foundation to make a greater contribution to enhancing economic development and supporting community vitality efforts in new regions of the state.
Final regulatory approval is expected by mid-2025. The two organizations are expected to be fully integrated in 2026.
D.A. Davidson & Co. served as financial advisor and Spierer Woodward Corbalis Goldberg served as legal counsel to Western Arizona Bancorp, Inc. McQueen Financial Advisors served as financial advisor and Luse Gorman served as legal counsel to OneAZ Credit Union.
Freeland State Bank Announces Sale to Thumb Bancorp, Inc.
Press Release: 6.28.24
On June 28, 2024, Freeland State Bank (“FSB”), Freeland, Michigan announced its sale to Thumb Bancorp, Inc., (“TBI”) the parent company of Thumb Bank & Trust, Pigeon, Michigan. The two organizations have signed a definitive agreement for TBI to acquire FSB in an all-cash transaction. Financial terms of the transaction were not disclosed.
The board of directors from both institutions have unanimously approved the transaction, which is expected to close in the fourth quarter of 2024, subject to customary closing conditions, the approval of FSB’s shareholders, and regulatory approvals.
McQueen Financial Advisors acted as financial advisor and Warner Norcross + Judd LLP served as legal counsel to FSB.
About Freeland State Bank
Freeland State Bank is a community bank operating one full-service office in Freeland, Saginaw County, Michigan. As of March 31, 2024, Freeland State Bank had $54 million in total assets.
About Thumb Bancorp, Inc.
Thumb Bancorp, Inc. is the parent company of Thumb Bank & Trust, Pigeon Michigan, a community bank with twelve full-service offices serving Sanilac, Huron, Tuscola and Bay Counties. As of March 31, 2024, Thumb Bank & Trust had $617 million in total assets.
Gesa Credit Union Announces Agreement to Acquire Security State Bank
Press Release: 5.23.24 | Xiamara Garza
RICHLAND AND CENTRALIA, WA. (May 23, 2024) - Gesa Credit Union, a community-focused credit union headquartered in Richland, Washington, along with Security State Corporation, the bank holding company of Security State Bank, and Security State Bank, headquartered in Centralia, Washington, jointly announced today that they have entered into a definitive agreement. Under this agreement, Gesa Credit Union will acquire and assume substantially all of the assets and liabilities of Security State Bank. The pending transaction is subject to regulatory and shareholder approvals and other customary closing conditions and is expected to be completed in 2025.
"Security State Bank has been a steadfast supporter of the communities that we serve for more than 120 years now, and we have earned the trust of both our customers and our employees during this long time," said Dwayne Aberle, President of the Bank, further stating that, "In today's ever increasingly competitive banking environment, we feel that this transaction will provide uncountable benefits to these same communities, customers, and employees that we have dedicated our long tenure to, and we thank them all for that trust that they have placed in us over all these years. We are excited to partner with Gesa Credit Union in this transaction, with the
expanded products, services, locations, and offerings that they will bring to our customers and employees." In identifying Gesa as a good fit for the bank's future, Mr. Aberle emphasized that both institutions "share common core values, with the utmost focus placed on the wellbeing of their customers, communities, and employees, throughout each institutions' long histories."
"Both Gesa and Security State Bank have shared the same values for over 70 years, with an unwavering dedication to the communities we serve," said Don Miller, President and CEO of Gesa Credit Union. "This shared commitment has brought us together and fueled our decision to enter
into this agreement, acting as a catalyst for Gesa to continue to expand our footprint and service in the Pacific Northwest. We are truly excited about the prospect of empowering new communities and assisting more people on their financial journeys."
The transaction has been unanimously approved by the boards of directors of both institutions. Consummation of the transaction remains subject to regulatory approval and approval by the shareholders of Security State Corporation. Following completion of the transaction, Security State Corporation and Security State Bank will each dissolve, and the Corporation will thereafter distribute its remaining assets to its shareholders.
Security State Bank customers and Gesa Credit Union members should continue to conduct their business as usual.
Security State Corporation was advised in the transaction by Commerce Street Capital, LLC, as exclusive financial advisor, and Paine Hamblen LLP as legal counsel. Commerce Street Capital, LLC provided a fairness opinion to Security State. Gesa Credit Union was advised by McQueen Financial Advisors, as exclusive financial advisor, and Luse Gorman, PC as legal counsel.
About Security State Bank
Security State Bank is a Washington-chartered commercial bank based in Centralia, Washington. It has approximately 600 million dollars in assets and 12 branches serving the communities of Centralia, Chehalis, Morton, Rochester, Pe Ell, Raymond, South Bend, and Gray/and.
A wholly owned subsidiary of Security State Corporation, Security State Bank has been providing banking services to local residents, businesses and industry, farm families, the timber industry, and local governments since its beginnings in 1903.
About Gesa Credit Union
Gesa Credit Union is one of Washington's largest credit unions, with over $5.5 billion in assets, and is nearly 290,000 members strong. Gesa is a full-service financial institution that offers a complete array of consumer, mortgage, and business products and services. Headquartered in Richland,
Washington, Gesa operates 31 branches, loan centers, full-service student-operated campus branches at Washington State University, and 13 student-operated high school branches across Washington state. The Gesa Community Foundation, established in 2022, further supports Gesa's
ongoing commitment to local communities and charitable giving, which includes support for schools, Local Heroes groups, and community organizations through its Affinity Debit Card Program, as well as through its annual youth scholarships, and free financial and educational resources
available to members and the general public. For more information, visit gesa.com.
Forward-Looking Statements
Certain statements in this news release contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans and expectations, and are thus prospective. Such forward-looking statements are subject to risks, uncertainties, and other factors, such as the businesses of Security State Bank and Gesa Credit Union may not be integrated successfully or such integration may take longer to accomplish than expected, the expected cost savings and any revenue synergies from the acquisition may not be
fully realized within the expected timeframes, disruption from the acquisition may make it more difficult to maintain relationships with customers, associates, or suppliers, the required governmental approvals of the acquisition may not be obtained on the proposed terms and schedule, or Security State Corporation shareholders may not approve the acquisition, any of which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Therefore, we can give no assurance that the results contemplated in the forward-looking statements will be realized. The inclusion of this forward-looking information should not be construed as a representation by the companies or any person that the future events, plans, or expectations
contemplated by the companies will be achieved. All subsequent written and oral forward-looking statements concerning the companies or any person acting on their behalf is expressly qualified in its entirety by the cautionary statements above. None of Security State Bank, Security State
Corporation, or Gesa Credit Union undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, to reflect circumstances or events that occur after the date the forward-looking statements are made.
Harborstone Credit Union completes acquisition of First Sound Bank
Press Release: 5.20.24 | Stephanie A. Moore
Harborstone Credit Union (“Harborstone”) and First Sound Bank (OTCPK: FSWA) announced today that they have completed the purchase and assumption transaction whereby Harborstone, headquartered in Lakewood, Washington, has acquired substantially all the assets and assumed substantially all the liabilities, including all deposits, of First Sound Bank, headquartered in Seattle, Washington.
First Sound Bank’s banking office will continue to operate as a branch of Harborstone. As a result of the transaction, Harborstone now has approximately $2.1 billion in assets, $1.5 billion in loans, $1.8 billion in shares and deposits and has 16 branches throughout King, Pierce, and Thurston Counties in Washington.
“We are excited to announce the acquisition of First Sound Bank. We look forward to being a part of the Seattle communities that First Sound Bank serves and welcome First Sound Bank’s customers and employees into the Harborstone family,” said Geoff Bullock, President and CEO of Harborstone Credit Union. “This acquisition further expands our footprint in King Country, and it will result in expanded product, service and technology offerings for First Sound Bank’s customers as well. We mutually feel that this is an ideal fit, as we are both deeply engaged in the communities we serve, have a strong organizational culture, and a sincere care for our members’ and customers’ financial wellness. Additionally, we are committed to working closely together with our First Sound Bank partners to work towards as smooth a transition as possible.”
Marty Steele, President and CEO of First Sound Bank added, “We are thrilled to become part of Harborstone Credit Union. Harborstone has a long history of investing in its communities and providing excellent customer service to its members. This merger will be very beneficial to our customers and employees, as it will provide access to a broader range of products and services, an expanded branch network, and greater commercial lending capacity. We look forward to partnering with the Harborstone team as we grow our presence in Seattle and King County.”
Harborstone Credit Union was advised in the transaction by McQueen Financial Advisors as exclusive financial advisor and Luse Gorman, PC as legal counsel. First Sound Bank was advised by D.A. Davidson & Co. as exclusive financial advisor and Keller Rohrback, L.L.P. as legal counsel.
Empeople CU to acquire substantially all assets of Wisconsin-based TSB Bank
Press Release: 2.27.24 | Jasmine Castroverde & Rica Dela Cruz
Empeople CU on Jan. 30 agreed to acquire substantially all assets and assume substantially all liabilities of TSB Bank.
The transaction is expected to be completed in the fourth quarter, subject to regulatory approvals, TSB Bank shareholders' approval and other customary closing conditions.
After the deal closes, TSB Bank will liquidate, dissolve and distribute its remaining assets to its shareholders. The bank's customers will become members of Empeople CU.
S&P Global Market Intelligence valuations for bank and thrift targets in the Midwest region between Jan. 30, 2023, and Jan. 30, 2024, averaged 128.55% of book and 134.16% of tangible book, and had a median of 17.38x last-12-months earnings, on an aggregate basis.
Moline, Ill.-based Empeople CU has about $2 billion in assets and operates 29 branches in Illinois, Iowa, Maine, North Dakota, North Carolina, Wisconsin and Georgia. Lomira, Wis.-based TSB Bank, which has three branches serving the eastern Wisconsin area, had $182 million in assets and $151 million in deposits, according to a news release.
McQueen Financial Advisors served as financial adviser and Luse Gorman PC was legal counsel to Empeople CU. Bancorp I Inc. was financial adviser and Reinhart Boerner Van Deuren s.c. acted as legal counsel to TSB Bank.
Global Credit Union and First Financial Northwest, Inc. Announce Agreement for Global Credit Union to Acquire First Financial Northwest Bank
Press Release: 1.12.24
Anchorage, Alaska and Renton, Washington – January 11, 2024 – Global Federal Credit Union (“Global”) and First Financial Northwest, Inc. (“First Financial Northwest”) (NASDAQ GS: FFNW) announced today they have entered into a definitive agreement in which Global will acquire Renton, Washington-based First Financial Northwest Bank, a wholly-owned subsidiary of First Financial Northwest. The transaction is structured as a purchase and assumption agreement with Global purchasing substantially all assets and assuming substantially all liabilities of First Financial Northwest Bank for the all-cash consideration of $231.2 million, subject to certain adjustments.
The agreement has been unanimously approved by the boards of directors of both institutions. Following the purchase and assumption transaction, First Financial Northwest and First Financial Northwest Bank intend to wind down and dissolve. Based on First Financial Northwest’s outstanding shares on a fully-diluted basis as of December 31, 2023, and after taking into consideration the anticipated satisfaction of certain obligations of First Financial Northwest and First Financial Northwest Bank excluded from the purchase and assumption transaction, including holding company indebtedness and tax liabilities, First Financial Northwest expects that its shareholders would be entitled to receive approximately $23.18 to $23.75 per share upon liquidation, subject to certain adjustments. If certain conditions occur prior to closing, including but not necessarily limited to a decline in deposits, an inability to refinance or sell certain loans prior to closing, and other potential reductions outlined in the Purchase and Assumption Agreement, the actual amount received could be below this range.
The transaction will expand Global’s business and commercial services to all its member businesses as well as enhance its branch presence in Western Washington, where it first began operations 40 years ago. First Financial Northwest Bank customers will become members of Global Federal Credit Union with full access to Global’s extensive product and service offerings.
“We are enthusiastic about combining two financially sound institutions that share a strong commitment to service and community engagement,” said Geoff Lundfelt, President and CEO of Global Federal Credit Union. “This combination will continue to enhance service delivery and growth in a market that the credit union has been operating in for over four decades, adding numerous branches. First Financial Northwest Bank’s branch network has a technology-forward design, accelerating the transformation to an environment with a structure and atmosphere more suited to conducting business in the future.”
The ability to offer expanded business and commercial financial products and services to Global’s existing membership is a significant strategic step for the credit union,” continued Lundfelt. “This acquisition also affords the customers of First Financial Northwest Bank access to the consumer products and world-class service Global members currently enjoy.”
Lundfelt concluded, “Global will receive tremendous value from this transaction. The projected future earnings from the acquisition of First Financial Northwest Bank’s franchise justify the pricing of the transaction and are expected to be accretive to Global from a financial perspective.”
Joseph W. Kiley III, President and CEO of First Financial Northwest Bank added, “First Financial Northwest Bank has earned the trust of its customers and the communities it serves for over a century by holding true to its values of building long-term banking relationships, offering high-quality banking products and services, providing exceptional customer service, and demonstrating a strong commitment to community. In today’s competitive environment, we believe this strategic transaction provides numerous benefits for our customers, our communities, and our employees. In addition, this transaction delivers substantial value to our shareholders who have supported us over the years.”
The transaction is anticipated to be completed in the fourth quarter of 2024 subject to receiving all regulatory approvals, approval by the shareholders of First Financial Northwest, and other customary closing conditions. Until the transaction is finalized, both organizations will continue to conduct business as usual.
Global was advised by McQueen Financial Advisors, as financial advisor, and Honigman LLP, as legal counsel. First Financial Northwest was advised by Janney Montgomery Scott LLC, as financial advisor, and Fenimore Kay Harrison LLP, as legal counsel.
Global was founded in Anchorage, Alaska, in 1948 and currently has approximately 2,000 employees, operations in five states and Italy, and 750,000 members spread across all 50 states and 20 foreign countries. With over $11 billion in assets, Global is one of the 20 largest credit unions in the United States. Global first began operations in Washington state after a series of mergers in Oak Harbor and the Greater Seattle area beginning in 1983. Global has 27 branches and serves over 180,000 members across Washington state.
Established in 1923 in Renton, Washington as the Renton Savings and Loan Association, First Financial Northwest Bank has transformed over the years from a single branch thrift to a full-service community-based commercial bank with over 150 employees delivering unique and innovative solutions to its customers in the Puget Sound Region. At September 30, 2023, First Financial Northwest had total assets of $1.53 billion and deposits of $1.21 billion.
More about Global Credit Union
Global Credit Union is a not-for-profit, member-owned financial cooperative with a mission of enriching lives through world-class financial services. Global, a low-income designated credit union, was founded in 1948 at the Alaska Air Depot, and now serves more than 750,000 members online and in 77 branches across Washington, Alaska, Idaho, California, Arizona, as well as branches on three U.S. military installations in Italy. Learn more at globalcu.org.
More about First Financial Northwest, Inc.
First Financial Northwest, Inc. (NASDAQ GS: FFNW) is the parent company of First Financial Northwest Bank; an FDIC insured Washington State-chartered commercial bank headquartered in Renton, Washington, serving the Puget Sound Region through 15 full‑service banking offices. Learn more at ffnwb.com.
Additional Information and Where to Find It
This communication has been prepared in respect of the proposed transaction involving First Financial Northwest, Inc. and Global Credit Union and does not constitute a solicitation of any vote or approval. In connection with the proposed transaction, First Financial Northwest will mail or otherwise provide its shareholders with a proxy statement and other relevant documents concerning the proposed transaction and expects to file the proxy statement on Schedule 14A with the Securities and Exchange Commission (SEC), as well as other relevant documents concerning the proposed transaction. Shareholders of First Financial Northwest are urged to read carefully and in their entirety the proxy statement and any other relevant materials mailed to them or filed, or to be filed, with the SEC when they become available because they contain or will contain important information about the proposed transaction and related matters. First Financial Northwest shareholders may obtain copies of these documents free of charge from First Financial Northwest at the investor relations link on its website, www.ffnwb.com or by directing a request by mail or telephone to First Financial Northwest, 201 Wells Avenue South, Renton, Washington 98057, Attn: Investor Relations, (425) 255-4400. Copies of those documents filed with the SEC may be obtained free of charge through the website maintained by the SEC at www.sec.gov.
Participants in the Solicitation
First Financial Northwest and certain of its directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of First Financial Northwest in connection with the proposed transaction under the rules of the SEC. Certain information regarding the interests of these participants and a description of their direct and indirect interests, by security holdings or otherwise, will be included in the proxy statement regarding the proposed transaction when it becomes available. Additional information about First Financial Northwest and its directors and executive officers is set forth in First Financial Northwest’s Annual Report on Form 10-K filed with the SEC on March 13, 2023, and in the proxy statement for First Financial Northwest’s 2023 annual meeting of shareholders, as filed with the SEC on March 24, 2023. These documents can be obtained free of charge from the sources described above.
Safe Harbor for Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans and the future performance of First Financial Northwest. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “projects,” “could,” “may,” “should,” “will” or other similar words and expressions are intended to identify these forward-looking statements. These forward-looking statements are based on First Financial Northwest’s current expectations and assumptions regarding First Financial Northwest’s and Global’s businesses, the economy, and other future conditions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Many possible events or factors could affect First Financial Northwest’s or Global’s future financial results and performance and could cause actual results or performance to differ materially from anticipated results or performance. Such risks and uncertainties include, among others: the occurrence of any event, change or other circumstances that could give rise to the right of one or all of the parties to terminate the definitive agreement, the outcome of any legal proceedings that may be instituted against First Financial Northwest, the Bank or Global, delays in completing the transaction, the failure to obtain necessary regulatory approvals and shareholder approvals or to satisfy any of the other conditions to the transaction on a timely basis or at all, the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the dissolution of the Bank and First Financial Northwest, the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management’s attention from ongoing business operations and opportunities, potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction, and the ability to complete the transaction and integrate the Bank’s customers, assets, and liabilities into Global successfully. Any of the forward-looking statements that we make in this press release and in the other public statements are based upon management’s beliefs and assumptions at the time they are made and may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. Except to the extent required by applicable law or regulation, First Financial Northwest disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. Further information regarding First Financial Northwest and factors which could affect the forward-looking statements contained herein can be found in First Financial Northwest’s Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and its other filings with the SEC.
LLCU completes acquisition of Nokomis Savings Bank
Press Release: 11.13.2023 | Cayla Hittmeier, Chief Marketing Officer
DECATUR, IL (November 13, 2023) — LLCU of Decatur, IL, announced today the completion of its purchase and assumption transaction with Nokomis Savings Bank in which LLCU has acquired the assets and assumed the liabilities of Nokomis Savings Bank, which was effective Friday, November 10th at 12:00a.m.(CT). With the acquisition complete, LLCU has expanded its footprint to include a total of 15 branches throughout a 28-county service area in Central Illinois.
“We have already received a very warm welcome by the Nokomis community,” stated Robert Ares, LLCU President & CEO. “That warm welcome just further confirms that adding the Nokomis branch to the LLCU organization was a smart move. This acquisition will undoubtedly prove successful for LLCU, but more importantly, we are confident that citizens of Nokomis will be very happy with our superior financial products and services, as well as our dedication to community investment.”
The acquisition is part of LLCU’s strategic growth plan, which includes adding branches and markets to better assist members in Illinois. Most recently, LLCU previously acquired Colchester State Bank of Colchester, IL, finalized in July of 2023. With the Colchester acquisition, LLCU’s geographic footprint extended to McDonough County, extending the LLCU service coverage area to 28 Illinois counties.
McQueen Financial Advisors served as financial advisor and Luse Gorman, PC served as legal counsel to Land of Lincoln Credit Union.
Why Some CUs May Be Taking Hit to Equity Ratio
Press Release: 10.4.2023 | Ray Birch
CLAWSON, Mich.—If a credit union is cutting back on lending because its CECL number has spiked, one analyst is suggesting it might be time to gain a better understanding of the CECL model it is using.
The concerns at many CUs and resulting policy changes are coming about as credit unions begin to phase in the CECL accounting standard.
Charley McQueen, president and CEO of McQueen Financial Advisors, which provides consulting services around current expected credit losses (CECL) to credit unions, said he has seen credit unions look to reduce lending in response to an increase in their CECL numbers as they have also moved to quickly increase their corresponding reserves.
But when that happens, he said, it’s a warning sign the CECL model itself may be the reason for the increase. He cautioned against CECL models that are often termed a “black box”—where the assumptions, decisions and rules within the model are not transparent.
“CECL is being slowly phased in over a number of years, so a credit union shouldn't have had an equity hit from it,” said McQueen.
McQueen said if a credit union is taking a hit to its equity ratio, then the credit union is either implementing CECL incorrectly or it’s not charging enough for the loans that have gone delinquent.
“They might be doing some really bad lending by not putting in a good enough yield and are therefore making a negative return,” he observed.
‘Doubled for No Apparent Reason’
McQueen said he is personally not aware of any credit unions that have reported reducing their lending volume as a result of CECL, but CUToday.info has received a report from a credit union leader who asserts the issue is occurring among a number of credit unions in his area.
“We've had a number of clients come over to our CECL model, leaving other providers that have what they call a black box model,” explained McQueen. “People are calling us and saying ‘Our CECL number doubled for no apparent reason last month, and the service provider we use can't explain to us why it doubled’.”
McQueen’s response is that “is not logical. CECL is very mathematical. You have your historical losses. You have your forward economic projections and your current economic projections, and you put it all together and should be able to trace back every single modification to your CECL number.”
No Surprises
He stressed there should be no surprises with CECL. And yet, the surprises continue.
“But we have more and more people coming over to us because of these black box models,” he said. “They are just causing significant problems. CECL should not be a big problem. It's a known quantity. So, we're really surprised by some people's response to some of the problems they’re saying they’re having.”
McQueen shared the example of a client who had a $1.5-million CECL reserve.
“Their report came out one month and said they suddenly needed to have a $3-million CECL reserve,” McQueen said. “That would be a direct hit to income. They don't make a million half dollars a month. It turned out they simply had a CECL model that was faulty, causing them to put significantly bigger numbers in (than was necessary). If CECL (reserves) are going up for unknown reasons, something is wrong.”
The Need for Quantifiable Numbers
However, if the CU’s economic forecast is looking worse going forward, that could cause CECL numbers to go up, McQueen noted.
“But, it all should be quantifiable,” he said. “One of the best predictors of losses historically has been the unemployment rate. If you don't have a job you can’t pay your bills. That's where we look right now. The Fed’s projected unemployment rate is really quite low. So, while you know maybe a little bit of uncertainty is coming down the road, we're not seeing that hitting unemployment predictions, yet. Again, I don't see why CECL numbers would be going up substantially. You shouldn't see massive swings unless there is a significant problem within the credit union or if all of a sudden the unemployment rate jumps to 5%, 6% or 7%.”
McQueen said one exception would be any credit union with a sizeable commercial real estate portfolio, which could very well be experiencing an increase in its CECL number.
Finding a New Provider
McQueen stressed if certain questions can’t be answered, a credit union needs to find a new vendor.
“Every CECL provider should be able to explain to you the changes in any month, what happened and why,” he said.
Credit union-bank M&A logjam breaking with 3rd deal in 2 months
Press Release: 8.8.2023 | Lauren Seay & Ronamil Portes
As many banks' M&A interest remains frozen by the interest rate environment and recent industry tumult, credit unions' appetite for deals with banks is unthawing.
Harborstone CU's planned acquisition of Seattle-based First Sound Bank marks the fifth such deal this year, lagging 2022's record of 16 such M&A announcements. However, that activity has picked up recently with three announcements in the span of two months. Credit union acquisitions by banks make up 9% of all US bank deal activity so far in the year.
The latest deal, which was motivated by an attractive price tag for the seller and geographic expansion for the buyer, used a unique equity provision to overcome current mark-to-market hurdles.
Price tag
First Sound Bank was set to be acquired by BM Technologies Inc. in an all-cash deal for about $7.22 per share, but that transaction fell apart in December 2022 after facing regulatory hurdles. Banks began calling and expressing interest in a new deal shortly after the termination was announced, although the spring industry tumult that led to three regional bank failures also dried up bank M&A discussions completely, President and CEO Marty Steele said in an interview.
"Everybody got spooked," Steele said. "The state of the market right now for bank M&A is terrible. I think the only reason that I had interest is because of scarcity value."
There are currently 14 banks with less than $10 billion in assets headquartered in the Seattle-Tacoma-Bellevue, Wash., metropolitan statistical area, according to S&P Global Market Intelligence data. Nine of those have less than $1 billion in assets.
Harborstone CU was not spooked, and when it made an unsolicited offer, it was too good to pass up, Steele said.
First Sound Bank shareholders will receive about $6.90 to $7.10 per share in cash. The $22.4 million deal values First Sound Bank at 150.96% of tangible common equity, above the median of 135.19% for US bank deals so far this year, according to Market Intelligence data.
Credit unions must pay cash when acquiring banks because they do not have stock. An all-cash deal was attractive to First Sound Bank because it "removes the risk from the shareholders of having to get stock," Steele said.
Many factors go into the price a credit union can pay to acquire a bank. Sometimes, credit unions' tax-exempt status allows them to pay a higher price than another bank could. But an issue of "double taxation" also plays into the higher prices because if a bank is structured as a C-corporation, the deal will be taxed twice — once at the corporate level and again at the shareholder level.
Traditional bank M&A deals are typically structured as a sale of stock, avoiding the double taxation. The double taxation issue is "always a factor" in credit union deals, Steele said.
In an interview with Market Intelligence, Harborstone CU President and CEO Geoff Bullock said the price was based entirely on First Sound Bank's projected forward earnings.
The price is "comparable to building a branch in Seattle, but imagine you're building a branch that already has $175 million of deposits in it and a really robust loan portfolio," Bullock said. "It's a home run."
Harborstone Credit Union Announces Agreement to Acquire First Sound Bank
Press Release: 8.1.2023 | Jasmine Castroverde
Lakewood and Seattle, Washington Harborstone Credit Union announced today it has entered into a definitive agreement to acquire Seattle, Washington-based First Sound Bank (OTCPK: FSWA). The transaction is structured as a purchase agreement with Harborstone Credit Union purchasing substantially all assets and assuming substantially all liabilities of First Sound Bank.
The transaction has been unanimously approved by the boards of directors of both institutions. Following the completion of the transaction, First Sound Bank will liquidate and dissolve and distribute its remaining assets to its stockholders. When finalized, the combined institution will have approximately $2.1 billion in assets, $1.5 billion in loans, $1.8 billion in shares and deposits and will have sixteen branches throughout King, Pierce, and Thurston Counties. In connection with the transaction, the shareholders of First Sound Bank will receive approximately $6.90-$7.10 in cash for each share of First Sound Bank common stock, subject to adjustment based on the equity value at closing.
The acquisition helps Harborstone Credit Union grow its presence in the Seattle market, diversify its assets, and add superior talent and expertise. First Sound Bank customers will become members of Harborstone Credit Union with full access to all Harborstone Credit Union's expansive product and service offerings. The transaction serves as a historic milestone, as First Sound Bank is the first bank Harborstone Credit Union will acquire.
Geoff Bullock, President and CEO of Harborstone Credit Union, commented, "We're excited to grow Harborstone Credit Union and owe this opportunity to the decades of smart and strategic decisions that have created a solid foundation for our expansion. This acquisition is a win for everyone involved as it provides extended services and products to First Sound's clients, and adds new expertise and services to Harborstone Credit Union's members. From all of us at Harborstone Credit Union, we extend a warm welcome to First Sound, its employees, and its customers."
Marty Steele, President and CEO of First Sound Bank added, "We are extremely excited about partnering with Harborstone Credit Union and feel that this strategic transaction provides many benefits for our customers, employees, community and shareholders. As a community bank we are deeply focused on providing resources and services for our customers to succeed, and feel that the additional services, products and locations Harborstone Credit Union provides will help us continue to meet the needs of our customers in this competitive environment. In addition, this transaction provides excellent value to our shareholders who have supported us over the years."
The transaction is anticipated to be completed in the first quarter of 2024 subject to receiving all regulatory approvals, approval by the shareholders of First Sound Bank and other customary closing conditions.
Harborstone Credit Union was advised in the transaction by McQueen Financial Advisors as exclusive financial advisor and Luse Gorman, PC as legal counsel. First Sound Bank was advised by D.A. Davidson & Co. as exclusive financial advisor and Keller Rohrback, L.L.P. as legal counsel.
About Harborstone Credit Union
Harborstone Credit Union is a Washington-chartered and federally insured credit union headquartered in Lakewood, Washington. Founded in 1955 as McChord Federal Credit Union, serving airmen on McChord Air Force Base (now Joint Base Lewis McChord), Harborstone Credit Union has grown to become one of the largest credit unions in Washington State with over 87,000 members and approximately $1.9 billion in total assets. Harborstone Credit Union has fifteen branches located throughout King, Pierce, and Thurston counties and offers members a full range of products and services with the aim to assist members in achieving financial well-being through innovative financial solutions that foster thriving communities and economic vitality. For more information, please visit www.harborstone.com.
About First Sound Bank
First Sound Bank is a locally owned, independent community bank with approximately $175 million in assets. The company provides commercial and private banking services for small to medium sized businesses, not-for-profit organizations, entrepreneurs, and professional service firms throughout the Puget Sound market. First Sound Bank operates through a single branch location in downtown Seattle. For more information, please visit www.firstsoundbank.com.
Forward Looking Statements
Certain statements in this news release contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans and expectations, and are thus prospective. Such forward-looking statements are subject to risks, uncertainties, and other factors, such as the businesses of Harborstone Credit Union and First Sound Bank may not be integrated successfully or such integration may take longer to accomplish than expected, the expected cost savings and any revenue synergies from the merger may not be fully realized within the expected timeframes, disruption from the merger may make it more difficult to maintain relationships with customers, associates, or suppliers, the required governmental approvals of the merger may not be obtained on the proposed terms and schedule, or First Sound Bank shareholders may not approve the merger, any of which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Therefore, we can give no assurance that the results contemplated in the forward-looking statements will be realized. The inclusion of this forward-looking information should not be construed as a representation by the companies or any person that the future events, plans, or expectations contemplated by the companies will be achieved. All subsequent written and oral forward-looking statements concerning the companies or any person acting on their behalf is expressly qualified in its entirety by the cautionary statements above. None of Harborstone Credit Union or First Sound Bank undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, to reflect circumstances or events that occur after the date the forward-looking statements are made.
Credit union-bank M&A stalemate subsides with 2 deals in 1 week
Press Release: 6.12.2023 | Lauren Seay & David Hayes
Credit union-bank deals showed signs of life with two announced in one week, and advisers say more are on the way.
All In FCU and Nusenda FCU kicked off the month of June with their announced acquisitions of SunSouth Bank and Western Heritage Bank, respectively. The two transactions mark the third and fourth such deals this year as credit union-bank deal activity has been slow, much like traditional bank M&A. Uncertainty has kept most banks on the dealmaking sidelines, but credit unions' appetite has not wavered.
"The issue is not on the credit unions having an interest because that has remained strong," Greg Cunningham, senior vice president at Donnelly Penman & Partners, said in an interview. "It's just that the sellers have not been willing to come to the table and engage."
That dynamic created a "stalemate," Cunningham said, but banks are very slowly showing more interest in M&A. Both Cunningham and Charley McQueen, president and CEO of McQueen Financial Advisors, said they have seen a slight uptick in banks coming to the negotiating table, and credit unions are eager to pounce on deals that arise.
"From a credit union buyer standpoint, they remain ready and able. ... I just don't think that there's nearly as many opportunities that are presenting themselves as maybe what we've seen over the last couple of years," Cunningham said. "[But] we're starting to see a little bit more activity as of late with some opportunities presenting themselves."
McQueen has three credit union-bank deals set to be announced in the next 30 days.
Depressed stock valuations leading to less-than-expected pricing for sellers, interest rate marks and uncertainty have contributed to the slowdown in bank M&A. However, the recent uptick in credit union-bank deal activity is partly due to buyers and sellers slowly resetting their expectations.
"It's taken a bit for everyone to reset expectations," McQueen said. "The compromise is starting to come through, and we're seeing people start to get a bit more focused on how to get a deal done."
On top of that, credit unions are much more actively engaged in bank sale processes than they have been in the past.
"There's no question that if a community bank seller is coming to market, that credit unions are more likely than not going to be included in the process," Cunningham said. "Credit unions will continue to be a part of the M&A environment, and we would envision them being a healthy portion of community bank M&A into the future."
Activity still down from record levels
Still, credit union-bank deal activity is depressed compared to prior years.
With just four deals almost halfway through the year so far, 2023 is on pace to have about half of the record of 16 deals that were announced in 2022. The total assets of targets involved in the deals this year is down as well at just $607.5 million, from the record of $5.70 billion last year.
The four deals announced this year are relatively small, with the total average assets of the four targets standing at just $151.9 million.
Geographic diversification
Credit union-bank deals have been largely concentrated in the Southeast and Midwest, but Nusenda FCU's acquisition of Western Heritage bank marked a geographic expansion for these deals. The bank is located in New Mexico and also has branches in Texas, both states that have never seen such a deal.
Meanwhile, the All In FCU-SunSouth deal places Alabama as one of four states with at least seven of these deals. Alabama is now tied with Georgia for third place for states with the most banks targeted by credit unions since 2015 with seven deals each, while Illinois ranks second with 11 deals and Florida retains the top spot with 15.
4Front acquires UP bank
Press Release: 9.20.2023 Staff Reports
TRAVERSE CITY — 4Front Credit Union acquired the locations and assets of Old Mission Bank based in Sault Ste. Marie.
The acquisition was announced Monday by the Traverse City-based credit union, after the two institutions reached a purchase agreement back in January. Terms of the transaction were not disclosed.
The acquisition of the Old Mission main office in Sault Ste. Marie and its Pickford branch will bring the number of 4Front locations across Northwest Michigan and the Eastern Upper Peninsula to 20, and grow 4Front’s assets to nearly $1.2 billion.
The two UP locations will operate as Old Mission, a Division of 4Front Credit Union.
“This strategic acquisition aligns with our mission of providing exceptional financial services and strengthens our commitment to supporting the financial success of our members and the communities we serve,” 4Front CEO Andy Kempf said in a media release announcing the transaction.
The deal is 4Front’s first bank acquisition, and the fourth credit union-bank transaction involving a Michigan-based bank since 2015, according to the S&P Global Market Intelligence website.
Old Mission Bank was founded in 2000. It reported $130.2 million in assets at the end of the third quarter in 2022, and posted a net income of $884,000 in 2021. It was assisted in the transaction by the Hovde Group, while 4Front was served by McQueen Financial Advisors.
LEVERAGE partners with McQueen Financial Advisors to help credit unions offset rising employee benefit costs
Press Release: 9.18.24
LEVERAGE, the trusted service corporation for the League of Southeastern Credit Unions & Affiliates, is thrilled to announce a new strategic partnership with McQueen Financial Advisors (MFA), a leading financial advisory services firm for credit unions. This collaboration provides credit unions with a powerful solution to manage the rising costs of employee benefits through customized investment strategies.
MFA is a proven alternative portfolio manager with a strong track record of delivering Employee Benefit Pre-Funding Account (EBPA) results. By working closely with credit unions, MFA creates tailored portfolios that may include a mix of fixed-income bonds, stocks, Exchange-Traded Fund (ETF), preferred stocks, and other asset classes. These strategies are designed to match earnings with future benefit obligations, providing solutions aligned with credit union’s unique financial goals and risk appetite.
As a client of MFA, credit unions will receive comprehensive support, including:
- Investment goal setting and timeline development
- Monthly performance and investment value reporting
- Assistance with regulation research, policy creation, and board member education
“Our partnership with MFA allows credit unions to develop investment strategies that will help offset the rising costs in today’s economy,” said Steve Willis, President of LEVERAGE and Affiliates Consolidated Services. “MFA’s customized portfolios and proven expertise make them an ideal partner for credit unions looking to maximize earnings while mitigating future obligations.”
“We are excited to embark on this partnership with LEVERAGE to support credit unions,” said Charley McQueen, President of McQueen Financial Advisors. “We are dedicated to providing innovative and customized investment strategies that address the unique financial needs of each credit union.”
McQueen Financial Advisors served as the financial advisor to REV Federal Credit Union in its proposed acquisition of West Virginia based First Neighborhood Bank
Press Release: 9.4.24
CHARLESTON, S.C. September 4, 2024 – REV Federal Credit Union has announced that it has finalized an agreement to acquire West Virginia based First Neighborhood Bank. This marks the credit union’s third expansion in the last 4-years, and its first outside of the Carolinas.
As a Certified Community Development Financial Institution (CDFI), REV is a $1.1B institution serving portions of North Carolina and South Carolina. The partnership with First Neighborhood Bank will allow REV to promote its people over profit philosophy by offering competitive products, personalized service, and a full suite of digital solutions to support the community.
“Our mission is Growth with Purpose,” commented Jason Lee, President & CEO of REV Federal Credit Union. “This purpose is centered around member impact, social impact, economic impact, and ensuring our long-term survivability. Last year, we had an economic impact of $3.6B, donated $136,000, generated over 3,500 volunteer hours, and contributed to the financial well-being of our members. Through this partnership, we want to be actively engaged in the community and create this level of impact in the Mid-Ohio Valley region.”
Dave Righter, CEO of First Neighborhood Bank added, “REV has a proven track record of creating significant impact in the communities it serves. I’m excited to bring its mission of Growth with Purpose to West Virginia and enhance our ability to serve the financial needs of this region.” Once the purchase is complete, REV will begin welcoming its 7,000+ new members as it transitions First Neighborhood locations into full-service credit union branches. As part of the acquisition, it will also actively engage with local nonprofit organizations through its #UpTheGood Foundation. As a full-service financial institution, REV will promote its consumer and commercial products and pricing to support the financial journey of its new members and the Mid-Ohio Valley region.
McQueen Financial Advisors acted as financial advisor to REV and Honigman LLP served as legal counsel.
The Cape Fear Community College Foundation has hired McQueen Financial Advisors
Press Release: 8.22.24
The Cape Fear Community College Foundation has hired McQueen Financial Advisors to manage its $14.3 million investment portfolio, Spokesperson Christina Hallingse said, in an e-mail.
The decision followed the Wilmington, N.C.-based foundation’s RFP issued last year for a firm to advise its investment committee on the portfolio’s asset allocation and investment selection as well as provide ongoing portfolio monitoring, risk analysis and reporting.
CAPTRUST Financial Advisors, CCM Investment Advisors, Chandler Asset Management, Murchison Group, Truist and United Bank Wealth Management also submitted proposals, Hallingse added.
McQueen replaces incumbent manager Wells Fargo Advisors, which had worked with the foundation since 2004, as reported.
The foundation had initiated the search process for standard due diligence reasons.
The new contract has an initial one-year term with the possibility of two one-year extension options, according to the original RFP.
McQueen Financial Advisors served as the financial advisor to U.S. Eagle Federal Credit Union on the acquisition of Southwest Capital Bank
Press Release: 8.19.24
Albuquerque, New Mexico – August 19, 2024 – U.S. Eagle Federal Credit Union (“U.S. Eagle”) and Southwest Capital Bank (“SWCB”), the wholly-owned subsidiary of Las Vegas Bancorporation, Inc. (“Las Vegas Bancorporation”), announced today they have entered into a definitive agreement pursuant to which U.S. Eagle will acquire Albuquerque, New Mexico-based SWCB. The transaction is structured as a purchase and assumption agreement with U.S. Eagle purchasing substantially all assets and assuming substantially all liabilities of SWCB.
The agreement has been unanimously approved by the boards of directors of each institution. Following the completion of the transaction, SWCB and Las Vegas Bancorporation will each dissolve and liquidate, and all remaining assets will be distributed to Las Vegas Bancorporation’s shareholders.
The transaction will expand U.S. Eagle’s business and commercial services to all its member businesses as well as enhance its branch presence in New Mexico. SWCB customers who become members of U.S. Eagle will have full access to U.S. Eagle’s extensive product and service offerings.
“This strategic acquisition that will expand products and services for U.S. Eagle’s small business members, enhance our service delivery to a greater number of people in New Mexico, and contribute significantly to U.S. Eagle’s growth for years to come,” said Marsha Majors, President and CEO of U.S. Eagle. “This expansion will also help elevate our commitment to all members – and those who should be – by creating even greater strength in numbers, found only in the not-for-profit, cooperative banking spirit that is uniquely U.S. Eagle.”
“Given our over 100-year history of dedicated service to the people of New Mexico, we are delighted to embark on this journey and new chapter with U.S. Eagle Federal Credit Union,” said Chez Steel, CEO of SWCB. “Their absolute dedication and commitment to community, service and, most importantly, people align with our ideals in creating an exciting future of opportunity for all.”
The transaction is anticipated to be completed in the second quarter of 2025 subject to receiving all regulatory approvals, approval by the shareholders of Las Vegas Bancorporation, and the satisfaction of other customary closing conditions.
U.S. Eagle was advised by McQueen Financial Advisors, as financial advisor, and Luse Gorman, as legal counsel. Southwest Capital Bank was advised by Hillworth Bank Partners, as financial advisor, and Otteson Shapiro LLP, as legal counsel.
U.S. Eagle was founded in in 1935 under the name “Albuquerque U.S. Employees Federal Credit Union,” and currently has approximately 318 employees over 95,000 members. With approximately $1.5 billion in assets, U.S. Eagle was the first member-owned credit union established in New Mexico.
Established in 1890 in Albuquerque, New Mexico, SWCB has transformed over the years from a single branch to a full-service community-based commercial bank with approximately 90 employees serving its customers throughout the New Mexico area. At June 30, 2024, SWCB had total assets of $475 million and deposits of $434 million.
More i-banks entering CU-bank deal advisory amid M&A spike
Press Release: 6.25.24 | S&P Global
A busy year for credit union-bank purchases is creating new opportunities for deal advisers. Credit unions are buying banks in growing numbers, and investment bankers are becoming less wary of these types of transactions as they become more common. In the first half of 2024, 12 credit unions acquired banks and 14 different investment bankers advised on the deals. Three of those investment banks had never advised a credit union-bank purchase before 2024.
As credit unions consolidate, more can afford to buy larger banks, driving up deal asset values and attracting more investment bankers to the space, said Charley McQueen, president and CEO of McQueen Financial Advisors II Inc. McQueen Financial Advisers only advises credit unions and has advised 36 credit union bank deals this year, more than any deal adviser in the category.
Halfway through 2024, $7.21 billion in bank assets have been sold to credit unions, the highest annual deal asset value in recent years. The community banking industry has lobbied steadfastly for a federal ban on such deals, arguing that credit unions have unfair advantages over banks as acquirers, but so far has not gained traction. Acceptance among state regulators varies and remains uncertain even within some states.
"If you look at all the other investment banks out there, you're starting to see more and more of them try to advise on these types of deals, whether it is on the sell side or the buy side," Kirk Hovde, head of investment banking at Hovde Group LLC, said in an interview. "Because it is a fact and reality of the industry that these types of deals are going to continue unless there is some federal ban on it."
Hovde said his firm is not so much leaning into advising credit unions as working with institutions that are active in the M&A market. Creating relationships with credit unions feels the same as connecting with banks, he said. Hovde Group has advised the second-most credit union-bank deals since 2015, advising two credit unions on the buy side and 23 banks on the sell side.
As more deals cross the finish line, credit unions feel to investment bankers like a safer bet as bank buyers, said Jonathan Hightower, partner at Fenimore Kay Harrison LLP, a legal adviser with experience in credit union M&A. While investment bankers are most focused on their obligations to their clients, they do not want to waste time on deals that they believe will not get done, Hightower said.
Three investment banks, ALM First Group LLC, Panoramic Capital Advisors Inc. and Hillworth Bank Partners, advised credit union-bank deals for the first time in 2024.
Olden Lane Inc., which advised on a recent credit-union bank branch deal and is entering the M&A space, is hiring advisers to accommodate the rise in credit union-bank deals. The firm hired engineering and financial analysis personnel to build valuation models for financial institutions, identify potential deal partners and anticipate deal opportunities, CEO Michael Macchiarola said in an interview.
Bank buys boost credit unions' key growth metrics but hurt net interest margins
Press Release: 7.16.24 | S&P Global
Acquiring banks has helped put credit unions on a path that accelerates growth even though the combinations can end up squeezing a buyer's net interest margin, an analysis by S&P Global Market Intelligence found.
Credit unions that have acquired banks outperform their credit union peers in areas such as deposit and member growth, according to the analysis, as the deals provide the primarily consumer-focused institutions with geographic, customer and product diversity.
"Banks, a lot of them are really good at commercial; then, the credit union comes in, who's typically better at consumer lending. When you marry the two together, you've got a great capacity to grow," said Charley McQueen, president and CEO of McQueen Financial Advisors. "From just a pure growth trajectory, you're always going to do better when you take two institutions with different specialties and put them together correctly. That is definitely going to propel faster than others."
However, bringing on banks' more commercial-leaning customer base also comes with drawbacks, namely in cost of funds and margin pressures. Still, credit union acquisitions of banks have been on the rise, and 2024 is set to become a record-breaking year when it comes to the transactions.
Pros
Credit unions that have acquired banks since 2018 have largely posted higher quarterly deposit growth rates compared with their credit union peers that have not struck bank deals. The deposit growth at credit unions that have acquired banks has also rivaled and sometimes even outpaced the deposit growth rates at community banks.
In the first quarter, credit unions that have acquired banks posted median deposit growth of 3.0% compared with 1.0% for community banks.
Credit unions that have struck bank deals also greatly outpaced their peers on member growth since at least the fourth quarter of 2018.
Acquiring credit unions are able to bring on more members with geographic and product expansion and more of the community realizing they are eligible for membership at a credit union following the bank acquisition, advisers said.
These deals "break down the barriers," McQueen said. "Maybe 20% of the community is working with a credit union, 80% with a bank. All of a sudden, you now have 100% of the community that understands that credits unions are for everyone."
Moreover, most credit unions have small product sets compared with more vast product offerings at banks, advisers said. Bringing on more products allows these credit unions to bring in more customers and vie for more deposits.
"You're not just growing in the actual deal with like assets and liabilities or the customers, you're deepening and growing your product offering and skill set," said Michael Bell, leader of Honigman LLP's financial institutions practice, who advises on many credit union-bank deals. "That kind of pays off over a term of many years."
However, part of the trend of credit unions that have struck deals outpacing their credit union peers on key growth metrics comes down to the fact that acquiring credit unions simply tend to be more aggressive regarding growth compared with those that do not engage in M&A, both Bell and McQueen said.
There is a small subset of credit unions focused on aggressive organic and nonorganic growth; the majority are more focused on serving their mission rather than growing aggressively, Bell added.
"These credit unions, before they ever bought a bank, were in the growth business organically," he said. Doing bank deals feeds organic growth even more, which then "feeds doing the next deal. It's like a bit of a circle. They're humming along, and they're outpacing their peers."
Cons
But scooping up a bank is not entirely free of headaches.
The analysis found that credit unions that have not struck bank deals have better net interest margins (NIMs) than their banking-buying peers and community bank peers. The three groups' median NIMs moved largely in line with each other before a divergence that began in 2023.
In the first quarter, the median NIM for credit unions that have not acquired banks was 3.89%, compared with 3.20% for credit unions that have bought banks and 3.25% for community banks.
While many credit unions strike these deals to diversify, the new customers can come with challenges. Bank customers, which lean more commercial than credit unions, are "much more price sensitive than a standard credit union member," McQueen said.
To keep deposits, credit unions that have acquired banks are more likely to run specials such as share certificates, which are equivalent to certificates of deposit at a bank. In the first quarter, share certificates made up 24.4% of total deposits at credit unions that have acquired banks compared with 15.9% of the total deposits for all other credit unions.
"Once you've done a bank transaction, you don't want to lose those deposits, you want to be sure you keep them," McQueen said.
Anecdotally, another risk for credit unions when they acquire a bank is increased employee poaching. While the risk of losing employees as a result of disruption is a possibility in any merger, banks often use credit unions' lack of commercial experience to appeal to the bankers being acquired.
Banks will approach those commercial lenders and say, "'Hey, you're now at a credit union. Credit unions don't know how to do this stuff,'" McQueen said.
Banks benefit
Despite some drawbacks, the strategy overall is often fruitful for credit unions and can pay off for selling banks in the short term too.
The estimated deal premium for such deals announced since 2019 was 52.9%, higher than the 21.8% median for bank-to-bank deals.
Some banks have been able to fetch significantly high prices relative to their stock prices, such as Catskill Hudson Bancorp Inc., which fetched a 118.9% premium to its $18.50 closing share price prior to announcement.
Credit unions have been paying up in these deals recently, with the three most-pricey deals since 2019 announced this year.
Since credit unions do not have stock, they must pay all cash in the deals. Bank industry groups argue credit unions can pay a higher price due to their tax-exempt status.
With the pressure bank stocks have faced in recent years, many bank sellers are looking for cash deals rather than stock exchanges in a sale.
"Bank stocks have been unfairly battered," Bell said. So banks right now are preferring "the value of cash being known and understood versus a speculative stock."
ELGA Credit Union to Acquire Marine Bank & Trust
Press Release: 6.4.24 | PR Newswire
GRAND BLANC, Mich. and VERO BEACH, Fla., June 4, 2024 /PRNewswire/ -- ELGA Credit Union ("ELGA CU") and Marine Bancorp of Florida, Inc. (OTCMKTS: MBOF), the holding company for Marine Bank & Trust Company ("Marine Bank"), today announced that the companies have entered into a definitive agreement under which ELGA CU will acquire Marine Bank in an all-cash transaction. Subject to the terms of the agreement, shareholders of Marine Bank will receive $43.75 in cash for each share owned.
The transaction, which was unanimously approved by the boards of directors of ELGA CU and Marine Bank, combines ELGA CU's consumer and low-income lending expertise with Marine Bank's commercial and treasury management offerings. Upon completion of the transaction, ELGA CU will have total assets of approximately $2.2 billion, serve over 105,000 members and expand the communities it serves to 18 branches throughout Michigan and Florida.
"Throughout ELGA Credit Union's 73-year history, our mission of Building Lifelong Relationships has remained at the core of our decision making, and we believe this combination with Marine Bank will foster those relationships with our members and the communities we serve," said Terry Katzur, President and Chief Executive Officer of ELGA Credit Union. "This highly complementary transaction will allow us to bring our expertise in consumer banking and low-income lending to Marine Bank's communities, while gaining extensive business banking experience. With our combined resources and capital, we will be poised to better serve members and businesses in Michigan and Florida for years to come."
"This transaction is an exciting opportunity for Marine Bank to join forces with a like-minded, locally-operated organization that shares our values and our commitment to the communities and residents we serve," said Bill Penney, President and Chief Executive Officer of Marine Bank & Trust. "Like us, ELGA CU brings a personalized experience to all of its members. With its wealth of knowledge serving communities and individuals that don't typically have access to banking services, we will be able to expand our base of customers in east central Florida. Importantly, ELGA CU has committed to maintaining all Marine Bank jobs and banking centers, as well as expanding our philanthropic efforts throughout Vero Beach and Marine Bank's other communities. I'm confident the future is bright for all of Marine Bank's employees and our customers."
Katzur concluded, "As a community development financial institution, the root of all ELGA CU's member interactions is our focus on personalized solutions that meet the demands and address the issues of our members and the communities we serve. One of the most compelling aspects of this combination is the fact that Marine Bank is aligned with us in that approach. We look forward to becoming engrained in Vero Beach, Sebastian, Melbourne, Fort Pierce, and other nearby communities and working alongside the local Marine Bank teams on the ground in Florida to ensure that level of familiar service continues."
Following the close of the transaction, Bill Penney will remain as Florida Market President and retain local decision-making authority over banking centers in the communities Marine Bank currently serves.
Transaction Details, Timing, and Approvals
The transaction is expected to be completed in early 2025, subject to receipt of required regulatory and Marine Bank shareholder approvals as well as the satisfaction of customary closing conditions. Upon closing, Marine Bancorp of Florida, Inc. common stock will be retired and no longer be quoted on the OTC markets.
Advisors
Honigman, LLP is serving as legal counsel to ELGA Credit Union and McQueen Financial Advisors is serving as its financial advisor. Igler and Pearlman, P.A. is serving as legal counsel to Marine Bank & Trust. Piper Sandler & Co. is serving as financial advisor to Marine Bancorp of Florida, Inc. and rendered a fairness opinion to its Board of Directors.
About ELGA Credit Union
With $1.5 billion in assets, ELGA Credit Union is a community development financial institution (CDFI) that has been a community partner in Michigan since 1951. ELGA CU is a not-for-profit cooperative; formed, owned and operated for a single purpose: members helping members. Visit www.elgacu.com
About Marine Bank
Marine Bancorp of Florida, Inc. is the holding company for Marine Bank & Trust Company. Marine Bank, a $650 million community bank, was chartered in 1997 and serves the central east coast of Florida with five full-service Banking Centers and two Loan Production Offices in Vero Beach, Sebastian, Fort Pierce and Melbourne.
Forward Looking Statements
This press release contains forward-looking statements. Forward-looking statements are statements that are not historical facts but are based on certain assumptions and reflect current beliefs and expectations. These forward-looking statements are subject to risks and uncertainties and other important factors that could cause actual results, performance, or achievement to differ materially from any future results, performance, or achievements discussed or implied by such forward-looking statements. Such risks include but are not limited to: (i) the financial performance and condition of MBT and ELGA CU; (ii) the ability of MBT and ELGA CU to obtain necessary regulatory, shareholder, and counterparty approvals for the transactions described herein; (iii) customer and/or employee acceptance of the merger of MBT and ELGA CU; and (iv) economic, interest rate, and stock market conditions. The information set forth herein bespeaks caution and speaks only as of the date hereof, and MBT and ELGA CU disclaim any intention or obligation to update the information contained in this press release.
SOURCE ELGA Credit Union
Harborstone Credit Union announces agreement to acquire SaviBank
Press Release: 3.22.24 | Stephanie A. Moore
Harborstone Credit Union announced today that it has entered into a purchase and assumption agreement with SaviBank, headquartered in Mount Vernon, Washington, and its parent holding company, Savi Financial Corporation, Inc. (“Savi Financial”). Pursuant to the agreement, Harborstone Credit Union will purchase substantially all assets and assume substantially all liabilities of SaviBank.
The transaction has been unanimously approved by the boards of directors of both institutions. Following the completion of the transaction, SaviBank and Savi Financial will each dissolve and liquidate, and distribute its remaining assets to its stockholders.
The transaction is Harborstone Credit Union’s second announced bank purchase, with its pending acquisition of Seattle, Washington-based First Sound Bank, which was entered into on August 1, 2023, and is expected to close in the second quarter of 2024.
When finalized, Harborstone Credit Union will have, including with the acquisition of First Sound Bank, approximately $2.7 billion in assets, $2.0 billion in loans, $2.3 billion in shares and deposits, and will have 27 branches located throughout Skagit, Whatcom, Island, San Juan, King, Pierce, and Thurston Counties. The effective price per share cannot be determined precisely prior to the closing date and will depend, among other things, on the financial performance and market conditions affecting Savi Bank during the period between signing and closing. However, management currently estimates that the price per share on a pre-tax basis will fall within a range of $16 to $17 per share of Savi Financial Corporation common stock.
SaviBank customers will become members of Harborstone Credit Union with full access to Harborstone’s expansive products and services. The acquisition helps Harborstone Credit Union grow its presence in the Skagit County-area marketplace, diversify its assets, and add superior talent and expertise.
Geoff Bullock, President & CEO of Harborstone Credit Union, commented, “As a member-owned financial institution, the request from our members for more access and ever-improving technology has been at the forefront of our minds. This acquisition achieves that and more. The wisdom of Harborstone Credit Union’s leadership over the past decade has enabled us to both purchase SaviBank with cash that we have saved just for this purpose and to remain very well capitalized. Mike Cann and the Savi team have been building something special up north, and we believe the best is yet to come for both organizations as we come together.”
Michal Cann, Chairman and President of Savi Financial Corporation added, “We look forward to working with Harborstone Credit Union to continue our tradition of fostering meaningful customer relationships while having a positive impact in our local communities. We are deeply focused on providing resources and services for our customers to succeed, and believe that the additional services, products and locations Harborstone Credit Union provides will help us continue to meet the financial needs of our customers. Through the unique structure of this acquisition by Harberstone Credit Union, we believe we are maximizing value to our shareholders who have supported us over the years.”
The transaction is anticipated to be completed in the fourth quarter of 2024, subject to receiving all regulatory approvals, approval by stockholders of Savi Financial, and other customary closing conditions.
Harborstone Credit Union was advised in the transaction by McQueen Financial Advisors, as exclusive financial advisor, and Luse Gorman, PC, as legal counsel. SaviBank was advised by Panoramic Capital Advisors, Inc., as exclusive financial advisor, Buchalter, A Professional Corporation, as legal counsel, and Hillworth Securities LLC provided a fairness opinion.
Credit unions to face stiffer competition for bank deals in 2024
Press Release: 1.3.24 | Lauren Seay & Ronamil Portes
Credit unions' appetite for bank deals won't wane in the new year, but those potential buyers are expected to face more hurdles.
In 2023, US credit unions announced 11 bank deals, three shy of the record 14 announcements in 2022. However, the slow pace of bank M&A led to credit unions making up a greater share of the buyers in 2023 bank deals, with the percentage increasing to a record high of 11.2%, up from just below 9% in 2022, according to S&P Global Market Intelligence data as of Jan. 2.
Deal advisers expect the interest to continue in 2024 as credit unions look to diversify through banks' commercial lending expertise, but they will face more impediments, such as stiffer competition from bank bidders and capital restraints.
Shifting landscape
US bank M&A slowed in 2023 as rising interest rates, a spurt of large failures and the tougher regulatory environment made deal agreements more difficult to reach. The lack of wherewithal for banks to pursue deals pushed potential sellers to contact credit unions.
A Federal Reserve memo following a November 2023 meeting of the Community Depository Institutions Advisory Council noted that larger credit unions were "receiving an increase in inquiries from banks seeking to sell, primarily because other banks are unable to make acquisitions in the current environment." The memo added that credit unions with "ample liquidity and capital hold a distinct advantage, positioned as desirable" buyers of banks.
But of late the likelihood for banks to come off the dealmaking sidelines has increased thanks to changes in the interest rate outlook and a rally in bank stock prices. For those that are hungry for growth through M&A, the backdrop has become more conducive to pay up and win the deals they want.
"Community banks that wish to be active in M&A are stepping up to the plate and perhaps being a bit more aggressive with their pricing and recognizing that there's competitive landscape for some of these transactions," Greg Cunningham, senior vice president at Donnelly Penman & Partners, said in an interview. "They are taking a longer-term approach to their strategic endeavors, including M&A, and being very competitive in a lot of the processes that we've been involved in."
In addition, the recent industry focus on liquidity coupled with stiff deposit competition and high funding costs has credit unions being more frugal with their cash. As such, they are pickier about what deals they bid on as they can only pay cash since they are nonprofits and can't use stock in deals like publicly traded companies can.
"We're in a cycle where liquidity matters, and that does impact buyers," said Michael Bell, partner and co-leader of the financial institutions practice at Honigman LLP. "It's making buyers be a little more deliberate."
"It makes them more focused on process, on due diligence, on making sure everything kind of checks out, double, triple checks. It makes them more focused on the financial analysis and the models and making sure the models are conservative, making sure the models can be trusted," Bell added.
Credit unions are particularly conscious of their forward earnings and conserving capital for the potential downturn of consumer lending segments like auto and credit card.
"With the change of interest rates here and the spike up in deposit costs, margins are tighter, and so people are more nervous about their earnings going forward," Charley McQueen, president and CEO of McQueen Financial Advisors, said in an interview. "And then as we're starting to see, it's not bad, but we are obviously starting to see delinquencies increase in auto loans and credit card loans in different areas. And as that comes up, it does make people a little bit more defensive."
Not done yet
Despite those headwinds, credit unions are still on the prowl for bank deals. One of the major drivers for their appetite is acquiring commercial lending expertise. Historically, credit unions' products are more consumer focused, and bank acquisitions are a good way to break into commercial banking.
Credit unions are also interested in banks with attractive noninterest income businesses, like wealth management and trust services, Cunningham said.
Moreover, the recent bank failures are bolstering credit unions' desire to diversify through M&A after the turmoil of 2023 brought greater industry awareness to how concentration risks can contribute to a depository's downfall.
"If a buyer can diversify its loan or deposit portfolio, either geographically, either up and down the income spectrum, urban, rural, business, personal — all of those things make you safer and sounder," Bell said.
Geographic expansion
Advisers expect these deals will stay concentrated in Midwest and Southeast, and states where there are a lot of small banks left.
But both Bell and McQueen predict geographic expansion, with Bell suggesting up to five new states could see their first credit union-bank deals in 2024. McQueen predicts more activity in the Pacific Northwest.
Blue Federal Credit Union, a federally chartered credit union headquartered in Cheyenne, Wyoming, successfully completed a private placement of $15.0 million of subordinated notes
Press Release: 12.21.23
On December 21, 2023, Blue Federal Credit Union, a federally chartered credit union headquartered in Cheyenne, Wyoming, successfully completed a private placement of $15.0 million of subordinated notes. The subordinated notes are intended to qualify as subordinated debt under NCUA rules and are considered regulatory capital in the calculation of Blue Federal Credit Union’s net worth ratio and risk-based capital ratio.
McQueen Financial Advisors served as the exclusive financial advisor.
Since January 1, 2022, newly effective NCUA rules have expanded credit union access to regulatory capital by permitting credit unions with at least $500 million in assets and new credit unions to issue subordinated debt. Low-income designated credit unions (regardless of their asset size) are also permitted to issue subordinated debt.
Expected Fed rate cuts unlikely to reduce NIM pressure in 2024
Press Release: 12.27.2023 | Alex Graf & Zuhaib Gull
US banks are unlikely to see relief from compressed net interest margins before the end of 2024, even if the Federal Reserve cuts interest rates.
Net interest margins (NIMs) are a key bank profitability measure that weighs a company's interest income from credit products against the outgoing interest it pays depositors. The NIMs of US banks compressed over the last year as the Federal Reserve increased interest rates and competition for deposits intensified. If the Fed follows through on plans to cut rates in 2024, NIMs are unlikely to improve and may even shrink before 2025 due to high funding costs, which tend to lag rate moves, McQueen Financial Advisors President and CEO Charley McQueen said in an interview.
"That lag in deposit costs coming up really started to hit hard in the second half of 2023," McQueen said. "Nice yields on loans really popped up, and that will continue to improve asset yields, but I still think there's a little bit more of the deposit costs coming up right now."
Analysts predict further NIM compression in 2024
Analysts expect NIM compression for 16 of the 20 largest US banks in 2024 with a median decline for the group of 14 basis points, according to S&P Global Market Intelligence data. The group median of consensus estimates were 3.07% for 2023, 2.93% for 2024 and 2.98% for 2025, as of Dec. 18.
In contrast to analysts, bankers at some of the country's largest banks said they do not expect further NIM compression in 2024.
U.S. Bancorp has "great confidence" that its NIM will bottom out in the fourth quarter of 2023 and has the flexibility to reprice deposits as needed when the Fed cuts rates, CFO John Stern said during an industry conference in December. Huntington Bancshares Inc. expects a flat to rising NIM through 2024, CFO Zachary Wasserman said during the same conference.
Hedging for lower rates
Banks with excess funds can protect their NIMs by extending the duration on their investments and refraining from buying option-based investments, mortgage-backed securities or anything with negative convexity, McQueen said.
"That's going to allow us to keep our assets out there yielding a higher level in a downward rate environment," McQueen said.
Banks are increasingly selling low-yielding securities and reinvesting the proceeds into higher-yield securities to protect their margins. The industry recorded its highest level of realized losses on available-for-sale securities in three years during the third quarter as more banks repositioned their bond portfolios to improve their NIMs and other profitability measures. In the fourth quarter, several banks executed securities sales.
Hedging against falling rates is significantly more expensive now than it was just two months ago for asset-sensitive banks because the yield from converting floating secured overnight financing rate assets to fixed has declined by about 115 basis points in that time, said Isaac Wheeler, head of balance sheet strategy at Derivative Path.
"If you're a bank that's exposed in that way, you're not welcoming this move at all," Wheeler said in an interview. "It's actually no longer possible to hedge the first 150-basis-point move lower in rates because the market is already priced in."
Unlike asset-sensitive banks, the downward movement in swap rates and treasury yields has made hedging strategies cheaper for liability-sensitive banks, which have experienced substantial margin compression as the Fed has raised rates, Wheeler said.
"If you're an institution that's exposed to higher rates as a whole still, this is a nice entry point maybe to establish some funding hedges or even to swap fixed-rate investment securities to floating," Wheeler said.
Ultimately, the shape of the yield curve will be more important than the level of rates in terms of NIMs, Wheeler said. Banks would welcome rate cuts if they are accompanied by a significant steepening at the five-to-10-year part of the curve because the standard inversion of the last 18 months has put a lot of pressure on NIMs, Wheeler added.
On the lending side, banks should balance their loan books to make sure they have higher-yielding loans that will not refinance as soon as the Fed cuts rates, McQueen said.
Banks can also ladder short-term borrowings from the Federal Home Loan Bank, McQueen added.
"It's not a bad way at all to lock in some funding, although at an adjustable rate effectively," McQueen said. "If rates do come down as the world is predicting, we can definitely improve that cost of funds for that borrowing capacity."
Credit union-bank deals face high termination rate
Press Release: 9.25.2023 | Lauren Seay & Ronamil Portes
Credit union acquisitions of banks have accelerated in the past decade, but not all of those deals make it across the
finish line.
Since 2011, credit unions have announced 91 bank acquisitions, but 14 of those, or over 15%, fell apart. During the same period, the rate is much lower for deals between two banks with just 3.8% of the more than 2,700 announcements being terminated.
Still, similar to traditional bank deals, some recent collapses have been the result of the macroeconomic environment in which interest rates have risen rapidly and distorted deal math, advisers said. Regulatory hurdles could also be the culprit for some terminations, as multiple advisers also noted that regulators' reviews of these deals have become more stringent.
"It's a little bit more difficult on the regulatory front," Charley McQueen, president and CEO of McQueen Financial Advisors, said in an interview. "They're all looking at the same thing and making sure it's the right thing to do and no one is going to be put in a bad position. No one wants to come out of a transaction and have a tough capital position or a bad earnings structure."
Capital and liquidity are major focuses for the regulatory agencies that have to approve these deals, which include both the National Credit Union Administration and the various relevant banking agencies, both federal and state.
One way a credit union can ensure its capital position is strong is through subordinated debt, but they should avail themselves of that funding before striking the deal, instead of after regulators raise issues, advisers said.
"You're a much more solid buyer by having something on your books ahead of time and a deal is not subject to you raising sub debt," McQueen said. VyStar CU raised $200 million in subordinated debt in 2022, the largest ever such raise by a credit union, as it waited for regulatory approval of its now-terminated acquisition of Heritage Southeast Bank. An analysis by S&P Global Market Intelligence in June 2022 found that the raise might have been done to help the pending transaction gain regulatory approval by ensuring Vystar CU's net worth ratio remained well above regulatory standards, but the deal eventually was terminated due to regulatory hurdles.
Regulators are also zeroed in on interest rate risk management.
"We're really seeing a higher level of scrutiny on overall interest risk management component of the transaction," McQueen said. "They really want to see the combined entity and the true risk that they have. I think a chunk of that is to really validate the forward earnings." A deal might also raise red flags if the two institutions are similar sizes, according to Tom Rudkin, DD&F Consulting Group Principal.
"If the credit union tries ... buying a bank that's one-third the size or higher, that will really attract a lot of scrutiny by the regulators to see if it really is going to make sense," Rudkin said.
Harvesters CU and First National Bank Northwest Florida announced their tie-up in August 2022, and the two companies were similar in size: Harvesters CU reported $274.5 million in total assets as of June 30, 2022, while First National Bank Northwest Florida reported $239.4 million as of the same date, according to S&P Global Market Intelligence data.
That deal fell through this year, and now First National Bank Northwest Florida is set to be acquired by Innovations Financial CU, which had $399.8 million in assets at June 30, compared to the bank's $169.2 million at the same date.
States stifle
At least four of the 15 deals that have fallen apart since 2011 are the result of state regulatory agencies not approving the deals. That was the case in Colorado, Nebraska, Iowa and Minnesota.
It is rare that federal regulators will shoot down a deal, but state agencies "can choose to be susceptible to politics and create issues," said Michael Bell, partner and co-leader of the financial institutions practice at Honigman LLP. The banking industry is largely against these deals, arguing that credit unions' tax-exempt status gives them an unfair advantage in M&A.
As such, it can be a risk to be the first credit union and bank to strike one of these deals in a state, advisers said. The key to avoiding this issue is to have an open dialogue with regulators.
"Pre-conversations [with regulators] have really improved," McQueen said. "There was an assumption that it would get approved before and now it's not just an assumption, it's validated ahead of time."
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
Credit union subordinated debt levels stall after years of rapid growth
Press Release: 9.26.2023 | Lauren Seay & Zuhaib Gull
Outstanding subordinated debt at US credit unions skidded to a near halt in the second quarter. The credit union industry had $3.65 billion in outstanding subordinated debt at June 30, up slightly from $3.61 billion in the first quarter. That was just a 0.9% increase quarter over quarter, a stark difference from at least 4% sequential growth every quarter since the second quarter of 2020.
Credit union subordinated debt levels have climbed every quarter since the beginning of 2020 when the industry began increasingly using the funding options as a means for growth. But now, as financial institutions focus less on growth and subordinated debt has grown more expensive due to higher interest rates, credit unions are holding off on new issuances.
"Obviously for banks and credit unions, it was extremely cheap a few years ago. But unfortunately, it's very expensive today," Charley McQueen, president and CEO of McQueen Financial Advisors, said in an interview. "It becomes very expensive just to sit on your books."
McQueen said he has seen a "substantial slowdown" in new inquiries about subordinated debt.
Credit unions with the most subordinated debt
Self-Help FCU and Self-Help CU topped the list of credit unions with the most outstanding subordinated debt in the second quarter with $409.0 million and $301.0 million, respectively. That made up the majority of both credit unions' total borrowings.
Subordinated debt has grown in popularity in recent years after a rule change by the National Credit Union Administration expanded the number
of credit unions that can access it.
The industry has also become more aware of the funding option. Historically, credit unions have largely relied on retained earnings to fuel growth given their limited funding sources compared to banks. But now, credit unions have increasingly utilized subordinated debt, which is one of the only options for growing capital outside of retained earnings, to fund both organic and inorganic growth.
Bank acquisitions are an attractive use for some credit unions. Among the top 20 credit unions with the most outstanding subordinated debt in the
second quarter, two have announced bank acquisitions since the start of 2022. Another two have announced acquisitions since 2021. One of those credit unions is Five Star CU, which had $50.0 million in subordinated debt at June 30, and struck two banks deals in one week last month.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
Steps Shared to Address Loan Mispricing
Press Release: 5.24.2023 | Ray Birch
CLAWSON, Mich.—The mispricing of loans by credit unions, particularly auto loans, could lead to some CUs facing earnings struggles in the near future, according to one analyst who is also recommending steps to address the issue.
Charley McQueen, president and CEO of McQueen Financial Advisors, agreed with others who have suggested too many credit unions were guilty of keeping auto loan rates far too low for far too long, not recognizing amid the short-term boost in volume how there would be a price to pay in the longer-term.
McQueen added he believes decisions made by many CFOs, many of whom are younger and who have not during their careers experienced an extended period of rising rates, are affecting investments and liquidity.
As CUToday.info has reported, consumers today have the opportunity to grab some of the highest returns on their deposits that they’ve seen in 15 years. Top-yielding online savings account rates are now just north of 5%, the highest since 2008, and much higher than last year’s 0.8%.
“All institutions are paying much higher rates on deposits right now, it's just not smaller institutions, and it's because people are spending more money than they make, just to get by—to buy groceries and things. They don’t have the money lying around in deposit accounts like they used to,” said McQueen, who noted draw down of personal savings is forcing financial institutions that had enjoyed record-levels of low-cost core deposits—to begin to pay up to maintain those funds and attract new deposits.
There are also consumers who are nervous about bank failures and what levels of deposits are insured, McQueen said.
“So, we see people who are reducing their exposure little bit. But most of our institutions have actually seen deposits increase or be flat over the past three months,” said McQueen.
Where credit unions have also not done well has been in tightening the loan spigot when necessary, said McQueen.
“They're having lots and lots of loan growth. When you have loan growth that reduces your cash position. And when you have a little deposit runoff it reduces your cash position,” he said. “Liquidity is at a premium. Credit unions should not have been putting all these loans (in the past year) on their books.”
One Particular Issue
As other analysts have also told CUToday.info, McQueen believes a particular issue has been credit unions underpricing their auto loan rates even as the Federal Reserve aggressively raised rates.
“Credit unions mispriced loans, especially auto. They kept them too low and now they're dealing with that and they have to make balance sheet adjustments,” continued McQueen. “Your balance sheet is not marked to market. What that does is produce a tougher earnings position. I think the next thing we’re going to see is credit unions struggling with earnings.”
Those earnings struggles will be a challenge for many, but McQueen does not believe they will lead to any failures, although he suspects it will sway some CUs to consider mergers.
“I do think there are a number of institutions that didn't properly prepare for the situation we're in and they're going to have a very difficult time with earnings and their balance sheet,” he said. “There's long-term, good balance sheet management strategies. And a lot of people have not paid attention to them. It was, ‘Hey, I don't want to stay short with my investments because I'm not making any money. I'm going to go longer.’”
In doing so, McQueen asserted, those CU executives lived for the short term, and disregarded the longer-term impact to the balance sheet.
“They reached for a yield and invested longer,” he said. “Now these investments they may have to sell to drive liquidity are a little bit underwater and that hurts them. You either sell the investments and take the losses, which is no fun, or you borrow money.”
Competition Remains Fierce
And is if all that weren’t challenging enough, the heated fight for deposits isn’t cooling, McQueen said.
“We're seeing six-month to one-year CDs at 5% and money market rates at 3.7% to 4%,” pointed out McQueen. “And this is not a small institution problem. American Express is paying nearly 5% on their money market accounts. Everyone's paying these higher rates right now to attract deposits.”
McQueen reminded that moves by the Federal Reserve, with its quantitative tightening, is also having an effect.
“We're shrinking money supply, which is pulling money out of the system and people are spending more money because of inflation,” he explained. “The combination of the two makes it tough when you just work with primarily individuals.”
How Credit Unions Should Respond
What do CUs need to do?
“You always, every day, have to do the basics—the blocking and tackling,” McQueen advised. “What that involves is writing loans at appropriate rates. Don't stop lending money, but you have to control the loan growth. You need to focus on your core membership. Many credit unions are doing indirect lending and looking to get loans from other places. But what they don't realize is they're not getting deposits anywhere except from their members. You need to balance out the deposits you're getting with the loans you’re getting from that membership base. If you're making loans to your core membership base, life is simple and easy.
“But if you decide that you want to do indirect lending, buy loans from the marketplace, or do something different, you then need to realize that you need to borrow funds to fund these indirect loans.”
In McQueen’s own review of the broader market data and where credit unions stand, he sees pricing minimums most CUs should be observing.
“If I'm going to borrow money from the Federal Home Loan Bank, let's just call it 5%, I've got to start with 5% (for the CU’s loan pricing). Then I've got to factor in my expenses. I also need to put in money for loan losses and CECL. And then, on top of that is my return—the ROI I need to have. So, when doing indirect lending or buying loans today, you're very quickly into the sevens, if not 8%—the lowest yield you should be booking.”
The Generation Gap
It’s advice in which a generation gap may be apparent, he added.
“Our company is dealing with a couple people who have had some problems, helping them work through them, and they are younger CFOs,” explained McQueen. “What I'm seeing many times is the CFO may not have as much negotiating experience dealing with people that have different interests. A great example is a CFO who bought a bunch of long-term, fixed 30-year mortgages over the past year. It was because a broker was telling him it's a good idea. I think a lot of these younger CFOs do not have the skill set or the knowledge to ask the right questions—such as is this really a good idea? What happens if rates go up? They just listen to people who have different motivations.
“Let’s use a used car salesman as an example, and I am just pointing to how people often perceive used car salesmen,” he continued. “But the used car salesman only gets paid if you buy that car. He couldn’t care less about what the payment is, how it affects you, how it affects your credit score, what happens to you in your life. All he wants is you to buy that car. And a lot of times bond salesman are the same way—there's good ones in this world and bad ones.”
MFA has advised Arizona Federal Credit Union through the acquisition of Horizon Community Bank: 3.14.22
Press Release: 3.14.2022
McQueen Financial Advisors has advised Arizona Federal Credit Union through the acquisition of Horizon Community Bank.
Please click here to see more details.
Arizona Federal Credit Union has agreed to acquire the assets and assume the liabilities of Horizon Community Bank. The combined Company will have total assets of more than $3.3 billion; making it one of the largest credit unions in Arizona.
This transaction will mark McQueen’s 25th Credit Union – Bank Transaction; the most of any advisor in the United States.
McQueen Financial Advisors is proud to announce that we are offering Foundation & Non-Profit Investment Management services
Press Release: 4.20.2023
The Foundation & Non-Profit Investment Management area of MFA provides foundations, non-profits, and charities with professional investment portfolio management. Our Foundation & Non-Profit Investment Management team is prepared to manage your portfolio to fit your unique needs.
As a fiduciary manager, your best interest is always first. We have no conflict of interest with in-house products, inventory that needs to be sold, underwriting deals, brokerage, lending, or anything that is not solely focused on your best interest.
We are utilizing our twenty-four-year history (and our current investment management of nearly $14 billion) and expertise to provide Foundation & Non-Profit Investment Management services. We become part of your organization and meet with your investment committee and/or your board of directors on a quarterly, semi-annual basis to ensure we are achieving your objectives.
The Foundation & Non-Profit Investment Management services include:
- Guidance on governance and investment policy design
- Spending policy methodology and analysis
- Review spending and investment policy alignment
- Board Education
- Setting long-term targets via strategic asset allocation
- Portfolio review and analysis, including goals and objectives, target return, asset allocation, portfolio construction, investment manager selection, rebalancing, performance reporting, implementation, and/or execution.
“I founded the firm on the premise that each and every entity deserves personal attention focused on their unique needs. Our focus will always be on the needs of our clients.” -Charley McQueen President & CEO
For further information please contact:
Matt Brege
Advisor
(248) 548-8400
mattb@m-f-a.com
Dare to be boring with your investments
Press Release: 5.23.2023 | Bill Merrick
Focus on the basics and manage for the uncertainty of outcomes.
If you do it right, investment portfolio management with an inverted yield curve will be perfectly boring, says Charley McQueen, president/CEO at McQueen Financial Advisors.
“It’s boring because we need to do the basics,” says McQueen, who addressed the 2023 CUNA Finance Council Conference Monday in Anaheim, Calif., with his colleague, Jim Craven, vice president and senior consultant.
“I think interest rates will start to come down in the next six to 12 months, so we’ll want to look for nonoption-based investments rather than mortgages or callable bonds,” McQueen says. “I want to look at fixed-term maturities and build a nice, boring ladder of securities three, four, or five years long. That way we’ll have constant maturities we’ll be able to reinvest in whatever market we’re in.”
He calls inverted yield curves—when long-term yields fall below short-term yields—“wonderful and painful because they usually tell us what's coming next.”
With an inverted yield curve, McQueen advises against investing in callable securities and mortgages.
“Nothing against them, but if you own mortgages in this environment and interest rates go up, the value of that investment goes down but the life of it extends,” he says. “I want my money back so I can reinvest at a higher level.”
He’s also not a fan of corporate bonds due to the prospects of a recession.
Good investment options in this environment include “really boring noncallable agency bonds, Treasury bonds, and municipal bonds,” McQueen says.
Regardless of what the future holds, it’s crucial to discuss scenarios with colleagues, even if you disagree. Craven, for example, believes the Federal Reserve will have to raise rates, while McQueen sees a rate cut coming.
“Who knows who’s right? It’s good to have dissenting opinions and to talk about them,” McQueen says. “It’s about managing for the uncertainty of outcomes, having a range of potential outcomes, and being prepared for them.”
MFA advised on LLCU to acquire Nokomis Savings Bank
Press Release: 4.28.2023 | Cayla Hittmeier
Decatur, IL and Nokomis, IL, April 28, 2023 – Land of Lincoln Credit Union (“Land of Lincoln”) of Decatur, IL and Nokomis Savings Bank (“Nokomis”) of Nokomis, IL jointly announced today that they have entered into an agreement whereby Land of Lincoln will acquire Nokomis Savings Bank.
While the agreement is contingent on obtaining regulatory and member approvals, as required, the proposed transaction has been unanimously approved by the boards of directors of both institutions. The transaction is expected to close by the end of the first quarter of 2024. When the acquisition is complete, Land of Lincoln will have approximately $482 million in assets and increase its footprint into Montgomery County, Illinois, and the surrounding areas with a total of 15 branches.
Robert Ares, President & CEO of Land of Lincoln stated, “We are excited for the opportunity to partner with Nokomis Savings Bank and expand access to our service in Montgomery County and other contiguous market areas. This acquisition is part of Land of Lincoln’s strategic growth plan, which includes adding branches and markets to better assist our members throughout Illinois. Nokomis Savings Bank’s customers will become members of Land of Lincoln with full access to our wide array of products and services. We look forward to welcoming Nokomis Savings Bank’s customers and employees into our family.”
Charles O’Malley, President of Nokomis commented, “We are delighted for the opportunity to join Land of Lincoln and believe this partnership will result in many benefits to our customers, employees, and community. We look forward to working with Land of Lincoln to see this exciting transaction through to closing.”
About Land of Lincoln Credit Union
With approximately $457 million in assets, over 120 employees, 14 branches, and over 34,000 members, Land of Lincoln Credit Union offers a full menu of financial services including mortgages, auto loans, checking accounts and business loans and deposits. Land of Lincoln Credit Union remains dedicated to putting members first. More information about Land of Lincoln Credit Union can be found at www.llcu.org.
About Nokomis Savings Bank
Nokomis Savings Bank, a full-service community bank, has approximately $27 million in total assets, $21 million in deposits and $11 million in loans. With one location serving the West Central Illinois community, Nokomis Savings Bank has been providing exceptional customer service and high-quality products for over 100 years. More information about Nokomis Savings Bank can be found at www.nokomissavings.com.
Contact Information
Land of Lincoln Credit Union
Robert Ares President & Chief Executive Officer
844-222-7788
Nokomis Savings Bank
Charles O'Malley
President & Chief Executive Officer
217-563-7711
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