ROYAL OAK, Mich., April 26, 2016 (PRNewswire) – In 2011, United Federal Credit Union in St. Joseph, Michigan did what the experts said couldn’t be done. The St. Joseph, Michigan-based credit union acquired Indiana-based Griffith Savings Bank in a first-of-its-kind deal. “Most industry union experts said there were too many legal and regulatory hurdles blocking the way for credit unions to buy or merge with banks,” said Michael Bell, the attorney representing United Federal and eight other credit unions in the industry’s first 10 deals involving banks. “In the 100+ years of their existence, no credit unions had ever purchased or merged with a bank,” said Bell, of Royal Oak-based law firm Howard & Howard.
According to Bell, it could not only be done, but was quickly recognized as a creative strategy for rapid expansion by several other growth-minded credit unions. Bell also worked with Five Star Credit Union in Dothan, Alabama when it acquired Farmer’s State Bank and Flint River National Bank, both located in neighboring Georgia. “Our two bank acquisitions were strategic in nature. They’ve allowed us to enter new markets with an existing infrastructure, an immediate member base and a loan portfolio generating income from day one,” said Robert Steensma, CEO of Five Star Credit Union. While the entire consumer financial services industry has been consolidating and downsizing for several decades, credit unions have steadily expanded their customer base, size of assets and profits through mergers and acquisitions primarily involving other credit unions.
One of the big factors driving the credit union-bank acquisition trend are the ever-increasing costs associated with regulatory compliance. Bell says that the 2010 passage of the Dodd-Frank Act made significant changes in financial regulations and oversight that have impacted almost every part of the country’s financial services industry – from top to bottom. “The Dodd-Frank Reform and Consumer Protection Act added costly regulations that were supposed to target the country’s largest investment banks,” says Bell. “Decades of responsible business practices notwithstanding, thousands of credit unions and community banks are also being subjected to the same new, expensive rules designed to reign-in the ‘too big to fail’ financial giants,” Bell said, adding that the new regulations have affected smaller community banks and credit unions more dramatically than larger ones, which can spread these big compliance expenses across a higher asset base. “The sharp rise in the cost of compliance has been a big disruption for the financial services segment, but at the same time it’s created an opportunity for a number of adaptable credit unions to expand their footprint and holdings quickly and efficiently.”
Photo courtesy of United Federal Credit Union, from a press release.