Some CUs Bank on Bank Deals, Most Don’t

On May 12th, 5-Star DFCU Financial, a $6.456 billion credit union headquartered in Dearborn, MI, announced it will enter the Florida market with the purchase of 4-Star First Citrus Bank, Tampa. First Citrus Bank has $660 million in assets and six locations that will be folded into DFCU Financial. While both boards unanimously voted in favor of the transaction, shareholders and regulators still have to give their blessings as well.

Approval is not guaranteed. In fact, the closing date for the largest CU-Bank transaction, ($11.7 billion 4-Star Vystar Credit Union, Jacksonville, FL’s deal to buy $1.7 billion asset 5-Star Heritage Southeast Bank, Jonesboro, GA) keeps being pushed back as regulators are more carefully scrutinizing these transactions.

Some of the other big CU-Bank deals in the works include:

5-Star Summit Credit Union, Madison, WI (assets: $4.8 billion) plans to buy the $837 million asset, 4 branch 5-Star Commerce State Bank, West Bend, WI.

5-Star Arizona FCU, Phoenix ($2.8 billion) has its sites on 5-Star Horizon Community Bank, Lake Havasu City, AZ ($539 million).

And 4-Star Barksdale FCU, Barksdale AFB, LA ($2 billion) plans to buy 2-Star HomeBank of Arkansas, Portland ($74 million).

That being said, of the 50 federally-insured credit unions reporting the most asset growth in calendar 2021 (listed on page 7), none grew due to a bank purchase. To make the page 7 data more meaningful, each credit union listed was established prior to 2012 and ended 2021 with total assets exceeding $1.5 million.

As always, each entity has its own story. 4-Star Garland County Educators’ F.C.U., Hot Springs, AR has been serving the schools of Garland County since 1968. Its membership (of just under 800) consists of bus drivers, teachers, administrators, and others serving the school district. It remains closed to outsiders. Garland County Educators FCU has just two full-time employees. It is happy to continue to grow organically so its members continue to feel like a community.

Coincidentally, 3-Star Pinal County FCU, Casa Grande, AZ also started out as a school credit union (in 1954) but that all changed in 1982 when it acquired Pinal County and City Employees CU. Since then, its growth has been reflective of the growth of the county itself. Membership increased by over 3,000 (or 14%) in 2021, but signs of stress are beginning to appear.

With assets nearing $3.5 billion, 5-Star Valley Strong Credit Union, Bakersfield, CA is among the top 3% in terms of credit union size. Interestingly, this also started out as a school credit union, Kern Schools FCU, in 1940. Kern Schools FCU broadened its field of membership (FOM) and acquired four local federal credit unions during the 1980s and another in 2013. It then laid low for a while.

Seven years later, in 2020, Kern Schools FCU converted from a federal to a state credit union and simultaneously changed its name to Valley Strong Credit Union. In 2021, Valley Strong Credit Union acquired both the Zero-Star Solano First FCU, Fairfield, CA with its $86 million in assets and the 4-Star, $634 million asset, Financial Center CU, Stockton, CA. There was nothing organic about its growth in 2021.

While none of the credit unions on page 7 acquired banks in 2021, almost half (23) acquired at least one other credit union. Twenty-five grew organically and two of the listed credit unions no longer exist. They are:

Zero-Star Empire Financial FCU, New York, NY which was shut down by regulators on March 4, 2022. 4-Star Jovia Financial FCU, Westbury, NY assumed its assets, member shares and loans. All else was liquidated.

Then, on April 1, 2022 4-Star Affinity Plus FCU, Saint Paul, MN acquired the undercapitalized 1-Star White Earth Reservation FCU, Mahnomen, MN. White Earth Reservation FCU’s single office became Affinity Plus FCU’s 30th branch.

At Bauer, we believe small businesses and consumers are generally better served by local banking professionals who can make decisions based on their personal knowledge of the community. We hope regulators take this into consideration as they contemplate new mergers and acqusitions. As we see it, whether bank or credit union, small institutions are being devoured by larger ones. It is imperative that local access to a branch not be the cost.