The five whole bank purchases by credit unions announced in 2021 illustrate the importance of answering the ten “transaction level” questions posed last week. Each instance adds more complexity to those common issues. A review of these four credit unions’ actions follows.
1. Wings Financial Credit Union completed the acquisition of the $72.4 million Brainerd Savings and Loan, a Mutual Federal Savings Charter.
This in-market acquisition’s primary difference is Brainerd’s mutual ownership structure. Brainerd and Wings cannot legally enter into a merger agreement, so the transaction is structured as a branch sale of Brainerd’s sole office, with a purchase and assumption of assets and liabilities, a voluntary liquidation of Brainerd, followed by a distribution of any residual assets to Brainerd’s mutual depositors.
Completed early in June, both parties have kept details private. There have been no disclosures of valuation for assets and liabilities nor how the well-capitalized mutual’s reserves will be distributed. Secrecy creates a situation lacking accountability. How should depositors’ collective wealth be allocated to executives who facilitate the sale? For the directors of both institutions, what is their fiduciary responsibility for disclosures to their owners?
Converting mutual banking charters serving the general public into private sales with no disclosure is an unsettling precedent. Because CEO’s and boards manage common wealth, respect for the values of honesty, openness, and trust are vital factors of mutual and co-op design. How will Wing’s leaders inform their member-owners about this use of their reserves and the benefits they should expect?
2. Vystar’s purchase of HSBI is the largest bank acquisition by a credit union to date.
Heritage Southeast Bancorporation, Inc. (HSBI) serves as the holding company operating three legacy brands Heritage Bank, Providence Bank, and The Heritage Bank in their historical home markets. The holding company oversees $1.6 billion in assets and 22 branch locations across Southeast Georgia, through Savannah, and into the Greater Atlanta Metro area. The transaction combining these three previously independently owned banks was completed in September 2019. Their independent business models focused on local commercial and real estate loans with virtually no consumer lending.
These mergers are the primary reason for the five-year growth shown below in Heritage bank’s assets: