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• An expanded , more diverse member base .
• A unique governance structure . With credit union mergers , the acquired credit union may insist on joining in the governance structure of the combined institution . However , when acquiring a bank , the selling shareholders are paid in cash , and therefore will exit after the transaction is complete as they would no longer have economic interest in the bank .
• A subordinated debt driven transaction . Credit unions can raise subordinated debt to acquire a bank and solidify capital position .
Aligning Goals and Values While community banks and credit unions are both focused on serving their communities , this is something to consider when evaluating a potential candidate . Assessing whether the bank has shared values with your credit union can help determine if they are a good fit . Furthermore , does your credit union ’ s business model and operating strategy align with theirs ? Credit unions generally focus on consumer and residential real estate loans , while many community banks focus to commercial real estate loans and other business loans .
Financial , Legal and Regulatory Expectations Given banks are controlled by a different regulatory body than credit unions , and purchased for cash , acquiring a bank has complex financial , legal and regulatory issues . Consdier these key items :
• The transaction structure of a bank acquisition is different for a credit union than a bank . While a bank can structure and account for the acquisition as a stock or asset purchase and exchange stock-for-stock , a credit union can only account for the acquisition as an asset purchase paid for with cash regardless of structure . Given the differences , credit unions must take into consideration the different financial and tax implications when determining purchase price .
• The transaction typically includes a detailed purchase agreement , while a merger agreement details the structure and key considerations for a credit union to credit union merger .
• Both institutions are required to file applications to their designated federal regulator ( National Credit Union Administration ( NCUA ) and Federal Deposit Insurance Corporation ( FDIC )) and state regulator , if state-chartered , which can result in a lengthy approval process .
16 VIEWpoint Issue 2 | 2022