Credit union purchases of banks on pace for record after latest deal

Harborstone Credit Union in Lakewood, Washington, said Friday it would acquire in-state banking peer Savi Financial in an all-cash deal.

The transaction, expected to close in the fourth quarter, would propel Harborstone over the $2 billion-asset threshold. Savi in Burlington has $593 million of assets. The buyer, headquartered close to Tacoma and active in the Greater Seattle area, estimated the price per Savi share on a pre-tax basis would fall within a range of $16 to $17.

It marks the $1.9 billion-asset Harborstone's second bank deal in recent months as it seeks to expand in the Northwest via mergers and acquisitions. Its pending acquisition of Seattle-based First Sound Bank, announced last August, is projected to close in the second quarter.

When both deals are finalized, the combined institution would have approximately $2.7 billion of assets, $2 billion of loans, and $2.3 billion of shares and deposits. It would have 27 branches throughout Skagit, Whatcom, Island, San Juan, King, Pierce and Thurston counties in Washington.

Geoff Bullock, president and CEO of Harborstone, said in a press release announcing the latest deal that it also would help the credit union diversify its business lines — banks have more commercial loans — and bolster its technology capabilities at a time when digital financial services are increasingly in demand.

"The request from our members for more access and ever-improving technology has been at the forefront of our minds," Bullock said.

The deal continues a trend of bank sales involving credit union buyers. It is the seventh such deal inked this year, putting 2024 on track to easily eclipse last year's total of 11 and the record 16 announced in 2022, according to an American Banker tally.

Small banks, meanwhile, are selling to both larger banks and to credit unions because many do not have the scale needed to manage high regulatory costs and digital banking expenses.

However, the Independent Community Bankers of America and other bank advocacy groups have lobbied against credit union growth via bank deals. They argue that credit unions are exempt from federal taxes because they are supposed to focus on underserved niches. When they buy banks, critics say, credit unions effectively become banks while retaining nonprofit status. This deprives communities of tax revenue and creates an unfair playing field for the traditional banks with which acquisitive credit unions compete.

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Yet small bank sellers often find such deals attractive because credit unions pay cash, making transactions relatively simple. Acquisitive banks, too, have been relatively scarce. Banks pulled back on M&A over the past two years amid economic uncertainty created by high interest rates and a string of regional bank failures last year.

Bank sellers announced 99 M&A deals in 2023, according to updated S&P Global Market Intelligence data. That was below the 157 in the prior year and far short of the 202 inked in 2021.

Including the deal announced Friday, S&P data showed that 23 combinations have been announced this year, and credit unions were the buyers in 30% of those transactions. If sustained through the year, it would mark the highest level on record.

"The buyers may not be the same, but the reasons for many small banks to sell remain firmly in place," said Michael Jamesson, a principal at the bank consulting firm Jamesson Associates.

Deals in which credit unions acquire banks started growing in prominence in 2019 and made up about 5% of all bank deals between then and 2021, according to S&P. But that percentage has swelled since 2022 — when interest rates started spiking and bank buyers tapped the brakes, creating space for credit union buyers to fill the void, the firm said.