Credit unions purchases of for-profit banks have become a more frequent and accepted coop strategy. The most recent total count is 77 purchases since 2010 with 22 announced in 2024.
Buying banks requires the credit union to pay cash versus the option of issuing new shares or partial cash and share offers when banks purchase each another.
This cash outlay means the members’ collective equity is being used to pay bank owners for their shares, often at premiums of 1.5 to 2.0 times the bank’s net worth. The gain or increase is booked as “good will” a non-earning asset that must be evaluated for future write downs.
In all these situations the members have no say. They are informed after the deal is signed subject only to “regulatory approval.” Information as to how and why this outlay of the credit union’s capital will benefit the members is rarely presented.
Moreover, most of these transactions are serendipitous bought to the credit union by brokers hoping to facilitate a sale for a fee. There is often no connection or knowledge of the bank. Sometimes it is far removed from the coop’s existing market. In one case in Arizona, the credit union converted to a state charter to acquire a bank outside its FCU’s field of membership.
What Should Member-Owners Know?
What should the credit union owners be told about this use of their cash? The most important question is how this transaction will benefit the members.
When purchases are completed within the banking industry the standard disclosures are straight forward-what will be the impact on earnings, dividends and recovery of the capital outlay.
A Case Study in Financial Disclosure
Yesterday the $1.9 billion QNBC Bancorp (QNBC) (Quakertwon, PA)announced the purchase of the $477 million Victory Bancorp in Limerick PA. As both are publicly traded companies, there is much market and call report information about both firms.
The press release led with the total purchase price of $41 million, based on the closing price of QNB shares in this all share transaction.
While there were other general details of the benefits of the sale such as similar culture, business models and greater combined resources, the crux of the announcement was the financial justification for the transaction for both banks’ shareholders.
In the case of the seller, Victory, the stock price (VTYB) has fluctuated between $10-$11 per share even though it reported a net book value of over $15 at the June 30, 2025 call report. Last night the stock closed at $18.20 per share.
The $41 million total price is 132% of the banks shareholder net equity of $31 million. The bank’s YTD performance though the second quarter was an ROE of 9.07% and ROA of .59%. Both OK numbers, but not great. But what stands out is that Victory reported zero delinquencies and charge offs in the first six months of 2025.
It is clear why Victory shareholders might be interested in this instant gain in the value of their shares. But what will the purchasing bank owners gain. This was discussed at length with specific goals in the announcement under the heading, Financial Benefits of the Merger. Following are from the proforma financial projections how this transaction will impact QNBC’s owners:
The transaction is projected to deliver approximately 16% EPS accretion to QNB’s 2026 estimated EPS and approximately 19% EPS accretion to QNB’s 2027 estimated EPS. . . The expected tangible book value earn-back period is approximately 3.3 years. . .
On a pro-forma basis for the year 2027, the combined business is expected to deliver top-tier operating and profitability metrics upon fully phased-in integration plans, including:
- Return on Average Assets of approximately 0.80%
- Return on Average Tangible Common Equity of approximately 13%.
The pro-forma combined company financial metrics are based on estimated combined company cost synergies, anticipated purchase accounting adjustments, and the expected merger closing time horizon.
Specific financial outcomes based on proforma estimates. This is what shareholders expect to see when their shares are diluted with this purchase using newly issued shares. This is what regulators will use to evaluate their supervision and approval.
The announcement also contains the traditional statements about future hopes:
Beyond just this transaction, this partnership represents an exciting opportunity to build one of the most dynamic and growth-oriented community bank franchises in all of Pennsylvania.”
But the bottom line on this event is the financial benefits to the owners of both financial fimrs.
The Need for Financial Disclosures
This is an example of the financial disclosures and goals credit union CEO’s should be providing their owners when announcing bank buyouts. It is standard industry practice and obliquitory for regulatory review.
When credit union’s buy banks the bank shareholders are given full financial details as to why this is a good deal for them. The NCUA and FDIC require full financial proformas to analyze for safety and soundness issues.
The only owners left in the dark at the credit union members whose funds are being used to pay a premium to the bank’s owners. It’s past time for credit union owners to have this full information. It is essential to understand whether the transaction makes financial sense and to hold their leaders accountable for the proforma outcomes. Right now everyone else has the details except the owners footing the bill.
The CEO and Board’s Fiduciary Responsibility
If credit unions want to compete to buy banks, then they should be held to the same financial disclosures to their member-owners as the banking industry requires of their institutions. Otherwise we risk creating a dark market where the facts are unknown and accountability for investing member funds is lacking.
The bottom line is that it is the CEO’s fiduciary responsibility to the credit union’s owners to be fully transparent when using their capital to buy a bank. It is the Board’s duty to ensure this disclosure takes place.
Damn right!