Now garnering heightened industry attention, the $1.3 billion United Federal Credit Union of St. Joseph, Mich. moved a step closer last week to charting what it called trail blazing territory by winning NCUA approval to buy an ailing Indiana savings bank.
Management of the Michigan CU forecast more similar thrift-to-CU deals could be in the works during 2012 once its merger of the $80 million Griffith Savings Bank is completed.
It still must win long-awaited approval from the FDIC. Industry watchers contend a positive precedent could be set that would open the door for troubled thrifts to spin off their assets and be absorbed by a healthy CU.
The merger is the first such deal of a federal credit union absorbing a thrift and avoids legal barriers on credit unions acquiring bank charters because “it is only the assets that are involved,” explained Gary Easterling, president/CEO of United Federal and a chief advocate of the merger bid.
Under terms of the transaction, the Griffith Bank has already shed some of its loans. “We’re working on the membership details to ensure loans we take over comply with the NCUA," Easterling said.
The Griffith Bank, located in northern Indiana and which become overextended on real estate loans, is situated not far from UFC’s headquarters on the Lake Michigan shoreline and thus fits into UFC’s operational planning, said the credit union.
“Given the aftermath of the recession, we’ve heard there are other cases of banks or thrifts that are looking at what we’ve been doing,” said Easterling in commenting on the NCUA clearance of the deal first announced July but which has been in the works since April.
Easterling said he is hopeful now the FDIC can approve the merger by year end, acknowledging that the regulatory approval has taken longer than expected. “This may be the result of the Office of Thrift Supervision transition into the OCC,” he said.
Easterling said he could not detail the discussion he has heard about similar bank-to-CU deals in the wind, but they involve ailing thrifts looking for buyers, either other banks or credit unions. The bursting of the housing bubble has created this kind of climate and on that healthy credit unions stand to gain, he added.
The amount of loans or investments being spun off by Griffith to comply with NCUA rules “is really only a small part of the transaction, roughly 5%,” said Easterling.