¶ Maximize Your Success with NCUA: Insider Tips
Hey, everyone, this is Mark Treichel with another episode of With Flying Colors.
¶ Special Guest Mike Bell: Insights into Credit Union Growth
I'm excited to have a special guest today, Mike Bell of Honigman. Mike, how are you doing today?
Good, Mark. I'm happy to be here. We've done this before, but there's always new stuff to talk about. And there's a lot of things happening this year at a great intensity. So I look forward to talking about it.
Yeah, that's great. For those of my listeners who may not have heard our previous discussions or may not be aware of what it is you do in the credit union arena, could you give a little bit of your background?
Yeah, Mark, I'm happy to. To keep it simple and this happened by accident to be honest, but I've worked my way into a situation where I have credit unions across the country, in every state by things. So we're buying whole banks, bank branches, and then all sorts of other businesses, whether that's a title company, an insurance business, a specialized lender, mortgage servicer, you name it that kind of ancillary business group.
Is one end and then hold banks to the other end of the spectrum of things that we're buying
very good, and it's funny because in my conversations with clients or potential clients just general conversations with credit unions, occasionally it'll be coming up. Hey, we're thinking about getting sub debt and the purpose is going to be to buy a bank or it'll be, hey, we're in the process of possibly buying a bank. And inevitably, I'll say, is there any chance you're working with Mike Bell? And I don't think anybody said no yet to that. So that's a good sign. That's a good sign for you.
Business seems like it's well for you. So that's great.
¶ The Surge in Credit Union Acquisitions and Market Dynamics
So let's talk a little bit about, I think last time we chatted, things had slowed down a little bit and there was a period maybe during the pandemic where things had slowed down. But. In the green room, as we were pre chatting, it sounds like things are hopping quite a bit. So maybe give a bit little bit of the landscape of what it is you're seeing here. So far in 2024.
Yeah, I'm happy to market and to be clear, we know you can look backwards and we've been doing these and kept doing them through the pandemic. No question, but it did slow down. And what is occurring now? The pressures or forces that make a seller sell and by the way, I'm speaking to any business. I'm not isolating just whole banks, really just kind of sellers in general. They exist today as much as they ever have before. Right? And they existed through the pandemic.
But people didn't sell anyways, because of other forces. And then the forces that have buyers wanting to buy exists today, just as they have forever. So we're in a situation where there's pent up demand that exists from the last few years. And then there's the normal demand that's present, for this year for getting what's behind us. Put that all together, and we just made a suit of intense activities. So anecdotally, right?
I'm not giving you an exact statistic, nor can I, but anecdotally, if I said to you, hey, Mark, in a typical week, if I looked at my list of things that I'm in the middle of putting together in the middle of the years where it's been wild, where we set records, I would say, man, there's like, 6 to 8 things. I'll tell you Mark right now. That number is over 20, but it is beyond understanding.
Essentially, I would never guess that this it couldn't have been predicted, but it's that active and here's what's wild. If you look at the articles in American banker or national publications, we'll talk about the remaining or the continuing slow down and bank to bank. I don't disagree with that. I do think that that remains challenged.
But where we are at the small end of the market, the smaller end of the market, or with the bank branch situation, or with other businesses, those slowdown forces aren't as present and we're going faster and more than we ever have before. It's pretty astounding,
¶ Navigating Regulatory Landscapes and Strategic Advantages
And that's interesting because I know there's, earlier this year, FDIC came out with guidance and or a proposed rule on how they're going to be handling mergers going forward and maybe as an effort to clarify, the analysis they'll do, et cetera. And it seems like it's possible that that is playing a role in bogging down what's happening on the bank to bank side of things. You think that's accurate?
I do. So I had, I was fortunate enough maybe a few weeks ago I did a podcast or a video with the ICBA and I loved it and I wanna do more. And, we were talking about this very thing, and I'll tell you, I do think that today as we sit here. The FDIC has gotten itself in such a situation that banks are not merging with banks, or they're pulling out a bank to bank deal because it's ground to such a halt. There's such a risk that it's going to take so long. No 1 wants to do business in that way.
How that impacts us. For years, as we did these, the conventional wisdom was, all right, well, if you are going to sort of credit, you do need to be prepared for another month to month and a half. Regulatory approval versus if you sold to a bank that now is completely untrue. So, as we sit here today, we're just as fast or actually faster. Then bank to bank combinations, which, by the way, I think it's completely unfair to banks.
I don't think it should be that way, but that's what's occurred subject today. We're not necessarily seen as the better. That's going to take as long or longer. And that's a huge advantage for us.
Yeah, it went from being a disadvantage to credit unions to now banks when they see credit unions are bidding it's a positive. That's fantastic. That's fantastic.
Or neutral at worst, right?
Or neutral at worst, yeah. All you can hope for is a level playing field, right?
Yeah, because for years I engaged in conversations where the selling bank would be like, You guys have 45 or 60 days longer. We need to make sure that they understand that. And I mean, that was just kind of the speed bump. We fought for 12 years, right? It's gone away. It's not present in our conversation today.
Well, and the other, thinking back to our conversations and some things I've learned in some other podcasts, when a credit union buys a bank, it's an all cash deal. Cause, cause there is no stock that can be offered as the alternative. And to me, if I had a bank, if I was fortunate enough to own a bank or be one of the owners of a bank I think I'd almost prefer cash over stock. And a lot of times banks buy one bank with stocks of the surviving bank, if I recall correctly.
Yeah, so you just I think inadvertently walked into another trend. I wanted to talk about, but go for it. Go for it. So, where we are in the economic cycle, right, and actually has nothing to do with our industry necessarily, but where we sit today, cash is king. So due to the fact that bank stocks are impaired, there's been some tumble, with values of banks, their currencies affected. I'm saying, as we sit here, sellers are have a preference for cash because that value is known.
It's a certainty. Now, that's nothing that we cause that's, it's just a fact 4 or 5 years ago. We were fighting to engage with cash, because stock was preferred for where we were in the cycle. But I will tell you today, there are arguments out there that, credit unions, overpay, they're winning every deal. Well, those are both completely false. I'll tell you that, but I will say that we do have not an advantage, but our currency is a preferred currency today.
Which might be why you're seeing a little success, not necessarily because we're paying more overpaying. That's not happening.
Yeah. Liquidity. Every conversation I have with the credit union liquidity is a focus that institution for the obvious reason of what's going on in the economy. So when you can get cash in a deal today, it definitely
¶ Exploring Branch Purchases and Community Impact
is an advantage. So bank branches. I think within the last week I saw maybe you were posting or you liked something on LinkedIn, but there was a reference to some bank branches. Branch purchases that have been going on. Could you kind of walk through how that process works? How do you find out that these are, that, bank X is caught in, in pick a state, Texas is looking at selling and then how do you connect them with potential buyers?
Yes, so so the bank branch to itself, just to start, just so everybody understands we're not talking about. A close vacant bank branch of the real estate deal, just to be clear, a bank branch student, when I say that, and when you see the ones that we've been announcing, and the transactions we're involved with. It's like a mini bank deal. We're definitely getting the real estate in the picture. So can you wrong?
But we're getting the employees, the loans and the deposits we're excising or surgically removing a part of the bank. And taking ownership of it, so it's a mini bank deal, just so all the listeners understand. And then 2nd, I'll tell you, it's a bit fragmented, right? There are banks that will never sell branches that are banks that will just close them.
They're basic, we'll try to sell them by themselves, but in essence, I think a majority of the transactions will go through the funnel over the channel. The traditional whole bank deals go through, so they'll hire an investment banker and that investment banker will try to find a buyer for the branches.
When that occurs, that's where I get involved, so there's investment bankers across the country that are very aware of credit unions and credit union buyers and my clients and they reach out to me at the very beginning to see, who might be interested or who they should talk to. And I'll tell you, Mark, that last year I joke, but, we, my offer myself, we read the world and the number of grants deals done by lawyers, and we did 3, which is hilarious.
This year already in May, we just announced a transaction yesterday announced 1 a couple of weeks ago. I think we're at 5 or 6 for the year. And there's more coming, so there is 100 percent of trend today. Banks looking to gain efficiency to right size, pick the word you want. And then there are buyers that are very interested in being partners and buying in those deals. Let me add 1 final point just to emphasize what this does for a seller. So, if you're a bank.
And you're going to sell some branches and you answer to shareholders as you should, when you engage in a branch transaction, there are 2 things that you get to say your shareholders rather instantly. Right? And it's a big deal. 1, we just got more efficient. 2, we made a little bit of money while we were getting efficient. Those are very compelling mark to shareholders as you can imagine. And so these transactions, I'm in full again where we are in the economic cycle.
I'm saying right now we're in the cycle where it is happening time after time after time. Very active today.
And then, it seems historically, 1 of credit unions arguments about how they. Fulfill their mission of serving people of modest means is these scenarios where banks pull out of areas and you have a financial institution desert, if you will. And oftentimes credit unions are the last to pull out and or expanding into those areas. So these are situations where if Perhaps the spinoff didn't work for a credit union to buy them.
Those individuals would have less choice in that community and the credit unions are stepping up to better fulfill the needs of those what will now be members et cetera, et cetera. Anything on that?
That's 100 percent correct. Like, so I admit that beyond the economics that I was getting excited about these branch deals are 100 percent feel good stories based on fact. So as an industry, credit unions are net branch openers banks or net branch closers. And I'm not saying 1's right or wrong. I'm just saying, as industries, that's absolutely fact.
You can look at the transactions announced this year, and you can see that many, many of the transactions are dealing with branches in rural or very small communities. And 1 of the reasons we're buying is to keep them all back. Right? I never, I've never done a range deal where my client's like, yeah, we're going to close the branches. That's nonsensical. So, they are 100 percent buying them to keep them open and they work for our business model. So, actually, it was a real win win.
And again, I was talking with the CBA about this. This is all good. Right? Banks are getting more efficient. They're making some money. Branches are remaining open for what it's worth and communities that need to be served. We're each playing our role. And I don't think that's anything to laugh at. That's that's a good win win situation.
It's a win win, and it's a win win in addition to those employees who end up having to go look for a job, even though, unemployment's at all time lows, they say, but the. The knowledge and the historical the historical knowledge of that branch, for example, is something that picking those folks up is very helpful to the new institution the credit unit.
Yeah, no question about
it.
¶ Diving into Ancillary Business Acquisitions
So you talked about title companies and other acquisitions. Could you go into, maybe a list of other things that people are buying? And then maybe we can have some followups tied to that. That intrigued me a little bit, like buying a title company. How does that all play out?
Yeah, this segment of the business is a little more scattered, right? So there are not necessarily investment bankers or people out there that consistently are in this space, bringing these things to market. So it's more challenging in that regard. But I'll also tell you that I do think there are some strategies or ways to get yourself present in the market to the extent you're able.
And I have this belief I can't give you a statistic, but I can give you again, anecdotal or logical or common sense. I think people are going to relate to this. If you go to your chamber of commerce, Lions Club, rotary name, right? Community meeting. And you look around the room and look at the people that own the title company, or the insurance company, or the investment business. What colors their hair, right? And that's not a good or bad. It's just a fact.
And I have seen a mass movement, a mass movement towards people retiring that all these businesses are great businesses. And we're buying them in February of this year mark unrelated to anything up and down and across the United States. I have 4 different credit unions, buying 4 different title companies, all of which the folks that own it were retiring. Right? That just gives you a sense.
Now that hasn't duplicated itself in April or May to be clear, but that gives you a sense of what I'm saying with these businesses. And I'll tell you. What I say to credit unions, I am not saying you should buy a title company. Right? I didn't say that. What I am saying, though, is you should think about do you want to be in these ancillary businesses? Do you want to do insurance investments title? Whatever.
Because if that's a yes, then I am saying to you, this is a time to keep your eyes open and perhaps buy, buy something in that business. These things. If you look at what I would call your standard community bank or today, your standard community based credit union with some size. We're in those businesses. They're in these businesses. I mean, companies have been in these businesses forever.
And I think more and more getting into them due to the pressure on non interest income and all the other things going on. So I do implore your listeners to simply examine their strategy. Do they want to be in these things or not? And if that answer is less, well, then I'm saying economically, this is the time to look around you and see what might be for sale or to see if you can effectuate any sort of buys or sells. Because it's real right now, there's a ton of activity in that space.
Well, and it's like the small credit unions who have the CEO who has the gray hair who then decides, okay, board, I'm retiring, what do we do? And it ends up leading to a merger. So it makes sense that the small businesses would be facing that, that same challenge. And a challenge for one is an opportunity for another. So,
if you are a very large, I don't care, a billion, two billion, two billion. You have challenges hiring talent. I promise. Imagine if right with a local title company or or a small or a smaller business, like this succession planning talent type. Challenge in our industry. Lives up and down the scale and I think it actually is obviously more pronounced and worse. It was the bottom end of the scale. So that is certainly driving or is a driver of some of these options for sure. That's real.
¶ Strategic Considerations for Credit Union Expansion
And you talk about, exam, you should be examining your strategy, not leaving these opportunities for, say acquiring a title company, now on the bigger end back towards the, hey, I, I think I might want to buy a bank. When someone reaches out to you the first time saying, again I'm in, I'm a credit union. I'm a 3 billion credit union and thus in such state, and I've never contemplated buying a bank. I'd like to talk to my, so let's say this is the CEO. He reaches out to you.
I'd like to talk to my board about this opportunity, but before I do that, I'd like to understand more what I should be thinking about, the pros and cons. So when someone reaches out for you the first time relative to that what's that first conversation like?
Yeah, so I have, because that happens market, it's happened now for 14 years. Right? So we, today, as I sit here, I'm the beneficiary of having that conversation now, 2 or 300 times. I have to sit down until about 45 minutes where we can walk through a right about what is it? How does it work? What's the math? Why do my peers do it? And why don't my peers do it? Because there are 2 sides of the fence.
And I explained to that CEO, look, I prefer you if it's you and your C team or your board or a combination, whatever you want to do, but give me 45 minutes. Let's walk through this thing. And I think at that point, you can decide not for us. Yeah, let's go deeper because there's more to do. Right? We don't solve it, but we get enough out that I think you can make an informed decision to want to save me. I realize I don't.
And Mark, I'll just add, if you look at the list of the top 30 credit unions in the United States of America by size, I've probably talked to most of them. Not all of them, most of them. And I think you could say it's 50, 50 or 60, 40 of those that are like, yep, this is for me. And those that are like, this isn't for me, I think both of the right answer. I'm not an advocate for do this or else. I'm an advocate for get it in front of you and then make that decision.
That makes sense. And as as you're walking through that I've moved around the country. I've bought and sold a lot of houses and got, gone on official house hunting trips when I got relocated with NCUA. And, I'm just thinking about going out with the realtor and the first day you go out, there's three or four houses and.
You might not like any of them, you might like one of them, you might even put an offer in and get out bid or not get it, especially, more recently, and I'm guessing that if somebody is interested, it makes sense to not wait to, hey, I might be interested in 18 months, so I'll call Mike in 18 months. You'd be better off having that 45 minute conversation today because the odds are, like you said, the credit unions aren't outbidding every institute, every situation.
I'm sure that every first bid by a credit union is not successful and it helps them under once they go through at one time, they understand the process better and might make them better prepared for their 2nd offer for a bank. Is that an accurate story?
Yeah, so 1st, I didn't have to comment. Your analogy is so accurate that. If you heard me talking on the phone and didn't know what I did and didn't listen to all the words, you think I was a realtor. That's honestly truthful mark. It just has to be banks. But that's how it sounds. Second, so these things have a timeline. So if a clear Union calls me and says, Hey, Mike, we're learn about this, we're doing X, Y, and Z and we really can't do this for 12 months, I would say, I'm glad you called.
We could start now. We're not gonna, if we do some, we're gonna own this thing for a year and a half anyways. So that's a correct point. Second this is not like my hair was on fire and urgent, urgent. But if you think you want to be in this game where you're dabbling, I would say now is always the time to get in once something sold, it's gone. But also there's so many sellers today. There's so much activity. I think pricing is advantageous for buyers. It's a buyer's market in my opinion.
And so it's a good time to get in and then the last thing I'll say, we'll make a good point. We do the 45 minute thing. We get smarter. Once we actually engage in a process, even if we lose or we're unsuccessful, it is 100 percent true that you have gained an education. There's no question about it. When we walk through that 1st, 1, and we go through the 1st, 3 or 4 steps, even though we don't make it to the finish line. I explained, look, we are better.
You are going to be that much better when we go try number 2, 3 or 4 because we absolutely have gained some real knowledge. And I'll tell you that on the flip side, everybody said, yeah, true. Right? We beat the learning curve. Now we understand how these work. We know the words. We know how the math goes. And so there's really a benefit to that. No question.
That makes good sense. That makes really good sense. What, so what else? So any, anything else? Is there a question, Mike, that I should have asked you that I have not yet asked as it relates to anything you've got going on in the credit union space?
¶ Trends and Opportunities in the Credit Union Space
I don't think so, but let me capture what I would call the trends at the moment. I think it's important. I've mentioned it, but I want to get people. This is the only thing they listen to these minutes. Just so you understand what's happening. Number 1. On the whole bank side, there's more activity than there ever has been. Every small bank, meaning billion dollar or less bank in our country, I'm telling you is either for sale or would sell if approached.
Certainly, there's exceptions don't get me wrong slightly facetious, but not really Mark. It's amazing what's happening now. Number 2 bank branch transactions are exploding. There are more opportunities out there for that. That's real. People need to pay attention to that. 3, the ancillary business thing I mentioned a lot of baby boomers retiring. That's also real. And then I want to add 1 thing we didn't talk about. It's, it's something that I do.
It's just not really the billboard flashy stuff. But I want to tell people that in the credit union to credit union combination space, I am seeing and noticing and I've talked to my colleagues in this space and they agree a trend Mark, we're more and more what I would say larger credit unions. Are considering mergers of equals, I think that if you look close in the last 2 years, you would see maybe 1 2 a year announced and that was like, well, that's crazy.
I think this year you've already seen, or in the last should be this year 3, announced. And I'll tell you, we're involved in 2, 3, 4 more that aren't going to finish line yet and may not be. But as I sit here, I can't ignore the fact that that activity level has really picked up. Those are the 4 things that are really apparent. And are happening today that. Next year that list might change, right?
This is all cyclical, but all 4 of those things are real, and I think should be on the mind of your listeners, whether they're in those bands or not, they already know what's happening.
That's a great summary, and I can confirm, from my conversations that the merger of equal arena. Is is cyclically hot right now. I definitely wholeheartedly agree with that. So
¶ Connecting with Industry Experts
very good. Mike, so if if a listener has heard this and is listening in the, you know what, I've never really thought about wiring the things we've discussed here today, banks, a spinoff, a title company, and they wanted to reach you. What's the best way for them to get in touch? Thanks,
Mark. Yeah, so I always tell people just feel free to start with LinkedIn, similar to you, Mark, similar to the guys that old and laying around a friend friends of ours. I am very active on LinkedIn, put out a lot of content. Every time there's a deal announced, you're going to see it rather instantly. It's a really good way to connect with me. And even if you don't want to connect with me, you can actually watch me in the background. It's a safe way to do it.
And really get a feel for what's happening in this space. Right? So it's very, very good. And then my law firm is Honigman, H. O. N. I. G. M. A. N. And folks can find me on all my information, all the news releases, all the deal announcements on our website in my bio and with all my contact info, right? Email cell phone desk phone. But I would encourage you to jump on a LinkedIn by the way, not just mine, but yours to mark and I'm serious.
And the guys that all the land, between the 3 of us, we kind of cover. Most, if not all of the things that are happening today, and it's pretty good. I have a lot of people mentioned that to me that they can get a pretty good pulse on the industry just by a few LinkedIn pages.
That's good to hear. Yeah. I like, I love LinkedIn. I'm on it daily and I like seeing what you post there and I, and I will put the contact information, a link to your LinkedIn and your company's webpage in the show notes for this episode. So Mike, thank you so much. I appreciate the update on everything you've got going on. It's exciting time for acquisitions indeed. And listeners, I want to thank you for listening. As always, I hope you'll listen
¶ Closing Remarks and Future Episodes
again soon. This is Mark Treichel signing off with Flying Colors.
Thank you for joining us on this episode of with flying colors, subscribe on your favorite podcast app to hear future episodes where subject matter experts of all varieties will provide tips on how to achieve success with NCUA. If you would like to learn more about how we assist credit unions, check out our services at marktreichel. com.