Dive Brief:

• Lakewood, Washington-based Harborstone Credit Union has agreed to buy Seattle-based First Sound Bank in a deal expected to close by the first quarter of 2024, according to a press release Tuesday.
• BM Technologies had planned to acquire First Sound in 2021 in a $23 million all-cash deal. But transaction was called off in December.
• The Harborstone deal is 2023’s fifth instance of a credit union buying a bank.

Dive Insight:

The transaction will bolster Harborstone with roughly $175 million in assets and a single branch in downtown Seattle. The combined institution will have approximately $2.1 billion in assets, $1.5 billion in loans, and $1.8 billion in shares and deposits, along with 16 branches across King, Pierce and Thurston counties, Harborstone said.

Once the deal is complete, First Sound Bank will liquidate, dissolve and distribute its remaining assets to its stockholders. Under the agreement's terms, First Sound Bank shareholders will receive roughly $6.90 to $7.10 in cash for each share of First Sound Bank common stock.

"We're excited to grow Harborstone Credit Union and owe this opportunity to the decades of smart and strategic decisions that have created a solid foundation for our expansion," Harborstone CEO Geoff Bullock said in a statement. "This acquisition is a win for everyone involved as it provides extended services and products to First Sound's clients, and adds new expertise and services to Harborstone Credit Union's members."

First Sound Bank's customers will become members of Harborstone and get access to its suite of products and services.

The deal likely will help Harborstone grow its presence in the Seattle market, diversify its assets — First Sound maintained a commercial-banking focus — and add talent. 

First Sound’s previous deal faced regulatory hurdles, prompting BM Technologies to resubmit its application and push the projected closing date to 2023.

"We are deeply focused on providing resources and services for our customers to succeed, and feel that the additional services, products and locations Harborstone Credit Union provides will help us continue to meet the needs of our customers in this competitive environment," First Sound CEO Marty Steele said in a statement.

The prospect of credit unions purchasing banks irks trade groups like the Independent Community Bankers of America, which argues that credit unions’ tax exemption allows them to offer a higher buying price and helps them grow more freely than banks. 

However, the pace of credit union-bank tie-ups has been markedly slower this year than last, when a record-tying 16 such deals were announced. 

Ten acquisitions of banks by credit unions had been proposed in 2022 by August — twice as many as have been announced so far in 2023.

“The economic uncertainty had caused a pause in the M&A space,” Michael Bell, an attorney at Honigman, told Banking Dive via email this year.

Harborstone has seen its earnings decrease 50% over the first half of 2023, compared with a year earlier, to $4.2 million, according to National Credit Union Administration data.