Dive Brief:

• London-based digital bank OakNorth intends to buy Birmingham, Michigan-based Community Unity Bank, the U.K. company announced Monday.
• The deal, which is awaiting regulatory approval, will enable OakNorth to expand its business lending services across Michigan and the U.S., the company said.
• The acquisition follows OakNorth’s authorization from the Federal Reserve and New York’s Department of Financial Services last August to open a representative office in New York City.

Dive Insight:

“Demand from US borrowers continues to be exceptionally strong and our differentiated offering and unique approach to lending has enabled us to rapidly establish a strong presence in the US market, resulting in us lending [three times] our initial expectations,” OakNorth CEO Rishi Khosla said in a statement. “As a founder-led business built by entrepreneurs, [Community Unity Bank] appealed to us as it shares a lot of our same values with regards to customer experience.”

OakNorth began offering its services in the U.S. in July 2023 and has since lent more than $700 million to businesses in the country, including many of its existing customers with U.S. and U.K. operations.

“In the summer of 2023 following the collapse of several US banks which had been focused on serving the lower mid-market, we saw an opportunity to step up and do our part in helping to fill the funding gap they were experiencing,” Khosla said in the press release.

OakNorth plans to close the deal as soon as it gets the regulatory green light, though regulatory approval can take up to a year or more, an OakNorth spokesperson said.

The digital lender intends to retain all of the community bank employees and keep the one Community Unity Bank branch open, the spokesperson said.

Founded in 2015, the digital bank focuses on serving lower mid-market businesses with $1 million to $100 million in turnover, providing roughly $16 billion in loans, it said.

Since OakNorth began lending in the U.S., its focus has been on the Tri-State area around New York City, the spokesperson said, adding that the company plans to “continue growing organically vs via [mergers and acquisitions]” but is “open to exploring additional M&A opportunities” that align with OakNorth’s mission and strategic objectives. 

Community Unity Bank’s team will help OakNorth to expand across the U.S., and its CEO Greg Wernette, will serve as the CEO of OakNorth’s U.S. bank.

“With an entrepreneurial focus at our core, and every team member striving for customer delight, we are very excited to be joining forces with OakNorth to support an even greater number of US businesses together,” Wernette said in a statement Monday.

The community bank offers businesses and individuals a suite of banking products, primarily in Southeast Michigan.

“When I founded the bank in 2023, we were confident that with the right approach, the right people and the right customers, we would realize success,” founder Andy Meisner said in a LinkedIn post Monday. “I did not anticipate, however, the degree to which we would move this bank forward in such a short period of time. We have built a tremendous foundation.”

President Donald Trump’s return to the White House has reignited the debate about whether we would see an uptick in mergers and acquisitions.

In a January interview, Robert Tammero, a partner at K&L Gates said he thinks smaller banks need to consider partnering or acquiring fintechs to remain strong and viable in the financial field since fintechs can benefit from stable, low-cost funding from banks.

Brian Graham, a partner at advisory and investment firm Klaros Group, said he expects an unpick in such deals – involving both international and U.S.-based fintechs and new charter applications. 

“OakNorth is pursuing a US banking license for the simple reason that the US is a large and attractive market and the new administration, unlike the previous regime, appears to be open to approving such transactions, just like it is open to reviewing and approving applications for new bank charters,” Graham said in an email.

SmartBiz, a small-business lender, announced Monday that it acquired Illinois-based Centrust Bank and received the regulatory approval to become a bank and a bank holding company.  

One Main Financial last week applied for an industrial loan company charter with Utah’s Department of Financial Institutions and the Federal Deposit Insurance Corp. Varo in July 2020 became the first challenger bank to secure a national charter.

“There are no laws or regulations that prevent such transactions,” Graham said. “The lack of receptivity under the [Biden] administration was an exercise, I suppose, of regulatory discretion.”

Graham’s Klaros colleague, Michele Alt, worked with SmartBiz and Centrust on their regulatory applications.