Record run for CU-bank deals extends with Kentucky acquisition

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The spree of credit unions buying banks lengthened on Wednesday. Y-12 Federal Credit Union in Oak Ridge, Tennessee, said it inked a deal to acquire First State Bank of the Southeast in Middlesboro, Kentucky.

The transaction, expected to close in early 2025, marked the 19th deal in 2024 involving a credit union buying a bank — extending a record run for such transactions. The industry earlier this year surpassed the 2023 total of 11 and the prior annual record of 16 set in 2022.

The $2 billion-asset Y-12 FCU would enter Kentucky with the acquisition, moving outside of its home state for the first time. It said in a press release announcing the deal that, in addition to geographic diversity, both organizations would benefit from added scale, with wider loan products, expanded investment and retirement planning services, and enhanced digital banking tools.

"By combining the strengths of both organizations, we will bring expanded opportunities to our customers, employees and communities — backed by greater financial resources and advanced technology," Katherine Reese, CEO of the $415 million-asset First State Bank, said in the release.

Financial terms of the deal were not disclosed.

More small banks are selling because they lack the heft to absorb mounting technology costs. "In line with the broader trend of digitization, the emergence of fintech challengers and rising cybersecurity threats, virtually all banks have had to make technology investment a higher priority," Fitch Ratings analysts said in a report this week.

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Credit unions are buying banks to diversify both their business lines and footprints. Credit unions argue that when they buy banks, they help to ensure communities retain local financial services, as opposed to local banks folding or selling to larger companies based elsewhere.

The Independent Community Bankers of America and other banking industry advocacy groups, however, argue that credit unions are exempt from federal taxes because they are supposed to focus on underserved groups or markets. When they buy banks, they move beyond their missions and simultaneously remove tax revenue and competition from communities, the ICBA contends.

"It is past time for policymakers to do something about this increasingly concerning trend," ICBA President and CEO Rebeca Romero Rainey said in a statement.

"ICBA and community bankers continue our calls for Congress to hold hearings and to consider an exit fee on credit union acquisitions of tax-paying banks to capture lost tax revenue resulting from these deals," she added.

Credit union buyers have accounted for about a fifth of bank acquisitions this year. Through Wednesday, at least 100 banks announced plans to sell in 2024. That put the industry ahead of last year's total of 98 deals, according to updated data from S&P Global Market Intelligence.

One of the biggest transactions of the year was announced earlier this week. Atlantic Union Bankshares in Richmond, Virginia, on Monday said it would acquire Sandy Spring Bancorp in Olney, Maryland, for $1.6 billion of stock. It marked the third-largest bank acquisition announced this year by deal value.

Winter Haven, Florida-based SouthState Corp.'s May announcement that it would pay $2 billion in stock to acquire Independent Bank Group in McKinney, Texas, is the largest bank deal to date in 2024. Kansas City-based UMB Financial's April plan to purchase Heartland Financial USA in Denver in an all-stock transaction valued at just under $2 billion is a close second.