The number of credit unions acquiring banks matched the all-time high on Tuesdsay, a milestone in the
ESL Federal Credit Union in Rochester, New York, said it planned to acquire in-state rival Generations Bancorp in Seneca Falls. It marked the 16th deal so far this year involving a credit union buying a bank –
The deal, slated to close by the third quarter of 2025, would involve a cash payment of $26.2 million. Generations' bank unit would also retain its equity. After the deal closes, the parent company would liquidate the bank and distribute proceeds to shareholders, Generations President and CEO Angela Krezmer said in an interview Tuesday after announcing the deal.
"This is good for our customers, good for our community," she said.
Notably, in July, the Office of the Comptroller of the Currency entered into a written agreement with Generations after finding it had unsafe or unsound practices, including those relating to board oversight, strategic planning, liquidity risk management and interest rate risk management. Krezmer declined to comment on the agreement or whether it factored into the decision to sell.
The combination would help the $9.3 billion-asset ESL Federal build scale, diversify its business lines and add members at a time when credit unions are challenged to maintain their customer bases.
Upon completion of the transaction, ESL Federal expects to have total assets of $9.6 billion and will increase its footprint from 24 branches to 33 offices throughout Greater Rochester and the Finger Lakes region of New York.
"This deal is a strong fit for ESL and Generations," Faheem Masood, president and CEO of ESL Federal, said in a press release announcing the deal.
U.S. credit union membership increased by 2% from a year earlier to 141 million in the second quarter, according to the latest data from the National Credit Union Administration. However, outside of the largest organizations, credit unions on average are shedding members.
For example, second-quarter membership rose 4.5% from a year earlier for credit unions with at least $10 billion of assets, but for those between $500 million and $1 billion, membership declined by 7.5%. Credit unions with at least $50 million but less than $100 million of assets reported that membership fell 6.1%.
On the cusp of the larger group, ESL Federal's membership increased more than 5% in that same span.
Small banks, meanwhile, are selling because some lack the size and resources needed to cover mounting regulatory and technology costs. Competition from larger banks is also fierce.
"It really is getting harder to compete against the bigger guys," Patrick Ryan, president and CEO of the $3.6 billion-asset First Bank in Hamilton, New Jersey, said in an interview. "So I think you are going to continue to see small institutions partner up to get scale and be able to compete."
These deals, however, have drawn criticism. The Independent Community Bankers of America and other banking industry advocacy groups 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.
Earlier this month, the Federal Deposit Insurance Corp., which supervises a large share of the nation's small banks, approved a new statement of policy on mergers that for the first time explicitly stated additional scrutiny may be needed for deals involving credit unions.
"As credit unions increasingly use their taxpayer subsidies to finance acquisitions of tax-paying community banks, Congress should investigate credit union practices and reconsider the credit union tax exemption, which lawmakers haven't done since the policy was enacted 90 years ago," ICBA President and CEO Rebeca Romero Rainey said in a statement.
Because of their tax status and resulting lower expense base, credit unions are able to afford higher price tags and, as such, are winning an increasing share of bank acquisition deals, according to S&P Global Market Intelligence. The firm said credit unions this year are on pace to account for a larger share of the industry's M&A deals than in any previous year.
About 85 banks had announced plans to sell as of this week. Nearly a fifth of the buyers are credit unions.
Credit unions argue that, when they buy banks, they help to ensure communities
"Credit unions are great acquirers for small banks," Generations' Krezmer said. "They are all-cash acquirers" and "we have a fiduciary responsibility to our shareholders."
Community bank sellers often find credit unions can pay more, bankers say.
"I think these deals should be disallowed. I think they are a shame," Neil Stevens, president and CEO of the $600 million-asset Oconee Financial in Watkinsville, Georgia, said in an interview. "But if you are a bank that has decided to sell, and a credit union makes the best offer, you may have to take it in service to your shareholders."
