Dive Brief:

• Oak Ridge, Tennessee-based Y-12 Federal Credit Union has agreed to buy Middlesboro, Kentucky-based First State Bank of the Southeast, the companies announced Wednesday.
• The move allows Y-12 FCU to expand in northeast Tennessee and into southeastern Kentucky, with FSB’s eight branches.
• The deal, expected to close in early 2025 pending regulatory approvals, is part of the credit union’s growth strategy to bolster its position in the region, Y-12 FCU said.

Dive Insight:

The deal marks the 19th credit union purchase of a whole bank announced this year. Earlier this month, 2024 surpassed 2022’s previous record of 16 deals. 

The transaction will offer customers a wider selection of loan products, expanded investment and retirement services supported by greater financial resources and advanced technology, the companies said. 

“We’re excited to welcome FSB customers and employees into the credit union philosophy of ‘people helping people,’” Y-12 FCU CEO Mark Ziegler said in a statement. “By combining our strengths, we can offer even more personalized service and financial opportunities, while continuing to invest in community initiatives that positively impact East Tennessee and Southeast Kentucky.”

Customers will be able to access 24 branch locations throughout east Tennessee and southeast Kentucky, and Y-12 FCU doesn’t plan to close any branches, the company said on its website. Further, the credit union said it intends to maintain all FSB employees in the same or similar roles after the acquisition.

The financial terms of the deal were not disclosed.

The roughly $2.15 billion-asset credit union has about 115,000 members and more than 350 employees. Founded in 1950, Y-12 FCU is spread across eight counties in east Tennessee with 16 physical branches.

FSB was founded by George H. Reese in Pineville, Kentucky, more than a century ago.

“FSB is my family’s legacy, and I am enthusiastic about partnering with a strong financial institution like Y-12 Credit Union,” FSB CEO Katherine Reese said in a statement. “Together, we’re delivering the best of both institutions while maintaining the family-oriented culture we’ve built. Y-12 Credit Union’s dedication to its employees … aligns perfectly with our mission and core values.”

Apart from the 19 whole bank-credit union purchases announced this year, there have been four partial credit union-bank deals. 

Michael Bell, an attorney and partner at law firm Honigman, said the surge in mergers and acquisitions is not due to any new factors but that it “remains the classic case of scale being needed in this industry.”

The current pace of deals will continue because the need for smaller banks to scale is rising, and “it's only becoming harder to operate,” Bell told Banking Dive via email.

Y-12 FCU declined to comment beyond the press release.

Trade groups including the Independent Community Bankers of America have long voiced their concerns about such deals, saying the tax-exempt nature of credit unions allows them to offer a higher purchase price.

“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 CEO Rebeca Romero Rainey said in a statement last month.

Notably, the Federal Deposit Insurance Corp.’s updated merger policy requires an enhanced review of credit union acquisitions, specifically examining consumer impact given credit unions' exemption to the Community Reinvestment Act.