Another credit union buys a bank as industry groups sharpen criticism (2024)

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Though community banking advocates rail against them, the number of deals involving credit unions buying banks continues to climb.

The latest transaction — the 10th so far in 2024 — announced last week, saw the $5.5 billion-asset Gesa Credit Union in Richland, Washington, agree to acquire the Centralia, Washington-based Security State Corp. for an undisclosed sum.

The news came two weeks after the $2.8 billion-asset Linkbancorp in Camp Hill, Pennsylvania, struck a deal to sell its three branches in New Jersey to the Philadelphia-based American Heritage Federal Credit Union.

Gesa quickly recognized the merits of a deal after the $598 million-asset Security State, the holding company for Security State Bank, approached it about a combination, according to Chief Retail Officer Keven Gray. "Through the various vetting processes and the conversations … there just seemed to be such a positive alignment," Gray said Wednesday in an interview.

Founded in 1903, Security State Bank operates 12 branches in four southwestern Washington counties. It maintained more than 20,000 deposit accounts at March 31, according to Federal Deposit Insurance Corp. statistics. Gesa will likely encounter little difficulty converting Security State customers to credit union members. Its field of membership encompasses all of Washington plus significant swaths in adjacent Idaho and Oregon.

"The state [credit union] charter in Washington has a liberal field of membership," Keith Leggett, a retired American Bankers Association economist who follows the credit union industry closely, said Friday. "It makes deals easy to do."

The acquisition of Security State, which Gesa anticipates closing sometime in 2025, marks the third time this year a state-chartered credit union has agreed to acquire a Washington community bank. On March 11, the $3 billion-asset Sound Credit Union in Tacoma struck a deal to acquire Olympia-based Washington Business Bank. Less than two weeks later, on March 22, the $1.9 billion-asset Harborstone Credit Union said it would buy the $602 million-asset Savi Financial in Burlington.

Another Washington community bank, the $1.5 billion-asset First Financial Northwest in Renton, announced plans in January to sell itself to the $11.9 billion-asset Global Federal Credit Union in Anchorage Alaska.

According to Leggett, buying banks offers credit unions in Washington and around the country an opportunity to deploy cash on their balance sheets, a consideration that likely factored into Gesa's decision to acquire Security State. The credit union "is sitting on nearly $561 million in cash and deposits. … This seems like how they're deploying it," Leggett said.

Prior to Thursday's announcement, Gesa's most recent merger-and-acquisition foray came in 2019, when it acquired the $1.4 billion-asset, Seattle-based Inspirus Credit Union. "That was one of the variables that Security State Bank considered, our ability to effectively make that transition with Inspirus and retain a majority of their members," Gray said.

"We have supreme confidence we're going to be able to execute on this one," Gray added.

Gesa CEO Don Miller said in a press release acquiring Security State would act as a "catalyst" for future expansion. According to Gray,Gesa's plans call for continued organic growth alongside opportunistic M&A activity.

"One of our strategic initiatives is to be a leading credit union in the Northwest," Gray said. "Currently, we define that as Washington, Oregon and Idaho."

The Washington, D.C.-based Independent Community Bankers of America, which advocates for America's approximately 4,000 main street banks, has objected strenuously to credit union purchases of banks, categorizing them as among the most important and concerning issues facing community banking. ICBA blasted the pending Gesa-Security State deal in a press release last week, pointing to recent polling it commissioned showing support for a congressional review of credit unions' exemption from income taxes. Rebecca Romero Rainey, the group's president and CEO, also called on lawmakers to probe credit union-bank mergers.

"This harmful trend has accelerated in recent years, but state-government developments demonstrate that solutions are available," Romero Rainey said in the press release. "Tennessee, Colorado, Minnesota, Mississippi, Nebraska, and other states have restricted these deals, and Congress should respond in kind to this national issue."

ICBA has floated the idea of imposing an exit fee on banks selling to credit unions to capture the value of lost tax revenue.

In the meantime, Leggett expects credit unions will keep on buying banks. "If the law permits it, it's going to happen," Leggett said.