Alabama deal adds water to debate over bank-credit union mergers | Journal of Credit Unions


In an effort to broaden and expand its geographic reach in its home state, Alabama Credit Union in Tuscaloosa acquires Security Federal Savings Bank in Jasper, Alabama.

Alabama Credit Union said the cash transaction, which is expected to close in early 2022, would expand its footprint in northern Alabama and bring its total assets to $ 1.3 billion. Financial terms were not disclosed. Security Federal, a unit of Se-Fed Bancshares, held about $ 12.6 million in loans and $ 31.7 million in deposits at the end of the second quarter, according to data from S&P Global.

This is the sixth deal this year with a credit union acquiring a bank, allowing 2021 to far surpass the seven such deals announced in 2020, according to American Banker’s tally. A record 16 such transactions were announced in 2019.

Small credit unions are increasingly eager for diversity of scale and industries to compete with banks and online lenders. Acquiring a bank not only adds weight, but also offers expansion in business lending. Credit unions have historically focused on consumer lending to their members, while most community banks are active commercial real estate lenders. Over 80% of Security Federal loans are CRE credits, according to data from S&P Global.

“The opportunity for diversification is often the driving force behind these transactions,” said Jacob Thompson, Managing Director of Investment Banking at SAMCO Capital Markets.

Small banks, on the other hand, are sold to both major banks and credit unions because many banks are struggling to generate the income needed to invest in the digital services that are increasingly in demand, Thompson said.

The acquisition would be the Alabama Credit Union’s third, but its first bank buyout. It bought out other credit unions in 2013 and 2018.

“This is another step in our plan to improve member value and experience for our many existing members,” said Steve Swofford, president and CEO of the credit union, Thursday in A press release. Spokesmen for the Credit Union and Security Federal did not immediately respond to requests for more details.

After a pandemic-induced lull in 2020, bank sales are poised to approach 2019 levels, with 97 such deals announced so far this year. According to S&P Global, 257 deals were announced in 2019, making it one of the most active for bank mergers and acquisitions since the 2008 financial crisis.

However, the practice of tax-exempt credit unions buying from taxable banks has drawn strong criticism from community banking advocates. “It always attracts the ire of bankers,” Thompson said.

America’s Independent Community Bankers This Year asked Congress hold hearings on acquisitions of banks by credit unions. The ICBA says that when credit unions take banks, they rob communities of tax revenue and weaken Community Reinvestment Act loans. Unlike banks, credit unions are not required to comply with federal CRA law.

“The current wave of taxpayer-funded credit union acquisitions is exacerbating industry consolidation, reducing state and local government tax revenues, limiting the reach of the Community Reinvestment Act, and again showing that co-ops Tax-exempt credit unions have become virtually indistinguishable from taxpaying commercial banks, ”ICBA President and CEO Rebeca Romero Rainey said in a recent statement.

Dan Berger, president and CEO of the National Association of Federally-Insured Credit Unions, says such criticisms are irrelevant. In a guest column this year for American Banker, he said credit unions fuel economic growth which, in turn, generates tax revenue.

“This is because credit unions are channeling their tax exemption to their members in the form of better rates on deposits and lower fees,” he wrote. “Credit union members then use these additional funds and savings to generate business, grow the economy and create employment opportunities in the process. “


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