Oak Ridge, Tennessee-based Y-12 Federal Credit Union will enter the Kentucky market with the acquisition of First State Bank of the Southeast, which is headquartered in Middlesboro.

The $2.2 billion-asset credit union did not disclose the price it paid for the $415 million-asset bank in a press release Wednesday morning.

Y-12 said the acquisition is part of its ongoing growth strategy to strengthen its position in the region.

The bank has eight branches throughout southeast Kentucky and northeast Tennessee. Y-12 has 16 branches to serve its 114,000 members, mostly clustered in the northeast region of Tennessee.

The transaction is expected to be completed in early 2025.

“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,” said Y-12 FCU President and CEO Mark Ziegler.

The deal is the 19th announced this year in which a credit union is buying a bank. It is one of very few credit union-buying-bank deals that has ever involved a Kentucky-based bank.

Prior to 2024, the most credit union-buying-bank deals ever announced in a year was 16 in 2022.

Most recently, HAPO Community Credit Union said it plans to acquire $632 million-asset Community First Bank in Kennewick, Washington.

There were 11 credit union-buying-bank deals announced in 2023.

Attorney Mike Bell of Honigman, who assisted Y-12 in the deal, said CU-bank dealmaking in 2024 continues at a fast pace and it will continue into 2025.

“In certain circumstances community banks are voluntarily determining that a credit union is their best strategic partner,” Bell said.

It is the first bank acquisition for Y-12 FCU.

First State Bank of the Southeast said its customers will gain a range of benefits, including access to more branches, a wider selection of loan products, expanded investment and retirement planning services and enhanced digital banking tools.

“FSB is my family’s legacy, and I am enthusiastic about partnering with a strong financialinstitution like Y-12 Credit Union,” said FSB Chair and CEO Katherine Reese in the press release.

But Rebeca Romero Rainey, President and CEO of the Independent Community Bankers of America, said policymakers and the American public are increasingly scrutinizing these deals and the role of “antiquated” credit union policies.

“The FDIC recently approved a new statement of policy on bank mergers that for the first time explicitly states that additional scrutiny may be needed for deals involving tax-exempt credit unions,” she said.

Y-12 earned roughly $12.5 million in the first half of 2024, an 8% increase compared to a year earlier, according to call report data from the National Credit Union Administration.

“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.”

 – Mark Ziegler
President and CEO
Y-12 FCU