ESL Federal Credit Union Plans to Acquire Generations Bank for $26.2 Million

The $9.2 billion ESL Federal Credit Union in Rochester, N.Y., said Tuesday it plans to complete its proposed acquisition of the $401 million Generations Bank in Seneca Falls, N.Y., for $26.2 million in cash by the second or third quarter of next year, pending regulatory and shareholder approvals.

However, this proposed credit union bank acquisition is expected to undergo more regulatory scrutiny after the FDIC board of directors last week approved a final statement of policy on bank merger transactions (Final SOP), which outlines the board’s expectations for merger transactions subject to FDIC approval. Although the new Final SOP is primarily for bank-to-bank mergers, some provisions address credit union bank acquisition agreements.

If ESL’s first purchase and assumption transaction is completed, the credit union would manage assets of approximately $9.6 billion and will increase its footprint to more than 30 full-service branches throughout the Greater Rochester and Finger Lakes region.

“This deal is a strong fit for ESL and Generations because both organizations are committed and dedicated to serving their employees, customers and their communities,” ESL President/CEO Faheem Masood said in a prepared statement. “We look forward to our future as a stronger, growing financial institution, and bringing the superior experiences we are known for to employees and customers in new communities.”

ESL’s 937 employees manage 25 locations and serve nearly 445,000 members.

Founded in 1870, Generations Bank’s 73 employees managed $338 million in deposits, $322 million in net loans and $35.5 million in equity at the end of the second quarter. The bank operates nine branches in Seneca Falls, Auburn, Union Springs, Waterloo, Geneva, Phelps, Farmington and Medina, serving approximately 20,000 customers. In addition to traditional business and consumer deposit services, Generations Bank focuses on residential mortgages, as well as manufactured homes, automobile, home equity, commercial, non-residential real estate and construction loans.

The bank posted a net loss of $841,000 at the end of the second quarter, compared to a net loss of $166,000 at the end of last year’s second quarter, according to the bank’s Q2 SEC filing. Generations Bank and its parent company Generations Bancorp NY are publicly traded on the NASDAQ.

The net loss was caused by a $369,000 decrease in net interest income, a $326,000 decline in non-interest income and a $212,000 increase in provision for credit losses, partially offset by a $214,000 increase in income tax benefit and an $18,000 decrease in non-interest expense, the bank’s SEC filing showed.

ESL said it will work closely with Generations and the FDIC’s new final statement of policy on bank merger transactions (Final SOP).

Specifically, credit unions may need to provide more information for FDIC regulators to demonstrate how they will meet the “convenience and needs” of the community when they are involved in a proposed merger with a bank. Since credit unions are not subject to the Community Reinvestment Act (CRA), they may have to show regulators how they meet this criterion in other ways, especially when acquiring a bank that is subject to CRA requirements, according to FDIC’s Final SOP.

In addition, Seneca Falls is generally considered part of a rural area as part of the Finger Lakes region of central New York. The FDIC’s Final SOP also indicates that in rural markets, the presence of credit unions, and other non-bank competitors like thrifts and Farm Credit System institutions, will be considered when assessing the competitive effects of a bank merger.

“We take actions that help improve access to banking products and services, as well as help improve the financial lives of our members. Our presence in these new communities will greatly expand access to banking products and services for individuals and businesses, as well as wealth management services,” ESL said in a prepared statement regarding the FDIC’s new policy. “As a credit union, we recognize that our success is dependent on the success of the communities in which we serve. Looking at our current market area, ESL invested $24 million to nonprofits in our region in 2023 and more than $120 million since 2018. ESL has committed to helping service the needs of all area residents and expanded our service offerings via opening branches in the City of Rochester, and this acquisition allows us to better connect to residents in Cayuga, Ontario, Orleans and Seneca counties.”

These counties are predominantly rural where the economy is driven by small businesses, wineries, tourism, outdoor recreation and agriculture.

This is the 16th credit union-bank acquisition agreement that has been announced so far this year. In addition, there is one proposed merger of the $147 million Arrha Credit Union into the $378 million Pittsfield Co-operative Bank. This merger application is under review by the NCUA.

Last year, there were 11 credit union-bank buy deals announced and some are still pending finalization. In 2022, there were 16 credit union-bank agreements. All but two were completed.