Credit unions in the competitive landscape

Pricing pressures and a shrinking financial talent pool have pushed many finance leaders to take a second look at their strategies for finding top employees — as well as what skills those candidates need.

Allyson Hill, CFO of $20 billion-asset Golden 1 Credit Union, said it’s important to find candidates with the right mix of skills, “but to me, more importantly it’s, ‘do they have the right culture?’”

Strong analytical and traditional finance skills are as critical as ever, Hill said. However, unlike at a bank, “there are no shareholders” at credit unions, she said.

“Everything that we do is based on the success of our collective membership base,” Hill said.

For example, the “pure math” the finance team looks at may suggest a certain option, but the best path forward for “our collective membership may be a tweak or a slight degree change” from those figures, she said. Potential employees must carry that membership focus in mind, she said, which requires critical insight, as well as financial skills.  

As finance chiefs vie for skilled additions to their teams, “culture” is also increasingly becoming a sticking point — a positive work culture can help entice employees to choose one job over another. More candidates are looking to ensure they feel a sense of purpose in their work, making supportive leaders and managers a key draw.

As a finance leader, Hill encourages a collaborative approach, including leaving room for independent decision-making with her teams, as well as advocating for working cross-functionally with other departments inside of the credit union, she said.

“I love to challenge my team really a lot: [to] allow them to try and work through problems ahead of me,” she said. Still, as the CFO, it’s also important for her to have a “big voice” when it comes to some decisions, Hill said.

“Given my role, I have to have a very strong voice in a lot of different areas bigger than my core area focus, because at the end of the day, decisions that are made within other areas can dramatically impact our financial performance,” she said.

Prepping for the next tech shift  

A key focus for Hill in today’s murky environment is “definitely making sure we have the right talent in the right spaces,” she said. For example, Sacramento, California-based Golden 1 has broadened its IT and cybersecurity area over the past few years — something that will likely continue to be a focus for the credit union moving forward, Hill said.

Hill, a 13-year Golden 1 veteran, joined the credit union as its vice president and controller. She became Golden 1’s CFO in June 2017, according to her LinkedIn profile. She began her career at accounting firm KPMG on the audit side of the house, leaving as a senior manager after 10 years.

Hill has weathered the peaks and valleys of finance over her career. Coming into a “pretty rosy” banking atmosphere during her first years, Hill experienced the 2007-08 recession externally and saw it “really dramatically impact a lot of companies,” she said. “What that taught me is really diversification, being able to be fluid, flexible, being able to pivot. Don’t have all your eggs in one basket.”

In recent years following the COVID-19 pandemic, keeping strong controls over liquidity and interest rate risks have become top of mind for Hill as a financial leader, she said. Emerging technologies are also a key focus for the credit union.

Golden 1 has seen dramatic technological changes since its founding in 1933, but when confronting the potential of new tools such as artificial intelligence, it’s important to consider how developments could affect member experience and the credit union’s overall ability to make decisions, Hill said.

“Technology is something that is always our asset, always our friend,” she said. “But how do we minimize all those touch points to make sure we have a seamless experience for our members, and how can we utilize that to make decisions faster as well?”

Birmingham, Alabama-based Legacy Community Federal Credit Union has agreed to acquire First Community Bank of Cullman in an all-cash transaction, the credit union said.

The financial terms of the deal were not disclosed. The transaction, which is expected to close this year, will help Legacy expand beyond the greater Birmingham area into Cullman County, the credit union said.

Amid the deal, though, bank and credit union trade groups have intensified their verbal brinkmanship.

The Legacy deal is the third proposed acquisition of a bank by a credit union this year and, though that is far fewer than the record 22 credit union-whole bank deals announced in 2024, some of the reservations against such transactions still stand.

Trade groups such as the Independent Community Bankers of America have long argued the tax-exempt nature of credit unions allows them to offer a higher purchase price, putting acquisitive banks at a disadvantage.

The ICBA introduced a resolution calling on lawmakers to end federal tax exemption for credit unions with $1 billion or more in assets or to establish a tax uniformity between credit unions and community banks that pay taxes.

“Eliminating the federal tax exemption for credit unions over $1 billion in assets will help ensure taxpayer dollars no longer tilt the competitive marketplace, subsidize community banking consolidation, and result in fewer choices for consumers and small businesses,” ICBA CEO Rebeca Romero Rainey said March 12.

Jim Nussle, CEO of the trade group America’s Credit Unions, blasted ICBA the following day, saying their targeting of just the largest credit unions “shows they know their message is weak with lawmakers and consumers alike.”

“This isn’t about the millions of Americans who will suffer without access to a credit union, this is about credit union competition chipping away at the banks’ own bottom lines,” Nussle said March 13. “For decades, banks have taken advantage of taxpayers for their own profit: they enjoy Subchapter S subsidies, make risky decisions that consequentially rip away people's American dreams, abandon communities, and get bailed out by the government when they overstep.”

Subchapter S corporation status, Nussle said, allows publicly traded banks to pass corporate income directly to shareholders for federal tax purposes. Banks, for their part, argue Subchapter S exists so income is not double-taxed — first on the corporation, and again on shareholders.

Whole bank-credit union deals are off pace from last year — at this point in 2024, six had been announced. However, Michael Bell, a partner at law firm Honigman, said such transactions “will be on the same pace as last year.”

Buying First Community Bank of Cullman will enable Legacy to offer a broader range of financial products and services to local residents and businesses, including enhanced digital banking options, competitive checking account choices and high-yield savings accounts, the company said. 

“Legacy has been committed to crafting financial solutions for the communities we serve for over seventy years,” Glenn Bryan, Legacy’s CEO, said in a statement. “Our culture emphasizes excellence, education, energy and empowerment, and we look forward to bringing our approach to financial service to the people of Cullman County.”

The $644 million-asset Legacy counts nine branches and serves about 39,000 members in central Alabama. It plans to open two more locations this year, the credit union said.

First Community, by comparison, had $104 million in assets, $81 million in loans, $79 million in deposits and $13 million in equity as of Dec. 31.

“After decades of service to the Cullman area, the decision was made by our Board of Directors to seek a partner that could take our service to the next level,” Billy Faulk, First Community’s CEO, said in a statement. “We were determined to find a group that held the same philosophy of business that we do, and after an extensive search, we found that in Legacy.” 

Among other credit union-bank transactions, California-based Frontwave Credit Union agreed in January to buy in-state Community Valley Bank for $56.4 million. Illinois’ NuMark Credit Union announced in March it would buy in-state lender The Lemont National Bank.

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First Tech Federal Credit Union, a premier national credit union catering to leading tech-oriented companies and their employees, faced a common challenge among growing financial institutions: outdated and disjointed enterprise risk management (ERM) practices.

Dependent on spreadsheets and multiple incompatible tools, the credit union’s risk management processes were inefficient and prone to errors. With an evolving financial landscape, the credit union needed a better risk strategy and ERM system to handle risk data and ensure regulatory compliance.

First Tech announced in September 2024 that it is merging with Digital Federal Credit Union this year to become the sixth-largest credit union in the U.S. with a combined $28.7 billion in assets, serving two million members with more than 50 branches in eight states.

Recognizing the need for change, First Tech sought a solution that could integrate disparate systems into a single, streamlined framework. This led them to choose Protecht ERM, an enterprise risk management platform known for its comprehensive capabilities and flexibility.

First Tech’s risk team established several key objectives for their new ERM system. They aimed to create an efficient risk hierarchy, centralize ERM data and notifications across risk appetite metrics, streamline data submission and integration capabilities and advance risk reporting. Transitioning from a largely manual system required significant shifts in both technology and company culture.

First Tech collaborated closely with Protecht, focusing on training and support to ensure a smooth implementation. The platform’s user-friendly interface and robust training resources facilitated high adoption rates across First Tech’s staff.

Taking control with comprehensive risk management

With Protecht ERM, First Tech experienced transformative changes in how risk was managed. The credit union needed a solution that could manage diverse risk management activities within one platform. Protecht ERM offers capabilities ranging from risk assessments to key risk indicators, incidents, issues and findings, controls management and ad-hoc evaluations, meeting all their requirements seamlessly.

Automated data entry and real-time reporting replaced time-consuming manual processes. This not only reduced errors but also enabled quicker, more informed decision-making. The platform’s advanced risk dashboards offered deeper visibility and insights into risk trends and potential vulnerabilities, enhancing the credit union's proactive risk management capabilities.

Risk culture takes a step forward

Beyond technical improvements, a significant outcome of the Protecht ERM implementation was the cultural shift within First Tech. The new system fostered a more proactive risk awareness across the organization. Employees at all levels engaged more deeply with risk management processes, contributing to a stronger, more cohesive risk culture.

The benefits of implementing Protecht ERM extended beyond operational efficiencies. First Tech reported significant improvements in its risk and control self-assessment (RCSA) and issue management processes, better compliance with regulatory requirements, improved risk visibility and enhanced strategic decision-making. The platform’s flexibility ensured that it could adapt to the credit union’s evolving needs, a crucial factor given the fast-paced nature of the financial services industry.

Looking ahead

First Tech’s partnership with Protecht is ongoing, with continuous updates to ensure the platform meets new challenges and opportunities. The credit union is leveraging Protecht ERM to address areas such as model risk, vendor risk, controls and incident management. Additionally, First Tech is utilizing Protecht Academy for in-depth risk training to further enhance its risk and compliance procedures. This enduring relationship highlights the importance of adaptability and support in a risk management system.

First Tech Federal Credit Union's adoption of Protecht ERM illustrates the transformative power of integrated risk management solutions in the banking sector. By moving away from fragmented processes to a unified system, First Tech has not only streamlined its operations but also reinforced its commitment to maintaining the highest standards of risk oversight and compliance.

Read the full case study or watch our webinar for the details about First Tech Federal Credit Union’s implementation of Protecht ERM.

Credit unions, fintechs and nonbank lenders should face the same regulation, guidance and supervisory expectations when involved in the same activities — and doing so is a core concept of financial regulation, Federal Reserve Gov. Michelle Bowman said at a conference in October.

Bowman highlighted the challenges community banks face while navigating a changing landscape, including competition from local rivals like credit unions, larger banks, payday lenders or other nonbank credit sources with the growing use of online banking. This has led fintechs and nonlocal lenders to expand their footprint outside their geographic area and compete for business, Bowman said.

Though community banks have maintained their foothold in the competitive markets, they are often subject to disadvantages when competing for the same banking opportunities while being required to pay taxes and stick to additional regulatory requirements, including the Community Reinvestment Act, which can have a “distortive effect” on competition.

“They are also subject to a broader range of restrictions imposed by regulatory requirements or the ‘soft’ power of supervision,” Bowman said. “In short, where the financial regulatory framework can provide for parity of treatment, it should do so. The regulatory framework should not knowingly distort competition or effectively impose a regulatory allocation of credit.”

The current framework for evaluating bank competition significantly affects community banks during mergers and acquisitions, she noted. The screening process often labels rural market transactions as potentially adverse to competition, leading to possible rejections or delays, she said.

“Even when these transactions are eventually approved, the mechanical approach to analyzing competitive effects — which is grounded in the effect of proposed transactions on the control of deposits within individual banking markets — often requires additional review or analysis and can lead to delays in the regulatory approval process,” Bowman said.

Bowman has long said digital banks, credit unions and nonbanks should be factored into a revamped measure of market competition that comes with assessments of a proposed bank merger.

The central bank governor reiterated her concern over the uptick in credit unions buying smaller community banks.

Though credit union-bank acquisitions might address succession planning, they raise questions about the long-term impacts on the banking system. Credit unions have expanded their membership and services, becoming more similar to banks. Still, unlike banks, credit unions are not subject to the CRA and certain other banking regulations, Bowman noted in June.

“As some prudential regulators continue to increase the regulatory scrutiny of bank M&A, it may increase the incentives for credit unions to acquire banks if there are fewer delays and more regulatory certainty related to those transactions,” she said at the time.

Bowman isn’t the first federal regulator to discuss imposing CRA requirements on credit unions and other nonbanks.

Onetime Consumer Financial Protection Bureau Director Rohit Chopra said many states have enacted CRA compliance for some nonbanks, adding, “we should really see if a more level playing field is appropriate.” 

Bowman also touched on other areas of concern for community banks, including cybersecurity, third-party risk management and consumer compliance. 

“Both regulators and banks should be working toward a common goal — a banking system that supports economic activity throughout the country, in which banks operate in a safe and sound manner and in compliance with consumer laws and regulations,” she said.

For effective functioning, the banking system must include banks of all sizes, Bowman stressed. 

“This diversity of our financial institutions is the greatest strength of our banking system, and it can easily be imperiled by insufficiently targeted regulation, supervision, and guidance,” she said. 

Rodney Hood, the new acting head of the Office of the Comptroller of the Currency, outlined his priorities for the agency and emphasized his commitment to reducing regulatory burdens on community banks and strengthening the financial system.

While speaking at the American Bankers Association’s Conference for Community Bankers in Phoenix, Hood touched on several topics, including financial inclusion, technology, cybersecurity and compliance with the Bank Secrecy Act.

Hood, the former chair of the National Credit Union Administration, was named acting comptroller in February. President Donald Trump has since tapped OCC vet Jonathan Gould to lead the agency, pending confirmation by the Senate. 

Here are the five key takeaways from Hood’s first public appearance as the head of the OCC. 

Financial inclusion

Hood noted that 40% of U.S. households cannot obtain a $400 emergency loan and estimated that 70 million people are “credit-invisible.”

“I continue … to believe that financial inclusion is undeniably the civil rights issue of our time,” Hood said.

Hood also highlighted the need to provide wealth management and investment opportunities beyond basic checking and savings accounts to clients.

One size doesn’t fit all

Hood stressed the importance of tailoring regulations to bank size and complexity and advocated for a principles-based approach when fighting cyber fraud. He highlighted ongoing threats from malicious actors and urged banks to implement multifactor authentication, while emphasizing the importance of operational risk management based on bank asset size.

Hood said the OCC would offer better clarity and guidance on regulatory frameworks that will contain differences between smaller banks with around $100 million in assets and larger institutions with more than $1 billion.

Hood said it’s unfair to think that a $100 million-asset bank should use the same risk weights and level of due diligence as that of a multibillion-dollar bank.

In “my time as acting comptroller” – and not an “inactive” one, Hood said – “I will certainly be going through the rules to make sure that we are looking at appropriate opportunities to reduce regulatory burden by determining what needs to be adjusted, and again, not looking at everything through a one-size-fits-all approach.”

Raising the BSA reporting threshold

Hood said he wants to focus on the OCC’s efforts to police banks’ exposure to bad actors amid the greater use of digital assets and cryptocurrencies.

“I do think it's time that we look at maybe raising that limit for the reporting threshold, rather indexing it to inflation or something of that nature. But until that day comes, I'm hoping that we can work together around strengthening our BSA and [anti-money laundering] protocol, but without it being deleterious to your bottom line,” Hood said.

Financial institutions, including banks and credit unions, must report any illegal transaction of over $5,000 to the Financial Crimes Enforcement Network.

Timely mergers

Hood identified major problems in how merger applications are evaluated. Community banks seeking mergers face hurdles since credit union market share is not included in market concentration calculations, he said.

“When you're looking at the merger applications, you could not get the accurate score of market share because the credit unions, their market share is not included in the reports,” Hood said. “It may appear as if you're going to have this 50% market share where we could include the market share data for the credit unions, you would be able to get those mergers approved in a timely manner.”

The omission skews the results, making bank mergers appear to create higher market concentration than actually exists. Hood said he would contact the Justice Department's antitrust division, with the aim of establishing a memorandum of understanding. If credit union market share data is included in merger reviews, it would help to prevent delays in bank merger approvals, Hood said.

Clarity on fintech partnerships

Hood called fintech partnerships “critically important” for banks to continue serving their clients.

He emphasized the need for the OCC to strengthen its “technology shop.” He said the NCUA used a cloud-based environment in the exam process, eliminating mounds of paper in favor of uploaded data.

Hood urged banks to read opinions and keep asking questions about risk management to third-party vendors.

Hood said he wants to use a regulatory sandbox so products are tested before they go live.

He also encouraged more interaction between banks and their examiners.

“I would encourage you all to not only pursue the partnerships, but I'm going to encourage you all to talk to your supervisory examiners,” Hood said. “No one wants to be surprised. So bring your examiners into the process early so that they can understand what it is that you're hoping to achieve with some of the partnerships.”

Texas Dow Employees Credit Union was one of several dozen financial institutions affected by the 2023 MoveIt cybersecurity breach, the credit union announced in August.

The Lake Jackson, Texas-based credit union’s public acknowledgment adds it to a long list more than a year after the breach, which has affected more than 95 million people and 2,700 organizations, according to antivirus firm Emsisoft’s tally from public disclosures and securities filings.

On May 27, 2023, ransomware gang cl0p began its exploitation of an issue within secure file transfer program MoveIt; and MoveIt parent company Progress Software fixed the problem and notified customers within days.

But TDECU didn’t learn that its members were affected by the breach until July, according to a letter to customers and a notification to Maine’s attorney general.

The notification to Maine’s AG claims that 500,474 people were affected by TDECU’s breach. That’s higher than the 386,000 members the credit union has, according to its website.

An internal investigation revealed that certain files containing personal information of TDECU members were removed by cl0p members between May 29 and 31, 2023.

“That analysis was completed this month and that was when we immediately sent notification letters to potentially affected individuals,” a TDECU spokesperson wrote in an email to Banking Dive.

Impacted data includes full names in combination with dates of birth, Social Security numbers, bank or financial account numbers, credit and debit card numbers, driver license or government ID and taxpayer identification numbers.

It was not the only organization to find out later that it was affected by the breach. Fiserv notified customers in October 2023 that it had fallen victim to the attack, at which point Flagstar Bank discovered it, too, was affected – due to its relationship with Fiserv. Flagstar was not a client of MoveIt.

TDECU announced in April its intention to purchase Sabine State Bank and Trust, a bank based in Many, Louisiana. A TDECU spokesperson said the incident is not expected to affect its acquisition of Sabine, “which is still on track to be completed in early 2025.”

That is not always the case. Mike Manske, director of strategic advisor West Monroe’s cybersecurity practice, told Banking Dive that cybersecurity issues “present significant risks to bank M&A deals, with the potential to impact deal valuation, regulatory approval, integration processes, and overall transaction success.”

“A breach can lead to substantial financial losses from regulatory fines, legal fees, and remediation costs, often forcing buyers to reconsider deal terms or, in extreme cases, causing deals to fall through entirely,” he said. “Additionally, potential liabilities and compliance risks from data breaches may reduce the overall value of the acquisition, while the reputational damage can erode customer trust and compromise both the target and acquiring bank's market position.”

Neither Sabine State Bank nor its state regulator, the Louisiana Office of Financial Institutions, returned requests for comment. Neither did the National Credit Union Administration.

Exton, Pennsylvania-based Citadel Federal Credit Union has agreed to pay roughly $6.52 million to resolve allegations that it failed to provide mortgage lending services to majority-Black and Hispanic neighborhoods in Philadelphia and several nearby counties between 2017 and 2021, the Justice Department announced in October.

The DOJ has reached redlining-related settlements with more than a dozen banks since launching its anti-discrimination initiative in 2021, but until now hadn’t reached such an agreement with a credit union. 

As part of the settlement, Citadel has agreed to open three branches in predominantly Black and Hispanic neighborhoods of Philadelphia and hired a community lending officer in August to oversee lending practices in the city’s communities of color, Citadel said in a press release.

Citadel discouraged people of color from seeking credit to obtain home loans, while the credit union’s peer lenders generated mortgage applications and originated mortgage loans at roughly three times Citadel’s rate in predominantly Black and Hispanic neighborhoods, the DOJ asserted.

Citadel will provide $6 million in mortgage loan subsidies over five years for majority Black and Hispanic census tracts in Philadelphia County, as part of the settlement. It has also agreed to put $270,000 toward focused marketing, consumer financial education and outreach and $250,000 in community development partnerships, the credit union said.

The credit union also appointed a vice president dedicated to philanthropy and community engagement to bolster its Citadel Cares program, which was unveiled in July 2023.  

“While Citadel respectfully disagrees with the allegations regarding our lending practices, we view this settlement as a vital opportunity to enhance our commitment to proactive community engagement,” the credit union’s CEO, Bill Brown, said in a statement. “We acknowledge that our efforts did not allow us to reach majority Black and Hispanic census tracts in Philadelphia.”

Citadel's situation stems from inaction rather than intentional misconduct, Brown said. The credit union's shift toward digital banking in response to industry trends led to a reduced focus on opening physical branches, particularly in Philadelphia — unintentionally resulting in falling short of its commitment to expand its presence in the city when it expanded its charter.

Assistant Attorney General Kristen Clarke of DOJ’s Civil Rights Division noted Citadel’s status as a credit union, adding that those institutions, too – not just banks – are subject to federal laws that prohibit redlining and lending discrimination.

“Fair and equitable access to financial services is one of the many things that set credit unions apart from banks,” Jim Nussle, CEO of the trade group America’s Credit Unions, said in an emailed statement to Banking Dive. “Citadel Federal Credit Union committed to serve underserved populations in its field of membership and failed to fulfill that commitment. We support the efforts of Citadel’s new leadership to address these shortcomings and to reestablish trust in their communities.”

The Independent Community Bankers of America called Navy Federal Credit Union out in April for co-branding the military’s overseas banking program Community Bank, and is calling on regulators to put a stop to it.

The trade group wants the Federal Deposit Insurance Corp. and the National Credit Union Administration to issue cease-and-desist orders to the $168 billion-asset institution, and said that “any attempts to conflate a bank with a credit union” could lead to confusion.

Community Bank is a co-brand with the Department of Defense Overseas Military Banking Program, in which a contracted financial institution operates DoD-authorized banks. Through the OMBP, Navy Federal will operate 60 military banking facilities and 272 ATMs already in existence at DoD installations in Europe and the Pacific. MBFs allow service members to access local currency, conduct bill pay, savings, checking and other financial services.

“The Overseas Military Banking Program fits our core values at Navy Federal and is consistent with our primary mission of supporting Active Duty military members and their families,” said Kara Cardona, Navy Federal’s operations chief. “Serving these families through this important DoD program is directly aligned with our mission.”

Navy Federal took over the OMBP from Bank of America, which operated the program for more than four decades.

ICBA CEO Rebeca Romero Rainey said in a press release, however, that cease-and-desist orders from regulators are “in line with NCUA legal guidance that has determined that federal law does not explicitly permit insured credit unions to refer to themselves as banks or banking organizations.”

“Names matter. Brands matter, especially for consumers and servicemembers that are customers. Navy Federal Credit Union’s attempt to label itself as a community bank creates market confusion and may lead servicemembers that are customers of this new bank to assume that their deposits are still federally insured. They’re not,” Michael Emancipator, ICBA senior vice president and senior regulatory counsel, said in an email.

“If the federal agencies don’t act now, what’s to stop others from masquerading as community banks, which are federally insured and highly regulated and revered as relationship lenders? This is a horrible precedent that should not go unchecked,” he said.

Navy Federal found itself in hot water in December 2023 following reports of racial bias in mortgage approval rates. The credit union agreed in November 2024 to pay more than $95 million in refunds and civil penalties related to surprise overdraft fees in a settlement with the Consumer Financial Protection Bureau. Between 2017 and 2022, the credit union allegedly charged customers overdraft fees on certain ATM withdrawals and debit card purchases, even when their accounts showed sufficient funds at the time of the transactions.

Navy Federal referred Banking Dive to its press release. The FDIC and the NCUA declined to comment, and the NCUA directed Banking Dive to reach out to the DoD and the Defense Finance and Accounting Service, which is responsible for the oversight of the Community Bank program. Neither responded to inquiries by press time.

Navy Federal accounts are insured by the NCUA up to $250,000. However, the NCUA does not insure funds within Community Bank, and told credit union consultant CU Collaborate in October 2023 that “insuring those accounts through the National Credit Union Share Insurance Fund would not be permissible under the Federal Credit Union Act.”

The accounts are instead insured by Excess Share Insurance, a subsidiary of American Share Insurance, which claims to insure more than $6 billion at 300 financial institutions. No depositor has lost money on an ESI-insured account since its inception 31 years ago, the firm said.

"ESI's experience and proven track record of providing private deposit insurance will empower the Overseas Military Banking Program to succeed in its mission while protecting the deposits of the military service members it serves," Theresa Mason, CEO of ASI and ESI, said in a prepared statement.

Thrivent Financial for Lutherans received an industrial loan company charter from the Federal Deposit Insurance Corp. in June, finalizing its yearslong quest for deposit insurance to create Thrivent Bank.

Along with its ILC approval, the first doled out by the FDIC since its 2020 approval of ILC applicants Block (née Square) and Nelnet, TFL also received approval for the merger of Thrivent Federal Credit Union of Appleton, Wisconsin, into Thrivent Bank, which will be headquartered in Salt Lake City.

TFL intends to move all TFCU’s existing products, customers, infrastructure and personnel with all assets and liabilities to Thrivent Bank, which will be online-only.

“Thrivent's deposit insurance and merger applications, subject to appropriate conditions, appear to demonstrate that the parent companies can meet the source of financial strength requirement for the parent of the proposed bank and satisfy the statutory factors the FDIC is required to consider for deposit insurance applications and merger applications," the FDIC’s then-Chair Martin Gruenberg said.

A condition of approval, the FDIC said, is that TFL must launch the industrial bank within 12 months. The TFCU merger requires approval of the National Credit Union Administration.

Following approvals of Square and Nelnet, ILCs looked to be an attractive route for other growth-focused nonbanks and fintechs looking to obtain bank licenses of their own.

But multiple ILC applicants, including fintech Brex and wealth firm Edward Jones, have submitted applications only to withdraw them eventually, with Edward Jones chalking it up to “the current environment” and “recent conversations” with the FDIC.

A bipartisan group of senators wrote the regulator in March 2024 to consider pending ILC applications.

“ILCs provide critical access to credit opportunities within the regulated banking sector, oftentimes serving customers in areas not traditionally serviced by larger financial institutions,” wrote the senators, led by now-retired Republican Sen. Mitt Romney, whose home state of Utah is home to 15 industrial banks.

Bank industry trade groups, though, have pushed back at ILC charter approvals, alleging the charter opens the door for companies to provide banking services without Federal Reserve oversight. ILCs, according to trade groups, give firms the privileges of a bank charter without the same supervisory requirements.

“[T]he ILC charter allows applicants’ parent companies to own and operate FDIC-insured banks while avoiding the Bank Holding Company Act regulations that apply to other traditional banks. In addition to creating conflicts of interest, the commercial activities of ILC applicants pose risks to the FDIC's Deposit Insurance Fund, the financial system, and consumer privacy,” Independent Community Bankers of America CEO Rebeca Romero Rainey said in a prepared statement.

“Further, with only Utah and a few other states granting ILC charters, this handful of states shouldn’t dictate U.S. banking policy or serve as safe havens for companies that are unwilling to comply with the same set of rules and regulations that otherwise apply to the traditional bank charter,” she said.

Brian Milton, proposed president of Thrivent Bank, said in an emailed statement to Banking Dive that Thrivent “brings a much-needed and distinctive point-of-view to banking — the idea that money is a tool, not a goal.”

“We feel incredibly proud that regulators recognized the uniqueness of our approach and have approved our application,” he said. “Our team is excited to continue the efforts needed to ultimately launch the bank and begin offering genuinely client-centered banking solutions and guidance.”