Why Credit Unions Are Acquiring Banks at a Record Pace

When credit unions look for merger partners, they increasingly are considering banks. S&P Global reports that credit unions entered into a record number of bank acquisitions in 2022. There were 14 acquisitions for the year, surpassing the previous high of 13 acquisitions set in 2019. The total assets acquired reached nearly $5.5 billion, considerably higher than the previous total of $3.92 billion set in 2019.

Acquiring a bank can check off various boxes that credit unions hope to achieve from a merger, including providing greater scale, establishing a presence in a new geographic area, expanding their product and service offerings, and helping them build out their team.

“As credit unions look to offer more diversified lines of business beyond consumer lending—for example, commercial lending—they’re looking at bank acquisitions not only to increase scale and to enhance geographic footprint, but also to attract the next wave of executive talent,” says Jeff Cardone, attorney/partner with Luse Gorman, Washington, D.C., the most prolific mergers and acquisitions law firm for banks and credit unions.

Community banks, meanwhile, find credit unions to be attractive merger partners because they typically don’t have a robust retail franchise outside of mortgage lending, Cardone adds, “They’re light on consumer lending, so it ends up being a good fit for credit unions that find the right bank partner. You can augment or align the businesses, bringing them together under one roof.”

Often geographic expansion is a key objective of a merger, and it’s something that credit unions can achieve with acquisition of a community bank. Our experience has shown that many credit unions prefer to expand into a new market by partnering with an existing institution rather than trying to establish themselves from scratch. By acquiring a bank, they eliminate a competitor and can do so without upsetting the credit union ecosystem that already exists in the market. Credit unions also might wish to target a bank for acquisition in their own market, likewise eliminating a competitor while assuring another credit union does not get their first.

Bank acquisitions, in many ways, are easier for credit unions than acquiring other credit unions. The parties won’t need to worry so much about the social issues that sometimes complicate a merger of a credit union acquiring another credit union. There won’t be any haggling over “who gets how many board seats?” Nor are there usually any sticking points about which institution’s name will survive or who gets a role on the executive team, which sometimes happens with the merger of two credit unions.

“It’s not that the social issues aren’t important, but they’re clearly secondary to price from a bank seller’s perspective,” Cardone says. “A key element in the acquisition is ensuring that credit union has a viable team for running the bank in the short term—making sure the talent is there so that the business can continue efficiently.”