Credit Unions Still a Key Competitor in Small Bank M&A

Over the past decade, Dothan, Alabama-based Five Star Credit Union has pursued bank acquisitions for the same reason that it’s bought other credit unions — to increase in size and expand geographically. 

Its first bank acquisition in 2014 came about when the CEO of Flint River National Bank reached out directly to Five Star about a deal, said CEO Bob Steensma in a recent Bank Director webinar. According to news reports at the time, the $23 million bank in Camilla, Georgia, had been struggling to turn a profit and was looking to merge with a larger organization. 

Back then, few credit unions had bought banks, and the news of that deal directly led to a second one, Steensma recalled. “The next deal came through an investment banker who read that we bought the other bank and called me up. [He] said, ‘I didn’t know a credit union could buy a bank. Are you interested in another?’” Now at $1.2 billion of assets, Five Star has completed four bank acquisitions, and it has a lot more company among other credit unions looking for growth.

Through Nov. 24, there were 16 credit union acquisitions of banks in 2025, according to S&P Global Market Intelligence, compared with a record high of 19 last year. Though credit union acquisitions of banks have climbed in recent years, these types of deals still make up a small percentage of total bank acquisitions — 165 bank deals were announced in total through November, up from 125 bank deals in 2024. 

An increase in M&A activity has led to more optimism for dealmaking in the near future. Bank Director’s 2026 Bank M&A Survey found greater willingness on the part of potential sellers to entertain a deal over the next five years. As bank M&A continues to rise, it’s likely that credit unions will be likely acquirers for at least some of those banks. In some respects, that’s because credit union-bank deals beget more credit union-bank deals. 

“It’s becoming more common, which makes more banks interested in pursuing it as an option,” says Patrick Vernon, strategy and transaction advisory partner with Crowe, which sponsored the survey. “Part of it is who those credit union buyers are. They’re demonstrating larger size, a little bit more sophistication and a little bit more interest in competing on that level, which allows that transaction to be a little bit more attractive for those selling banks.” 

Commercial loan interest tends to be a motivation for credit unions pursuing these types of deals, Vernon adds. Additionally, they may allow a credit union to enter a new market and expand its field of membership. 

However, credit union acquisitions of banks tend to draw intense criticism from the industry. Banking trade associations have lobbied hard against these types of deals, which have been successfully blocked in some states, either in courts or by way of legislation. In a recent blog post, Independent Community Bankers of America CEO Rebeca Romero Rainey called on lawmakers to treat credit unions with more than $1 billion in assets “like tax-paying commercial banks” and argued that a majority of banks acquired by credit unions were “well-performing competitors” whose acquisitions were “subsidized by the credit union tax exemption.”

The deals have proved attractive to some small banks. Credit unions seldom pursue banks over $1 billion in assets; in some cases, a credit union may be the only interested buyer for a given bank, which may be dealing with thinning margins, a mounting cost burden or a lack of a succession plan. Additionally, credit unions pay cash for these deals — there’s no stock ownership — which is attractive to some sellers. “Pricing tends to look a little bit better,” Vernon says. “That’s always helpful from an optics perspective, to be able to say, ‘We fetched x times [tangible book value]; it was a multiple compared to our peer transactions.’” 

Because credit unions cannot own bank charters, these deals are actually purchase and assumption agreements, which are otherwise generally associated with the sale of a troubled bank. Both the buyer and the seller have additional tax liabilities to contend with in these deals as well, adding some nuance to the hefty premiums credit unions apparently pay. 

Additionally, there can be cultural differences between a selling bank and its credit union acquirer, Steensma acknowledged in the webinar. That can make employee retention challenging because some bankers simply do not want to work for a credit union. Whenever Five Star has announced a bank acquisition, other banks have seized the opportunity to poach employees. That’s “something I’ve never seen before” in the credit union industry, he said.  

Still, those who stay end up adapting to the cultural differences. “We have different terminology and different acronyms,” says Steensma, “but at the end of the day, we try to boil it down to continue to serve the community and do right by the customer or by the member.”