August 21, 2025 – A once-unthinkable trend is reshaping the financial services landscape: credit unions are increasingly acquiring community banks, setting a record pace in 2024 and continuing into 2025. This surge in mergers and acquisitions (M&A) reflects a shifting market dynamic, eroding the historical rivalry between credit unions and banks. Driven by economic pressures, regulatory changes, and strategic growth needs, these deals are transforming community banking while sparking debate over tax advantages and long-term impacts. Below, we explore the drivers, key deals, and implications of this trend.
Record-Breaking Acquisition Activity
In 2024, credit unions acquired a record 22 community banks, surpassing the previous high of 16 in 2022, according to American Banker. This trend has continued into 2025, with eight additional deals announced by August, signaling sustained momentum. Notable transactions include:
- Spokane Teachers Credit Union (STCU) acquired the $550 million-asset Community Bank in Joseph, Oregon, creating a $6.4 billion-asset institution with 49 branches across Washington, Oregon, and Idaho. The deal, expected to close in early 2025, aims to retain all Community Bank employees and expand product offerings.
- TDECU, Houston’s largest credit union with $4.7 billion in assets, agreed to buy the $1.2 billion-asset Sabine State Bank and Trust in Louisiana, boosting its assets to $6 billion and diversifying its commercial portfolio. The transaction is set to close in early 2025.
- DFCU Financial in Michigan acquired Winter Park National Bank in Florida ($845 million in assets), marking its second Florida deal in two years. This follows its 2023 acquisition of First Citrus Bancorporation, expanding DFCU’s footprint to eight Florida branches.
- HAPO Community Credit Union in Washington acquired Community First Bank in Kennewick, marking the 18th credit union-bank deal of 2024 and the fifth in Washington state. The deal, expected to close in Q3 2025, includes a strategic partnership with HFG Trust, Community First’s wealth management subsidiary.
- U.S. Eagle Federal Credit Union in Albuquerque acquired Southwest Capital Bank, aiming to deepen its presence in New Mexico and expand into cannabis industry services. The deal is slated for Q2 2025.
These deals reflect a broader consolidation trend, with credit union-bank mergers accounting for nearly one-fifth of banking industry M&A activity in 2024, per S&P Global data.
Drivers of the Trend
Several factors are fueling credit unions’ acquisitions of community banks:
1. Economic and Competitive Pressures
Smaller community banks face challenges from high interest rates, regulatory compliance costs, and technological demands, making it difficult to compete without scale. Mergers with credit unions offer a path to survival, allowing banks to retain local presence while accessing the credit union’s resources. As Anton Moch of Winthrop & Weinstine noted, “Anytime I have a bank client who’s looking to sell, credit unions are now routinely part of the discussion.”
2. Strategic Expansion
Credit unions are leveraging acquisitions to enter new markets, diversify revenue streams, and enhance commercial lending capabilities. For instance, DFCU’s Florida deals aim to expand its commercial loan book, while TDECU’s acquisition targets energy lending. These moves also counter competition from larger banks and fintechs, which are capturing market share with advanced digital offerings.
3. Tax-Exempt Advantage
Credit unions’ tax-exempt status allows them to offer higher premiums, often 1.5 times tangible book value or more, outbidding tax-paying banks. This has sparked criticism from community bankers, who argue it creates an unfair advantage and reduces local tax revenue. American Bankers Association Chair John Asbury called the trend a “fleecing of taxpayers.”
4. Lack of Bank Buyers
Smaller banks, especially those under $500 million in assets, often struggle to find bank buyers, particularly in rural areas. Credit unions, seeking to grow membership and assets, fill this gap. Of 61 credit union-bank deals since 2020, only two involved banks over $1 billion in assets, highlighting the focus on smaller institutions.
5. Regulatory and Market Shifts
A more favorable M&A environment in 2025, driven by anticipated regulatory easing under the Trump administration and lower taxes, is expected to sustain deal activity. However, regulatory hurdles, such as delays in approving 2024 deals, have slowed some transactions.
Challenges and Controversies
The surge in credit union-bank mergers has not been without controversy:
- Taxation Debate: The Independent Community Bankers of America (ICBA) has called for ending tax exemptions for credit unions over $1 billion in assets, arguing that these acquisitions erode local tax bases. Critics also question whether these deals align with credit unions’ member-focused mission.
- Regulatory Delays: Many 2024 deals await approval, with regulatory uncertainty cited as a factor slowing activity in early 2025. Only one deal was announced in January 2025, reflecting a cautious start.
- Cultural Integration: Merging distinct bank and credit union cultures, along with legacy systems, poses challenges. As one X post noted, “Buying a bank may seem like a fast track to scale, but integrating systems and cultures is a slow, costly road.”
- Community Impact: While credit unions argue these mergers preserve local banking access, critics highlight the loss of tax-paying entities and potential reductions in community investment.
Implications for the M&A Market
The rise of credit union-bank acquisitions is reshaping the financial services landscape:
- Increased Competition: As bank valuations improve, traditional banks may re-enter the M&A market, challenging credit unions’ dominance. However, credit unions’ ability to pay premiums keeps them competitive.
- Technological Focus: Acquisitions often aim to acquire banks’ digital capabilities or commercial expertise, aligning with credit unions’ need to modernize. In 2025, 76% of financial institutions plan to increase tech spending, with credit unions prioritizing digital account opening and payments.
- Community Focus: Credit unions emphasize retaining branches and jobs to maintain community ties, as seen in STCU’s commitment to keep Community Bank’s 10 branches open.
- Regulatory Scrutiny: The Justice Department’s 2024 redlining order against Citadel Federal Credit Union signals heightened oversight, which could impact future deals.
Outlook for 2025
While 2024 set a record, early 2025 has seen a slower pace, with only one deal announced by January. Industry experts predict a resurgence in M&A activity, driven by sustained high interest rates, technological disruption, and the need for scale. Credit unions are likely to remain active buyers, particularly for smaller banks, though increased competition from banks and regulatory scrutiny may temper growth. The Bank Director’s 2025 M&A Survey found that 91% of banks open to selling expect premiums of 1.5 times book value or higher, aligning with credit unions’ bidding strength.
Credit unions are also leveraging Credit Union Service Organizations (CUSOs) to address technological and regulatory challenges, pooling resources for AI-driven tools and compliance frameworks. This collaborative approach could enhance their M&A capabilities, ensuring they remain competitive in a dynamic market.
Conclusion
The record-breaking wave of credit union acquisitions of community banks reflects a strategic response to a shifting M&A market, driven by economic pressures, tax advantages, and the need for scale. While these deals preserve local banking access and expand credit unions’ reach, they raise concerns about fairness, taxation, and community impact. As 2025 unfolds, the trend is poised to continue, reshaping the financial services landscape and challenging the deep-seated rivalry between credit unions and banks.
Sources: American Banker, Law.com, S&P Global, Banking Dive, eMarketer, X posts