Why credit union-bank mergers have hit a lull

ERIK S. LESSER/BLOOMBERG NEWS

Bank of Idaho Holding in January announced a plan to sell to Kalispell, Montana-based Glacier Bancorp in what has proven the largest bank deal to date in 2025.

However, months before that $245.4 million combination came together, the Idaho Falls-based seller debated whether to accept a higher offer from a credit union, the $1.3 billion-asset Bank of Idaho disclosed in a regulatory filing.

It ultimately went with the $28.2 billion-asset Glacier's proposal — the deal is expected to close in the second quarter — passing on the other offer in part because of worries about elevated regulatory hurdles to bank-credit union tie-ups and mounting bank industry opposition to such deals.

After receiving an offer from the unnamed credit union, Bank of Idaho discussed its merits with outside legal counsel and with the Idaho Department of Finance, the bank disclosed. "Those discussions, along with industry sentiment against bank-credit union transactions (and, as a result, the potential for industry groups to oppose the transaction), raised questions as to whether a transaction with the credit union would receive required regulatory approvals in a timely manner, or at all," the regulatory filing stated.

Ultimately, Glacier's community banking model and the potential for future stock price appreciation more than offset the credit union's higher priced offer and the associated risk, Bank of Idaho said.

The Idaho lender's experience put on the record what investment bankers have more privately told American Banker about what is causing trepidation among some bank sellers. Credit union-bank mergers swelled to a record level of 22 last year amid a broader push for scale in the lending industry. The previous all-time high was 16 in 2022, according to American Banker's tallies.

The volume of bank assets sold to credit unions doubled in 2024 compared with 2022, up to $10.9 billion from $5.2 billion, S&P Global Market Intelligence data show.

However, only one of these transactions has been announced so far in 2025. The $1.4 billion-asset Frontwave Credit Union in suburban San Diego struck a deal in January to acquire neighboring Community Valley Bank in California.

A majority of the credit-union bank deals that were announced last year are still awaiting approvals. Atlanta Postal Credit Union's planned acquisition of Affinity Bank was nixed in December amid regulatory issues.

Community bank advocates for years have complained about credit unions capitalizing on their exemption from paying federal income tax to expand beyond their original business scopes. Bankers argue that many credit unions stray from their mission of serving people of modest means in limited geographic areas. That mission is the reason credit unions get tax breaks.

However, as more credit unions inked deals to buy banks and adopt their business lines, opposition grew louder, and policymakers took more interest, said John Asbury, chair of the American Bankers Association.

He told American Banker that when credit unions buy banks, they remove tax-paying businesses from local markets. "I think there's a fleecing of taxpayers," said Asbury, who is also president and CEO of Atlantic Union Bankshares in Richmond, Virginia.

Republicans in Congress this year have mulled the idea of requiring credit unions to pay federal income tax. In a document outlining their priorities, they said that such a tax could raise $30 billion over a 10-year period and help offset the cost of extending tax cuts passed during President Trump's first term.

Additionally, the Federal Deposit Insurance Corp. late last year approved a  statement of policy that for the first time explicitly stated additional scrutiny may be needed for bank deals involving credit union buyers, the Independent Community Bankers of America noted in an email.

"Originally chartered to serve specific community needs, many credit unions have strayed from their founding mission. Some now operate in ways indistinguishable from banks," Brad Bolton, president and CEO of the $209 million-asset Community Spirit Bank in Red Bay, Alabama, said in a report issued by the ICBA. Bolton is a past ICBA chairman.

Credit unions argue that when they acquire banks — or expand organically to fill gaps left by bank consolidation — they help to ensure communities retain local financial services. By contrast, they say, the local connection is lost when small banks sell to larger companies based elsewhere.

Mike Bell, an attorney with the law firm Honigman in Michigan who advises on credit-union bank deals, said the pace of such transactions has merely hit a lull. He said credit unions are still eager to expand via bank acquisitions, and several banks are open to such deals.

"We just have a slight pause in announcements," Bell told American Banker. "I'm not aware of any issues with would-be sellers — other than their lobbying groups do not speak for them and unfortunately have chosen to work against them in this regard."

Mitch Berlin, Ernst & Young's Americas vice chair of strategy and transactions, said overall uncertainty about Trump's tariff policies, inflation and interest rates as well as the unclear overall direction of the federal government, including the potential impact on regulatory agency staffing levels amid waves of federal layoffs.

"We came into 2025 very optimistic about the M&A market overall, and we're seeing dealmakers with strong pipelines ready to jump when the conditions are right, but volatility is pushing back some deal timelines," Berlin said. "Executives need more predictability around the impact of tariffs, regulation, corporate income tax rate, and cost of capital on their business."

Overall, 126 banks announced plans to sell last year, updated S&P data shows, and the aggregate deal value was $16.3 billion. In 2023, there were 98 deal announcements valued at $4.2 billion.

Through the first two months of this year, only 18 banks have announced plans to sell, putting the industry on pace to fall short of the 2024 tally.