U.S. credit unions in 2018 have been buying banks at a pace that could ultimately more than double the total number of such deals announced last year.
Ferndale, Mich.-based Credit Union ONE in May agreed to buy Southfield, Mich.-based Hantz Bank, which marked the sixth deal announced in 2018 in which a credit union is buying a bank. There were six credit union-buying-bank deals announced in 2017, although one of those was later terminated.
"I don't think 10 to 15 deal announcements [of this kind] this year is crazy at all," Dennis Holthaus, managing director at Skyway Capital Markets, said. "Strategically, credit unions want to grow, but organic growth is difficult to achieve at a reasonable cost."

In an interview, Holthaus said there are a number of factors contributing to the increase in frequency of those deals, including community banks of $300 million in assets and less looking to sell but failing to show up on the radar of bigger banks that have a liquid stock to offer.
And more small banks are actually seeking out credit union buyers because credit unions pay cash and are often in a financial position to pay competitive multiples for a community bank. Additionally, community bank boards and management teams know that a credit union buyer will treat the bank's customers and staff in the same way that the community bank itself treats them, Holthaus said.
Another factor is that credit union mergers between same-size partners looking for growth are tricky. The social issues in a credit union/credit union merger — board composition, post-merger CEO, operating name, corporate headquarters location, etc. — are often difficult to overcome.
Dothan, Ala.-based Five Star Credit Union has closed two bank deals. The company acquired Camilla, Ga.-based Flint River National Bank in 2014 and then Lumpkin, Ga.-based Farmers State Bank the following year.
President and CEO Robert Steensma said in an interview that more credit unions have realized that bank purchases are possible.
"We live in a fairly narrow box most of the time — or at least the regulators want us to — and we just didn't know it was possible that we could do that," Steensma said.
The integration involved with buying a bank was not so different from merging with another credit union, Steensma said. But one difference was that some education of the acquired banks' customers was required to explain not just who Five Star is, but in many cases also what a credit union is.
There was some runoff of accounts, but for the most part people were receptive once they understood that Five Star was not that different from the banks they were accustomed to.
"We're speaking the same language but maybe with a different accent," Steensma said.
Five Star looked at three credit union mergers and two bank acquisitions in 2017 and has examined one potential bank purchase so far this year, but has not found a good fit yet. "But we still have the appetite to do it," he said. An ideal bank target would have less than $100 million in assets, according to Steensma.
Holthaus said branch expansion is expensive and that it takes years for a de novo branch to get to a breakeven point much less make an acceptable return on investment. So credit unions are increasingly asking themselves: Why not acquire a bank instead?
"I really believe over the next few years, as credit unions evaluate their capital management plans, bank acquisitions will work their way into more credit union strategic plans," he said.
