Why community banks increasingly choose credit unions as buyers

In recent years, more community banks are choosing to sell to credit unions, sparking curiosity and debate across the financial industry, reflecting a strategic shift driven by shared community values, mutual economic advantages, and compelling market dynamics.

These mergers are voluntary, market-based transactions that require the community bank's board of directors to vote on merging with a credit union. Unlike what bankers suggest, these are not 'hostile' takeovers; the bank is the one that ultimately makes the decision to sell their assets to a credit union.

In many instances, a bank is faced with the choice of selling to a credit union—an option that will keep a local, trusted financial institution in their community—or selling to a bank that will close their locations and leave a gap in hometown financial services.

When Matt Reynolds' family decided to sell Colchester State Bank in Illinois, reserving the community's financial health was their top priority.

"We wanted (to sell to) an organization that would remain in the community and continue giving back," Reynolds explained. Credit unions, they realized, matched this vision perfectly.

Since 2012, only 100 banks have sold to credit unions, compared to 2,499 banks that sold to other banks.

Shared commitment to community

Community banks pride themselves on serving their localities, often supporting local businesses, schools, and charitable causes. Credit unions, sharing this ethos, have proven to be ideal successors. Robert Ares, CEO of Land of Lincoln Credit Union (which the Colchester State Bank board selected as its buyer) emphasized this alignment: "Credit unions invest in their communities, which fits perfectly with my belief in people helping people."

Credit unions, due to their not-for-profit status, reinvest significantly into their local communities rather than funneling deposits to bank shareholders. This local focus provides communities with critical financial services like affordable mortgages, auto loans, and financial counseling.

Tangible member and community benefits

One immediate advantage credit unions offer is an expanded range of affordable financial products. Reynolds noted this impact firsthand after Colchester State Bank became part of Land of Lincoln Credit Union.

"We can now offer 30-year fixed-rate mortgages and auto loans—things we couldn't previously provide due to our size," he shared. Such offerings directly improve local residents' quality of life and economic stability. In turn, the bank's expertise in agricultural lending also expanded options for the credit union.

The community benefited as well. Land of Lincoln Credit Union swiftly introduced financial literacy programs, community sponsorships, and contributions that significantly surpassed previous Colchester community support levels. Initiatives such as donations for local schools, sports programs, and even practical aid such as gift cards provided to local police officers to help vulnerable residents reflect the true spirit of credit unions, Ares points out, strengthening the social fabric of their communities.

Employee stability and new opportunities

Credit unions also excel at providing stability and growth for employees transitioning from acquired banks. Reynolds highlighted that Colchester State Bank's employees realized improved salaries, stronger benefits, and professional development opportunities within Land of Lincoln Credit Union. Former bank employees have embraced roles with greater responsibility, like branch management and IT leadership, offering a clear pathway for career advancement that smaller banks often can't provide. Reynolds himself is now employed with Land of Lincoln as vice president of business development and lending.

Reynolds' brother, Blake, who was also retained after the acquisition, is now Land of Lincoln's SVP/CFO.

Reynolds explains how and why selling bank assets to a credit union was the best option for the bank's customers, employees, and, most importantly, the community it served.

Addressing the 'Financial Desert' issue

One of the less obvious yet significant reasons community banks opt for credit union buyers is preventing financial deserts—areas devoid of accessible banking services. Larger banks buying smaller institutions only to siphon deposits away, leaving communities underserved, is a troubling practice, Ares said. In contrast, credit unions maintain and enhance financial infrastructure, actively protecting communities from becoming financially underserved.

'The best decision for our community and staff'

Reynolds strongly advises other community banks considering sales not to overlook credit unions. His experience was overwhelmingly positive, emphasizing that credit unions uniquely sustain the community banking ethos.

The reason banks choose to sell to credit unions boils down to several key factors: shared values, improved community service, employee satisfaction, and competitive economic advantages. Reynolds puts it succinctly, "Selling to a credit union was the best decision for our community and staff. I would do it all over again."