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Credit Union M&A Requires Intensive Deposit Due Diligence

Chances are that most bankers have never heard of VyStar Credit Union, which was founded in 1952 to serve military and civil service personnel at the Naval Air Station in Jacksonville, FL. Today, the credit union has 748,000 members and $10 billion in assets.

VyStar turned heads this past spring when it announced plans to buy the assets of Heritage Southeast Bank, a state-chartered bank in Jonesoro, GA., for an  80% premium to Heritage’s stock price. It was VyStar’s second acquisition of bank assets in two years and, when finalized, will make VyStar the 13th-largest credit union in the U.S.

Faced with excess liquidity and/or capital just like their bank brethren, credit unions are increasingly expected to put that cash to work by pursuing mergers and acquisitions. Deposit due diligence, which should be an integral part of any transaction, takes on even more importance when these small institutions buy pieces of traditional banks. In part, that is because the bank’s customers may not know who the buyer is or what the credit union represents.

Therefore, the heightened prospect of customer attrition requires thorough deposit due diligence and treatment plans that can reduce the risk.


Just like banks, credit unions of all sizes have seen their deposits swell over the past year due to pandemic-related government stimulus programs, lower consumer spending and weak loan demand. The 10 largest credit unions, for example, saw their deposits grow by an average of nearly 23% in the first quarter compared with year-earlier levels. (See Figure 1.)

Figure 1: Key Q1 Data For Top 10 Credit Unions and VyStar

Navy Federal
Credit Union
VA 144,468,996,33 15.0% 120,209,863,544 30.5% 88,363,656,164 6.4%
State Employees’ NC 49,634,688,175 15.8% 45,446,215,137 17.1% 24,167,125,581 -2.0%
Boeing Employees WA 28,228,439,367 24.3% 23,955,753,499 28.9% 12,541,759,305 -13.0%
Pentagon VA 27,254,912,909 8.5% 20,212,811,165 12.3% 19,205,357,364 -3.6%
Schoolsfirst CA 25,252,960,030 26.5% 22,181,639,566 29.5% 11,324,675,705 -3.1%
The Golden 1 CA 17,237,843,720 24.4% 15,425,836,415 27.1% 9,001,653,307 3.4%
America First UT 15,685,916,716 28.4% 14,115,674,820 30.3% 9,842,076,440 2.7%
First Technology CA 14,107,089,226 1.7% 11,146,801,444 13.4% 8,613,221,381 -4.4%
Alliant IL 13,970,828,354 12.8% 11,691,238,151 14.9% 8,889,730,839 3.5%
Suncoast FL 13,471,639,659 22.1% 12,095,134,756 23.4% 9,390,549,832 9.3%
VyStar FL 10,749,464,222 14.7% 9,718,618,318 30.7% 7,365,524,696 8.2%

Source: Call reports, Curinos research

Unlike banks, however, credit unions have fewer options than banks to deploy excess capital, such as an inability to engage in stock buybacks. While credit unions can pay special dividends or pay higher interest rates, those tactics aren’t going to make enough of a dent on today’s bloated coffers.

Furthermore, credit unions can often be hobbled in the search for growth due to restrictions on membership, even though those limits have eased greatly in recent years. It is also difficult for credit unions to attract younger members. The average age of U.S. credit union members is 47, according to industry estimates, as younger eligible members often gravitate to the whiz-bang features of large banks, neobanks and fintechs.

As a result, credit union M&A activity is expected to continue rising, including the acquisition of bank assets. (Credit unions technically don’t buy the bank in these transactions because they don’t assume the bank’s charter and instead acquire the bank’s assets.)


Curinos has long believed that conducting due diligence on deposits in M&A transactions is just as essential as traditional credit due diligence. This practice becomes even more urgent as credit unions acquire bank assets. The looming prospect of higher rates is also a critical factor.

The most important aspect that credit unions should consider is customer attrition. If customer growth is a key reason for the transaction, the deal becomes far less valuable if the bank’s customers walk out the door. How old are the bank’s customers? How long have they been customers of the bank? Does the bank have a more expansive suite of products and services and does the credit union plan to incorporate them into the combined entity? If bank customers perceive that the credit union has fewer offerings, why would they stick around?

Indeed, Curinos research shows that credit union customers typically have accounts — often primary relationships — at other financial institutions. And even customers who consider a credit union to be their primary financial-services provider often have a savings account at other financial institutions — even more so than do primary customers of national and neobanks. (See Figure 2.)

Figure 2: Customers Who Have A Primary Savings Account At A Credit Union Have Accounts At Other Providers More Often Than Do Customers Of Regional Banks Or Neobanks

Base: Total National (N=3869), Super Regional (N=1765), Regional (N=410), Community/Credit Union (N=234), Direct (N=836), Neobanks (N=1349)

Source: Curinos Customer Knowledge | 2020 U.S. Shopper Study

Credit union customers also are much more branch-oriented than other types of customers, especially when it comes to researching and opening a checking account. (See Figure 3.) If the credit union doesn’t have the bells and whistles that are valued by customers of larger banks, it may have trouble keeping the bank customers, let alone attracting new ones.

Figure 3: Credit Union Shoppers Heavily Depend On Traditional, Non-Digital Methods

Base: Total National (N=3869), Super Regional (N=1765), Regional (N=410), Community (N=60), Credit Union (N=174), Direct (N=836), Neobanks (N=1349)
Q: Thinking back to the process that led you to open the primary checking account you now have with [PRIMARY BANK], how did you shop or research your primary checking account?

Source: Curinos Customer Knowledge | 2020 U.S. Shopper Survey


Credit union buyers should consider a number of factors when entering transactions with banks and starting integration plans.

  • Determine what portion of the target deposit portfolio is truly core.
  • Consider whether it makes sense to use rate to engage the bank’s customers and reduce attrition.
  • Examine transaction trends of the bank’s customers. If they are increasingly accustomed to digital interactions, closing branches of the acquired bank may not affect attrition.
  • Ensure that appropriate communications and marketing programs explain why a credit union can serve bank customer needs since many may be unfamiliar with credit union offerings.


There’s no doubt that M&A will continue to be an important consideration for credit unions and banks. As rates begin to rise, deposit due diligence will be even more important in those transactions.

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