Much like U.S. bank M&A, the number of credit union mergers rebounded in 2021 following a pandemic-induced dip in activity in 2020.

Credit unions completed 168 deals in 2021, up from 139 in 2020 and 153 in 2019, and one credit union adviser said activity will not slow down in 2022.

"There was a bit of pent [up] demand after the pandemic and we'll see that continue," Glenn Christensen, founder, president and CEO of CEO Advisory Group, an M&A consulting company focused on the credit union industry, said in an interview. "There is a recognition that to truly be competitive going forward and be able to offer the technologies and such that are necessary, that they're better off partnering with a larger credit union to achieve the scale that they need."

Credit unions are increasingly looking to mergers for similar reasons that banks are, like gaining scale and offsetting multiple quarters of tepid loan growth, but the recent uptick in banks eliminating or drastically reducing non-sufficient fund and overdraft fees will likely drive even more credit union mergers this year, according to Christensen.

"That is a concern, particularly for small- and medium-sized credit unions that are heavily reliant upon the fee income that is generated from their checking accounts. And so as credit unions are looking to the future and it becomes increasingly more common to eliminate or reduce the NSF charges, how are they going to compensate from a fee income standpoint?" he said. "It's going to continue to drive mergers going forward."

Credit unions capped off the year by completing 41 deals with credit union buyers in the fourth quarter of 2021, up from 38 in the fourth quarter of 2020 and 36 in the fourth quarter of 2019, but the deals were relatively small. The average total assets for credit union targets in the fourth quarter of 2021 was $37.4 million while the average assets for the buyers in credit union to credit union mergers was $996.6 million.

Deals will likely stay on the smaller side in 2022 given the large number of small credit unions in the country, Christensen said. For credit unions above $750 million in total assets, mergers of equals are typically more "palatable," he said.

"There's a recognition among the $750 million, $1 billion or even $2 billion [credit unions] that you're doing fairly well financially so there isn't necessarily a pressure on you to do a merger. But strategically, they can see some major gains that would happen through a combination," he said. "Yet most credit unions at that size, they fear losing their autonomy so kind of a compromise is to do a merger of equals."

Seven states saw more than 10 deals in 2021, and Ohio lead the country with 23 deals. Seven saw no credit union M&A. Christensen said credit union mergers will remain mostly concentrated in the Midwest and the East Coast in 2022 given the number of credit unions in those regions.