Apple Valley, Minn.-based Wings Financial CU announced plans to acquire Windsor, Wis.-based Settlers Bank, the banking subsidiary of SB Bancorp Inc., in a deal that ends what had been a dry spell for credit union acquisitions of banks.

The deal marks Wings Financial CU's second bank deal announcement in the past two years and the 11th bank acquisition announced by a credit union year-to-date. However, it is only the second such deal announcement since the first half of 2022.

Expanding into a new state

Wings Financial CU will expand into Wisconsin with the announced transaction, where Settlers Bank has two branches around Madison and one branch in Appleton.

After looking for opportunities to move into Wisconsin, the Minnesota-based credit union is "excited about the opportunity to introduce our services to the Wisconsin market" as the deal will "jumpstart" Wings Financial CU's presence in the state, President and CEO Frank Weidner said in a press release.

Wings Financial CU's first bank M&A target was Brainerd Savings and Loan Association A Federal Association in a deal that was announced in January 2021.

While Wings Financial CU was already looking to expand into Wisconsin, the credit union likely had to search outside its home state of Minnesota for a bank purchase after the Minnesota Department of Commerce blocked a credit union from purchasing a Minnesota-based bank in April.

Wings Financial CU is currently involved in a pending lawsuit against the state regulator in hopes of acquiring Minnesota-chartered banks in the future.

With $350.3 million in total assets at Sept. 30, Settlers Bank is the sixth-largest bank target among the 11 acquisitions announced this year, while Wings Financial CU, which had $8.05 billion in total assets in the third quarter, is the largest credit union to announce a bank transaction so far this year.

With the announced transaction, Wings Financial CU will move closer to the critical $10 billion asset threshold. Crossing the $10 billion mark brings growing pains for community banks and credit unions in the form of increased regulatory scrutiny and a loss of interchange fee income as the Durbin Amendment, a provision of the Dodd-Frank Act, kicks in.

What can we expect for the rest of the year?

Deal advisers expected 2022 to be a record year for credit union acquisitions of banks, but much like traditional bank M&A, activity has slowed in recent months.

The year kicked off with a flurry of five announcements in the first quarter and four announcements in the second quarter, but only one such deal was announced in the third quarter. Wings Financial CU's announced acquisition marks the first announcement since August.

So far, 11 credit union-bank deals have been announced so in 2022, lagging just behind the current record of 13 such announcements in 2019, excluding terminations.

Settlers Bank brings the total assets of bank targets involved in credit union transactions this year to $4.57 billion across 11 targets, above the previous record of $3.92 billion across 13 targets in 2019.

Further, the total average assets of the 11 banks selling to credit unions stand at $415.3 million this year, above the record high of $349.6 million across the 10 targets in 2021.

While prospective credit union buyers are still very interested in M&A, getting deals done is tougher as sellers have increasingly stepped to the M&A sidelines and paused on deal discussions, according to Michael Bell, partner and co-leader of the financial institutions practice group at law firm Honigman LLP, which advised Wings Financial CU on this transaction.

"I'm seeing a lack of transactions get over the finish line and I'm seeing a pausing," Bell said in an interview. "It's largely a sell-side issue."

Bell expects more credit union-bank deal announcements before year-end, but activity will likely remain mostly muted until 2023.

"As soon as the Fed stops raising rates and there's some stability, [sellers] will be back out. They've just stepped on the sidelines," Bell said.