Community Financial Institutions Make Up Majority of Bank M&A Deals

The Story:

Community financial institutions have made up the vast majority of merger participants for the last decade, on both sides of the deal. But when banking experienced a pandemic slowdown in merger and acquisition activity starting in 2020, community financial institutions – both community banks and credit unions – needed a renewed approach to growth. Strategic M&A and mergers of equals provided just the shot in the arm the sector needed. Today more than 9 out of 10 deals are among community financial institutions. “As stock prices sunk in 2023, more community banks focused less on obtaining attractive premiums and instead looked to low- to no-premium MOEs as a way to gain scale,” according to S&P Global Financial Intelligence.

The Takeaway:

Given that 90% of financial institution CEOs report plans to engage in M&A by the end of the year and 72% intend to increase investments in acquisitions, mergers are on the minds of banking leaders. Even more, smaller institutions are under pressure to operate at larger scale, according to former World Bank governor Yerbol Orynbayev, in an interview in The Banker. That sentiment is echoed by M&A expert Michael Bell on the Believe in Banking Podcast. “Depending on how you want to serve your members, the community, your people, scale does matter,” says Bell. “If you want to be a full-service institution with robust digital banking, best of the best fraud detection technology, the best people… you need scale, period.”

Source: S&P, “US Community Banks Still Striking Mergers of Equals to Manage Climbing Costs,” February, 2024; Ernst & Young, “2024 CEO Outlook Pulse Survey,” November, 2023; The Banker, “Wave Of Consolidation Could Save Smaller U.S. Banks,” December, 2023; and Believe in Banking Podcast, “Community Commitment: M&A for Credit Union Growth,” April, 2024