Pace of bank mergers slows in 2023

The pace of bank mergers and acquisitions in the United States slowed considerably during the first four months of this year, according to S&P Global Market Intelligence

The number of deals announced through the end of April — 28, including eight in April itself — was less than half of the total announced over the same period last year, according to the report. The aggregate value of M&A transactions fell to $535.5 million from $2 billion in 2022. The median deal value-to-tangible common equity ratio for bank deals announced in the first four months of this year was 132.3 percent, the lowest valuation level since the third quarter of 2020.

According to the report, 16 of the 28 deals announced involved sellers headquartered in the Midwest, including five in Illinois. Last month, Decatur, Ill.-based Land of Lincoln Credit Union announced its pending acquisition of Nokomis Savings Bank, the second bank acquisition announced by a CU this year. That pace is slowed from the 16 bank-CU deals announced last year.

Those numbers came after M&A activity slowed dramatically last year as economic uncertainty, increasing interest rates and heightened regulatory scrutiny limited U.S. bank deals to 167 deals, 38 fewer than in 2021, as total deal value significantly also fell to its lowest mark in eight years. 

The M&A market has cooled as banks wait for large unrealized losses in their bond portfolios to recover, said Bob Wray, managing director of the Financial Institutions Group of Mission Hills, Kan.-based CC Capital Advisors. Wray’s firm typically handles 10-12 deals a year but has been involved with far fewer this year. 

Wray expects more sellers will emerge later this year as bond prices recover amid reduced interest rates and shortened bond durations, with full recovery in the M&A sector likely within 12 months. Wray said a longer-term M&A concern for community banks is the potential of having to change their business models, after the FDIC guaranteed all deposits at Silicon Valley Bank and Signature Bank after they failed. Wray thinks it unlikely that the FDIC will guarantee all deposits at a failed community bank.  

Following the recent failures, S&P Global predicted that banks’ interest in M&A will likely jump once the market turmoil settles, but found that regulators would likely respond by enforcing even tougher deal reviews, including focusing on deposit bases, liquidity and interest rate risks of both buyers and sellers. 

Some deals have already taken longer to be finalized due to regulatory uncertainty. Perhaps the most recent example was the termination of Toronto-Dominion Bank’s $13.67 billion planned acquisition of Memphis, Tenn.-based First Horizon Corp., the largest U.S. bank deal termination on record.