Dive Brief:

• U.S. bank merger and acquisition activity thus far this year is outpacing that of last year, as banks grapple with rising costs and a highly competitive environment.
• Regional lenders, with assets typically between $10 billion and $100 billion, have led the charge. Thus far this year, 38 deals have been announced, compared to 29 during the same period in 2023, according to Dealogic figures through Aug. 1.
• Still, the total value of this year’s deals thus far amounts to about $9.1 billion, compared to $20.9 billion last year, Dealogic data showed.

Dive Insight:

The data underscore that bank M&A activity – which hit a five-year low in 2023 – appears to be making a comeback this year. 

In April, UMB Financial announced a $2 billion deal to buy Heartland Financial. The following month, SouthState said it planned to purchase Independent Bank, in the year’s second – and just slightly larger – $2 billion transaction. Those two topped Dealogic’s bank M&A tally of top 10 deals. 

Others include Renasant saying last month it intends to acquire smaller Mississippi rival The First for about $1.2 billion and WesBanco also last month announcing it will pay about $959 million to purchase Ohio’s Premier Financial. In April, Wintrust said it planned to buy Macatawa Bank for $510.3 million; that deal closed this month. 

Also on Dealogic’s top 10 list: New York Community Bank selling about $5 billion worth of mortgage warehouse loans to JPMorgan, for $400 million, and WaFd selling commercial real estate loans to Bank of America; both were announced in May.

Most recently, Scotiabank last week said it will take an almost 15% stake in Cleveland-based KeyBank for $2.8 billion. KeyBank CEO Chris Gorman said the investment allows the bank to “accelerate our well-communicated capital and earnings improvement while bolstering our strategic position.”

More specifically, the deal gives KeyBank “the optionality of restructuring its bond portfolio, thereby placing it in a stronger position to seize growth opportunities or weather any unforeseen economic surprises in the future,” RBC analyst Gerard Cassidy wrote in a note to investors last week.

In recent years, banks’ regulatory reporting and compliance costs have increased, at the same time that lenders seek to digitize platforms and take on rising technology expenses. Spreading those fixed costs across a larger organization makes sense, and can fuel M&A activity, said Tim Johnson, KPMG’s global deal advisory lead for the financial services sector, earlier this year.

“The ability to spread those costs around a bigger platform is one of the first things you’ll see in a lot of the announcements around deals,” he said. Especially amid a higher interest rate environment, finding ways to save money has been crucial for banks, he added.

NYCB, Valley National, Hope Bancorp, Banc of California, Texas Capital Bancshares and Fulton Financial are potential takeover targets in the regional lender sector, Reuters reported. The banks declined to comment or didn’t respond to Reuters.  

Federal Reserve action on interest rates and the outcome of the November election may influence M&A activity through the rest of the year. Additionally, proposals to bolster banks’ capital buffers aligned with the Basel III endgame could generate more bank M&A, Johnson said, as lenders “that have a good war chest of capital can be more aggressive.”

Ultimately, though, fewer banks in the U.S. is a “very long-term trend,” Johnson said. 

Lenders, however, are also grappling with more drawn-out regulatory approval timelines, and mergers are facing more intense scrutiny from the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. All of that can make bank CEOs and chairmen hesitant when it comes to potential deals. 

“M&A is all about clarity,” Johnson noted, and without that, it’s difficult to model out a transaction and sell it to shareholders.