The banking industry continues to stabilize in the wake of recent headline-grabbing bank failures as the so-called banking crisis increasingly appears to be largely an isolated event concerning an extremely limited pool of banking institutions. Nevertheless, underlying funding challenges – one ingredient among the medley of variables that contributed to recent failures – remain a challenge for many traditional community banks: balance sheet liquidity continues to tighten while, simultaneously, funding costs are rising steeply.
Amidst this backdrop, it should come as no surprise that bank merger activity has been particularly tempered of late. To wit, the aggregate count of bank M&A transactions in Q1 of 2023 was not dissimilar to that of Q2 of 2020, the quarter immediately following the mass onset of COVID. That said, we can report that, in recent weeks, bank merger discussions have become increasingly active. On the one hand, many deal discussions that were already underway pre-Silicon Valley Bank have continued ahead while, on the other hand, recent developments and emergent challenges are catalyzing a new crop of both buyers and sellers seeking to utilize M&A to solve for or otherwise mitigate stiffening operating challenges. As discussed in this space of late, on a longer-term basis, the banking industry is now almost certainly on a clearer path toward an elevated period of consolidation over the quarters and years ahead. Over the shorter-term, however, while overall deal discussions are continuing to rebound, a subset of transaction activity will remain tempered – namely, deals involving publicly-traded stock as acquisition currency – until bank stock valuations rebound off recent failure-induced troughs.
One area of the bank M&A market is seeing especially heightened interest, branch M&A transactions. Unsurprisingly, pricing for such transactions is up sharply given heightened demand for deposit funding. Accordingly, if your bank has one or more branch locations that are less strategically-relevant, current conditions are particularly opportunistic for considering divesting branch(es).
Finally, on March 31st, in separate, unrelated transactions, Catlin Bank was acquired by The Fisher National Bank; Pioneer State Bank was acquired by NuMark Credit Union; and Savanna-Thomson State Bank merged with Fidelity Bank (parties advised by Olsen Palmer indicated in bold).
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