Bank Notes: April 2025

The Ides notwithstanding, March evidenced appreciable activity in the bank M&A marketplace as fifteen whole-bank transactions were announced during the month, tying the high-water mark as the busiest month in nearly 2 years. More broadly, the aggregate deal count in Q1 2025 was 30% higher than in Q1 2024. Time will tell whether and to what extent recent tariff developments will temper dealmaking.

Among other contributing factors, the friendlier regulatory landscape is driving dealmaking activity. Under Trump 2.0, the respective bank regulatory agencies have expressed their goal of clarifying and expediting the bank M&A approval process. While anecdotal, we noted the acquisition announced on January 22nd by $47B-asset Cadence Bank of a ~$600-million asset bank received regulatory approvals in March and is now scheduled to close on May 1st, just over three months after signing. Indeed, as noted in this month’s Chart of the Month (lower right), the average period between signing and closing for community bank transactions declined significantly in Q1 2025. Prospective dealmakers – would-be sellers and buyers alike – would do well to take heed; from a regulatory approval perspective, the M&A window is seemingly currently wide open…but the regulatory pendulum has an unfortunate habit of swinging violently every 4 years or so.

On the pricing front, valuations remained relatively stable in March as the median price-to-tangible book value multiple and the median price-to-earnings multiple came in at approximately 1.5x and 9.6x, respectively. That said, ‘out in the field’, we continue to see pricing in this general range as well as considerably higher and considerably lower.

Finally, Olsen Palmer advised on the following bank M&A transactions in March (party advised by Olsen Palmer in bold): on March 12th, Lemont National Bank agreed to be acquired by NuMark CU; on March 14th, CenTrust Bank was acquired by SmartBiz Bancshares, Inc.; and on March 21st, Magnolia State Bank agreed to be acquired by BankFirst. Olsen Palmer remains the #2 sell-side bank M&A advisor nationwide – and a top 3 overall bank M&A advisor – based on the number of transactions advised upon since 2020 (S&P Global). 

For assistance with answering questions or if we can provide additional information, please feel free to contact us.

Contact: info@olsenpalmer.com

Bank Notes: September 2024

Momentum in the bank M&A marketplace continues to build as August notched one of the higher monthly deal counts of late. Deal talks continue to accelerate and the oft-prophesied era of elevated consolidation looks increasingly imminent.

Deal pricing was largely unchanged in August relative to recent months as the median price-to-tangible book value (“P/B”) and price-to-earnings multiples were 1.34x and 13.0x, respectively.

A discussion of bank M&A activity would be thoroughly incomplete without addressing how the FOMC’s recent 50bp rate cut may impact the M&A marketplace. While dealmaking of late has been beset by a number of friction points including a liquidity crisis, bank failures, a leg-down in bank stock valuations, and an opaque economic outlook, a primary factor complicating M&A discussions has and continues to be the advent of appreciable bond losses catalyzed by the FOMC’s tightening campaign launched in early 2022.  Unfortunately, those counting on FOMC rate cuts to erase bond losses may be disappointed. While the FOMC did in fact cut its target rate by 50bp, the long end of the yield curve actually increased slightly in the immediate aftermath. Put differently, as feared but as expressed in this space previously, any FOMC rate cuts prompted an un-inversion of the curve through a decline in the short end of the curve, leaving long rates – the primary determinant of bond losses – relatively unchanged.

That said, we expect this and any additional forthcoming cuts to further spur M&A activity, especially as a number of would-be sellers were otherwise awaiting rate cuts before proceeding with a sale. Additionally, the FOMC cut will ease deal-prohibitive purchase accounting adjustments, prompting incremental transactions. Accordingly, we proffer a targeted suggest for potential sellers: consider proceeding sooner than later in order to maximize optionality and get ahead of the shallowing of the buyer pool; in other words, beat the herd.

For assistance with answering questions or if we can provide additional information, please feel free to contact us.

Contact: info@olsenpalmer.com

Bank Notes: August 2024

Budding momentum in bank M&A maintained in July as nearly $3 billion worth of total transactions were announced in the month. Also continuing through July was the ongoing trend of relatively sizeable community bank M&A transaction announcements: on July 26th, West Virginia-based WesBanco, Inc. ($18.1 billion in assets; NASDAQ: “WSBC”) agreed to acquire Ohio-based Premier Financial Corp. ($8.8 billion in assets) in an all-stock transaction valued at approximately $960 million. Meanwhile, on July 29th, Mississippi-based Renasant Corporation ($17.5 billion in assets; NYSE: “RNST”) agreed to acquire fellow Mississippi-based The First Bancshares ($8.0billion in assets; NASDAQ: “FBMS”) in an all-stock transaction valued at approximately $1.2 billion.

On the valuation front, July’s deal pricing data indicated a firming up of valuations. The median price-to-tangible book value (“P/B”) multiple was 1.42x in July, a leg up from the year-to-date median of 1.31x. Meanwhile, the median price-to-earnings (“P/E”) multiple in July was 15.5x, 33% higher than the 2023 median and, interestingly, largely in-line with the levels seen from 2019 to 2022 (i.e., pre-FOMC tightening).

Looking ahead, the spotlight will be squarely on the FOMC’s rate decisioning. While cut(s) are expected by virtually all observers and have essentially been telegraphed by the FOMC, the question from our vantage point is what impact rate cut(s) will have on banking and bank M&A. While the conventional wisdom is that rate cuts will temper escalating funding costs and, ultimately, appreciably lower such costs, we question whether rate cuts will prove the panacea many hope, at least near term. Liquidity remains tight, loan-to-deposit ratios remain elevated, loan growth continues apace, and funding competition – from both banks and non-banks – remains stout. Moreover, nearly $1 trillion in deposits have left the banking industry since levels peaked in Q1 2022. All told, any looming cut(s) in rates may take some time to salve the pain of elevated funding costs.

With changes afoot in the bank M&A landscape, this is a particularly apt time to re-calibrate your bank’s strategic plans whether as a potential seller, a would-be acquirer, a prospective merger partner, or in remaining independent. Particularly for those considering a sale at some point, an informed update on market conditions, valuation, and deal preparation and best practices would likely be beneficial for maximizing optionality and value.

For assistance with answering questions or if we can provide additional information, please feel free to contact us.

Contact: info@olsenpalmer.com

Bank Notes: July 2024

In this expanded “2024 Mid-Year Review” edition of The M&A Monitor, we examine the full spectrum of bank M&A activity through the first half of 2024 (“1H 2024”) including transaction activity; pricing and valuation trends; deal drivers; geographic nuances; and best practices.

Bank M&A was sluggish in 2023 largely due to two particular variables: first, the ripple effects of the sharp increase in interest rates in recent years, particularly the onset of bond losses and adjustments to M&A “deal math” required by purchase accounting created a bid-ask spread between buyers and sellers; second, a sharp decline in bank stock prices – initially triggered by regional bank failures but now fueled by margin compression and flattening earnings – is exacerbating this bid-ask spread.

More recently, however, M&A discussions are decidedly freshening and the pace of deal announcements has increased, including several relatively large and/or otherwise noteworthy transactions. Indeed, in 1H 2024, the number of bank M&A transactions was nearly 25% higher than in 1H 2023 while the aggregate dollar value of such transactions increased nearly ten-fold over the same period. Looking ahead, the banking industry appears to be on the brink of a period of substantial M&A activity as the underlying forces driving consolidation over time all still largely hold and have become even more stout in recent years. Deal discussions will especially gain momentum as the FOMC’s easing intentions come into focus, as clarity on the economic outlook emerges, and if and as the ongoing recovery in bank stocks – up ~20-25% over the past month or so holds and/or gathers momentum.

Accordingly, this is a particularly apt time to re-calibrate your bank’s strategic plans whether as a potential seller, a would-be acquirer, a prospective merger partner, or in remaining staunchly independent. Particularly for those considering a sale at some point, an informed update on market conditions, valuation, and deal preparation and best practices would likely prove beneficial, especially as a bottleneck of sellers appears to be building, a surge that would be beneficial to get ahead of, if and as feasible.

For assistance with answering questions or if we can provide additional information, please feel free to contact us.

Contact: info@olsenpalmer.com

Bank Notes: June 2024

The resurgence in the bank M&A marketplace observed in April sustained in May as thirteen whole-bank transactions were announced over the course of the month, continuing a marked uptick in activity relative to 2023. Indeed, the aggregate deal count year-to-date through May 2024 was nearly 60% higher than in the same period last year.

As in May - which saw UMB agree to acquire HTLF and Wintrust agree to acquire Macatawa Bank - June similarly witnessed 2 transactions of notable size involving acquirers with assets above $30 billion: on May 10th, West Virginia-based United Bankshares, Inc. ($30.0 billion in assets; NASDAQ: “UBSI”) agreed to acquire Georgia-based Piedmont Bancorp, Inc. ($2.1 billion in assets) in an all-stock transaction valued at approximately $270 million. Meanwhile, on May 20th, Florida-based SouthState Corporation ($45.1 billion in assets; NYSE: “SSB”) agreed to acquire Texas-based Independent Bank Group, Inc. ($18.9 billion in assets; NASDAQ: “IBTX”) in an all-stock transaction valued at approximately $2 billion. Both transactions entail the entrance of each respective acquirer into a new state.

On the valuation front, deal pricing strengthened in May. The median price-to-tangible book value (“P/B”) multiple was 1.49x in May approximately 20% higher than both the prior month and the year-to-date median of 1.23x. The median price-to-earnings (“P/E”) multiple in May was 18.6x, largely in-line with the       year-to-date median.

Challenging funding costs and compressing margins continue to influence M&A activity (and the broader banking landscape) in a variety of ways. We note that while the median yield on loans increased 38 bp in Q1 2024 relative to full-year 2023, the median cost of interest-bearing deposits increased 66 bp over the same period. By extension, the spread between median loan yields and median cost of interest bearing funds shrunk by almost 30 bp in Q1 2024 and, in fact, has declined by nearly 100 bp between 2021 and Q1 2024.

Finally, on May 16th Republic Bank of Arizona agreed to be acquired by Pima Federal Credit Union. Olsen Palmer advised the parent company of Republic Bank of Arizona in connection with this transaction.

For assistance with answering questions or if we can provide additional information, please feel free to contact us.

Contact: info@olsenpalmer.com

Bank Notes: May 2024

Dealmaking activity in the banking industry evidenced a resurgence of sorts in April as twelve transactions were announced over the course of the month. Over a broader arc, the aggregate deal tally year-to-date through April was 30% higher than in the same period in 2023. Similarly, and more profoundly, the aggregate value of announced transactions is 7 times higher in year-to-date 2024 than in the same period last year.

April also saw 2 transactions that were particularly noteworthy: on April 15th, Chicago, IL-based Wintrust Financial ($57.6 billion in assets; NASDAQ: “WFTC”) agreed to acquire Michigan-based Macatawa Bank Corporation ($2.6 billion in assets; NASDAQ: “MCBC”) in an all-stock transaction valued at $512 million. The effective price is subject to a variable exchange ratio (i.e., fixed price) within a collar around Wintrust’s stock price but a fixed ratio (i.e., floating price) beyond both the high and low ends of the collar. Meanwhile, on April 29th, Kansas City, MO-based UMB Financial ($45.3 billion in assets; NASDAQ: “UMBF”) agreed to acquire Colorado-based Heartland Financial USA Inc. ($19.1 billion in assets; NASDAQ: “HTLF”) in an all-stock deal valued at approximately $2.0 billion, UMB’s first whole-bank acquisition in nearly ten years. Both transactions are notable both due to the size and M&A strategies of the respective acquirers as well as for the size and strategic trajectories of the respective sellers. Moreover, given that both acquirers have assets currently or prospectively above $50 billion, both transactions will also provide greater visibility into the current approvability postures of the applicable regulatory bodies related to larger transactions.

Finally, in April, Olsen Palmer served as financial advisor on several transactions across the U.S. (party advised by Olsen Palmer indicated in bold): on April 10th, Mississippi River Bank (Louisiana) was acquired by Merchants & Marine Bank (Mississippi); on April 17th, Johnson County Bank (Tennessee) agreed to be acquired by Skyline National Bank (Virginia); on April 18th, Heritage Bank (Minnesota) agreed to sell 1 branch to Levo Credit Union (South Dakota); and on April 30th, OneSouth Bank (Georgia) was acquired by Five Star Credit Union (Alabama).

For assistance with answering questions or if we can provide additional information, please feel free to contact us.

Contact: info@olsenpalmer.com

Bank Notes: April 2024

Strong undercurrents in the banking industry are driving a decided buildup in M&A discussions. On the one hand, many of the otherwise-intended transactions that went dormant or were otherwise unpursued over the past two years due to volatile market conditions remain in the queue. On the other hand, stubbornly challenging operating conditions – particularly swelling regulatory oversight, flattening earnings, and persistent funding challenges – are increasingly nudging other bankers to the M&A marketplace, whether as a prospective acquirer, seller, or merger counter-party.

That said, the pace of M&A activity remains relatively tempered as evidenced by the total deal count in March after a somewhat busier first two months of the year. The disconnect between the growing tide of deal discussions and the moderated pace of deal announcements is explained, in large part, by the view held by many would-be sellers with appreciable levels of bond losses that a sale should be pursued at a later date only after interest rates decline and, in turn, at least a portion of bond losses are erased. While a valid thesis, a number of counterfactual questions merit consideration: What if interest rates do not actually decline much in the coming years? What if rates do decline but any incremental value from potential rate cuts (and recoveries in bond losses) is partially or wholly offset by a decline in M&A pricing due to weakened economic conditions that drove rate cuts? And what if the buyer list is thinner – or potentially even non-existent – by the time rates do decline appreciably and a sale is pursued?

On the branch deal front, such transactions remain few and far between, entirely due to a lack of seller supply not due to lack of acquirer demand. In fact, pricing for branch deals is at robust levels, an unsurprising finding given that deposit premia generally track the interest rate cycle. The takeaway: if you have one or more branch location(s) that you have considered divesting for strategic reasons, now would be a particularly good time to consider doing so.

Finally, Olsen Palmer advised Lafayette Bancorp, Inc. in its sale to Guaranty Capital Corp. which was completed on March 1st.

For assistance with answering questions or if we can provide additional information, please feel free to contact us.

Contact: info@olsenpalmer.com

Bank Notes: March 2024

While March Madness may be upon us, the bank M&A arena has been less frenzied. Bucking the up-and-down pattern traced in recent months, February’s deal count was similar to January’s while, more broadly, nascent deal discussions – a leading indicator of M&A announcements are freshening.

Indeed, through February, 2024 annualized transaction volume is on pace to be ~35% higher than in 2023 buttressing a hypothesis that the banking industry is on the verge of an era of elevated consolidation. The proverbial match that will light a broader bank M&A fire will likely come in the form of greater visibility on: 1) economic and credit conditions; 2) bank stock prices; and 3) interest rates.

On the latter, rate-driven bond losses have been the primary deterrent of dealmaking in recent years as buyers and sellers have grappled with transactional implications. For example, many buyers approach seller bond losses as a total loss, a stark fallacy given that buyers will recoup 100% of seller bond losses in their entirety post-transaction, albeit over time, either via accretion through maturity or incremental yield captured through portfolio rebalancing.

A similar misconception by would-be sellers is a tabling of a potential sale until rates decline and bond losses dissipate. Unfortunately, this may also prove fallacious: if and as the FOMC starts cutting, empirical data suggest the impact will be seen primarily in the shorter end of the curve with a lesser impact on long rates which drive bond losses. In other words, as opposed to a parallel decline in the yield curve, FOMC cuts may just cause the yield curve to un-invert. If so, rate cuts may unfortunately provide only limited remedy for bond losses, a finding to be factored into M&A planning and timing.

Valuations remained somewhat stable in February though few transactions reported terms. On pricing, we recently hosted a Webinar discussing best practices for determining a bank’s actual sale value which is available for on-demand replay, please email info@olsenpalmer.com for details.

For assistance with answering questions or if we can provide additional information, please feel free to contact us.

Contact: info@olsenpalmer.com

Bank Notes: February 2024

Bank merger activity rebounded somewhat in January as 10 transactions were announced over the course of the month, roughly twice as many as in recent months and, in fact, a 5-month high water mark. While overall dealmaking remains somewhat tepid, below the surface, the M&A marketplace is gathering appreciable momentum, due to three factors: 1) a clearing of the backlog of deals otherwise intended over the past ~24 months; 2) a mean reversion to customary annual transaction counts driven by perennial deal drivers (e.g., retirements/succession, shareholder liquidity, etc.); and 3) incremental transactions triggered by stiffening operating, regulatory, and economic conditions.

Given the outlook for materially greater deal activity ahead, bank directors and management teams would do well to understand the protracted timeline involved in a bank M&A transaction. Of note, the period between transaction ‘launch’ and a signable merger agreement can be anywhere between ~3 to 12 months (or longer) depending on the nature of discussions and the process utilized. From there, the period between signing a binding merger agreement and the subsequent closing is typically 4 to 6 months, though we have seen as short as 2 months and as long as 2+ years. The upshot is that a transaction can take anywhere from 9 months to 2 years (or longer) to get from start to closing, not to mention post-closing commitments that acquirers commonly require of the seller’s CEO and/or management. In short, transactions take time. Accordingly, as a best practice, we recommend thoroughly understanding the steps in the transaction sequence, the corresponding timelines, and recommended preparatory measures to be taken beforehand and along the way.

Finally, by way of recent Olsen Palmer transactions: on January 2nd, 22nd State Bank agreed to sell 5 branches to All In Credit Union; on January 16th, SunSouth Bank was acquired by All In Credit Union; and on January 31st, The Bank of Denver was acquired by MidWest One Financial Group (party advised by Olsen Palmer indicated in bold).

For assistance with answering questions or if we can provide additional information, please feel free to contact us.

Contact: info@olsenpalmer.com

Bank Notes: January 2024

In this expanded Year-in-Review edition of The M&A Monitor, we examine bank M&A activity in 2023 and proffer our outlook for 2024 including deal activity; transaction pricing; key deal drivers; geographic nuances; and best practices.

Bank M&A was sluggish in 2023 as only 98 whole-bank transactions were announced, 40% lower than in 2022 and, in fact, one of the lowest annual tallies on record. While the languid pace of dealmaking can be attributed to a variety of factors – inflation, economic uncertainty, ballooning funding costs, headline-grabbing bank failures, a precipitous decline in bank stocks, etc. – one factor was, by far, the biggest culprit: the sharpest increase in the federal funds rate in more than 40 years and the ripple effects thereof, particularly the advent of bond losses and the resulting bid-ask spread.

Deal pricing also moderated in 2023 as the median price-to-tangible book value (“P/B”) and price-to-earnings (“P/E”) multiples were 1.27x and 11.8x, respectively, approximately 17% lower than in 2022.

All that said, 2023 is likely to prove less of an extinguishment of consolidation activity and more of a deferral of dealmaking into future periods. The annual consolidation rate is typically 3% - 5% indicating that as many as 150 otherwise-intended transactions went missing in 2023. Looking ahead, the stage is set for a period of elevated M&A activity ahead as the tectonic forces driving consolidation in recent years still hold and, in fact, have become appreciably more stout.

Accordingly, a re-calibration of your bank’s strategic plans is recommended whether as a potential seller, a would-be acquirer, a prospective merger partner, or none of the above. Especially for those considering a sale at some point, an informed discussion of market conditions and optimal timing would prove advantageous; a bottleneck of sellers appears to be building, a surge that would be beneficial to get ahead of, if and as feasible.

For assistance with answering questions or if we can provide additional information, please feel free to contact us.

Contact: info@olsenpalmer.com