2025 Bank M&A Survey: Primed for a Rebound

Could banking industry growth prospects rebound in 2025?

Merger activity has slowed in recent years, driven by factors including unrealized losses on banks’ balance sheets and uncertainty about regulatory approvals. At the same time, the interest rate environment has challenged bank profitability, tamping down borrowing demand and making core deposits more expensive.

Bank executives and directors responding to Bank Director’s 2025 Bank M&A Survey, sponsored by Crowe LLP, strike a cautiously optimistic note about the prospect of M&A.

“The general sentiment in the industry is that M&A is back on the table,” says Patrick Vernon, a strategy and transaction advisory senior manager at Crowe. “Some of those lower yielding assets have rolled off, and we’ve seen banks aggressively restructuring balance sheets, which allows for those pricing multiples to be more reflective of what a buyer would expect.”

Forty-three percent of bank leaders say their organization is very or somewhat likely to buy another bank by the end of 2025, up from 35% a year earlier. Among respondents who were open to acquiring, scale to drive technology and other investments (43%) and geographic expansion (37%) are cited as the two most important factors driving acquisition strategies.

Among prospective acquirers from publicly traded banks, 55% believe their bank’s stock is attractive enough to buy a target that meets their criteria, reflecting broader improvements in bank stock prices over the past year. In last year’s survey, conducted as the industry experienced widespread stock depreciation on the heels of a trio of large bank failures, 40% said their bank’s stock would be strong enough to make such an acquisition. Bank stocks have since rebounded; for example, the KBW Nasdaq Bank Index was up 68% from the prior year as of Oct. 23.

Despite these positive signs, deposit costs continue to challenge bank profitability, according to 72% of respondents. That should improve if the Federal Reserve continues to cut interest rates. The survey was fielded in September 2024, with most respondents taking part before the Fed moved to cut rates by 50 basis points; 60% expect lower core deposit costs in such a scenario.

In the survey, 40% of bank leaders cite concerns about regulatory compliance costs as a significant challenge to profitability. And more than a third point to an increased compliance burden as an obstacle to organic growth, up from 22% a year earlier.

“I think the regulatory pendulum is swinging so very far into the weeds that it is going to choke us,” wrote the CEO of a small, midwestern bank who responded to the survey. He believes the need for scale in such an environment could drive more consolidation. “It is getting harder and harder to maintain acceptable profitability as a small, family-owned bank in a rural marketplace.”

Barriers to Dealmaking
More than three-quarters of respondents say potential targets’ pricing expectations are a key hurdle to making an acquisition, followed by demands on bank capital (52%), culture or personnel integration (52%) and a lack of suitable targets (50%).

Pricing Divide
Forty percent of potential buyers would pay up to 1.5 times tangible book value for an institution that meets their criteria, while another 34% would pay up to 1.2 times book value. A majority of potential sellers want a minimum value of 1.5 times book value, or more, if they were to sell.

Capital Plans
Most respondents representing publicly traded banks expect to continue paying dividends or buying back stock at historical levels (46%) or increase dividend payments or buybacks (44%). That could indicate that bankers see dividend payments or buybacks as a show of strength to shareholders, Vernon says.

Appetite for MOEs
Nearly half of bank leaders (48%) indicate their management team would consider a merger of equals or similar strategic combination, compared with 41% a year ago. Banks between $250 million and $5 billion of assets were much likelier to say they would consider a merger of equals.

Obstacles to Organic Growth
Respondents cite competition by other financial institutions (48%), economic uncertainty (44%) and the high interest rate environment (36%) as the top obstacles to organic growth. They also report growing concern about the regulatory compliance burden (34%) as well as sluggish or limited loan demand (31%) as impediments.

Credit Union Deals
A majority (76%) of bank executives and directors believe credit unions should be banned from buying banks. Respondents representing banks under $10 billion of assets are more likely to express this view.

To view the high-level findings, click here.

Bank Services members can access a deeper exploration of the survey results. Members can click below to view the complete results, broken out by asset category and other relevant attributes. To find out how your bank can gain access to this exclusive report, contact [email protected].