Bank mergers and acquisitions (M&A) in the first half of 2015 can be summed up with a single word: consistency. Each of the first seven months of the year has seen the announcement of approximately 25 deals per month with the exception of January, when only 20 deals were announced. The results have been a robust M&A market consistent with the one experienced in 2014.

How well 2015 turns out will depend on consistency in the remaining months. As shown below, 2014 deal volume was influenced substantially by the very strong fourth quarter. That quarter was fairly weak, though, until the last two weeks of December, when numerous unexpected deal announcements resulted in the strongest fourth quarter in years.

Based on the current pace for bank acquisitions, 2015 should end just slightly below 2014’s totals. To quantify that, the chart below shows the rate of consolidation based on the number of bank charters in use at the beginning of a period and then shows the number of announced bank deals for that period divided by the charters. The average rate of consolidation over time has been approximately 3.41 percent.

In 2014 and so far in 2015, the consolidation rate has been above 4.5 percent, which is another indication of how strong the bank M&A market is.

Credit Drives M&A Volume
So where is all of the consolidation coming from, and what are the drivers of the strong M&A volume?

Credit has been a significant driver, and last year saw credit improve enough at target banks to spur an increase in deal volume. The other drivers have been the size of the banks sold and an improvement in pricing.

Over the past five and a half years, deals have been dominated by smaller community banks (those with less than $250 million in assets), as shown below.

The median size of sellers has not fluctuated significantly over this time frame. What has changed are the levels of nonperforming assets and the profitability of the sellers. In 2010-2011 these deals were affected by high levels of nonperforming assets, which drove losses at many of the sellers. Nonperforming asset levels currently are down, and profits are up. As a result, the price/tangible book value realized increased from the lower levels of five-plus years ago and is spurring deal flow.

While deal pricing has improved, it’s interesting to look at the stratification of the number of deals in each band of price/tangible book value. Even with improved pricing, no clear pattern of where pricing is being clustered is emerging. Several bands at both the low and high ends of the pricing spectrum indicate that the deals are varied and include banks that still suffer from credit and earnings issues as well as banks in desirable markets with strong credit quality and strong earnings prospects.

All Regions Show Improvement
As shown below, all regions in the U.S. have fared well during the 18 months ending June 30, 2015. Compared to two years ago, the improvement is marked.

The highest deal volume occurred in the Midwest region, which is consistent with the fact that the Midwest has the most bank charters. However, the median size of the seller is the lowest, and this translated into the lowest price/tangible book value ratios of any region. After the initial impact of plummeting oil prices on deal volume and values, the Southwest rebounded to have the most robust pricing. The other two compelling regions are the Southeast and the West. Both regions were hit hard by declines in land values during the credit crisis and now, having weathered that storm, are experiencing strong activity and rising prices. New England continues to be strong, although the deal volume there is the lowest of any region.

Future for Bank M&A Is Consistent
2015 should shape up to be another strong year in bank M&A. The buyers are smaller in asset size than in the pre-crisis years, but they are active and looking to increase their franchise footprint. Many of the buyers are facing challenges to earnings growth, whether from a lack of organic growth in loans and deposits or because of the Federal Reserve’s prolonged low interest rates negatively affecting bank net interest margins. At the same time, many sellers have expressed concerns over the cost of regulatory burdens on their income statement, and some sellers are finding it difficult to replace retiring board members and upper management, leading them to look for a partner for the future. Whatever the impetus, the data clearly shows that bank M&A should remain consistent for some time into the future.


Rick Childs


Rick Childs is a partner at Crowe LLP.  He has over 35 years of experience in business valuation, transaction advisory services and accounting for financial services companies.  Mr. Childs is the national practice leader overseeing the delivery of transaction and valuation services to the firm’s financial institutions clientele.  His business valuation experience includes ASC 805 purchase price allocations including a focus on loan valuations, ASC 350 goodwill impairment testing and valuation of customer relationship intangible assets, including core deposit intangibles.


Mr. Childs is a frequent presenter for both national and state professional organizations including the SNL Financial, Bank Director, AICPA and Financial Managers Society.  He has published articles on mergers and acquisitions in the ABA’s Commercial InsightsCommunity BankerBank Director and Bank Accounting & Finance.