On Oct. 12, banking industry observers awoke to a surprise: Umpqua Holdings Corp. and Columbia Banking System announced their intent to form a $50 billion-plus franchise on the West Coast. Prior to the deal, Umpqua appeared to prioritize its organic growth strategy, Piper Sandler & Co. Managing Director Matthew Clark explained in a note published later that day. Columbia, on the other hand, seemed more interested in smaller deals.

The combination is the latest transformative, scale-building deal announced in 2021, including M&T Bank Corp. and People’s United Financial, Webster Financial Corp. and Sterling Bancorp, and New York Community Bancorp and Flagstar Bancorp. The rationale of those deals aligns with the M&A drivers identified by senior executives and board members in Bank Director’s 2022 Bank M&A Survey, sponsored by Crowe LLP. When asked about the primary factors that make M&A an important piece of their bank’s growth strategy, more than half seek to achieve scale to invest in technology and other key areas. Further, respondents point to a complementary culture (64%), locations in growing markets (58%) and efficiency gains (56%) when asked to identify the attributes of an effective target.

“This is an exciting combination that brings together two well-respected organizations and talented teams, accelerating our shared strategic objectives to create the leading regional bank headquartered in the West,” said Umpqua CEO Cort O’Haver in a press release. Added scale will allow further investment in technology and expand the bank’s offerings, enhancing its competitive position across “high-growth, attractive markets” in Oregon, Washington, California, Idaho and Nevada.

In an environment characterized by digital acceleration, high competition for customers and talent, and continued low interest rates, a strategic combination may prove too compelling for some to pass up.

Almost half of survey respondents say their institution is likely to purchase another bank by the end of 2022 – a significant increase compared to the previous year, and more in line with the pre-pandemic environment. Given the usual pace of M&A, it’s unlikely that most of these prospective acquirers will find a willing target. But the same factors that spur acquirers to build scale also propel sellers: 42% of respondents to Bank Director’s 2022 Bank M&A Survey say that an inability to keep pace with the digital evolution could drive their bank to sell.

Key Findings

The Right Price
Price remains a key barrier to deals, as noted by 73% of respondents. The plurality of prospective buyers (43%) indicate they’re willing to pay up to 1.5 times tangible book value for a target. Nineteen percent say they’d pay up to 1.75 times book; 9% would pay more.

Many Open to MOEs
Almost half of respondents say they’d consider a merger of equals or similar strategic combination in today’s environment. Of these, 39% say their board and management team is more likely to consider such a deal compared to before the pandemic – representing a shift in mindset for some bank leaders.

Increased Focus on ESG in M&A
While most banks are unlikely to take a comprehensive view of environmental, social and governance (ESG) issues when examining a potential deal, the majority of banks consider ESG factors when assessing strategic fit. Key among those are cultural alignment (89%), reputational risks and opportunities (73%), employee relationships/engagement (62%) and data security/privacy (51%), which can be classified as social or governance within the ESG umbrella.

Optimism About the Economy
Almost three-quarters of respondents believe the U.S. economy will experience modest growth in 2022; 14% say it will grow significantly. Further, almost all say that businesses have recovered in their markets, though some sectors remain stressed. And while 88% report that business clients express concerns about supply chain disruptions and labor shortages, most believe that this won’t have a material impact on credit quality.

Reduced Credit Risk Concerns
Last year’s survey found the top barrier to deals was asset quality; 63% of respondents named it the top concern. This year, just 36% express concerns about asset quality. In addition, fewer express concerns about loan concentrations in commercial real estate, retail or the oil sector.

To view the full results of the survey, click here.

WRITTEN BY

Emily McCormick

Vice President of Editorial & Research

Emily McCormick is Vice President of Editorial & Research for Bank Director. Emily oversees research projects, from in-depth reports to Bank Director’s annual surveys on M&A, risk, compensation, governance and technology. She also manages content for the Bank Services Program. In addition to regularly speaking and moderating discussions at Bank Director’s in-person and virtual events, Emily regularly writes and edits for Bank Director magazine and BankDirector.com. She started her career in the circulation department at the Knoxville News-Sentinel, and graduated summa cum laude from The University of Tennessee with a bachelor’s degree in Spanish and International Business.