How large does a bank need to be to compete in today’s marketplace? Size may be up for debate, but the 67 percent of respondents to Bank Director’s 2016 Bank M&A Survey, sponsored by Crowe Horwath LLP, believe their bank needs to grow significantly.
What is the “just right” asset size for the industry? A slim majority of respondents—32 percent, mostly from banks below $1 billion in assets—say that their bank needs to hit that $1 billion target size to remain competitive in a consolidating industry. Data in recent years shows that most sellers are smaller institutions whose leadership may have believed that the bank could not compete with larger organizations in today’s climate.
Bank Director surveyed chief executive officers, chairmen, independent directors and senior executives of U.S. banks via email to examine current attitudes and challenges regarding bank M&A, and what drives banks to buy and sell. One-third of the 260 respondents serve as their institution’s chief executive, and 45 percent serve as an independent director or chairman. Almost half of respondents report their bank has made an acquisition since the 2008 financial crisis.
The survey also finds that 62 percent of respondents feel that the current environment is more favorable for bank M&A. However, bank leaders also hint at potential credit concerns in the near future: Forty-six percent say they’re beginning to see a deterioration in loan underwriting standards within the industry, which could sow the seeds of asset quality problems during the next economic downturn. If credit quality issues arise again, the impact could be detrimental to financial institutions seeking growth through M&A. Credit quality issues have been among the most often cited barriers for banks being able to complete acquisitions.
Other key findings:
- Fifty-one percent report their bank intends to purchase a healthy bank within the next 12 months.
- Of respondents who have not made an acquisition, or haven’t acquired another institution since 2007 or prior, 32 percent say their bank has elected to stay out of the market due to a preference for organic growth.
- For banks that have been acquirers since 2008, credit culture, at 32 percent, and retaining key talent that aligns with the buyer’s culture, at 31 percent, were identified as the most difficult aspects of integration after the bank’s most recent deal closed.
- More institutions are using social media channels like Facebook, Twitter or LinkedIn to communicate with customers following an acquisition. Facebook, at 26 percent, is the most popular channel used by respondents.
- Of the respondents who served as a board member or executive of a bank that was sold from 2012 to 2015, 55 percent say they sold because shareholders wanted to cash out. Twenty-seven percent cite limited growth opportunities. Despite concerns that regulatory costs are causing banks to sell, just 27 percent cite this burden as a primary motivator.
To view the full results to the survey, click here.