Banking Strategist

BANK MERGER TRENDS

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Data is as of Q4 2023 from FDIC Call Reports.

Bank mergers are not a new or recent phenomenon. These strategic steps have been taken by bankers since the early 1900’s. Bank mergers were occurring at the rate of 150 to 350 per year (White, Eugene Nelson. “The Merger Movement in Banking, 1919-1933”). With a population of banks totaling above 25,000, the Bank Merger Rate was in the range of 0.6% to 1.4% in the early 1900’s. To put in perspective, the Bank Merger Rate was 2.3% with 107 bank mergers in 2023.

The metric - Bank Merger Rate - is calculated by dividing the number of banks that merged during the year by the number of banks in existence at the beginning of the year.

There was no law defining a true merger between two banks in those early years. The work-around solution was to have the Selling Bank liquidate and to have the Acquiring Bank purchase the assets and assume the deposits and other liabilities (think Credit Union acquisition of a commercial bank today). For a national bank, the surviving bank could only operate out of a single office as no branching was allowed such that one of the offices of the newly merged bank would close.

In 1918, a bank merger law was enacted for national banks. The Act of November 7, 1918 allowed for the merger of a national bank with another national bank if located within the same county or city. This structure did not accommodate state banks so the previous process remained in use (liquidation, followed by purchase and assumption).

In 1927, the McFadden Act was enacted allowing state and national banks within the same county or city to merge. This Act also gave national banks the same branch banking rights as state banks within that state such that a merger could result in branch offices.

The banking industry consolidation has been on-going for more than four decades. The pace - known as the Bank Merger Rate - has moved up and down - the current decade of 2020’s being below levels of all recent decades except the decade of the 1980’s.

Banks of all sizes participate in merger activity. While the largest banks get the press for their mergers (and in a note here below), Community Banks continue to participate as buyers and sellers in over seventy-five percent of bank mergers.

Banking industry consolidation continues - albeit, more slowly. Selling banks represented nearly every state in the U.S. While most states had acquiring banks, there are pockets of more concentrated activity. Among the more active states with selling banks, more than 70 percent of those sales were to banks within their state. Finally, the impact of the COVID-19 pandemic is showing as the number of bank mergers has fallen significantly since the eruption of the pandemic in Q1 2020; while there is some recent recovery, pace remains below historical trends. And banks of all sizes continue to participate in M&A activity as both acquirers and as sellers. It is not a “large bank”-only strategy.

Recessions: January - June, 1980; July 1981 - November 1982.

Banking Crises: Farm Crisis (1982 - 1986); S&L Crisis (1989 - 1992); Oil Sector Crisis (1987 - 1992).

Bank and Thrift Failures: 1,462.

Bank and Thrift Mergers: 4,353.

Community Bank Participation: Majority of Buyers < $1 billion in total assets; many Buyers < $10 billion in total assets.

Merger Accounting: (1) Purchase or (2) Pooling of Interests.

Key Legislation: During the 1980’s, two laws were enacted that broadened the powers of thrifts or savings and loans: Depository Institutions Deregulation and Monetary Control Act (1980) and Garn-St. Germain Act (1982).

The industry consolidation started slowly in the 1980’s, but quickly rose.

The first half of the decade was characterized by in-state or intrastate mergers as federal and state laws did not allow for mergers across state lines.

Following the enactment of state laws allowing interstate bank mergers, regional consolidations commenced during the second half of this decade. These laws allowed interstate bank mergers only on a reciprocal basis between states that were contiguous to each other.

Recessions: July 1990 - March 1991.

Banking Crises: S&L Crisis (1989 - 1992); Oil Sector Crisis (1987 - 1992).

Bank and Thrift Failures: 917.

Bank and Thrift Mergers: 6,020.

Community Bank Participation: Majority of Buyers < $1 billion in total assets; many Buyers < $10 billion in total assets.

Merger Accounting: (1) Purchase or (2) Pooling of Interests.

Key Legislation: The 1990’s saw the pace of industry consolidation accelerate with the full advent of interstate banking following the enactment of the Reigle-Neal Interstate Banking Act of 1994, which included national and state deposit market share caps. In 1999, the Gramm-Leach-Bliley Act removed barriers to commercial bank, investment bank and insurance company mergers and other relationships.

The decade of the 1990’s had the most bank mergers with the pace of merger activity twice that of the prior decade of the 1980’s.

Recessions: March 2001 - November 2001; December 2007 - June 2009 (“Great Recession”).

Banking Crises: Residential Real Estate Crisis (2008 - 2014).

Bank and Thrift Failures: 197.

Bank and Thrift Mergers: 3,319.

Community Bank Participation: ~50% of Buyers < $1 billion in total assets; ~65% of Buyers < $10 billion in total assets.

Merger Accounting: (1) Purchase or (2) Pooling of Interests (not allowed after 2000).

Key Legislation: The Emergency Economic Stabilization Act (2008) was enacted to restore liquidity to credit markets through the purchase of up to $700 billion in MBS and other troubled assets, as well as any other financial instrument deemed necessary to promote financial market stability; and eventually led to direct investments in banks and thrifts.

Accounting Developments: FASB eliminated use of “pooling of interests” accounting for business combinations commencing in 2001.

The 2000’s continued the accelerated pace of the 1990’s, but came to a dramatic slowdown late in the decade as the Great Recession commenced.

The decade of the 2000’s saw a dramatic decline in bank mergers. However, as the total number of bank charters continued to drop, the pace of merger activity slowed only moderately compared to the prior decade of the 1990’s.

Recessions: None.

Banking Crises: Residential Real Estate Crisis (2008 - 2014).

Bank and Thrift Failures: 363.

Bank and Thrift Mergers: 2,376.

Community Bank Participation: ~50% of Buyers < $1 billion in total assets; ~75% of Buyers < $10 billion in total assets.

Merger Accounting: Purchase only.

In the decade of the 2010’s, the industry consolidation continues at a pace mirroring the historic average of the past four decades.

The level of bank mergers decreased relative to the 2010’s decade. But with the overall decline in bank charters, the pace matched the pace in the prior decade.

Recessions: COVID pandemic and related economic collapse and recovery.

Banking Crises: Uninsured deposit run - March 2023.

Bank and Thrift Failures: 9.

Bank and Thrift Mergers: 584.

Merger Accounting: Purchase only.

Community Bank Participation: ~45% of Buyers < $1 billion in total assets; ~90% of Buyers < $10 billion in total assets. As the decade of the 2020’s commences, the industry consolidation continues at a more tempered pace due to the COVID pandemic. The level of bank mergers also decreased relative to the 2010’s decade.

1. FDIC Bank Find suite of data

2. FDIC Statistics at a Glance

3. Stephen A. Rhoades, Federal Reserve Staff Study 174, "Bank Mergers and Banking Structure
   in the United States, 1980–98,": Board of Governors of the Federal Reserve; August 2000.