Regional Banks Pursue Mergers and Acquisitions to Enhance Competitiveness

Regional banks in the United States are reportedly actively pursuing mergers and acquisitions to strengthen their balance sheets and enhance their competitiveness in the face of challenges posed by elevated interest rates, increased competition for deposits, and losses on commercial real estate loans.

This wave of consolidation within the sector has gained momentum, with a higher number of deals being struck this year compared to the same period last year, Reuters reported Monday (Aug. 19).

Regional lenders with assets ranging from $10 billion to $100 billion have completed 38 deals this year, surpassing the 29 deals during the same period last year, the report said, citing data from Dealogic.

The largest deals that have taken place in the regional banking sector this year include SouthState’s acquisition of Independent Bank Group and UMB Financial’s takeover of Heartland Financial, per the report.

When announcing its purchase of Heartland Financial, UMB Financial said in a press release that the deal would result in it having $64.5 billion in assets and nearly double its retail deposit base.

More than two-thirds of the banks in the KBW Regional Banking Index have a greater than 50% chance of being acquired within the next 12 months, the report said, pointing to a Reuters analysis of LSEG’s StarMine M&A data.

This surge in deal-making is driven by the need for regional banks to scale up, diversify and compete more effectively in the current landscape, according to the report.

Regional banks have faced pressure due to several factors. Elevated interest rates have dampened borrowing, increased competition for deposits has driven up industry deposit costs, and losses on commercial real estate loans have strained regional banks’ balance sheets, the report said.

Mergers and acquisitions can help regional banks lower their cost of capital, expand their deposit base, and offer a wider range of products and services, per the report.

While consolidation can benefit smaller regional banks, larger deals will likely face increased scrutiny under new rules proposed by the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC), according to the report.

However, industry experts believe that regulators recognize the strong rationale for consolidation in the banking sector, the report said.