During the COVID-19 recession, regional and community banks put merger plans on hold until the economy started recovering, though loan demand is still low and profits from lending are narrow, the Wall Street Journal reports.
Also keep in mind that historically low interest rates have contributed to declining net interest margins. Banks with assets between $1B and $10B have a Q2 net interest margin of 3.31% vs. 3.71% in Q2 2019, according to the WSJ.
"Neither potential sellers nor buyers really wanted to do a transaction last year because of the uncertainty that could be on folks' balance sheets," said Kevin Riley, chief executive officer of First Interstate BancSystem (NASDAQ:FIBK).
By the end of 2020, serious merger talks resumed, and banks are on track this year to merge at levels not seen since the 2008 financial crisis, the WSJ notes, citing executives and regulatory filings.
The dollar value of announced bank deals on an annualized basis of $54B in 2021 increased substantially more than 2020's level of $17B in mergers.
"[Banks] are no longer fearful of the bottom falling out," said Nathan Stovall, an analyst at S&P Global Market Intelligence. "They are no longer looking at a deal like trying to catch a falling knife."
This month, First Interstate BancSystem acquired regional lender Great Western in an all-stock transaction valuing GWB at approximately $2.0B — a deal that will boost its assets to more than $32B.
In addition, last week, U.S. Bancorp (NYSE:USB) agreed to acquire MUFG Union Bank's core regional banking franchise from Mitsubishi UFJ Financial Group (OTCPK:MBFJF)(NYSE:MUFG) for ~$8B cash and stock deal.
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