Bank consolidation, caught in a
Palmer Proctor Jr., CEO of Ameris Bancorp in Atlanta, forecast a spike in bank merger-and-acquisition activity over the next two years. He said high rates helped to curb M&A since the Federal Reserve began pushing up borrowing costs to
Small banks that are already struggling with technology and regulatory expenses are now beset by higher deposit costs. That could soon galvanize a surge in sellers, Proctor said on the company's earnings call last month.
"You're going to see a wave of consolidation," said Proctor, whose $25 billion-asset bank bought several banks over the past two decades but none since 2021. "There should be a lot of activity taking place ... as we look out into next year and into the following year."
He expects interest rates to remain elevated and, as such, customers will continue to press their banks to pay more for deposits. "What that means is a lot of banks are going to remain under pressure for earnings," Proctor said. "So I think there are going to be more and more people looking to partner together. And so as we see that, and assuming they can get regulatory approval, which right now is a big timing issue and a big if all the way around, I think aside from that, there should be a lot of activity."
SouthState Corp. CEO John Corbett echoed that thinking. He said on an earnings call the impact of higher rates on the economy is less pronounced than many in the industry worried — the U.S. economy expanded at a 4.9% seasonally adjusted annual rate in the third quarter — but the pressure on small banks' top lines persists. High rates also have slowed loan demand, adding to revenue pressures.
"So our assumption is that things are going to pick up probably in the back half of 2024," Corbett said on the $45 billion-asset bank's earnings call. "The logic is there for M&A given the revenue pressures in the industry. And we're just going to stay out on the street visiting peer banks that possibly could be partners in the future."
The Winter Haven, Florida-based SouthState closed a string of deals since the early 2000s, but only one in the past two years.
To be sure, as Proctor noted, regulatory scrutiny also has scuttled or slowed deal talks. The Biden administration called for
Through September, there were 79 bank M&A transactions announced in 2023. That was down from 122 in the same period last year, according to S&P Global data. However, activity recently accelerated. There were 34 deals announced in the third quarter, up notably from the first- and second-quarter totals of 20 and 25, respectively.
M&A momentum in banking and across industries could mount because of heightening buyer interest as well, an Ernst & Young survey of 320 U.S. CEOs this fall showed. It found 52% of top executives expect to pursue deals in the next year as more companies seek scale, business line diversity, new technology and stronger profits.
All of those drivers apply to bank buyers, said Yerbol Orynbayev, a former World Bank governor and independent industry analyst.
"With high interest rates suppressing lending income and decreasing asset values, banks must open up new revenue streams," Orynbayev said. This is "paving the way for banks to explore new deals."
The $39 billion-asset Prosperity Bancshares in Houston, long an acquisitive bank, counts itself among would-be buyers in the coming years, too, even as it wrestles with a lengthy process to close its outstanding
Still, CEO David Zalman is looking for the next acquisition.
"We continue to have conversations with bankers considering opportunities," Zalman said during an earnings call. "We believe that higher technology costs, salary increases, loan competition, funding costs, succession planning concerns and increased regulatory burden all point to continued consolidation."
