Chicago mutual banks call off merger plans

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A pair of depositor-owned banks in Chicago that had planned to merge early this year abruptly called off the deal. It was the latest in a string of terminations in an era of heavy regulation.

Mutual Federal Bancorp said in a press release Friday night that its $100 million-asset subsidiary Mutual Federal Bank and the $50 million-asset Pulaski Savings Bank had agreed to terminate the combination.

Mutual Federal did not immediately respond to a request for comment.

The two mutuals, with one branch each, announced the deal in August and had expected to close it in the current quarter. It would have created a bank with assets of about $150 million, deposits totaling $112 million and $19 million in equity. Terms of the deal were not disclosed. Deals between depositor-owned banks don't typically involve financial consideration.  

At the time of the deal's announcement, Mutual CEO Stephen Oksas and Pulaski CEO Roger Budny said the merged company would be able to offer better service and expand resources to their customers.

Pulaski Savings was founded 1890 in Chicago's Bridgeport neighborhood. Mutual Federal, which opened in 1905, operates in the neighboring Pilsen district.

More small lenders have announced plans to merge in recent years to gain the scale needed to absorb high technology and regulatory costs. There were 125 bank sales announced last year, S&P Global Market Intelligence data show. Most of the sellers were small banks. 

Two small Massachusetts-based depositor-owned banks announced plans to merge last week. Wakefield Cooperative Bank agreed to combine with Reading Cooperative Bank to create a $1.2 billion-asset Boston-area institution. 

However, an elevated number of bank combinations have fallen apart this decade amid heightened regulatory reviews during the Biden administration's term in the White House. President Joe Biden in July 2021 ordered increased M&A scrutiny because of antitrust concerns.

At least 15 bank acquisitions were called in 2023 after 13 the year before. Only four M&A transactions fell through in 2021, according to S&P data. A final tally for 2024 was not yet available. But multiple deals were scuttled last year, including Covington, Georgia-based Affinity Bancshares' planned sale to Atlanta Postal Credit Union on the last day of the year.

The Atlanta Postal-Affinity deal ended after discussions between the credit union and regulatory agencies, the institutions said in a press release, though they did not provide additional detail.

Deal advisers, however, have predicted a shift on the regulatory front. They noted that President-elect Donald Trump vowed during his campaign to ease scrutiny of deals and regulatory burdens broadly. This could pave a smoother path for deal completions in 2025,

Trump's "pro-business stance is stirring expectations of compliance cost relief while also raising hope that new agency leaders will aim to make the merger review process more efficient and transparent," said Dan Goerlich, banking and capital markets deals leader at PwC.

He also expects this to lead to more M&A transactions this year. While last year's total was up notably from 98 bank sales announced in 2023, it was still notably lower than the 201 deal announced in 2021, the peak of this decade.

Goerlich said there is pent-up demand, with more buyers expected to emerge this year to pack on assets, expand footprints, diversify business lines and increase digital banking offerings.

"New, deeper and richer capabilities to serve clients are essential if banks are going to tap new streams of revenue," he said. "Banks are continuously looking for innovative technological assets that broaden their current product and service offering or that give them unique capabilities and a strategic advantage."