Citing regulatory challenges, Louisiana banks call off merger

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A pair of Louisiana banks near New Orleans nixed plans to merge.

MC Bancshares in Morgan City and Heritage NOLA Bancorp in Covington said the deal, announced in July 2023 and initially expected to close late last year, got pushed into 2024 amid regulatory hurdles that the banks ultimately determined were too high to clear.

Following an "extensive review of the current uncertainties in the regulatory environment and merger approval process, the board concluded that it was no longer in the stockholders' best interest to continue to pursue the proposed merger," David Crumhorn, Heritage president and CEO, said in a statement on Friday.

The banks signed a mutual termination agreement, which provides for each company to absorb its own costs tied to the transaction, without penalties.

MC Bancshares had made an all-cash offer to buy Heritage in a deal valued at $6.5 million, plus the value of Heritage's adjusted tangible shareholder's equity.  

The $171 million-asset Heritage is the parent of Heritage Bank of St. Tammany. MC Bancshares is the holding company for the $454 million-asset MC Bank & Trust Co.

"While it is unfortunate that we could not finalize this deal, MC Bank remains a very strong and well-capitalized community bank," President and CEO Chris LeBato said in the release. "We will continue to focus on our human-centric approach to banking and on strengthening the communities we serve, while staying ready for new partnership opportunities."

While it was a small deal that had little impact on the broader tally of bank M&A, it did represent a reminder that deals remain difficult to get over the finish line.

"Regulatory scrutiny is an ever-present risk to M&A transactions in today's climate," D.A Davidson analyst Jeff Rulis said in a report.

After the Biden administration in 2021 called for more intense reviews of M&A, delays in getting regulatory approval factored into multiple canceled bank mergers over the past couple years, most notably including the $13.4 billion deal to combine TD Bank Group and First Horizon in 2023.

This had a dampening effect on M&A overall.

In addition to the regulatory headwinds, the Federal Reserve's rate-hike campaign to curb inflation, dating to early 2022 and spanning 11 increases through July 2023, raised the risk of a recession and increased loan loss fears. This made some buyers nervous about would-be sellers' credit quality. 

The macroeconomic backdrop also put downward pressure on banks' stocks last year and hindered the ability for buyers to use their shares to pay for acquisitions. The regional bank failures of early 2023 — Silicon Valley Bank, Signature Bank and First Republic Bank — added further doubts.

U.S. banks announced about 100 acquisitions in 2023 with a total deal value of $4.2 billion, according to updated S&P Global Market Intelligence data. Those figures were far lower than the previous year, when banks announced about 160 deals with a total deal value of $9 billion. And 2022 was a relatively slow year compared to 2021, when more than 200 deals valued at nearly $77 billion were announced.

During the first quarter, however, 26 banks announced plans to sell. Those deals carried an aggregate deal value of $1.1 billion, according to S&P Global. That represented a substantial advance from the year-earlier quarter, when there were 20 bank deals worth a total of $433 million.