Bank merger-and-acquisition activity, overall, has slowed substantially in 2022 amid lofty inflation, rising interest rates and downward pressure on stocks. But serial bank buyers say they remain on the prowl, viewing shifts in the industry landscape as temporary speed bumps to long-term growth.
"The change in the interest rate environment will have no impact whatsoever on our M&A strategy," Mark Tryniski, president and CEO of Community Bank System in Onondaga, New York, said on the company's second-quarter earnings call.
Interest rates are increasing to combat inflation, hindering many banks' bond portfolios and raising questions about credit quality and higher deposit costs — but such challenges come and go through cycles, Tryniski said, and the bank does not want to halt its long-term growth ambitions because of near-term hurdles.
The $15.5 billion-asset bank has closed a string of bank and nonbank acquisitions over the past several years, including most recently its
"As rates go up, rates go down, we try to be disciplined around what we do from an M&A perspective," Tryniski said. "Some opportunities are more tactical in terms of earnings accretion and the shareholder benefit. Others are more strategic in terms of longer-term potential and opportunities in certain markets. But the loan marks, the credit marks, the core deposit intangible marks, none of that really makes a difference."
Seacoast Banking Corp. of Florida struck an optimistic M&A note during earnings season and then amplified it Monday with
M&A momentum at the $10.8 billion-asset Seacoast continues unabated.
Seacoast said in May it was
Seacoast, of Stuart, Florida, said there are still future targets on its radar as well.
"With the combined scale" of all the deals, "we will bring to market a larger balance sheet, a greater digital product set and the resources to become South Florida's most competitive community bank," Seacoast Chairman, President and CEO Charles Shaffer told analysts Monday.
Shaffer had suggested more deals were possible during the company's recent earnings call.
"I would say deal conversations remain as active as they have been previously," Shaffer said. "We've really seen no slowdown in the amount of conversations across the state."
To be sure, Seacoast and Community Bank System stand apart from the crowd. In addition to the impacts of rising rates, many other would-be buyers have moved to the sidelines in the wake of elevated regulatory scrutiny ordered by
That began to dissuade deal conversations early this year. Already high inflation then jumped even more following Russia's invasion of Ukraine — reaching a 30-year peak in the second quarter — and motivated Federal Reserve policymakers to ratchet up interest rates to rein in soaring prices.
What's more, the KBW Nasdaq Bank Index was down nearly 18% through the first seven months of 2022. When banks' shares are down, it makes it more difficult to strike stock deals.
Only 35 banks decided to sell during the second quarter. That was down from 49 the prior quarter and well below the 66 transactions announced a year earlier, according to a Raymond James analysis.
"Bankers are pretty conservative, but a lot of banks are getting even more conservative now," said Michael Jamesson, a principal at the bank consulting firm Jamesson Associates. "They see a lot of uncertainty out there, and that makes it difficult to make big decisions."
But at least some still have a healthy M&A appetite. Count Prosperity Bancshares in Houston among them.
"For us, it's been more active this quarter" — the second quarter — "than probably the previous quarter. I think we've had a pretty active quarter in talking to different banks," Senior Chairman and CEO David Zalman said on the $37.4 billion-asset Prosperity's earnings call.
"We're primarily first focused on the states of Texas and Oklahoma because that's where we're at right now," he added. "Having said that, we've had some banks from out of state that we've talked about. … If we go to another state, we wouldn't do it unless we think we could really be in the top five, and that's in assets and deposits."
Daniel Goerlich, banking and capital markets deals leader at PwC, said that aside from prolific acquirers that are highly confident in their dealmaking abilities, more banks are leery about M&A this year.
"There is a general sense of caution about going into spending mode versus cost savings mode" with the specter of recession looming, he said. That noted, even while being more cautious, he said many banks remain interested in potential M&A to expand their geographic footprints, acquire talent and gain new business lines.
CVB Financial Corp. in Ontario, California, is among them. The $16.8 billion-asset company's CEO, David Brager, said deal talks have "definitely slowed," but "conversations are still there."
He said on the company's earnings call that he remains interested in a deal but would approach one with a healthy level of skepticism.
"Any due diligence that we would do going forward" on a potential target, the possible impacts of an "economic slowdown and the credit quality would be an enormous part," Brager said. "It always is, but it might even be bigger now."
