Bank buyers increase activity in July, raising expectations for more M&A

Hopes for lower interest rates and the reality of stronger stocks drove banks merger and acquisition activity in July and ensured that 2024 would easily surpass last year’s transaction volume.

In the first seven months of this year, 67 banks announced divestment plans, according to an updated S&P Global Market Intelligence tally this week. A dozen of those were announced in July. There were 100 deals announced last year.

While the vast majority of sellers are community banks, acquisitions are up this year noticeably bigger tooThe total value of deals concluded so far in 2024 is $9.25 billion, significantly exceeding the $4.15 billion for the whole of last year, according to S&P Global.

“There’s definitely more talk about M&A,” said Robert Bolton, president of community banking investment firm Iron Bay Capital. “I’m hearing that from a lot of management teams.”

The KBW Nasdaq Bank Index is up nearly 20% year-to-date through the end of July. Most of the gains were made last month after the Federal Reserve, reporting lower inflation readings, indicated it could cut interest rates as early as September. Lower interest rates could boost demand for loans and lower the cost of deposits, significantly boosting banks’ profit potential and making them more attractive to investors, Bolton said.

As such, he said the ability of bank buyers to use their shares as currency to pay for acquisitions improves when valuations rise. Sellers are more willing to accept deals supported by strengthening stocks.

“We could definitely see more transactions, and the ability to pay is definitely an important component,” Bolton said.

Five of the 20 largest deals this year, measured by deal value, were announced in July, including the Tupelo, Mississippi-based Renasant Corp. $1.2 billion, equity-only offering for state partner The First Bancshares in Hattiesburg. It was the third-largest transaction this year. Also in July, Wheeling, West Virginia-based WesBanco signed a $959 million, all-stock deal for Premier Financial in Defiance, Ohio, the fourth-largest M&A deal this year.

The largest deal in 2024 was the one with Winter Haven, Florida SouthState Corp. worth $2 billion, entirely equity-based, take over Independent Bank Group in McKinney, Texas.

SouthState Chief Executive John Corbett told analysts on a call after the Independent deal was announced in May that he remains open to more M&A opportunities, especially in high-growth markets like Texas.

“We are accumulating excess capital and building reserves larger than our competitors so that we have the funds to invest when the time is right,” Corbett said.

The SouthState deal was followed in April by Kansas City-based UMB Financial’s plan to buy Denver-based Heartland Financial USA in an all-stock deal valued at just under $2 billion.

Despite recent activity, new recession fears in early August threw out potential obstacles for banking equities and the mergers and acquisitions market.

Bank stocks in early August gave up half of their 2024 gains after the Labor Department reported that U.S. employers added 114,000 jobs in July, compared with an average of 215,000 in the previous 12 months. The economic indicator raised concerns about a slowing labor market and a looming economic crisis and triggered a broad decline in stocks that weighed on banks.

“The catalyst was” “the unexpectedly disappointing jobless claims,” said Raymond James trader Doug Drabik. “Investors turned their fears of inflation into fears of recession.”

Weaker stock prices and economic uncertainty could push some buyers or sellers to the sidelines.

Still, Bolton argued that one month of employment data doesn’t set a trend. He expects stocks to be volatile through the summer as investors wait for clarity on interest rates and the presidential election. But he said the July rally in banking stocks showed that investors believed stocks were undervalued and that better days were ahead.

The drumbeat of banks buying rivals continues, with two small deals announced this week. Security Bancshares of Paris, Tenn., said it agreed to buy state rival Bancshares of Ripley. Berco Inc., based in Salina, Kansas, said it would buy New Millennium Bankshares of Topeka, Kan. Financial terms of neither deal were disclosed.