Is 2016 the year for bank M&A?
For years, the banking industry has been talking about mergers and acquisitions (M&A). While some consolidation has occurred, it still hasn’t reached levels that many expected. Bank Director’s 2016 Bank M&A Survey, sponsored by Crowe Horwath, was recently released and offers insight on current M&A trends in the banking industry.
The survey comprised 260 current and former directors, CEOs and other senior bank executives, with 76 percent having greater than $250 million in total assets. Of those surveyed, 43 percent have acquired or merged with an institution since 2011, while 41 percent have never acquired or merged with an institution. Fifty-one percent say their institution plans to purchase a healthy bank in the next 12 months.
Here are several other highlights from Bank Director’s 2016 Bank M&A Survey:
• Only 8 percent of respondents feel the current environment is less favorable for M&A.
• When asked why the current climate is perceived as more favorable for M&A, the most popular answers selected were that more banks want to sell (77 percent), improved credit quality (47 percent) and improved stock valuations (38 percent).
• More than 65 percent of respondents believe their bank needs to grow significantly to compete in today’s market. Interestingly, those above $10 billion in total assets and those between $500 million and $1 billion had the highest rate of “yes” responses at 80 percent and 73 percent, respectively. Banks between $5 billion and $10 billion had the highest rate of “no” responses at 41 percent, followed by those between $1 billion and $5 billion at 31 percent.
• When asked what minimum asset size respondents felt they needed to attain in order to be competitive, the $1 billion mark was selected most at 32 percent, followed by $500 million at 22 percent.
• For banks that have not acquired or merged since 2008, the top reasons for not doing so were preference to grow organically (32 percent), target prices too high (16 percent) and compliance and/or regulatory issues (14 percent).
• For institutions that have acquired recently, the most difficult aspects of integration after the deal closed were credit culture (32 percent), identifying/retaining key talent aligned with culture (31 percent) and aligning risk management frameworks (16 percent).
• When asked about seeing any deterioration in loan underwriting standards in the industry that could lead to credit quality issues in the future, respondents were evenly split – 46 percent said yes, 45 percent said no and 9 percent were unsure.
• Respondents were asked which areas their bank has improved infrastructure in over the past three years. The top four answers, all being selected 50 percent of the time or higher, were enterprise risk management, cybersecurity, stress testing and capital planning.
You can access the full results of Bank Director’s 2016 Bank M&A Survey here.
Mergers and acquisitions can certainly create difficulties for institutions, as highlighted above. For assistance with acquisition accounting, access the complimentary whitepaper: Accounting for Purchased Loans. For tips on how to improve your institution’s credit culture, access the archived webinar: Instilling the Right Credit Risk Culture.