Banking Industry Outlook: U.S. Banking M&A Activity Mid-Year Review

Key Highlights

Active First Half: The first half of 2025 saw 72 U.S. banking mergers and aquisitions (M&A) transactions announced, representing a combined deal value of $10.39 billion.

Year-over-Year Comparison: Excluding the Capital One-Discover merger from 2024 (which accounted for $50.8 billion of the $58.26 billion total in that year), the 2025 year-to-date total value shows a sizable increase over the same period last year. Furthermore, the total deal count for 2025 is currently on pace to be the largest in over five years, signaling a robust return to M&A activity in the banking sector.

Market Influences: High interest rates and tariff-driven economic volatility initially tempered M&A activity, but a pro-business administration combined with a strong economic outlook resulted in a pickup in activity in the second quarter.

Positive Outlook: Accelerating demand and a more consolidation-friendly regulatory environment suggest favorable conditions for a strong finish in the second half of the year.

While the aggregate numbers indicate a steady pace, the undercurrents in the U.S. banking M&A market reveal a complex interplay of strategic drivers and evolving conditions. This mid-year review delves deeper into the transactions that have shaped the first half of 2025, examines the key themes driving consolidation, and analyzes the shifts in the regulatory landscape that are influencing deal timelines and structures. The strategic imperative for growth, efficiency, and expanded capabilities continues to fuel activity, particularly among small and mid-sized institutions.

Notable Transactions

2025 has seen some significant transactions announced, including:

Key Themes

Continued Consolidation of Small and Midsize Banks

We are seeing a heavy concentration of transactions between small and midsize banks, with all 72 transactions announced thus far in 2025 featuring buyers with less than $100 billion in total assets. The median bank asset size among buyers is $1.4 billion and the median for targets is $275 million. These banks are seeking to expand their geographic footprint and customer base to remain competitive with the larger regional and national banks. By combining resources, these banks can also invest in technology and talent, and enhance their ability to offer competitive products and services in an increasingly digital and competitive market. This trend reflects the ongoing pressure on smaller banks to remain viable and relevant in a rapidly evolving financial industry.

*Not shown above: Columbia Banking System, Inc. acquisition of Pacific Premier Bancorp, Inc. ($69.6 billion combined assets)

Competitive Landscape

The banking sector faces intense competitive pressures, particularly for smaller and mid-sized institutions. Larger national banks leverage their extensive branch networks, substantial marketing budgets, and broader product offerings to attract and retain customers across diverse geographies. They often have more sophisticated digital platforms and specialized financial services, making it challenging for smaller banks to compete solely with traditional banking models.

Simultaneously, the rise of fintechs has significantly impacted the competitive landscape. Fintech companies, unburdened by legacy infrastructure, can develop highly agile, user-friendly digital solutions for specific financial needs (e.g., mobile payments, personal lending, wealth management apps). This forces traditional banks to invest heavily in digitalization to keep pace with evolving customer expectations for seamless, on-demand services. For smaller and mid-sized banks, building these capabilities organically can be cost-prohibitive and time-consuming, making M&A an attractive path to quickly acquire advanced technology and customer-centric platforms, or to eliminate a competitor.

Technology and Digitalization

M&A in the banking sector is increasingly driven by the imperative to acquire technological capabilities and enhance digital offerings. Banks are recognizing that to remain competitive, they must provide seamless digital experiences, from online account opening to mobile banking and sophisticated analytics for personalized financial advice. Acquisitions allow banks to:

Accelerate Digital Transformation: Instead of developing new technologies in-house, which can be slow and expensive, acquiring a fintech or a technologically advanced bank offers a faster route to market with innovative digital products and services.

Access Specialized Expertise: Mergers can bring in teams with expertise in areas like artificial intelligence (AI), blockchain, cybersecurity, and data analytics, which are critical for modern banking but often scarce.

Improve Customer Experience: M&A targets often possess advanced digital interfaces and platforms that can be integrated to provide a more convenient and efficient experience for the combined customer base, reducing friction points and enhancing engagement.

Modernize Infrastructure: Acquisitions can also facilitate the modernization of legacy information technology (IT) systems by enabling the adoption of newer, more efficient platforms from the acquired entity, leading to long-term operational benefits.

Efficiency Gains

The "pursuit of greater efficiency" is a fundamental driver of bank M&A. Banks seek to achieve various types of efficiencies through consolidation:

• Cost Synergies: This is often the most immediate and quantifiable benefit. Mergers allow for the elimination of redundant operational costs, such as consolidating back-office functions (e.g., human resources, IT, accounting), reducingoverlapping branch networks, and centralizing administrative roles. Bulk purchasing power for supplies and services also leads to cost savings.
• Operational Streamlining: Combining operations allows banks to standardize processes, eliminate inefficiencies, and adopt best practices from both entities. This can lead to improved workflows, reduced processing times for transactions, and enhanced overall productivity. For example, integrating treasury functions can consolidate cash pools and streamline payment processes.
• Economies of Scale: Larger combined entities can achieve lower per-unit costs for various activities, from marketing and compliance to technology infrastructure and risk management, by spreading fixed costs over a larger asset base and customer volume.
• Resource Optimization: M&A allows for the optimal deployment of capital and human resources across a larger, more diversified institution, enhancing overall profitability and return on equity.

Evolving Regulatory Stance on Large Mergers

The May 2025 approval of the Capital One-Discover merger, a significant deal making Capital One the eighth-largest U.S. insured depository, highlights a pragmatic shift in regulatory attitudes. Despite Discover's prior compliance issues, federal agencies granted approval, contingent on Capital One's robust remediation plan. This indicates a willingness to clear large transactions if the acquirer demonstrates sufficient resources to address target deficiencies. Furthermore, the Federal Reserve reaffirmed its continued application of the 1995 Bank Merger Guidelines for competitive review, and explicitly stated that broader societal concerns (e.g., fossil fuel financing, racial wealth gaps, job impacts) fall outside the scope of statutory merger evaluation. Regulators also differentiated Capital One-Discover from the 2023 bank failures, citing stronger deposit bases and less reliance on volatile funding, demonstrating a nuanced approach to financial stability assessments.

This perceived relaxation of regulatory scrutiny for a major, complex merger like Capital One-Discover is seen by many market participants as a positive signal for the broader M&A landscape, even for smaller and mid-sized institutions. While the direct impacts of specific policy changes (like the Federal Deposit Insurance Corporation (FDIC) rolling back certain merger policies as discussed below) primarily affect smaller deals, the approval of a high-profile transaction can foster a general sense of a more M&A-friendly environment. It suggests that regulators are willing to approve deals that demonstrate clear benefits and a robust integration plan, which can encourage smaller banks to pursue strategic combinations with greater confidence, anticipating a potentially smoother approval process. This sentiment can contribute to increased deal appetite across the industry, beyond just the largest players.

Expedited Closing Timelines

The time required for bank mergers to receive regulatory approval has been a significant factor in recent years. In a development that could streamline future transactions, the FDIC approved a proposal in early March to roll back a 2024 bank merger policy^[1] that was criticized for decreasing transparency and making the M&A application process more burdensome. This decision aims to reduce certain procedural hurdles and potentially accelerate the approval timeline for many deals, moving away from a more stringent stance that often led to delays or prolonged reviews. The average time to close for U.S. Bank M&A deals completed in 2025 is 193 days, down from 203 in 2024.

Credit Union Acquisitions of Banks

Another growing trend of note is the acquisition of banks by credit unions. Credit unions, driven by a desire to expand their reach and service offerings, are increasingly finding bank acquisitions to be an attractive growth strategy. These acquisitions allow credit unions to enter new markets, acquire branches, and gain specialized expertise, such as in commercial lending. 2025 has seen six such transactions:

• NuMark Credit Union (IL) acquiring The Lemont National Bank (IL).
• Legacy Community Federal Credit Union (AL) acquiring First Community Bank of Cullman (AL).
• Marion and Polk Schools Credit Union (OR) acquiring Lewis & Clark Bancorp (OR).
• MIDFLORIDA Credit Union (FL) acquiring Prime Meridian Holding Company (FL).
• Frontier Credit Union (ID) acquiring First Citizens Bank of Butte (MT).
• Michigan State University Federal Credit Union (MI) acquiring Gold Coast Bank (IL).

Where is the Activity?

Geographically, M&A activity is concentrated in certain states, with half of the targets headquartered in six states: Illinois (8), Texas (7), Missouri (6), Massachusetts (5), Minnesota (5), and Florida (5).

Completed Deals

Sixty deals have closed in the first half of the year, demonstrating the active M&A landscape. These completed transactions reflect various strategic objectives, from expanding geographic footprints to enhancing service capabilities, as discussed in the "Key Themes" section. A detailed list of these completed deals, along with their primary and secondary reasons, is provided below:

Looking Ahead

The current pace of U.S. banking M&A, marked by a robust deal count and increasing deal values, suggests a sustained period of activity. Driving this momentum are competitive pressures compelling smaller and mid-sized institutions to seek scale, geographic expansion, and enhanced capabilities. The strategic imperative for efficiency gains and investments in technology and digitalization continues to fuel combinations, as banks aim to remain competitive with larger players and agile fintechs.

A more accommodating regulatory environment is also playing a significant role. The approval of high-profile mergers and the recent streamlining of the application process by the FDIC, which has already contributed to faster closing times, provide a clearer path for deals. This shift in regulatory sentiment is a positive signal for the industry, fostering greater confidence among potential buyers and sellers.

While macroeconomic factors, such as sustained high interest rates, could still influence the pace, the underlying demand for consolidation within regional and community banking remains strong. The need to spread strategic investments over a larger asset base, coupled with the evolving landscape of digital banking and a favorable regulatory stance, points to a continued healthy environment for bank M&A in the second half of 2025. We anticipate that strategic combinations will remain a key growth lever as institutions adapt to a dynamic market.

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