Banks could see M&A growth in 2025 with a more favorable regulatory environment

With expectations of a more relaxed federal regulatory environment and a national economy on steadier ground, 2025 could be a busier year nationally for bank mergers and acquisitions.

But does it mean more Indiana-based banks will be included in M&A deals announced this year? Probably. But if recent trends hold true, those deals likely will involve Indiana banks acquiring out-of-state institutions, not other Indiana banks.

Brett Ashton, a Krieg DeVault partner and chair of the firm’s financial institutions practice, said the banking industry has not been particularly busy with M&A deals the last few years, with depressed bank stock prices being one of the main reasons for that inactivity.

“I think you’re going to see that change in 2025,” Ashton said regarding possible increased bank M&A activity.

Ashton said rising bank stock prices and eased regulatory burdens could give banks the additional ability to be more aggressive in pricing mergers.

He said the federal regulatory agencies during outgoing President Joe Biden’s term had not been encouraging merger activity for larger financial institutions. But that’s expected to change under President-elect Donald Trump.

Under the Biden administration, the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and U.S. Department of Justice each took separate actions in September to update larger bank merger guidelines.

In December, the American Bankers Association published a 2024 third quarter regional financial services M&A update by Forvis Mazars.

The report stated that bank mergers and acquisitions had steadily increased through the third quarter of 2024, although a range of issues had continued to cool the bank M&A market. 

“Continued unrealized losses on securities portfolios, while shrinking due to the passage of time and rising interest rates, have combined with an uncertain economic outlook and an uncertain economic outlook and a presidential election to keep transactions below historic levels,” the report stated. “However, if the market obtains some clarity around these challenges, many sellers who have stayed on the sidelines will likely consider a transaction. This could lead to an uptick in dealmaking in the fourth quarter of 2024 and into 2025.”

Reuters reported in November, after the presidential election, that financial executives and analysts believed Trump’s return to the White House could usher in a wave of bank mergers and acquisitions as the administration appointed regulators who were more open to approving larger deals.

“Slow” and “lackluster” is how John Tanselle, a partner with Amundsen Davis, described banking M&A activity in recent years.

High interest rates and a less-than-friendly regulatory environment have put a damper on banking mergers

But Tanselle expects that to change in 2025.

“This year is a better story,” Tanselle said.

Looking for deals

A challenge all banks face is finding “the right size,” Ashton said.

Small community banks with $200 million in assets may feel they need to have $500 million or $800 million to be right sized, with Ashton adding that larger regional banks might say they need to be double their current asset size.

There were some Indiana banks that announced mergers last year.

Jasper-based German American Bancorp Inc. announced in July it was planning to merge with Heartland BancCorp, headquartered in Whitehall, Ohio.

The cash and stock deal, valued at more than $330 million, would bring German American’s total footprint to nearly 95 branches and $8.1 billion in assets.

Upon closing, Heartland’s subsidiary, Heartland Bank will merge into German American Bank and operate under a co-branded name in the Columbus and Cincinnati markets in Ohio.

Rod Lasley, chief operating officer of the Indiana Bankers Association, said M&A activity involving Indiana banks acquiring other banks within the state has not been extremely active.

He said there was a transaction announced in 2024 where a credit union—Wabash-based Beacon Credit Union—acquired Mid-Southern Savings Bank, headquartered in Salem.

Lasley also noted that Evansville-based Old National Bank announced plans last year to acquire St. Paul, Minnesota-based Bremer Bank 

That deal, which is pending regulatory approvals, is expected to close in mid-2025 and is a cash-and-stock transaction valued at $1.4 billion.

John Moran, Old National Bank’s CFO, said the bank, in recent years, had deliberately been looking to expand into metropolitan areas where there were better opportunities for growth.

In 2017, Old National Bank made inroads into the Minneapolis-St. Paul area, Moran said.

The bank announced its acquisition of Anchor Bancorp Inc. and followed up in 2018 with another deal, this time acquiring Klein Financial Inc.

“It showed us a community bank model can be accepted into a larger (metro area),” Moran said.

Coming out of COVID, Old National Bank acquired Chicago-based First Midwest Bancorp, Inc. in 2022 

Moran said, most recently, Old National pushed into the Nashville, Tennessee market with its October announcement it had acquired CapStar Financial Holdings, inc.

What will 2025 bring?

Tanselle said he was aware of a couple of banks that were already thinking of merger deals in 2025.

He said the state’s rural financial institutions sometimes experience issues with older shareholders dying and their stock shares being transferred to younger family members, such as grandchildren that live out-of-state.

“They don’t really care about a bank in Indiana,” Tanselle said.

Tanselle said, in general, pre-COVID years were good times for banking M&A activity.

Doing a merger now is different than a decade ago, he said

“It hasn’t been as quick. It hasn’t been as certain,” Tanselle said of the M&A process.

With banking mergers, pricing always comes into play, Lasley said.

He said he thought a lot of financial institutions are being selective in what they’ll pay to acquire another bank.

With high inflation and economic uncertainty, banks couldn’t get the pricing they wanted in an M&A deal, Lasley said.

In Indiana, Lasley said he expects there may be one or two banking mergers in 2025, but not much more than that. 

Credit unions are also looking for purchase opportunities, Lasley said.

He said there may be some smaller banks with no succession plan that could be on the market to be acquired by a credit union or another small bank.

As far as larger Indiana banks, Lasley expects them to continue to look out of state for acquisitions.

“It’s a positive for Indiana, being the pursuer as opposed to being the pursuee in that space,” Lasley said.

Tanselle described credit unions as a “wild card” in terms of being a M&A buyer, with the institutions not subject to the same regulatory scrutiny as banks and able to pay more for bank acquisitions due to credit unions’ tax-free status.

He is keeping an eye on the economy and particularly interest rates in 2025, in terms of how that might impact banking mergers.

Moran noted that Old National Bank’s announced acquisition of Bremer was still pending  regulatory approval. 

He said the Evansville bank didn’t have plans to “have two deals pending in front of our primary regulator” in 2025.

The Old National CFO said he thinks the regulatory environment will be more constructive this year and there will be more M&A activity in general.

“I think in banking, there’s more consolidation to do,” Moran said.