US bank mergers to rise in 2025: Fitch

October 24, 2024 (MLN): Mergers and acquisitions (M&A) among U.S. community banks are likely to increase heading into what could be a pivotal 2025 for the sector, according to Fitch Ratings in a new report.

Amid the Fed’s aggressive 0.50% rate cut last month, the question of whether we will begin to see a return of deal activity closer to the longer-term trend has come more into focus.

Another notable development heading into 2025 will be the potential impact of the upcoming U.S. presidential election.

From a credit standpoint, community bank mergers could have positive credit implications as they have the potential to create more robust business profiles through greater scale.

Another important factor considered in the report is whether community bank exposure to commercial real estate (CRE) is an impediment to M&A deal activity.

This is particularly relevant to community banks, since they typically hold a higher proportion of CRE as a percentage of capital than larger peers, with banks holding between $5 billion and $15 billion in assets the most concentrated.

While community banks are often viewed as a homogenous group, Fitch notes significant differences in operational and financial performance between rural community banks and those closer to metropolitan areas, and how these differences may also spur consolidation.

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