Community bank M&A: Navigating the post-election landscape

Community banks have long been a cornerstone of local economies, providing essential financial services to small businesses and individuals. In recent years, various economic and regulatory factors have shaped the landscape for mergers and acquisitions (M&A) among community banks. The recent U.S. presidential election has introduced new dynamics that could significantly impact the future of community bank M&A.

Economic and regulatory environment

The economic environment plays a crucial role in M&A activity. High interest rates, inflation and economic uncertainty have historically slowed M&A deals. However, the Federal Reserve’s recent decision to reduce interest rates by 50 basis points on September 18, 2024, and another 25 basis points on November 7, 2024, has started to positively shift the value of banks’ investment portfolios and loan holdings. This change is expected to ease some of the financial pressures that have hindered M&A activity.

Regulatory scrutiny has also been a significant factor. The Biden administration’s focus on consumer access to banking services and increased scrutiny of mergers has led to longer deal approval times. This heightened scrutiny has made some deals nonviable due to the extended review periods. However, the recent election could bring changes to this regulatory landscape.

Impact of the recent election

The outcome of the recent U.S. presidential election is likely to influence the regulatory environment for community bank M&A. If the incoming administration continues prioritizing stringent regulatory oversight, community banks may face ongoing challenges in completing mergers. However, we expect a more relaxed regulatory approach leading to increased M&A activity.

The recent election is also likely to have a significant impact on taxes. President-elect Trump has expressed a strong commitment to making many of the expiring provisions of the Tax Cuts and Jobs Act permanent, including maintaining the higher standard deduction, lower individual tax rates and a potential for a reduced corporate tax rate.

Historically, presidential elections have had a notable impact on M&A timing rather than outcomes. Deal volumes typically dip in the third quarter of election years and recover in the first quarter following the election. This pattern suggests that while some deals may be delayed to adjust for election outcomes, most eventually proceed.

Strategic considerations for community banks

For community banks, strategic considerations are paramount in navigating the post-election landscape. Aging demographics across community banks’ C-suites, board rooms, and shareholder bases remain the primary drivers of M&A activity. Community banks that have not or could not solve their succession by promoting talent from within or hiring from the outside have turned to M&A to allow their employees to continue serving their customers and communities while creating liquidity for shareholders. 

Additionally, compliance costs and the need to invest in technology and improve digital banking capabilities have convinced many community banks already struggling with succession to choose M&A as their strategic path.

The landscape ahead

The recent U.S. presidential election has introduced new variables into the community bank M&A landscape. While economic and regulatory challenges remain, a more favorable regulatory and tax environment will lead to an increase in community bank M&A activity. Community banks must carefully consider their strategic options and remain adaptable to the evolving landscape to thrive in the post-election era

How Wipfli can help

As your community bank weighs its options in the post-election environment, you need an advisor at your side who understands how the market may change. That’s where Wipfli comes in. Our dedicated professionals have extensive experience in the M&A space and bring real-world knowledge to every deal and every situation. No matter what the future holds for the financial world, we’re ready to adapt and help you succeed. Contact us today to learn more.