Following an ebb in bank M&A in 2022, deal activity is off to an even slower start in 2023, with the lowest number of announcements made in January in over a decade.

Only six U.S. bank deals were announced in January, the lowest total for the first month of the year since 2009. January's announcements also marked the slowest month for U.S. bank deal activity since 2020, when the COVID-19 pandemic brought M&A activity to a near halt.

Moreover, the six announcements in January mark a sharp decline from 2022 levels, which had at least 10 bank deal announcements each month, even as economic uncertainty and rapidly rising interest rates weighed on dealmaking.

Industry experts expect activity to remain slow for the foreseeable future.

Dearth of activity

The last time a new year started so slowly for bank M&A was in the wake of the Great Recession in January 2009, which had just four announcements.

The dearth of activity in January also represents the slowest month for bank M&A since November 2020, when just five U.S. bank deals were announced. However, deal value totaled $11.62 billion in November 2020. No deal value is available for January as none of the transactions disclosed financial terms.

Among the six deals announced in January, the largest buyer was First Guaranty Bancshares Inc. with $3.15 billion in assets at Dec. 31, 2022, and the largest target was Lone Star Bank with $160.8 million in assets as of the fourth quarter of 2022. First Guaranty announced its planned purchase of Lone Star on Jan. 9.

Rising interest rates, a potential economic downturn, lower stock prices, unrealized losses in banks' securities portfolios, the uptick in provisioning and "not as welcoming of a regulatory environment" are all weighing on banks' deal appetite, Vinnie Badinehal, head of the financial institutions group within global investment banking at RBC Capital Markets LLC, said in an interview.

Weak stock prices and economic uncertainty are the main drivers behind current trends, said Christopher Marinac, director of research at Janney Montgomery Scott LLC.

"If the buyer doesn't have a strong enough currency, I just don't think the company's going to do a transaction," Marinac said in an interview. "Sellers, of course, don't always want to accept a lower price either with a weak currency."

* Access a list of pending and completed M&A deals announced since Jan. 1, 2012. * Access the S&P Capital IQ Pro M&A summary page for U.S. financial institutions. * Read more M&A news.

Activity expected to remain quiet

Industry participants expect activity to remain slow for the foreseeable future.

"Our view is that as we look at it, 2023 M&A is going to be pretty slow for a couple reasons," SouthState Corp. CEO John Corbett said during a call Jan. 27 to discuss fourth-quarter 2022 earnings. "Right now, there's just not a lot of clarity as it relates to the regulatory approval process, and there's not a lot of clarity as it relates to potential recession risk."

However, M&A will likely pick up toward the end of 2023 as the tough economic environment weighs on earnings, Corbett said.

"I believe it's likely to pick up toward the end of the year as bank boards begin to meet and think about the future earnings stream," Corbett said. "It's likely that earnings are going to flatten off in 2024, and people will be more enthused about M&A than they are today."

So far, just one U.S. bank deal has been announced through the first 10 days of February.