US bank mergers of equals nosedived in 2022 amid a challenging economic environment and a broader industry slump in dealmaking but showed signs of life again in the first quarter.

Only four US bank mergers of equals (MOEs) were announced in 2022 for a combined deal value of about $255 million, the lowest yearly totals for both metrics since 2017 and a sharp slowdown from an uptick in activity between 2018 and 2021. However, MOE activity picked up slightly in the 2023 first quarter with two MOE announcements for a total deal value of $228.3 million. With 19 US bank deals announced in the first quarter, the two transactions accounted for 10.5% of US bank deals announced in the quarter.

More MOEs could come down the pike this year because it is easier for banks to strike such deals when dealmaking slows and there is a lack of buyers willing to pay an attractive premium.

"Right now, MOE style deals make a lot more sense because under your traditional environment, usually, there are bigger buyers out there that can just pay larger premiums. And so as a board, it's harder to justify taking an MOE," said Kirk Hovde, head of investment banking for Hovde Group LLC. "MOEs historically have always made financial sense for combining two organizations, getting cost savings, getting scale, maybe new product lines and whatnot. But when you're doing that against someone who can come in and put a significantly higher bid on the table, it gets harder to say 'We should do this MOE versus take that higher premium deal.'"

2023 activity

LINKBANCORP Inc. and Partners Bancorp struck the first US bank MOE of 2023. Valued at $161.3 million at announcement, it is the largest deal announced so far this year and the 19th largest since 2022, according to S&P Global Market Intelligence data.

Based on each bank's total assets at Dec. 31, 2022, the combined company will have over $2.81 billion in assets.

A day after LINKBANCORP-Partners Bancorp announcement, Main Street Financial Services Corp. and Wayne Savings Bancshares Inc. announced their $66.9 million MOE. The combined company will have more than $1.33 billion in assets once the deal closes.

Attractive option for community banks

Of the 20 most recently announced US bank MOEs, the vast majority involved community banks. As such, the average asset size of the buyers involved in those 20 deals was $10.81 billion while the targets had an average asset size of $10.01 billion.

Community banks occasionally view MOEs as an attractive pathway to boosting their value for a future sale to a larger lender.

–Take a look at US bank & thrift deals announced since 2013. – Access the S&P Capital IQ Pro M&A summary page for US financial institutions. – Get the latest M&A news.

However, many large banks have also struck MOEs in recent years, particularly in 2021 which saw five MOEs for a total deal value of $11.43 billion. Three of those five transactions involved regional banks.

2019 was also a standout year for US bank MOE activity with the combination of BB&T Corp. and SunTrust Banks Inc., now Truist Financial Corp., which made up $28.39 billion of that year's MOE deal value total of $36.00 billion.