Bank and credit union M&A enters a new era of strategic intent

After years of crisis-driven consolidation, bank mergers and acquisitions (M&A) rebounded meaningfully in 2025. S&P Global reported $1.1 trillion in transaction value across 51 deals valued at $10 billion or more for the year, following a prolonged slowdown driven by interest rate volatility, regulatory uncertainty, and the lingering effects of the 2023 bank failures.

Clearer supervisory expectations, stronger earnings and capital, and stabilizing margins boosted buyer confidence. Sellers also gained assurance that valuations reflected normalized earnings rather than crisis era discounts.

Despite continued pressure from compliance and technology costs, as well as competition, 2025 was defined by a more selective M&A environment focused on long term competitiveness rather than short term rescue.

From Defensive Consolidation to Proactive Growth

Earlier cycles of bank M&A were often anchored in balance sheet stress, liquidity pressures, or regulatory intervention. Transactions in 2025, however, reflected a more forward-looking mindset, with institutions pursuing deals to expand geographic footprints, deepen commercial banking capabilities, and align complementary business models.

In the year’s largest announced transactions, well-capitalized banks pursued proactive acquisitions to accelerate expansion into high-growth Southern markets. In these deals, M&A functioned as a deliberate franchise repositioning strategy, designed to support durable growth and long term value creation. Rather than navigating the slow and costly path of organic expansion, acquirers gained immediate access to established franchises with deep local relationships.

As bank  share prices recovered, confidence increased among buyers and sellers, with over half of institutions surveyed by Bank Director reporting their stock was attractively valued for pursuing strategic acquisitions, spurring deal momentum.

A More Predictable Regulatory Climate

Regulatory dynamics also supported M&A activity. In 2025, the FDIC and OCC recalibrated their approach, refocusing oversight on safety and soundness rather than policy expansion. Review processes were streamlined and approval timelines shortened in well-structured transactions where capital implications were clearly addressed and post-merger integration plans were well developed.

While regulatory review still required patience, barriers to close were reduced relative to prior years. The result was renewed confidence that well-executed deals could move forward without prolonged uncertainty.

Credit Unions Emerge as Strategic Buyers

One of the most significant structural developments of 2025 was the growing role of credit unions as acquirers. During the year, credit unions acquired approximately 16 banks, with activity concentrated in middle-market institutions across the Southeast and Midwest.

Several forces fueled this trend. Credit unions’ tax-exempt status, insulation from public-market pressures, and strong balance sheets enabled them to compete aggressively on price and deal certainty. Momentum accelerated further when California approved its first credit union acquisition of a bank, a milestone widely viewed as signaling broader regulatory acceptance of these transactions.

Regulatory timelines for credit union–bank deals also improved, with many deals closing within six months, dispelling concerns about excessive regulatory friction. Credit unions’ growing presence as acquirers represents a lasting structural change in the M&A market.

Accounting Considerations Are Central, Not Secondary

As deal strategies evolved, purchase accounting shifted from something handled after the fact to a key part of transaction planning, especially for decisions on how to handle the estimate for the Allowance for Credit Losses (ACL).

Late-2025 guidance under ASU 2025-08 on Purchased Seasoned Loans (PSLs) addressed Current Expected Credit Loss (CECL) Day 1 double-counting and altered buyer modeling, demonstrating the value of embedding accounting expertise into transaction planning.

The decision of whether or not to early adopt the ASU directly affected valuations, capital outcomes, and post-close performance.  

Determining the fair value measurement of acquired assets and liabilities is the most intensive step in the purchase accounting process. For banks, this includes obtaining valuations on loan portfolios and deposits, recognizing core deposit intangibles and servicing assets, and assessing related tax balances. Strong purchase accounting discipline supports accurate Day 1 adjustments and capital modeling.

Within that Day 1 purchase accounting framework, key CECL focus areas included:

• ACL modeling at acquisition
• Credit marks, particularly for Purchased Credit Deteriorated (PCD) assets
• Integration of acquired portfolios into the acquirer’s existing ACL models

M&A Accounting Best Practices: Building Discipline Early

One area acquirers often underestimate is the role of a well-designed purchase accounting workbook. The most successful transactions begin with a structured framework that clearly connects deal economics to post close financial reporting.

An effective workbook ties together consideration transferred, net assets acquired, goodwill, and acquisition related adjustments in a single, calculation-driven structure, providing transparency into how valuation assumptions affect Day 1 results and capital. While the workbook supports initial Day 1 entries, it is also used throughout the ASC 805 measurement period to track updates as valuations are finalized.

Strong implementations typically include:

• A clear and supportable deal value calculation
• Net asset reconciliations from seller closing balances to buyer opening balances
• Day 1 goodwill calculation and subsequent rollforwards used to track measurement period adjustments and document changes in valuation judgments
• Detailed fair value schedules for loans, deposits, and other balance sheet items which clearly align with valuation specialist reports
• Comprehensive deferred tax asset and liability analyses aligned with fair value marks

When completed thoughtfully, this work reduces audit and regulatory surprises, improves coordination across teams, and provides a long term reference for post close financial reporting.

We Can Help

Looking ahead, institutions remain cautiously optimistic as improved valuations, regulatory clarity, and stronger execution capabilities support continued M&A activity. However, success will favor acquirers that prioritize accounting, regulatory, and integration considerations upfront to manage risk, avoid delays and valuation surprises, and protect capital.

Elliott Davis supports banks and credit unions throughout the M&A lifecycle. Contact our Financial Services Group to discuss how disciplined planning can support successful transactions.

‍

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.