Bank M&A in 2026 to build on gains made in 2025

Bank M&A increased in 2025 and announcement momentum is expected to continue in 2026 as institutions take advantage of the conducive dealmaking environment.

The activity has accelerated as the industry has gained distance from market shakeups that suppressed dealmaking such as rising interest rates, the 2023 bank liquidity crisis and the tariff announcements of spring 2025. The improving backdrop has given bank executives confidence in pursuing inorganic growth, Kirk Hovde, managing principal and head of investment banking at Hovde Group said in an interview. An encouraging regulatory environment is also stoking dealmaking flames.

"You're going to see sellers continue to feel more comfortable because they were saying, 'Hey, two years ago, it was more punitive to sell than it is today and six months from now,'" Hovde said. "So, I think unless interest rates spike back up, you're going to continue to see that."

More consistency in the interest rate environment in particular has provided confidence in bank boardrooms, KPMG Deal Advisory and Strategy leader for Banking Nadia Orawski said in an interview.

"We're talking about interest rates coming down, and we're seeing it actually happen," Orawski said. "So I think there's some level of certainty with those things."

2025 metrics

In 2025, the number of US bank M&A deal announcements reached the highest point since 2021 when 200 were recorded, and the total announced value of the 2025 transactions was more than the past three years combined, according to S&P Global Market Intelligence data.

But 2025's rebound from past years of depressed dealmaking was not a steady ride. The first half of 2025 yielded 76 bank M&A deal announcements, 14 more deal announcements than the same period in 2024. Dealmaking picked up in the second half of 2025 reaching 105 bank deals announced, up from 63 deal announcements in the second half of 2024.

"It's been a back-ended deal market," Orawski said. The momentum over the latter part of the year is part of the reason to expect that dealmaking will continue in 2026, Orawski added.

While the increase in the number of deals accelerated during the second half of 2025, combined deal value is where the market showed more dramatic improvement. Over the first half of 2025, the total announced deal value was up $1.39 billion year over year, and in second half of the year, the total announced deal was up more than $30 billion compared to the second of half of 2024.

Orawski expects deals large and small in the new year.

"There will continue to be consolidation in that 3,000 banks or so that sit under the $50 billion mark," Orawski said. "But I do think we'll get headline deals over the next year in that regional space, maybe even in the super regional."

An open window

Environmental factors fell into place in 2025 that allowed dealmaking pace to pick up in the second half of the year, one of which was speedy regulatory approvals. Deals getting approved in a matter of weeks as opposed to months encouraged banks to transact, sometimes announcing multiple deals simultaneously, dealmakers said.

Orawski noted that there were significant restrictions to deal approvals up until early 2025. "Those shackles are kind of off of banks at the moment," Orawski said.

The realization that those shackles can return has created a window for banks to transact while conditions remain conducive to dealmaking. "Now is the time, if you're a buyer or seller, to at least look at your options," Piper Sandler Managing Director Dan Bass said in an interview.

Even if banks are not in the market, they are likely doing more analysis on dealmaking options at the board level, Bass said. Buyers could also get more aggressive in the search of targets, approaching attractive banks to sell as opposed to waiting for a prospect to go to market, he said.

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OceanFirst Financial Corp. had been focused on organic growth but in late December announced a $579 million deal to purchase Flushing Financial Corp. The transaction made sense for OceanFirst amid a clearer regulatory environment, the company's Chairman and CEO Christopher Maher said in an interview.

"There's more transparency around the regulatory landscape," he said. "So the process of going through approvals, I think we feel we understand a little better than we would have done in the past."

As long as the market stays relatively benign, the environment should remain favorable to dealmaking, Performance Trust Capital Partners Head of FIG Capital Markets Matthew Shields said in an interview.

"We're not seeing anything on the horizon today that gives us concern, but it's always what you don't see that is the one that kind of jumps up and bites you," Shields said.

Value adds

Another market dynamic that could boost dealmaking in 2026 is bank stock valuations. If valuations rise, it will expedite bank dealmaking activity, Shields said.

Increased valuation of a company's stock creates more power to execute a deal, he said. Banks with stronger currencies can offer better prices to sellers. Of the most expensive bank M&A deals in 2025, all of which announced in the second half of the year, each buyer's stock traded over 1.5x tangible book value, according to Market Intelligence data.

The future of banks' stock valuations will hinge on credit quality in 2026, Shields said. Credit has remained solid at most banks and net interest margin continues to expand, which is contributing to positive earnings and allowing banks to raise capital and get out from under some investments made during the liquidity crisis, he said.

But if credit begins to dip, and along with it bank stock valuations, dealmaking would likely slow down as well, Shields said.

"We do think that small bank M&A is just a longer term, really a forever trend that's been around and will continue to be around next year," Shields said. "I don't know if there will be more M&A, but [higher valuations] certainly will bring more buyers to the table that can potentially pay a higher price with that currency."