KBRA Financial Intelligence

Banks Reignite Debt Issuance Ahead of Potential M&A Resurgence

In 3Q 2024, long-term debt holdings among 252 U.S. banks filing 10-Qs by the end of November increased at the fastest pace in six quarters, raising these banks’ collective outstanding debt pile by 3.1%. This QoQ rise in outstanding debt equals $56.9 billion, according to KFI data. The 3Q jump in bank borrowing was likely meant to take advantage of a decline in long-term rates throughout that period and, therefore, more favorable financing terms for new debt. The past month’s rebound, which sent the 10-year Treasury yield to almost 4.5% in November, might have suggested that banks could back off from tapping corporate debt markets in 4Q.

Recent developments, however, suggest otherwise. BMO Capital Markets reported that banks issued $23.5 billion in investment-grade bonds on November 12, marking the largest single-day debt issuance by financial institutions since early 2016. If banks continue raising significant sums of debt at higher rates than in the previous quarter, this could indicate that financial institutions anticipate even higher long-term rates in the future, despite the Federal Reserve’s current projections of continued reductions in the fed funds rate over the next two years.

KFI highlighted the surprise rate surge in early November, noting that recent data on employment and inflation had started eroding the dovish expectations that market participants had priced in throughout the third quarter. Per CME’s FedWatch, positioning in 30-day fed funds futures contracts implies a 72% probability of one more 25-basis point (bp) rate cut at the year’s final Federal Open Market Committee (FOMC) meeting in December, bringing the upper limit on the fed funds rate to 4.5%. This upper limit figure would mark 100 bps of cuts since Fed officials initiated a rate cut regime in September. Prior to that first cut, FedWatch data showed that traders had been pricing in a nearly two-thirds probability of at least 125 bps of cuts by year-end, indicating that monetary easing has thus far been more moderate than many expected during the third quarter.

Although the most recent FOMC projections had forecast rate cuts to continue into 2025-26, the ultimate pace of cuts remains subject to change based on the trajectory of inflation. Moreover, as the past two months have shown, there is no guarantee long-term rates will follow short-term rates lower. As such, financial institutions appear prepared to shore up liquidity needs in the near term, as opposed to taking the risk of having to raise capital with even higher rates over the next several months.

One significant driver behind this capital-raising activity may be the anticipation of increased mergers and acquisitions (M&A) activity. Following a sharp decline in M&A across the banking sector and other industries in 2023, recent bank fundraising suggests a potential rebound. According to Bank Director’s newly released 2025 Bank M&A Survey, 43% of bank leaders stated their organization is very or somewhat likely to acquire another bank by year-end 2025, up from 35% in the prior year. Although only 27% of respondents reported interest from another financial institution in acquiring their bank in 2023 or 2024, 46% indicated that their board and management would be open to selling the bank at the right price within the next five years.

Regulatory uncertainty remains a potential obstacle for dealmaking, with 14% of surveyed bank leaders citing concerns about obtaining regulatory approval as a key barrier to acquisitions. Some industry observers anticipate that a looser regulatory framework could streamline the time and costs associated with M&A activity. In our prior analysis, KFI identified several ways the incoming Trump administration may influence regulatory agencies within the banking sector, potentially shaping the landscape for future deals.

As demonstrated below, long-term debt held by individual banks can be analyzed in KFI’s Web App by expanding the GAAP category and viewing its balance sheet data. KFI is pleased to announce an expansion of its GAAP offerings, which now include loan delinquencies data. This data is also available via KFI’s Excel add-in for Pro users. To access our full library of data covering nearly 10,000 banks and credit unions, request a demo with KFI.

Recent M&A

Harrisburg, Pennsylvania-based Mid Penn Bancorp, Inc. (NASDAQ: MPB) (KFI Score: B-) announced in a November 1 press release that William Penn Bank (KFI Score: B+), the bank subsidiary of Bristol, Pennsylvania-based William Penn Bancorporation (NASDAQ: WMPN), will merge into Mid Penn in an all-stock transaction valued at approximately $127 million. The merger is expected to close in 1H 2025.

Dearborn, Michigan-based DFCU Financial (KFI Score: B) announced in a November 8 press release that the $6.6 billion credit union will acquire $845 million Winter Park, Florida-based Winter Park National Bank (KFI Score: B-) for an undisclosed price. The deal is expected to close in 2025.

Colesburg, Iowa-based Farmers Savings Bank (KFI Score: B+) announced in a November 11 press release that the $240 million bank will acquire $28 million Elgin, Iowa-based Elgin State Bank (KFI Score: B-) for an undisclosed price. The deal is expected to close in January 2025.

Lebanon, Tennessee-based Wilson Bank & Trust (KFI Score: B+) announced in a November 13 press release that the $5.3 billion bank will expand its presence in Cookeville, Tennessee, by acquiring a branch from F&M Bank (KFI Score: B). Deal terms were undisclosed, and the deal is expected to close in 1H 2025.

Evansville, Indiana-based Old National Bancorp (NASDAQ: ONB) (KFI Score: B) announced in a November 25 press release that the $53.6 billion lender will buy $16.2 billion Saint Paul, Minnesota-based Bremer Financial Corporation (KFI Score: B) for $1.4 billion. The deal is expected to close in mid-2025.

In Case You Missed It

Follow KFI’s blog for our latest research, data analytics, and product updates. Read our insight pieces on 10,000 banks, credit unions, and more. Some of our recent analysis highlights include the following:

• New financial sector regulations proposed by both major U.S. presidential candidates may affect noninterest income earned by banks through fees and credit card lending. Efforts to limit fees and annual percentage rates (APR) may face legal challenges.

• U.S. banks have benefited from an estimated $188 billion in collective income tax savings throughout the six years since the implementation of the Tax Cuts and Jobs Act (TCJA). Further revisions to tax policy by the incoming Trump administration are anticipated by the end of 2025.

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