Dive Brief:

• Morgan City, Louisiana-based MC Bancshares, and its in-state peer Covington-based Heritage Nola Bancorp have mutually agreed to call off their proposed merger amid regulatory hurdles in the current approval process, the lenders announced Friday.
• Under the mutual termination agreement approved by the boards of directors of both companies, each party will bear its own costs and expenses linked to the terminated transaction without penalties and claims of liabilities.
• “After extensive review of the current uncertainties in the regulatory environment and merger approval process, the Board concluded that it was no longer in the stockholders' best interest to continue to pursue the proposed merger,” David Crumhorn, president and CEO of Heritage Nola, said in a statement Friday. “Nevertheless, our organization remains strong and we continue to be laser focused on building value for our stockholders, customers and community.”

Dive Insight:

Though the Heritage Nola deal did not work out, Chris LeBato, president and CEO of MC Bank, told Banking Dive that MC Bancshares is a “well-capitalized community bank” that is open to acquiring more banks to benefit its clients, communities and shareholders.

“We are committed to being the best community bank in the state of Louisiana; thus, we are open to partnerships with banks that help us better serve our current and future clients,” LeBato said in an email.

The all-cash merger valued at $6.5 million was announced in July 2023; it had been expected to close in the fourth quarter of last year but was pushed to 2024. However, in March, Heritage revealed that MC Bancshares had withdrawn its applications to acquire Heritage. The merger agreement was still in effect, and MC Bancshares was evaluating refiling applications for the future.

“At this time, the Company is unable to provide any additional information as to whether or when the Merger will close,” Heritage Nola said in a statement in March.

MC Bancshares is the holding company of the $454 million-asset MC Bank & Trust Co, a Louisiana-chartered state bank with 10 banking centers and offices in the state. The $171 million-asset Heritage is the holding company of Heritage Bank of St. Tammany, a federally chartered savings bank.

Last year, 14 bank M&A deals were canceled, which had a combined target asset volume of $91.850 billion, American Banker reported. The largest of those deals was the TD Bank and First Horizon $13.4 billion deal, which was terminated in May 2023 over merger “uncertainty” as to when the deal might get the pending regulatory approval. The canceled deal involved TD paying $200 million in cash to First Horizon in addition to the $25 million fee reimbursement that was agreed to earlier as part of the transaction.

Bank mergers have faced heightened scrutiny since the Biden administration passed an executive order in July 2021 asking regulatory agencies to update guidelines to reflect a more robust review of bank mergers. The administration highlighted that “excessive consolidation” of bank mergers impacted rural and nonwhite-majority communities, requiring more oversight of the financial sector’s merger and acquisition activities.

The M&A space saw record low activity last year with only 96 deal announcements, the lowest since at least 2000, with the total value of the announced deals being $4.21 billion, the lowest deal value since 2009, according to S&P Global Market Intelligence data. However, advisers expect more activity in 2024 as the concerns over last year’s regional bank failures fade and clarity is gained on future interest rates, S&P Intelligence noted.

The report also highlighted that depressed bank valuations have hampered M&A activity, as buyers have less financial power for acquisitions. However, some recent equity rallies in November, driven by declining Treasury yields, coupled with another uptick in December after the Federal Reserve signaled interest rate cuts in 2024, could provide a tailwind for future deal-making in the sector.

“Movements in interest rates and a positive momentum in bank valuations, that sets the stage for more conversations,” OceanFirst Financial Corp. Chairman and CEO Christopher Maher told S&P Global in February.

Red Bank, New Jersey-based OceanFirst Financial, and Salisbury, Maryland-based Partners Bancorp shelved their planned $186 million merger in November 2022, citing regulatory delays after crossing their initial one-year deadline. Maher said the bank maintains a long-term interest in pursuing M&A opportunities once the multitude of headwinds that hampered deal activity in 2023 begin to dissipate.