Community Bank Mergers Surge in 2025 Amid Profitability Disparities

Consolidation within the banking sector has been ongoing, largely due to strategic mergers. Notably, completed mergers involving community banking organizations (CBOs), illustrated in a recent chart, reached a total of 127 in 2025. This total reflects a recovery from a slowdown between 2022 and 2024, influenced by higher interest rates and decreases in the fair value of fixed-rate assets, such as bonds. The last time a similar number of mergers occurred was in 2021, which recorded 152 completed mergers.

Data shows that selling institutions generally earn less than their acquiring counterparts. The median Sub-S adjusted return on average assets (ROAA) for sellers dropped to 0.6 percent in 2025, down from 0.8 percent in 2024. In contrast, buyers experienced an increase in median ROAA to 1.1 percent, up from 1.0 percent the previous year.

Factors such as confined loan and core deposit growth have pressured margins, contributing to the earnings decline observed in selling CBOs. In 2025, the median annual growth for loans and core deposits for sellers was recorded at 0.5 percent and 0.4 percent, respectively. In comparison, buyers achieved median annual growth rates of 4.7 percent for loans and 3.8 percent for core deposits.

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Community banking organizations are defined as commercial banks with assets under $10 billion. The metrics for ROAA, loan growth, and core deposit growth do not include credit union buyers and are based on Call Reports from the quarter before each merger's completion. The opinions expressed in this report are the authors' and do not reflect those of the Federal Reserve Bank of Kansas City or the Federal Reserve System.