Bank Mergers vs. Acquisitions: What’s the Difference

In banking, mergers and acquisitions are strategies banks use to increase revenue and profits, serve more customers, and reduce operating costs. These terms might sound similar, but they describe different ways banks combine or expand. Here's a simple breakdown of how bank mergers and acquisitions work, why they're different, and what they mean for customers and communities.

What is a Bank Merger?

A merger happens when two banks decide to combine forces to create a new, joint company. In a merger, both banks typically work together often as a partnership, to evaluate the best solutions to help reduce costs, and increase revenue and profits.

Here's what happens in a merger:

• Two Banks Combine: The two banks may create a new name, or sometimes, they keep one of the original names if it's more recognized.
• Equal Partnership: During the merger process, both banks generally share decision-making to determine the best path for employees, customers and shareholders.
• Cost Savings: By combining banks, operating expenses can be reduced in both salary and technology to benefit the expanded market and newly combined bank.
• Approval Needed: Government regulators look at mergers carefully to make sure they don't limit competition in a certain area.

Example: When Shore United Bank and Community Bank of the Chesapeake merged in 2023, they kept the Shore United Bank name, but combined strengths from both banks to offer better services to customers.

What is a Bank Acquisition?

An acquisition refers to the takeover of one bank by another. The buying bank is larger and takes full control of the acquired bank, which becomes part of the buying bank's organization. Unlike a merger, an acquisition is not always a partnership-sometimes, the smaller bank doesn't initially want to sell but may not have a choice to increase revenue and profits to meet shareholder expectations.

Here's what happens in an acquisition:

• One Bank Takes Over: The buying bank takes full control of the smaller bank's branches, assets, and customer accounts. The smaller bank often loses its name and brand.
• Quick Growth: Acquisitions allow a bank to grow fast. Instead of building new branches or products, it can simply buy another bank that already has them.
• New Markets or Products: The buying bank might gain access to new customers, markets, or services that it didn't have before.
• Focused Changes: The buying bank might keep popular products or branches of the smaller bank, but usually, they'll change things to match their own style.

Example: When Shore United Bank acquired Severn Bank in 2021, the previous Severn Bank branches were rebranded and converted to Shore United's banking systems. Shore United expanded its footprint into Anne Arundel County and gained market share to create shareholder value.

Why Do Banks Merge or Acquire Other Banks?

Banks merge or acquire other banks for a few main reasons:

• Cost Savings: They can save money by combining resources and eliminating branches in the same market area.
• More Customers: By merging or acquiring, they increase customers and gain market share.
• New Technology or Products: Sometimes, a bank will acquire another to quickly get new technology, like a better online banking system, or to offer new services.
• Easier Growth: It's often quicker to buy an existing bank than have a bank grow organically.
  

Downsides of Mergers and Acquisitions

Although they have advantages, mergers and acquisitions can create challenges:

• Different Work Cultures: Combining two work cultures can cause stress for employees, especially if they're used to different systems and styles.
• System Interruptions: During transition to new banking technology, customers may experience temporary interruptions to banking systems and apps.
• Customer Changes: Customers might see changes in their accounts, products, or branch locations, which can be frustrating.
• Regulatory Approval: Mergers and acquisitions are reviewed by regulators to make sure they don't limit choices for customers or create too much control in one area.

Mergers and acquisitions are powerful ways for banks to grow, but they work differently. In a merger, two banks join as equals to form a new bank, often to cut costs and increase efficiency and profit. In an acquisition, a larger bank buys a smaller one to expand its reach or services quickly. For customers, knowing the difference can help them understand why their bank might change names, close branches, or introduce new products after a merger or acquisition.

Business owners can sometimes have more challenges during these transitions. While mergers and acquisitions can be a good thing, not all transitions go smoothly. If you've become unsatisfied with your current bank and are looking to switch, learn how Banks like Shore United Bank, make opening a new banking relationship with them a smooth and seamless transition.

SWITCHING BUSINSS BANKING RELATIONSHIPS WITH LITTLE DISRUPTION

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