Size Does Not Have to Matter in 2026

Key Takeaways from This Blog:

• Scale doesn’t require M&A. Community banks and credit unions can grow organically by increasing production without increasing overhead through smarter org design and delivery efficiency.
• Price competition is earned through efficiency. Smaller institutions can offer leading deposit rates when their cost structures are lean enough to absorb higher interest expense.
• High efficiency ratios reveal structural issues. Ratios above ~65% point to channel fragmentation, underutilized staff, and excess complexity, not a pricing problem.

The message from industry prognosticators is becoming constant, 2026 will bring another M&A wave similar to 2025 and possibly be more like a tsunami because the only thing that matters is scale.

Community banks and credit unions either need to get big or get bought.

The logic is sound. Branch-heavy cost structures. Rising spend on compliance, cyber, and digital. Digital only players with lighter models using their advantage to dangle higher deposit rates and no fees. The story that follows is predictable: only bigger balance sheets can win on cost.

That is only half true. And it is quietly dangerous. Community banks and credit unions can and should choose to survive.

Scale Is Not Synonymous With M&A

If you want to stay independent, you do not have to surrender to a “merge or die” narrative.

There is another path: Increase production without increasing overhead.

Generating more deposits and more loans organically while maintaining or reducing non-interest operating expenses creates scale too. The institutions that are pulling this off are not running a magic playbook. They are doing three very unglamorous things:

• Redesigning organizational structures instead of just trimming line items
• Reallocating overhead so cost follows value, not legacy org charts
• Building delivery models efficient enough to buy growth on the rate line without blowing up the expense line

Proof Is In The High-Yield Savings Market

Another long-held conviction is that you cannot compete on price. To a certain extent, that is true, but only if your business model cannot afford the higher cost of funds. It sure helps to have something to advertise that will attract new depositors (although not necessarily retain them). Look at high-yield savings right now.

On January 22, 2026, seventeen institutions were advertising a HYSA rate of 4.00% APY or higher. From that universe, seven sit squarely in the community segment with 10 billion or less in deposits (Q2 2025), and all of them can afford to offer rates higher than most of the market because they all have an efficiency ratio below 65 percent. In other words, the organizational model is more efficient.

Here are those seven:

• Colorado Federal Savings Bank HYSA APY: 4.05% Efficiency ratio: 47.52%
• Newtek Bank HYSA APY: 4.35% Efficiency ratio: 48.58%
• TIMBR (Bridgewater Bank) HYSA APY: 4.15% Efficiency ratio: 49.12%
• Oregon Community Credit Union HYSA APY: 5.25% Efficiency ratio: 55.11%
• Bread Savings (Comenity Capital Bank) HYSA APY: 4.00% Efficiency ratio: 59.28%
• LendingClub LevelUp Savings (LendingClub Bank, NA) HYSA APY: 4.00% Efficiency ratio: 62.16%
• FitnessBank (Affinity Bank, NA) HYSA APY: 4.75% Efficiency ratio: 63.69%

You have community banks, a credit union, digitally branded banks, and a neobank flavor all in the same group. It is not the size or the charter type doing the work here. It is the ability to produce growth efficiently. These institutions can:

• Offer rates at or above the broader market
• Absorb the higher interest expense
• Grow deposits organically at attractive rates

Why? Because they have attacked their cost structure hard enough that the margin can support it. Operating expenses are flat or improving while the balance sheet grows.

The moral of this story is community institutions can compete on price, provided their model earns that right.

If Your Efficiency Ratio Starts 66 Or Higher

This is not a story about chasing headline rates. It is a story about whether your model can sustain them.

If your efficiency ratio is 65 percent or higher, you do not primarily have a pricing problem. You have an efficiency problem.

Start with a few uncomfortable questions:

• Channel consistency Do your delivery channels create one coherent customer journey, or are they dragging customers through conflicting experiences that duplicate effort and cost?
• Staff utilization Are all customer-facing employees fully utilized by real customer demand each day, or are your highest-cost resources waiting for work that could be handled in lower-cost channels?
• Role clarity by channel What is the primary job of each channel: sales, service, advice, fulfillment, something else? Does your current staffing and process design reflect that intention?
• Vertical sprawl How many separate verticals exist to manage sales, service, and delivery of solutions for the same household across products and lines of business?

Every extra vertical, inconsistent journey, and idle FTE makes it harder to pay a competitive rate without eroding profitability.

What Leaders Should Do Next

M&A can absolutely be a tool for scale, but it does not have to be your only tool if you are a community institution.

If you prefer to efficient growth as a tool, here are a few questions to take back to your team and develop answers for:

1. Do your delivery channels offer a common customer journey or do they create conflicting journeys?

2. Are all your customer-facing employees being fully utilized by the volume of customer generated activity they process or assist with daily?

3. What is the primary role of each channel?

4. How many verticals exist to manage sales, service and delivery of financial solutions to your customers?