As the Huntington Bancshares announcement came out last week, it served as another reminder that mergers are on the rise. Deal volume is building, and the center of gravity is shifting toward scale. The Huntington acquisition of Cadence Bank will create an institution with $258B in total assets. That’s a whole lot of scale.
57 U.S. bank deals have been announced in the first five months of 2025. Regional banks are particularly active, with roughly 30 regional banks having been acquired over the last 18 months. DBRS Morningstar expects the consolidation trend to continue and even accelerate, as speedier deal approvals and a friendlier regulatory environment make mergers more tenable.
So, if these mid-tier banks are consolidating and potentially gaining massive scale, where does that leave community banks and credit unions? In a difficult place.
In the same DBRS Morningstar report, it also noted that among the factors driving consolidation are the significantly higher efficiency ratios community banks and credit unions tend to have compared to their larger competitors, while struggling to keep up with rapidly advancing technologies.
All this sounds pretty grim, but only if smaller financial institutions choose to continue to put efficiency on the back burner.
Community banks and credit unions like to say they are nimble because the credit decision is made locally, but being nimble needs to apply to the entire business model, not just the credit decision.
Main Street institutions that have expanded the definition of nimble to include ruthless simplicity in the delivery of the customer experience and ensuring each customer interaction moves through the enterprise to create customer value are positioned to succeed.
It’s time to revisit legacy organizational hierarchies, siloed workflows, redundant technologies, and scattered channels that create drag, added expense, and lost revenue opportunities. It’s time to become a truly nimble organization.
The Importance of the Efficiency Ratio
The efficiency ratio reflects what the cost is for a financial institution to generate $1 of revenue. You can improve the ratio by generating more revenue at the same operating cost or hold revenue constant and reduce your operating costs.
Nimble financial institutions follow the third option, they do both.
Consider the following:
If it costs a $10B+ bank 55 cents to produce $1 of revenue and community banks under $10B 65 cents to produce that same $1 of revenue, community banks have to overcome a 30% cost disadvantage or generate 18% more revenue ($1.18) with their same business model.
I remember a former boss of mine used to say, “It’s a revenue game,” which is akin to saying “we’re going to make it up on volume.” That is the mindset of too many institutions: we can produce more revenue using the same high cost business model.
They fail to recognize that it is the business model that needs to change to reduce costs and generate more revenue.
There are more than 1,000 community banks and credit unions with efficiency ratios greater than 55%, of which 600+ are greater than 65%. They must adopt a nimble business model if they want to survive and thrive.
Creating a Nimble Organization
Too often, when financial institutions decide they need to be more efficient, they default to three areas: staffing, technology, and marketing.
From the CFO’s office, this makes perfect sense; staffing and technology costs (capital improvements) are generally two of the largest line items on the expense sheet. Marketing is not only discretionary, it is often considered a disposable expense item.
Many consulting firms are more than happy to develop an efficiency roadmap for that kind of limited exercise because it is easy and impactful.
Unfortunately, creating a truly nimble organization is not that easy. Randomly slashing employees and limiting technology capabilities adversely impacts customer relationships, while slashing marketing expenses drastically limits institutions’ opportunity to build brand recognition, brand value, and market share.
To become nimble, a financial institution must start with the customer, not a few expense line items.
The first area of focus in a customer centered approach to organizational efficiency starts with the overall go-to-market strategy that ultimately delivers the product to the customer and defines their journey across the institution’s delivery channels.
Channel conflict and line of business verticals that are not fully integrated and orchestrated around the customer relationship lead to convoluted and inconsistent customer interactions that add cost and lost revenue opportunities to the organization.
Understanding how a customer moves through your institution will uncover those lost revenue opportunities and identify how effective staff and technology utilization can streamline costs.
A well-defined customer journey allows every delivery channel to appear as one point of entry. Transactions and interactions are not defined by branch or digital origin, but rather by relationship ownership and maximizing staff utilization.
Your teams reclaim time for advice and cross-sell thanks to a seamless customer experience. Expense reduction and revenue growth occur as a result.
Why This Matters Now
Consolidation will not pause so that smaller institutions can regroup. It will continue as long as scale rewards speed, technology, and funding access.
That is the world we inhabit. The right response is not retreat. The right response is design.
If you lead a community bank or credit union, you have strengths that scale cannot buy: proximity, trust, and a brand that feels human.
Marry those strengths to a cleaner operating model and a unified channel journey.
You will lower the efficiency ratio. You will raise loyalty. You will stay relevant in a system that keeps getting larger at the top.