KBRA Financial Intelligence

How Crypto Custody Services May Boost Bank Income

Bitcoin Funds Onboarding Bank Custodians

Last year, KFI noted that the unprecedented success of spot Bitcoin exchange-traded funds (ETF) could help to blueprint the path to institutional adoption of digital assets among U.S. banks. BlackRock’s iShares Bitcoin Trust (IBIT) is now the 21st largest U.S. ETF in a universe of over 4,000 funds. IBIT became the fastest ever to reach $50 billion in assets under management (AUM) in late 2024, scorching across that threshold just 227 trading days from its launch in January 2024. The previous record holder—iShares Core MSCI Emerging Markets ETF (IEMG)—took 1,323 days. In July, IBIT saw the second-highest monthly flow of any ETF and surpassed $86 billion in AUM, leading a field of Bitcoin-backed ETFs that now collectively hold more than $140 billion worth of BTC.

These Bitcoin ETFs are now complemented by similar spot Ethereum (ETH) ETFs, which were approved to launch in U.S. markets in May 2024. These funds hold a total of $18 billion in ETH, with BlackRock’s iShares Ethereum Trust ETF (ETHA) leading the pack at roughly $11 billion AUM. The BlackRock-sponsored funds are not only the largest in this new class of exchange-traded product but may soon be among the first to entrust the custody of the crypto held by their funds with a federally chartered U.S. bank. Anchorage Digital Bank, N.A. is branded as a crypto bank and has custodied BTC and ETH on behalf of 21 Shares and ARK Asset Management, which sponsor BTC and ETH ETFs.

BlackRock and Anchorage Digital jointly announced in April that the bank would become “an additional custodian eligible to support spot crypto [exchange-traded products] and other BlackRock funds providing exposure to crypto,” taking a secondary role to leading U.S. crypto exchange Coinbase, which serves as the primary custodian of the digital assets backing shares of the IBIT and ETHA. Anchorage has yet to take custody of any cryptocurrency assets on behalf of BlackRock’s funds, but the effort to increase custodian diversity might suggest that major asset managers will seek closer partnerships with traditional banking institutions in their digital asset pursuits going forward.

Until recently, all creations and redemptions of digital asset ETFs had to be cash-based—unlike many other commodity-backed funds that allow in-kind redemptions and creations. Recent SEC approval of these in-kind redemptions means that authorized participants may now exchange ETF shares for the underlying cryptocurrencies directly at the request of ETF investors. These in-kind transactions are generally cheaper for custodians, as they do not have to worry about slippage or trading fees incurred in the conversion from crypto to USD.

Other Crypto-Focused Bank Services

In addition to fee income from providing custody for digital assets backing ETFs, Anchorage Digital and other banks engaging in crypto asset custody services might earn income via transaction and withdrawal fees, acting as settlement agents with over-the-counter desks or exchanges, and by providing staking services for crypto assets with a proof-of-stake consensus mechanism. Staking enables the owner of a digital asset to lock up some or all their tokens (typically in a smart contract), assisting the validation of transactions on a blockchain network, and typically entitling the staker to a certain rate of reward in that blockchain’s native currency. Staking services, as well as liquid staking, could become a more common line of business for custodial banks that embrace digital assets, as the U.S. Securities and Exchange Commission (SEC) has recently declared that neither of these activities constitute securities, investment contracts, or violate securities laws, clearing a very critical layer of regulatory uncertainty.

Rising crypto valuations and adoption among institutions boosted Anchorage Digital’s annual income from fiduciary activities by more than 50% from 2023 to 2024. According to FFIEC call report data available on KFI, the bank has experienced back-to-back record quarters in this category, collecting more than $29.4 million in fiduciary income throughout 1H 2025. Although just a fraction of what many larger banks earn via their offerings of more traditional custody services, steady growth in the digital asset industry could spur broader product launches among established financial institutions and inspire upstart crypto-focused fintechs to seek bank charters.

Custody for Stablecoin Reserve Assets

While counting several major U.S. banks, including Bank of America Corp. (KFI Score: B), JPMorgan Chase & Co (KFI Score: B+), BMO Financial Corp. (KFI Score: B), and The Goldman Sachs Group (KFI Score: B+), as authorized participants with the right to create and redeem shares, IBIT’s cash custodian is The Bank of New York Mellon (KFI Score: B), the largest custodian bank in the U.S. by income from custody and fiduciary accounts. Interestingly, BNY Mellon has been developing its capabilities for digital asset custody since 2022, becoming the primary custodian for the reserves backing several stablecoins, including Circle’s USD Coin (USDC), Ripple Labs’ Ripple USD (RLUSD), and Societe Generale-Forge’s USD CoinVertible (USDCV).

Several months ago, KFI highlighted stablecoins as perhaps the most natural digital asset product for depositories to offer. Generally defined as a digital token with a stable value derived from a 1:1 peg to the underlying value of a currency or similar fungible asset, stablecoins now handle trillions of dollars in transfer volume annually worldwide. The total value of stablecoins in circulation has bloomed into a $250 billion market cap, and USD-denominated, asset-backed stablecoins are the primary attraction. Their peg to the dollar is maintained by a constant guarantee that one token can be constantly redeemed for one USD and liquidity for these token redemptions come from a pool of reserves, with the most popular reserve asset being United States Treasury (UST) securities. By year-end 2024, almost $112 billion of UST securities populated the consolidated reserves backing three large asset-backed USD stablecoins—nearly equivalent to the collective sum of UST securities held by a cohort of 2,513 U.S. commercial banks.

The OCC concluded in 2020 that national banks are permitted to hold stablecoin “reserves” as a service to bank customers, but subsequent interagency actions from bank regulators in 2021 imposed a “supervisory non-objection requirement,” which essentially required case-by-case regulatory review of any crypto-related activities banks sought to engage in. This likely made many institutions wary of taking advantage of any opportunity to work with stablecoin issuers, and the 2023 failure and liquidation of several crypto-friendly banks—including Silicon Valley Bank, Signature Bank, and Silvergate Bank—further stigmatized involvement with the digital assets industry. With the recent rescinding of bank regulators’ supervisory non-objection requirement and passage of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act creating a formal regulatory framework for payment using stablecoins, it is more likely that a wider range of depositories will now explore offering custodial services related to digital assets.

July 2025 M&A

Baton Rouge, Louisiana’s Investar Holding Corp. (NASDAQ: ISTR) (KFI Score: B+), the $2.7 billion parent of Investar Bank, N.A. (KFI Score: B), announced in a July 1 press release that it will acquire Texas’s Wichita Falls Bancshares, Inc. and its $1.5 billion commercial bank subsidiary, First National Bank (KFI Score: B), in a cash and stock deal worth $83.6 million. The transaction is expected to close in 4Q 2025.

Business First Bancshares, Inc. (NASDAQ: BFST) (KFI Score: B), the $8 billion parent of Baton Rouge, Louisiana’s B1Bank (KFI Score: B), announced in a July 7 press release that it will acquire Monroe, Louisiana-based Progressive Bancorp, Inc. and its commercial bank subsidiary, Progressive Bank (KFI Score: B). The all-stock deal worth $82.6 million is expected to close in 1Q 2026.

Norwood Financial Corp. (NASDAQ: NWFL) in Honesdale, Pennsylvania, the parent of $2.4 billion Wayne Bank (KFI Score: B), announced in a July 7 press release that it will acquire PB Bankshares, Inc. (NASDAQ: PBBK) and its commercial bank subsidiary, Presence Bank (KFI Score: B), in Coatesville, Pennsylvania. The $54.9 million cash and stock deal is expected to close in either 4Q 2025 or 1Q 2026.

Sandusky, Ohio-based Civista Bancshares, Inc. (NASDAQ: CIVB) (KFI Score: B) announced in a July 10 press release that the $4.2 billion parent of Civista Bank (KFI Score: B-) will acquire $283.5 million The Farmers Savings Bank (KFI Score: A), headquartered in Spencer, Ohio. The $5.6 million cash and stock deal is expected to close in 4Q 2025.

First Community Corp. (NASDAQ: FCCO) in Lexington, South Carolina, parent of $2.1 billion First Community Bank (KFI Score: B+), announced in a July 14 press release that it will acquire $266 million Signature Bank of Georgia (OTCPK: SGBG) (KFI Score: B). The all-stock deal worth $41.6 million is expected to close in 1Q 2026.

Columbus, Ohio-based Huntington Bancshares Inc. (NASDAQ: HBAN) (KFI Score: B), parent of $206.7 billion The Huntington National Bank (KFI Score: B), announced in a July 14 press release that it will acquire $12.6 billion Veritex Holdings, Inc. (NASDAQ: VBTX) (KFI Score: B-) and its commercial bank subsidiary, Veritex Community Bank (KFI Score: B) of Dallas. The all-stock deal worth $1.9 billion is expected to close in 4Q 2025.

New Independent Bancshares, Inc., parent company of $644.8 million The New Washington State Bank (KFI Score: B) in Charlestown, Indiana, announced in a July 16 press release that it will acquire $96.3 million State Bank of Medora (KFI Score: A). The deal value was undisclosed, but it is expected to close in 2H 2025.

Houston’s Prosperity Bancshares, Inc. (NYSE: PB) (KFI Score: B+), parent of $38.4 billion Prosperity Bank (KFI Score: B+), announced in a July 18 press release that it will acquire Corpus Christi, Texas’s American Bank Holding Corp. and its $2.6 billion commercial bank subsidiary, American Bank, N.A (KFI Score: B). The all-stock deal worth $321.5 million is expected to close in either 4Q 2025 or 1Q 2026.

Manitowoc, Wisconsin-based Bank First Corporation (NASDAQ: BFC) (KFI Score: B), parent of $4.4 billion Bank First, N.A. (KFI Score: B), announced in a July 18 press release that it will acquire Beloit, Wisconsin’s Centre 1 Bancorp, Inc. and its $1.5 billion commercial bank subsidiary, The First National Bank and Trust Company (KFI Score: B). The all-stock deal worth $174.3 million is expected to close in 1Q 2026.

First Community Bankshares, Inc. (NASDAQ: FCBC) (KFI Score: B), parent company of $3.2 billion First Community Bank (KFI Score: B) in Bluefield, Virginia, announced in a July 21 press release that it will acquire Middlebourne, West Virginia’s Hometown Bancshares, Inc. and its $402.3 million commercial bank subsidiary, Union Bank, Inc. (KFI Score: B+). The all-stock deal worth $41.5 million is expected to close in 1Q 2026.

California’s $1.4 billion San Francisco Federal Credit Union (KFI Score: B+) announced in a July 22 press release that it will acquire $279.6 million Summit Bank (KFI Score: A-), based in Oakland, California, in an all-cash transaction of undisclosed value. The deal is expected to close in 1Q 2026.

Mercantile Bank Corp. (NASDAQ: MBWM) (KFI Score: B), parent of $6.1 billion Mercantile Bank (KFI Score: B+) in Grand Rapids, Michigan, announced in a July 22 press release that it will acquire Croswell, Michigan’s Eastern Michigan Financial Corp. (OTCID: EFIN) and its $504.5 million commercial bank subsidiary, Eastern Michigan Bank (KFI Score: B). The cash and stock deal worth $95.8 million is expected to close in 4Q 2025.

Campbell County Bank (KFI Score: B), a $205.6 million bank headquartered in Herreid, South Dakota, applied to the FDIC for written consent to acquire and merge with $20.1 million Farmers State Bank (KFI Score: B-) of Hosmer, South Dakota, on July 23. The deal value and potential close date were undisclosed.

Fitzgerald, Georgia-based Colony Bankcorp, Inc. (NYSE: CBAN) (KFI Score: B+), parent of $3.1 billion Colony Bank (KFI Score: B), announced in a July 23 press release that it will acquire Thomasville, Georgia’s TC Bancshares, Inc. (OTCQX: TCBC) and its $571.4 million commercial bank subsidiary, TC Federal Bank (KFI Score: B). The cash and stock deal worth $86.1 million is expected to close in 4Q 2025.

Pinnacle Financial Partners (NASDAQ: PNFP) (KFI Score: B), parent of $54.7 billion Pinnacle Bank (KFI Score: B) in Nashville, Tennessee, announced in a July 24 press release that it will acquire Columbus, Georgia-based Synovus Financial Corp. (NYSE: SNV) (KFI Score: B) and its $60.9 billion commercial bank subsidiary, Synovus Bank (KFI Score: B). The all-stock deal worth $8.6 billion is expected to close in 1Q 2026.

Harahan, Louisiana’s $1.1 billion OnPath Federal Credit Union (KFI Score: B+) announced in a July 24 press release that it will acquire $187.3 million Heritage Bank of St. Tammany (KFI Score: B), headquartered in Covington, Louisiana, in an all-cash transaction worth $26 million. The deal is expected to close in spring 2026.

Riverdale, Utah’s $22.9 billion America First Federal Credit Union (KFI Score: B+) announced in a July 25 press release that it will acquire $1.4 billion Meadows Bank (KFI Score: B), headquartered in Las Vegas. The deal value and potential close date were undisclosed.

PeoplesBancorp, Inc., parent of $1.7 billion Cornerstone Bank (KFI Score: B) in Spencer, Massachusetts, announced in a July 28 press release that it will acquire $682.2 million Athol Savings Bank (KFI Score: B+) of Athol, Massachusetts. The deal value and potential close date were undisclosed.

Kilgore, Texas-based East Texas Financial Corp., parent of $489.1 million Citizens Bank (KFI Score: A-), announced in a July 28 press release that it will acquire Texas National Bancorporation, Inc. and its $848 million bank subsidiary, Texas National Bank of Jacksonville (KFI Score: B). The deal value and potential close date were undisclosed.

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