Bigger banks are buying. Regulatory approvals are taking less time. More banks are being auctioned.

Those might seem like pre-recession attributes of bank M&A, but all resurfaced this summer.

So far, 2014 could be considered a transitional year in M&A. Some industry observers contend that this year will be looked back upon as an inflection point, when M&A began to break away from the effects of the financial crisis.

Merger announcements fell 20% from the second quarter and were virtually flat from a year earlier, with 66 deals. Several M&A players said they are not concerned about the linked-quarter decline; 201 deals have been announced so far this year, putting 2014 on pace to outperform the annual totals for 2013 and 2012.

Shifting dynamics are taking place, creating green shoots that portend a market unlike any seen in years. "M&A is seeing a continued slow burn," said John Roddy, senior managing director and global head of the financial institutions group for Macquarie Capital.

"There is more noise in the market, and it is resulting in a slow, but modest, improvement in the number and valuation of deals," Roddy said. "These are signs of us approaching a new normal in 2015."


Perhaps the biggest highlight of the quarter was BB&T's agreement in early September to buy the $2 billion-asset Bank of Kentucky Financial in Crestview Hills.

The $188 billion-asset BB&T is often viewed as one of the bigger banks most likely to acquire. It managed to make a few deals during the downturn, including buying the operations of BankAtlantic from its holding company and picking up Colonial Bank's assets and deposits from the Federal Deposit Insurance Corp.

Those transactions, however, involved opportunistic plays in troubled situations. The deal for Bank of Kentucky was done with strategy in mind: BB&T wants to expand into the Midwest and sees its latest acquisition, which primarily operates around Cincinnati, as its beachhead. Further, BB&T is paying 215% of Bank of Kentucky's tangible book, a significant premium to the 137% average so far this year.

"The BB&T deal is a big positive," said Stephen E. Nelson, managing director of investment banking for D.A. Davidson in Chicago. "It was a really interesting development in the third quarter and it excited the industry."

The added layer of importance for the BB&T is that it is one of the banks subjected to the Federal Reserve Board's Comprehensive Capital Analysis and Review. The industry has been waiting to see how a bank that goes through the stress test is able to participate in M&A.

"I think the stress-test banks are going to be more active, but are going to do it in waves throughout the year," said Rick Maples, co-head of investment banking at Keefe, Bruyette & Woods. "Maybe they are active in the months after they get through the CCAR process and then pull back as they get closer to year-end."

BB&T wasn't the only large buyer in the quarter. CIT Group in July agreed to buy the $22 billion-asset OneWest in Pasadena, Calif., for $3.4 billion. The deal would push the specialty lender's assets to nearly $70 billion, well over the $50 billion threshold where regulators consider banks systemically important.

Though two deals are hardly enough to claim a resurgence of big bank M&A, deal advisers say it is encouraging.

"While there is continued caution with the larger institutions around M&A, the third quarter demonstrated that there is the potential for breakout deals," said Aaron Packles, head of investment banking for depository institutions at Bank of America Merrill Lynch, which represented IMB Holdco, OneWest's parent company, in the CIT deal.


Given the attention to deals tangled up in the web of regulatory approval, it is perhaps tough to imagine that the average deal is making it through the approval process any faster than it has in the last few years.

Deals are taking, on average, 117 days to be approved this year, Maples said. That compares to 151 days in 2011 and about 127 days in both 2013 and 2012.

Larger deals are also making it through the process quickly. The $22 billion-asset First Citizens BancShares in Raleigh, N.C., agreed to buy the $8 billion-asset First Citizens Bancorp. in Columbia, S.C., on June 10. The deal closed on Oct. 1.

 "In the third quarter, there were some deals that moved through the process faster than expected," said Packles, whose firm represented First Citizens Bancorp. "We're hopeful that the process will accelerate, as that would bode well for M&A."

Still, other industry observers said the deals that are still being delayed are holding up activity.

"There are still deals that are being delayed by 60 to 90 days or longer by regulatory concerns, and banks don't want to spend 12 months in limbo," Roddy said. "It is not happening in every case, but it is a meaningful minority where that is happening."


Auctions for bank sellers dominated the pre-crisis environment. They also dominated the post-crisis era, as distressed sellers sought to get what they could for their broken franchises.

In 2013, a year marked by deals between similar-sized institutions, one-on-one negotiations led the way. Though investment bankers expected that to persist, the tide quickly turned, Maples said.

"Last year, about 61% were negotiated and 39% were auctioned," Maples said. "Those figured have flipped. There are more active buyers, and we are more confident in advising clients that there are more people at the party."

While there are more auctions, Roddy cautioned that there are still fewer auctions now compared to the years before the crisis. And many of today's auctions are less formal affairs.

"Sellers have a little more confidence that there could be multiple banks interested," Roddy said. "Maybe we are calling three to five of the logical buyers. It is not quite a process. We don't have a book out, but we are approaching more than one buyer."

Robert Barba is one of American Banker's community banking reporters. 

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