Astute dealmakers are like bargain shoppers at a department store.

They keep their eyes on what they want but wait patiently for the optimal price before spending their dough.

Data for the first three quarters of the year show bargains are increasing. The number of transactions announced each quarter has been around 50, but the number of deals priced at or below tangible book value has grown each quarter, starting with five in the first quarter, 10 in the second quarter and 17 in the third quarter.

The reason? More struggling banks having finally improved their credit quality enough to attract buyers, deal advisors say.

"There is a population of banks who had some credit issues, and they have done a lot of the hard work. Maybe they've returned to nominal profitability but they are not out of the woods just yet," said C.K. Lee, a managing director at Commerce Street Capital, a Dallas investment bank. "The buyers are more comfortable engaging with them now, and deals are starting to happen for banks that would have been in limbo a couple of years ago."

Most buyers have a list of potential targets, too, and have been carefully watching the struggling players in their market. Generally the targets' balance sheets have to improve before buyers can make the numbers work.

"We've been in over 50 banks. I get one inbound call a week, and now we are starting to get what I call rebounds. They are banks where we went in and we looked but couldn't make it work," said Ed Wehmer, chief executive of Wintrust Financial (WTFC) in Rosemont, Ill., in an interview last month. "Their portfolio may not have been up to snuff then, but they've been working on strengthening their [loan] marks and are now worth a second look."

The $16 billion-asset Wintrust announced on Sept. 18 it would acquire the $390 million-asset HPK Financial in Chicago for $27.5 million. The deal was priced at 106% of HPK's tangible book value and 82% of its Hyde Park Bank unit's tangible book value.

Other deals in the third quarter with prices below tangible book included SCBT Financial's (SCBT) agreement to buy Savannah Bancorp (SAVB) for 84% of tangible book and Crescent Financial's (CRFN) agreement to buy ECB Bancorp (ECBE) for 78% of tangible book.

Lee said that several of the deals his firm is working on involve banks that have had continued discussions for the last few years. The buyers have an evolving confidence that the targets are worthy.

"There were some banks that were just not really ready from a credit perspective," Lee said. "But in the last 12 to 18 months, they've sent a clear signal that they are not going to fail and are now re-engaged."

New deal structures, particularly bank holding company bankruptcies accompanied by bank auctions, are also greasing the wheels. Such deals allow buyers to pick up the open bank without having to deal with holding companies weighed down with debt. At least two such deals were announced in the third quarter.

"The data points me to an accelerating trend of impaired sellers finding partners," Lee said.

The buyers are not only becoming more confident about the target, advisors and bankers said. They are also more confident in their own strength.

"If you're an acquirer, by this point you know exactly where you stand and that makes it easier to determine how you're going to put your capital to work," said Ray Davis, chief executive of $11.5 billion-asset Umpqua Holdings (UMPQ) in Portland, Ore. Umpqua recently agreed to buy Circle Bank near San Francisco for a price equal to tangible book.

For stock deals, the currency of buyers has also improved, meaning they are able to pitch the sellers on the upside potential.

"Bank stocks as a whole have done pretty well this year and that helps the buyers' purchasing power," said Charlie Crowley, a managing director at Paragon Capital Group, an investment bank in Cleveland.

Meanwhile, the bid-ask spread has narrowed. Banks that may have thought they were worth a premium a couple of years ago have sobered to the reality of valuations.

"A couple of years ago, a lot of institutions thought they could make it on their own or were holding out for a better valuation and haven't accomplished a lot since then," said Stephen Gordon, the chairman and CEO of Opus Bank in Irvine, Calif., which has announced three acquisitions in the last year and a half. "They are now more realistic than they were a year ago and the comparative data is showing them they are wrong."

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