In a cool bank M&A market, the Mid-Atlantic region stands out as a hotbed of activity.

Last year, 8% of all announced mergers and acquisitions in the country — or 21 deals in all — involved banks based in Maryland, Virginia or Pennsylvania. The wheeling and dealing has picked up even more in 2017, as 11 deals have been announced in those states, accounting for 14% of all bank M&A activity nationwide.

The latest deal in the region was announced on Monday, when the $5.2 billion-asset Sandy Spring Bancorp in Olney, Md., said it would buy the $2.1 billion-asset WashingtonFirst Bankshares in Reston, Va., for $489 million. By dollar value, it is largest deal in the region so far this year and ranks among the 10 largest in the country, according to S&P Global Market Intelligence.

Much of bank M&A these days is driven by buyers’ ambition to gain scale and sellers’ desire to get out from under crushing regulatory costs, and that has certainly been true in the Mid-Atlantic region. At least a dozen of the area banks that have agreed to sell themselves over the past year had efficiency ratios well in excess of the industry average, according to BankRegData.com.

But there are other reasons the region has been such made fertile ground for dealmaking, observers said. Chief among them is demographics; the counties surrounding Washington and Philadelphia are among the most affluent in the country.

“The Mid-Atlantic is an attractive market, going from central Virginia up through Philly and New Jersey,” Sandy Spring CEO Dan Schrider said on a conference call discussing the WashingtonFirst deal. “The demographics and employment numbers are strong.”

The region is also home to a large number of relatively new banks that appeared to be built to sell. Mass consolidation in the late 1990s and early 2000s spawned a wave of startups in the region, and no fewer than nine such banks have either sold themselves or announced plans to sell over the past 15 months. Among the largest of this group is WashingtonFirst, which was founded in 2004 and grew in part by rolling up smaller banks in Virginia and Washington.

Moreover, some of the startups that remain have healthy appetites for acquisitions. The 18-year-old Access National Bank, also in Reston, roughly doubled its size in April when it acquired the $1.3 billion-asset Middleburg Financial in Virginia. The $1.1 billion-asset Southern National Bancorp of Virginia in McLean, which was founded in 2005, has acquired three banks in Virginia and Maryland since 2009.

Finally, dealmaking is likely on the rise in the region because increasing stock values have given buyers the ammunition to make acquisitions, observers say. Sandy Spring’s shares, for example, have increased by roughly 33% over the past year.

“The valuations have increased dramatically over the past year and that has given acquirers the ability to do this,” said Mark Huntley, the CEO of the $516 million-asset Artisans’ Bank in Wilmington, Del.

Activity is expected to continue, particularly in heavily banked Pennsylvania. Most of the deals there have been among banks within the state teaming up to gain scale and reach, but the state also continues to attract a fair amount of out-of-state buyers.

WSFS Financial in Wilmington, Del., has bought two banks in Pennsylvania since late 2015 and BB&T, of Winston-Salem, N.C., beefed up in the state in a big way when it bought Susquehanna Bancshares in Lititz in July 2015 and National Penn Bancshares in Allentown in April 2016.

“Pennsylvania has an older population and that makes for more traditional banking customers,” said Paul Schieber, a banking attorney at Stevens & Lee in Valley Forge, Pa. “Traditional banking is more attractive to acquirers, because there is some value to taking an existing branch network and customer base versus creating that from scratch.”

The $10 billion-asset regulatory threshold also is top of mind for some of dealmakers, said Bruce Whitehurst, the CEO of the Virginia Bankers Association. Sandy Spring will have assets of about $7.3 billion after the WashingtonFirst deal closes. TowneBank in Portsmouth, Va., will have about $9.7 billion in assets after it buys Paragon Commercial Bank in Raleigh, N.C.

Banks that are approaching $10 billion of assets need to prepare for those added costs, Whitehurst said.

“You often have the CEO say, ‘If we hit $10 billion, we’ve got to have a plan to get to $13 billion or $14 billion,' ” Whitehurst said. “They’re calculating the cost of the increased regulatory burden."

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