More than one-quarter of the 20 largest U.S. bank M&A deals terminated in the last decade have occurred in 2022.

Of the 20 largest terminated deals since 2012, six fell apart in 2022, including three of the 10 largest terminations in that time period: Blue Ridge Bankshares Inc.'s merger with FVCBankcorp Inc., VyStar CU's acquisition of Heritage Southeast Bancorp. Inc., and Patriot National Bancorp Inc.'s acquisition of American Challenger Development Corp.

In total, eight bank deal terminations have been announced so far in 2022, marking the first year-over-year increase in terminations since 2020, according to S&P Global Market Intelligence data. Market participants said the rise in collapsed deals is a result of unpredictable market pricing and tough regulatory scrutiny.

"When it's hard to get a deal done is in volatile times, and so anytime we've got a period of economic volatility, of regulatory, political volatility, that's when you see the terminations happen," Jonathan Hightower, a partner at Fenimore Kay Harrison, said in an interview.

In particular, Hightower cited recent changes in the regulatory environment, along with interest rates "moving so quickly and impacting projected capital ratios in a way that we've really not had to deal with before."

Large deals being terminated

One of the terminated deals from 2021, First Internet Bancorp's planned acquisition of First Century Bancorp., fell through due to changes in the interest rate environment. First Century raised its asking price from the deal price the companies agreed on in November 2021 because its deposits had risen in value, the company's CEO said at the time.

"I would think the larger deals now are probably from macroeconomic issues or the fact that the larger the deal, the more regulatory scrutiny they're getting," Rob Fleetwood, a partner at Barack Ferrazzano Kirschbaum & Nagelberg LLP, said in an interview with S&P Global Market Intelligence.

The July 2021 merger of equals between Blue Ridge Bankshares and FVC Bancorp was terminated due to regulatory hurdles, while the March 2021 planned acquisition of Heritage Southeast by VyStar was similarly terminated due to an inability to foresee regulatory approval.

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Terminations declined in recent years

In 2012, 9.3% of announced U.S. bank M&A deals were eventually terminated. Three years later, that percentage had been nearly halved to 5.4%. In 2021, just 4.2% of announced U.S. bank M&A deals have been terminated. So far in 2022, none of the year's announced bank deals have been terminated.

The total number of deal terminations each year over the last decade has followed a similar pattern. Deal terminations declined every year over the five-year period between 2012 through 2016.

Tim Johnson, who leads KPMG's Deal Advisory Financial Services Sector, pointed to the tame economic and regulatory environments during the past decade as factors in the slowdown in terminations.

"Over the last 10 years, we've had a relatively, until recent periods, benign kind of economic environment," Johnson said. "Then certainly under prior administration, a relatively benign regulatory environment."

Even if conditions that have caused the recent uptick in terminations continue, Hightower said the number of broken deals is likely to decrease.

"Most of the time when you see a deal terminate, it's because in some material way expectations have not been met," Hightower said. "But as long as we have some level of stability, or at least the changes that occur in the environment are ones that we expect, we will be okay," Hightower said.