Deal volume among U.S. banks is slowly picking back up as some of the uncertainty surrounding COVID-19's economic impact clears and banks feel more confident and optimistic.

There were nine U.S. bank deals announced in August, a slight improvement from six in both June and July. Many of the deals announced in August were relatively small in size, in- or adjacent-market transactions, and in the works prior to COVID-19. While the trajectory of the economy remains unclear and a presidential election in November could bring tax and regulatory changes, the key drivers for M&A have only been magnified by the pandemic, deal advisers said.

"That need for scale, cost-spreading, the need for efficiency, the need to seize opportunity — all those things that drive M&A were overwhelmed in March and April with the cloud that brought along asset quality and general uncertainty. As that cloud of asset quality and other general uncertainty dissipated a little, those drivers that were there before are still there and are maybe even more enhanced," James Stevens, a partner at Troutman Pepper Hamilton Sanders LLP, said in an interview.

A deal that is in- or adjacent-market and represents a small portion of the buyer's size reduces the risk profile and offers greater cost savings, important factors in a recession, said both Stevens and Kirk Hovde, managing principal and head of investment banking for Hovde Group LLC. Among the deals announced in August, the largest target had $1.29 billion in total assets.

The efficiencies from cost savings can outweigh some of the risks of the deal, even during a time of increased uncertainty, Hovde said. "When you have compressing margins, which have been enhanced by the pandemic … that part of the pandemic has driven banks to say, 'We need scale and efficiencies to offset [margin compression],'" he said.

While most deals announced during August had complementary markets, Los Angeles-based Broadway Financial Corp. and Washington, D.C.-based CFBanc Corp. announced their cross-country merger of equals.

"That is a completely different transaction. That one makes sense to get scale because there aren't that many [Black-led] banks, so it makes sense to partner ... because you don't have a lot of those in overlapping markets," Hovde said.

Broadway Financial and CFBanc Corp.'s deal was in the works for more than a year, a common theme for transactions announced during August. Executives from Hanover Bancorp Inc. and Savoy Bank said they were discussing their deal, announced on August 27, prior to the pandemic coming to the U.S. The MOE between Blue Ridge Bankshares Inc. and Bay Banks of Virginia Inc. was paused when the pandemic hit after being considered for years.

While most of the ongoing deal conversations consist of banks reengaging after a pandemic-induced pause, there are some new tie-ups being discussed, Stevens and Hovde said. "We saw some deals go on ice and now they are coming back to life. We have also seen some new deals coming up, and I think it's just around the perception of less uncertainty," Stevens said.

Hovde said the pandemic and current bank valuations could bolster MOEs. "You're starting to see more banks say 'Let's have a discussion with a like-sized institution that has a similar mindset because we aren't going to get that stand-alone sale for some big premium now,'" he said.

While discussions are picking back up for some, others are still hesitant for reasons beyond the pandemic. "Banks are a little more confident and optimistic than they were six months ago, but the tough part is that there is an election a couple months from now," Hovde said.

Investor reaction is also holding back some larger M&A players. "Some of the larger parties I talk to that have been serial acquirers, they have said, 'I can't do anything of scale. My investors would kill me and question what I'm doing,'" Hovde said.

Both Hovde and Stevens said they believe M&A could accelerate toward the end of the year or early-2021.

"As there is more certainty and we get more of an understanding of where we are with asset quality, the interest rate environment and from a political standpoint after the election, all those uncertainties become more certain," Stevens said. "You'll start to see more strategic, out-of-market transactions after that."