) -- Is traditional bank M&A set for a comeback?

Scooping up failed banks has been the norm for consolidation since the crisis with government backstops on bad assets making the deals no-brainers for the most part, but investors may want to start scouring the landscape for potential strategic targets, according to Oppenheimer analyst Terry McEvoy.

The changing dynamics of FDIC-assisted deals is starting to be apparent in buyer stock prices, McEvoy says. Last year buyers were largely rewarded by investors for purchasing a failed bank. But more recently, the shares of acquirers participating in an FDIC-assisted deal have underperformed, he says.

Whereas the S&P Regional Bank Index has returned 21.3% year-to-date, shares of FDIC-assisted acquirers have returned 15.4% in the same period, according to the Oppenheimer note, which cites information from

SNL Financial


"Picking bank stocks today is very much driven by the fundamental outlook for the company unlike what we've seen it the past," McEvoy told


. "The last two years

was all about trying to pick the buyers. If you go back to 2000-2007,

investors owned a handful of

regional banks, many

of which got bought out. So right now, we're in this gray area between playing the FDIC-assisted trade and trying to pick tomorrow's sellers."

Over the past two years,

bank M&A

, with the exception of assisted deals, all but came to a halt as the financial crisis gripped the sector. The steady flow of failed banks was a quick and dirty way add deposits and branches on the cheap with the government sharing the risk on toxic assets.

Of the largest FDIC-assisted acquisitions during the crisis,

JPMorgan Chase

(JPM) - Get Report

got its hands on troubled mortgage titan Washington Mutual;

Bank of America

(BAC) - Get Report

on failed lender Countrywide Financial;

U.S. Bancorp

(USB) - Get Report

bought California natives Downey Financial and PFF Corp.; and

PNC Financial Services

(PNC) - Get Report

snapped up troubled mortgage-centric National City.

According to research from Keefe, Bruyette & Woods, 82 banking institutions have failed so far in 2010 and a total of 250 have failed since 2007. Oppenheimer estimated year-to-date deal flow for traditional bank M&A at 64, which puts the industry on an annualized pace of 142 transactions vs. an average of 262 deals for the 2000-2007 period.

Oppenheimer's McEvoy believes the economics of FDIC-assisted deals are less enticing these days because of greater competition for failed institutions and a move toward less generous terms by the FDIC.

New York Community Bancorp( NYB)

, a traditionally acquisitive bank that specializes in multifamily lending in the New York metro area, recently said it's taking a break from FDIC-assisted transactions. Chairman and CEO Joseph Ficalora expects the deals will continue, but thinks competition is driving prices too high.

"There's no question that FDIC transactions over the period ahead are going to be fortunately plentiful," Ficalora said at a May investor conference, adding later that New York Community is "not going to participate at levels that are currently in the market."

In 2008 and early 2009 loan losses were split 80/20 (FDIC/acquiring bank) up to a designated threshold, and 95/5 for losses above that threshold, Oppenheimer's McEvoy noted, but the FDIC eliminated the 95/5 loss-sharing split in April, requiring banks "to be even more diligent in the review and valuation process related to each failed bank's balance sheet."

"As the FDIC seeks to limit its losses, it has even completed some deals with a 50/50 loss-sharing agreement up to a threshold and then 80/20 for losses in excess of the threshold," McEvoy said.

Toronto-Dominion Bank's

(TD) - Get Report

purchase of three failed banks in Florida in April had such an agreement. But for its latest deal, TD opted to purchase

The South Financial Group

( TSFG) outright in May.

That deal "was viewed by many as a sign that a return to more normal M&A activity in the banking industry may not be far off," McEvoy said.

He added that some regional banks are starting to field calls from interested sellers during the past several weeks.

Still McEvoy cautions that a return to traditional bank M&A is not going to happen immediately, given the uncertainty surrounding regulatory reform and future capital levels for banks and a slow economic rebound. McEvoy sees traditional M&A as more of a 2011-2012 event.

"We feel the return to traditional M&A will be a slow process and will be marked by a period of both FDIC-assisted and traditional acquisitions taking place concurrently," he wrote in the note.

In a phone interview, McEvoy declined to name any banks that could be potential buyout targets, only saying that: "Historically banks that operate in faster growing markets, metropolitan areas and

have a high-quality deposit base tend to be the ideal targets for the buyer."

--Written by Laurie Kulikowski in New York.