On the other hand, strong midsized banks may seek growth in two ways: (1) acquire specialist providers or smaller institutions with attractive deposit bases and assets, and (2) leverage their nimble structure to expand organically in markets dominated by large banks. Through either organic growth or M&A, competition in the midsized sector will likely increase in 2014.
Consolidation may likely be a growing trend among smaller banks as regulatory pressures flow down to these institutions. “Compliance costs may further depress earnings at smaller community banks and encourage them to seek merger partners to gain scale,” says Tom Kaylor, principal, Deloitte Financial Advisory Services LLP.