"Size is the wrong metric," said Kathleen Murphy, president of the Maryland Bankers Association. "Nothing says if you are a billion-dollar bank you will be more successful than a $100 million bank."
Newcomb said that after one more year of low-interest rates dampening profits at their banks, shareholders and boards of directors likely will clamor for mergers, and the pace of deals could start to pick up late next year. She advises banks to begin conversations now that could lead to a marriage down the road.
"It's like dating," she said. "Get to know each other."
The parent of Frederick County Bank, with nearly $312 million in assets, is among those having such conversations.
"People are talking to each other," said Marty Lapera, president and CEO of Frederick County Bancorp. "A lot of them are banks that have been around for a long time that two or three years ago would never have thought about doing anything."
Traditionally, these banks have been able to remain independent because they were highly profitable and provided a good return for shareholders, Lapera said. But that has changed since the 2007 recession and the financial crisis that followed, which continues to dog the economic recovery.
"We have seen the writing on the wall," Lapera said. "We talk to a lot of different banks. We think this is a unique environment where a merger of equals makes sense."
Not all banks have the urge to merge.
Rick Miller, president of Woodsboro Bank, with $231 million in assets, said a bank doesn't necessarily need $1 billion in assets.
"There's a little more to it than a simple mathematical formula," said Miller, adding that a bank's market and structure play roles in its viability.
Investors in newer banks expect the institution to reach a critical mass and then sell at a profit, Miller said. But Woodsboro, a 113-year-old bank in Frederick County that is not publicly traded, has shareholders who inherited their stock from parents and grandparents. And they remain steadfast even though the bank gradually reduced its quarterly dividend from 31 cents per share in 2008 to 3 cents this year, he said.
It's not that Woodsboro is immune to the pressures today on smaller banks, Miller said, but the bank expects to remain independent.
"Our shareholder base is more understanding about the fact that at least until things change in the economy, that dividends aren't going to be quite what they were in the past," he said. "Our shareholders are in it for the long term."
Another indication of the stress community banks are under these days is the lack of startups, said banking consultant Bert Ely. No new banks were chartered in 2011 or the first half of 2012, according to the Federal Deposit Insurance Corp.
"If there is an unwillingness to get into the business, that says it's a tough business for those already in it," Ely said.
Maryland has seen a flurry of mergers before. A decade ago, the state had 139 banks based here, with 20 of them separately chartered affiliates of Mercantile-Safe Deposit & Trust Co., according to the Maryland Bankers Association.
Back then, the three biggest — Allfirst Bank, Provident Bank of Maryland and Mercantile — had their headquarters in Baltimore. The trio sold to larger out-of-state competitors.
"What we are going to see is continuing consolidation in the banking industry," Ely said.
But he adds that $1 billion is an arbitrary number, and not all small banks will have to merge.
"If a community bank is having profitability problems, and a lot of them have, they have to be open" to consolidation, Ely said. "It pains me to say this — community banks are very important to this economy — at the same time, they have to be realistic."