Bank acquisition activity is widely expected to pick up in 2011, but some parts of the country might be more active than others.

In 2010 the nation's heartland was the epicenter of traditional consolidation, while the Northeast had a flurry of high-profile deals.

Investment bankers said that those hot spots could see competition next year from other regions, as small banks grapple with uncertain profitability and others view 2011 as a year of opportunity for power plays.

However, the volume of dealmaking in any part of the U.S. will depend on asset quality, which has been the banner theme of the past few years.

"Places like the Northeast were unscathed, relatively speaking, so it makes sense that it was the first place where conventional mergers pick up," said Gray Medlin, a managing director at the investment bank Carson Medlin Co. "As things improve in other regions, we will see deals increase, too."

Although observers agreed that stabilizing credit quality will be a necessary precondition for M&A, several brought up other factors that could give specific areas a boost: improving local economic conditions; the confidence that is sown when strong banks step up to make purchases; and the fading allure of failed-bank deals.

At Dec. 23, 114 traditional bank acquisitions were unveiled this year, according to data compiled by SNL Financial in Charlottesville, Va. The majority of those deals had banking companies buying competitors, but it also included instances where bank holding companies were the acquirers.

The list did not include majority-ownership grabs by groups with backing from private-equity firms.

The Southwest had the most deals, accounting for 30% of all acquisitions. The Midwest had the second-largest share, 21%.

The Northeast, which has garnered most of the attention with deals such as First Niagara Financial Group Inc.'s deal for NewAlliance Bancshares Inc., accounted for 18% of the year's acquisitions.

William Pittenger of Bill Pittenger Real Estate Economics LLC said that a region's economic strength comes second to asset quality as a driver for acquisitions. Buyers are searching for targets that will not only add to their size, but also provide additional opportunities in areas where commerce is growing.

"M&A is largely driven by the perception of opportunity," Pittenger said. "By extension, deals will probably occur where economies are beginning to recover, where consumer spending is up and where there is a demand for banking activity."

Pittenger said parts of the Midwest are among the areas that he expects to continue to perform well. He said that the Southwest, with the exception of Arizona, is also poised to for a rebound in M&A activity.

Michael Iannaccone, the president of MDI Investments in Chicago, added the Midwest to the list of solid merger and acquisition markets, because of an increase in manufacturing. As a result, more companies could be looking for commercial and industrial loans. That's a sweet spot for several of the larger community banks in the region.

"The regions of the country that are producing jobs will have quicker stabilization that drives M&A," Iannaccone said. "I see that in the Midwest."

Mergers could spike in regions that have a high number of community banks with assets of $1 billion to $10 billion, Iannaccone said. In particular, he predicted that more $5 billion-asset banks will pursue smaller competitors.

"There is a real need for middle-market banks," Iannaccone said. "That is going to be a key area for M&A activity."

Charles Crowley, a managing director at Paragon Capital Group, said that sometimes a region's M&A market simply needs a spark. Such a move provides confidence and spurs competition. He mentioned First Niagara in Buffalo, N.Y., as a bank that could boost activity in the Northeast.

Hancock Holding Co.'s deal to buy Whitney Holding Corp. of New Orleans could spur deals in the Southeast, Crowley added.

"We need the emergence of strongly capitalized and entrepreneurially inclined buyers to step up as consolidators," Crowley said. "That can lead to quite a bit more activity."

James Gardner, the chairman of Commerce Street Capital LLC, said that while evidence of economic recovery is important, sometimes hope is enough for places that have long been viewed as growth areas, such as Florida.

Traditional acquisitions have largely been stymied in such states due to competition from failed-bank deals brokered by the Federal Deposit Insurance Corp. Gardner said that FDIC-assisted deals have lost some of their luster and impatient buyers might be more willing now to strike conventional deals.

"I think we are going to see some that don't want to wait for the FDIC and say 'Let's make a deal the old-fashioned way,' " Gardner said.

Iannaccone said that regardless of geography, unassisted deals could become more popular in 2011. It "is going to be the year that other market solutions for troubled banks rise," he said.

Still, Pittenger, who is based in Florida, said he doesn't expect to see much traditional mergers and acquisitions in the hardest-hit regions, such as his home state, even if it has good prospects for long-term growth.

"The sand states will always have some draw," Pittenger said. "Florida is still soft. Things are still pretty bad down here and economics trump climate any day."