Transformational deals might be all the rage, but PrivateBancorp (PVTB) in Chicago is in the market for just a small enhancement.

The $14.1 billion-asset company has emerged in recent years as a leader in commercial-and-industrial lending, accomplishing the feat by hiring dozens of former LaSalle Bank lenders.

Having hit its stride in lending, PrivateBancorp is pondering acquisitions that would give its deposit base a greater retail focus, says President and Chief Executive Larry D. Richman.

"We have a good deposit base and I'm proud of what we've built, but I would like more granularity in it," Richman said in an interview. "Most banks have too many branches. We only have 17 in Illinois. We aren't looking for a deal to be transforming, but accretive to what we are already doing."

Richman's hunger for deposits is a part of an emerging shift in bank consolidation. Over the last few years, bank mergers have been viewed as a way to supplement organic loan growth. The Federal Reserve Board's decision to start tapering its bond-buying program and expectations that interest rates will rise sooner rather than later have prompted banks that have been successful at booking loans to mind their deposits.

"The motivation of bank M&A historically has been in funding, but deposits have been less of a focus in recent years, in our view, given the absolute low level of interest rates," says Chris McGratty, an analyst at Keefe, Bruyette & Woods. "We are eventually going to see higher rates, so it is smart to lock in funding. Your lending power is nothing if you can't fund it efficiently."

Richman's comments about looking at deals that will not fundamentally alter his company's existing operations buttress similar remarks made last week by Peter Benoist, CEO of Enterprise Financial Services (EFSC), a C&I-focused bank in St. Louis. Executives at ConnectOne Bancorp (CNOB) and Center Bancorp (CNBC) in New Jersey also cited an opportunity to pair excess deposits with organic loan growth as a reason for merging.

PrivateBancorp's openness to deals is likely welcomed news to Chicago, which is widely considered ripe for consolidation. There are about 160 banks in the Chicago area, and it is among the country's most competitive markets.

Despite those forces, M&A has remained largely elusive in Chicago. Still, would-be sellers should know Richman and his team are still primarily focused on organic growth and are viewing acquisitions as opportunistic in nature.

Richman wants more branches, but not too many more. He is interested in banks with less than $3 billion in assets, but not so small that a deal doesn't make sense for his $14 billion-asset company. A bank with some products his company could cross sell would also be nice.

"We are a specialized organization and we don't want to become a 'me too' organization," he says.

Essentially, Richman doesn't want to change too much of what he has spent the last six years building. He took the helm at PrivateBancorp in November 2007, after ABN Amro sold LaSalle, where Richman had been president and CEO, to Bank of America (BAC) for $21 billion.

Armed with capital from private-equity firm GTCR and other investors, Richman hired dozens of former lenders with a plan to recreate LaSalle's commercial lending division at PrivateBancorp.

Accomplishing that goal has been challenging — the strategy was complicated early on by legacy credit issues. Analysts now say the company is entering a new phase as credit problems subside and loan growth remains relatively strong. Last year, loans increased by 5%, to $10.6 billion.

PrivateBancorp is among a group of banks that analysts expect to outperform the industry once rates rise. As an asset-sensitive company, PrivateBancorp's earnings would likely do well in a rising rate environment, but the key will be to keeping deposit pricing low.

Picking up some retail deposits now could insulate the company should some of its commercial depositors look to earn more on their idle cash. That's where selective M&A could help the PrivateBancorp over the long term, McGratty says.

PrivateBancorp "is far and away the most asset-sensitive bank in my space," McGratty says. Being asset-sensitive "will suit them well when rates go up. But the big question is can they keep the funding or does it go out the door?"

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