DENVER An expected surge in bank consolidation hasn't happened yet, but it remains a hot topic for bankers and investors.
At D.A. Davidson's annual financial services conference, held Tuesday and Wednesday, many attendees were willing to discuss or were questioned by investors about their hopes for deals. In some instances, bankers discussed how their most recent acquisitions are coming along.
Here are three takeaways from the conference.
Regulatory Approvals Get Easier
The regulatory environment for approving acquisitions is easing a bit, some advisors say.
"The regulatory climate [for M&A] has improved a great deal in the last 12 months or so," says Matthew Guest, a partner at Wachtell, Lipton, Rosen & Katz, citing recent speeches by various regulators. "It is a different perspective than 12 to 18 months ago from the regulators, and the buyers are better prepared."
Buyers that run their potential deals by regulators early on have also "bought a lot of support," Guest says.
Those comments are especially noteworthy given Guest's activity last year, when he was involved in several of 2013's biggest deals, including Umpqua Holdings' (UMPQ) purchase of Sterling Financial, Provident New York Bancorp's acquisition of Sterling Bancorp (STL), PacWest Bancorp's (PACW) purchase of CapitalSource and SCBT Financial's (SCBT) agreement to buy of First Financial Holdings.
Chris Myers, president and chief executive of CVB Financial (CVBF) in Ontario, Calif., also noted an easier environment for deal approvals. The $6.9 billion-asset company agreed in February to buy the $412 million-asset American Security Bank in Newport Beach, Calif.
"We're pleased with the regulators. They approved our deal in about 60 days," Myers said during a presentation. "We're not exactly surprised by it, but we did get faster approval than what we may have thought."
Deposits Are Hot
Well-funded deposit franchises might always be valuable, but acquisitions driven by liquidity had taken a backseat to lending platforms in recent few years. That's changing as an improving economy increases the risk that interest rates will soon start to rise.
A refocused interest in deposits has been a key aspect of several deals announced so far this year. At the conference, a few bankers added their names to the list of deposit chasers.
Glacier Bancorp (GBCI) in Kalispell, Mont., agreed last week to buy the $343 million-asset First National Bank of the Rockies. First National has $305 million of deposits, but only $132 million in loans. Expect more deals like that, says Mick Blodnick, president and chief executive of the $7.8 billion-asset Glacier.
"Rates are going up and the more of these core, low-cost deposit franchise we can gather the better," Blodnick says. "It will be to our benefit."
Pacific Continental (PCBK) in Eugene, Ore., has increased loans at roughly a 10% annual pace for the last nine quarters; its loan-to-deposit ratio was 93% at March 31. Hal Brown, Pacific Continental's chief executive, said during a presentation that, as the $1.5 billion-asset company ponders deals, it is eyeing banks that would help stabilize its balance sheet.
Puget Sound Bank (PUGB) in Bellevue, Wash., is also bumping up against a 100% loan-to-deposit ratio. Chief Executive Jim Mitchell said in an interview that the bank is looking for an acquisition that would bring that ratio down. Though having a high ratio can be lucrative, regulators want to make sure that banks have stable funding when rates go up.
"This is the year of deposits," Mitchell says.
Bankers Want to Deploy Capital
If capital is king, the crown fits best at about an 8% leverage ratio.
In the years after the 2008 downturn, banks coveted a war chest of capital to survive or to buy others. While some of that capital has been deployed, a lot of it is being returned to investors through dividends, special payouts and share repurchases. Several bankers say they would like to bring capital down through M&A so they can earn more and boost their return on equity.
Glacier traditionally runs with a higher capital ratio than the industry, but Blodnick says he'd like to bring that metric down. Glacier, which has announced three deals in the last 15 months, is looking for more. "We have the capacity to add $4.3 billion in assets and still have a 8% leverage ratio," he says.
Heritage Commerce (HTBK) in San Jose, Calif., is also eyeing an 8% ratio, says Walter Kaczmarek, the $1.5 billion-asset company's president and chief executive. The ratio was 11.9% at March 31.
"It will be difficult to get there organically," Kaczmarek said during his presentation. "We can get there if we can find an M&A scenario that makes sense and we do talk to a lot of companies on a regular basis."