For Jack Kopnisky and Sterling Bancorp in Montebello, N.Y., 2015 is already in full swing - and it started with a bang.
Sterling's fiscal year began Oct. 1, and in November the $7.3 billion-asset company said it would buy the $3.1 billion-asset Hudson Valley Holding. The M&A deal is the third, and largest, one Kopnisky has pursued since he took the helm of the former Provident New York Bancorp in 2011. Provident bought Sterling last year and adopted the seller's brand.
The Hudson Valley deal is expected to close in the spring. Sterling aims to pair its lending expertise with Hudson Valley's deposit-heavy balance sheet to further Kopnisky's vision of becoming a high-performing bank.
"Our deals have been about creating positive operating leverage where our revenue is growing two to three times more than expenses," Kopnisky said in a December interview.
That effort, and the risks associated with it, make Kopnisky one of American Banker's five community bankers to watch in 2015.
Kopnisky, Sterling's president and chief executive, has several ambitious goals: an efficiency ratio in the 50% range, a return on assets above 1% and a return on equity higher than 12%. He is not quite there, but is getting closer. For fiscal 2014, the company had a 59.4% efficiency ratio, a 0.91% core ROA and an 11.8% core ROE.
By adding Hudson Valley, Sterling expects to lower its pro forma efficiency ratio to about 50%, while raising its ROA above 1.2% and ROE above 14%.
Some analysts are complimentary of Kopnisky's moves.
"I would applaud his progress it is a big undertaking to change the culture of a bank to think about operating leverage," said Collyn Gilbert, an analyst at Keefe, Bruyette & Woods. "Provident was under-earning and Sterling was, too. He brought the two together and has dramatically improved efficiency and returns."
The deal with Hudson Valley would push Sterling to $10.4 billion of assets, slightly above the $10 billion threshold where interchange fees are capped and additional regulatory oversight kicks in. Banks often manage their assets to either stay below $10 billion or find an acquisition that propels them significantly past the threshold, but Sterling appears comfortable remaining just above the cutoff.
Sterling says the $34 million in cost savings it can extract up front from Hudson Valley outweigh the costs of surpassing $10 billion of assets.
"Sure, there is a cost of going over, but there are so many more benefits, specifically in making us more effective and efficient," Kopnisky said. "Our view is that with a merger like this, where there is a tremendous amount of cost savings and many revenue synergies, the ability to drive positive operating leverage outweighs the additional costs."
The $10 billion designation kicks in after a company stays above the threshold for four full quarters. Sterling plans to generate $500 million to $1 billion in loans by then, putting the company's assets between $11 billion and $11.5 billion, Kopnisky said.
Sterling, at an annual growth rate of more than 17%, is already booking loans faster than most of the industry.
The key will be in how well it leverages Hudson Valley's liquidity. At Sept. 30, Hudson Valley had a loan-to-deposit ratio of 66%, compared with nearly 90% at Sterling. The combined company's ratio would settle in at around 82%.
"The opportunity over the next nine quarters is to take [Hudson Valley's] excess liquidity and turn it into loans," Kopnisky said, adding that Sterling's loan-to-deposit ratio should be between 90% and 95% two years from now.
Analysts will be watching Sterling's performance and its ability to deliver on its merger-related promises next year, including projections that the Hudson Valley deal will boost earnings by 31% in 2015.
"Simply put, completing two transformative mergers and crossing the $10 billion-asset threshold in less than two years strikes us as very aggressive," Mark Fitzgibbon, the director of research for Sandler O'Neill, wrote in a note after the Hudson Valley deal was announced. A "healthy dose of skepticism seems warranted" given the challenges Kopnisky's faces in reducing costs from the Sterling merger, he added.
Others, however, said they believe the deals are coming together and the result will be compelling.
"He definitely has a lot on his plate, but it seems like if there is anyone who can take the pieces and form that puzzle, it should be Jack," said Daniel Marchon, an analyst at Raymond James.