Market Overview

Bankers, Memories And Winter Is Coming

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The following originally appeared on Tim Melvin's Deep Value Letter.

While everyone else is trying to trade around earnings season, I find it far more valuable to sit back, relax and read what the people running the business say about their company. I find this particularly useful when it comes to community banks. The bankers are pretty open on their calls about what they see in the future for their industry.

There is a great deal of agreement that net interest margins will stay low, regulatory pressure is high, and banks that want to grow have to do deals. I have gotten into the habit each quarter of sharing their remarks with you so rather than worry about what my opinion of the world is (it has not changed since last week anyway), let’s check in and see what the bankers are telling us this quarter.

CEO Lynn Fuller of Heartland Financial USA Inc (NASDAQ: HTLF) told his investors “Founders Bancorp represents one of a number of small to mid-sized acquisition opportunities in our pipeline, allowing us to be very selective with respect to culture fit and pricing. We continue to pursue our goal to exceed $1 billion in assets in each state where Heartland operates. Building on our M&A experience, Heartland is in a great position to leverage new acquisitions, adding scale and realizing cost savings.”

Over at Great Western Bancorp Inc (NYSE: GWB) CEO Ken Karels is also looking at M&A as a way to grow the bank as long as he can get the right price. “I think there is still a difference between pricing and some of the issues, we are very conscious to make sure it’s accretive to our existing shareholders before we pull the trigger on any deal," he said.

"So, there's some where the price expectations are higher than what we think. There's some where their banks are just not ready to sell yet."

Steve Gardner of Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) is also looking for ways to grow his bank via M&A. He said on his call that “I wouldn’t characterize it as same old strategy. We have historically looked beyond just whole bank acquisitions within our market. We continue to look at opportunities as they come up. But, I would say predominantly at this point, its been whole banks within California, and that’s what we’re going to continue to focus on."

United Community Banks, Inc. (NASDAQ: UCBI) has done a fantastic job of growing via M&A, and CEO Jimmy Tallent is not done growing his bank. He told analysts that “Honestly, I don't know that the magic number is $15 billion or $20 billion. I do know that we continue to add incrementally as we execute our plan. I would say that, at least our view, is that one large transaction is not necessarily the answer to crossing the $10 billion. Early on it was viewed as that was the way to do that. We take a little bit different view of that."

Robert Sarver of Western Alliance Bancorporation (NYSE: WAL) is looking a entering some new markets via M&A next year. He said on the call last week that “I think we're starting to look at some other markets. We're studying them getting to know them a little better. So I think there's opportunities in other markets for us.

I could go on with more of these comments and will tomorrow for subscribers as some CEOs have been pretty blunt about exactly where they want to buy, and that’s useful information. The basic point is that the bankers who want to grow are telling us that the best way to accomplish that is to buy other banks. Owning a portfolio of potential targets is just a smart way to invest.

While the Cubs lost the game I attended last week, I can still say I was at a World Series Game the year the Cubs broke the curse. To be able to say I was at that game with my daughter makes it a very special memory indeed. I do confess that I look forward to getting a good night’s sleep now that the procession of 4 and 5 hour baseball games is finally over. If MLB really want to attract the youth market they might consider playing weekend playoff games in the daylight so kids can see them too. Very few 10-year-olds have been up when these games concluded after midnight on the East Coast.

Hall of Famer Rogers Hornsby was once asked what he did in the offseason. He relied “I stare out the window and wait for spring." While I have books and stocks to keep me from staring out the window for too long I do understand the sentiment!

Cash and Community banks remain our major focus.

Posted in: News Small Cap M&A General