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The focus on raising the $50 billion-asset threshold determining which banks face the toughest provisions is highlighting interest in letting more community banks enjoy exemptions written into the law.
January 23 -
PacWest needed deposits to fuel its lending machine. Square 1 was drowning in liquidity. Similar deals could be in the works as low-cost deposits become more valuable in light of likely interest-rate increases.
March 2
Western Alliance Bancorp. has spent much of its existence going where other banks are not. While its latest deal may involve hot markets, the Phoenix company is staying true to its philosophy.
The $10.6 billion-asset company
"We try to stay away from commoditized lending; it just drives lower margins and higher risk," Robert Sarver, Western Alliance's chairman and chief executive, said in an interview. "We look for businesses where we can add real value to our customers, and they're willing to pay for that."
The focus on niche business lines has been fruitful. Western Alliance's loan book increased by nearly 24% last year, while boasting a robust 4.42% net interest margin. In comparison, banks with $5 billion to $15 billion in assets actually suffered a slight decline in the size of their loan portfolios last year, along with an average margin of 3.82%.
"On the face, they're a commercial-and-industrial and a commercial real estate lender, but if you look inside you realize they've got a lot of products on that shelf," said Casey Haire, an analyst at Jefferies. Bridge "is another arrow in the quiver, and it gets them a seat at the table in Silicon Valley, one of the hottest economies in the world."
While Silicon Valley is brimming with activity, Bridge has eked out a specialty with smaller firms, noted Tim Coffey, an analyst at FIG Partners.
"Bridge offers asset-based lending and factoring to smaller tech companies," Coffey said. "That is a part of Silicon Valley that others haven't been paying as much attention to lately. That kind of lending has a backstop of collateral by way of the venture-capital funding and intellectual property."
Small tech firms tend to be cash heavy, particularly due to infusions from their venture capital backers. As a result, so tech-focused banks tend to be highly liquid. Western Alliance had a 94% loan-to-deposit ratio at Dec. 31, so most analysts view Bridge's 85% ratio as
Sarver said Bridge's deposit base represents just a piece of the attraction. Instead, he touted the benefits to Western Alliance's fee business. Fees made up a mere 6% of Western Alliance's revenue last year; roughly 14% of Bridge's revenue came from fees. Community banks typically see about 20% of their revenues from fees.
"This gives us the opportunity to get a significantly greater portion of revenue from fee income," Sarver said.
Bridge has two intriguing fee drivers. It has nearly 150 warrants tied to its tech customers that made up 9.5% of last year's fees. The company also has an international banking business, including products like foreign exchange, trade finance and lines of credit, Sarver said. International banking fees made up nearly 22% of noninterest income.
"They developed a full suite of international services," Sarver said. "We'll be able to deliver those to all of our customers, rather than relying on corresponding banking services. That makes it a very profitable line of business."
Bridge's $1.8 billion in assets will put Western Alliance well above the $10 billion threshold where debit interchange fees are capped and additional scrutiny is incurred. While several analysts noted the benefits of scale, Sarver played it down, perhaps again showing his against-the-grain nature.
Western Alliance isn't retail focused, so the debit interchange issue is minor, Sarver said, adding that the company has been proactive making the investments necessary to comply with being a larger bank.
"I don't want to grow for growth's sake or to get above the $10 billion mark," Sarver said. "For the most part, most of the requirements are just sound banking functions that you should have anyway."
