NEW YORK (TheStreet) -- Investors for years have been hearing about regulators' push for banks to beef up their capital ratios, but liquidity is also a major concern for rapidly growing community and regional banks.
Any bank CFO worth his or her salt has an emergency liquidity plan, to make sure loan pipelines will be funded, even if new lending activity picks up much more than expected. This is the major liquidity concern for most banks, since runs on deposits are very rare in the U.S.
"Over the last two weeks of bank earnings announcements we heard from several banks that they are increasingly focused on improving overall liquidity metrics and in particular the loan-to-deposit ratio," Sterne Agee analyst Matthew Kelley on Friday wrote in note to clients.
During the company's earnings conference call with investors on Jan. 23, Susquehanna Bancshares (SUSQ) CFO Michael Harrington said the bank's "trend in average earning asset growth for the year will likely be lower than past years, given our desire to lower our loan-to-deposit ratio." Susquehanna's ratio of loans to deposits was 105.5% as of Dec. 31, increasing from 102.5% a year earlier, according to Thomson Reuters Bank Insight. "Our goal is to drive that ratio below 100% in 2014, Harrington said.
Susquehanna's outlook for limited loan growth was the driver for sell side analysts' lowering of earnings estimates for the company, as well as the recent underperformance of the stock, according to Kelley.
Being forced to limit your loan growth because of inadequate deposit growth is a rather depressing process.
"We believe other $10 billion+ asset banks in the Northeast could be subject to a similar risk as we move through the year and learn more about the impact of liquidity plans banks are working on ahead of regulatory changes," Kelly wrote.
"Beyond Susquehanna," banks in the Northeast with more than $10 billion in total assets and rather high ratios of loans to deposits and solid loan growth that could "potentially be negatively impacted by this issue," include these four, according to Kelley:
Investors Bancorp (ISBC) - Get Report of Short Hills, N.J.: The company's Dec. 31 ratio of loans to deposits was 120% as of Dec. 31, increasing from 118% a year earlier. The bank in December announced a second-step conversion to full stock ownership, through Kelley expects it to raise "upwards of $2 billion" in new capital, part of which could be used to make acquisitions meant to improve the loans-to-deposits ratio.
New York Community Bancorp (NYCB) - Get Report of Westbury, N.Y.: The bank's Dec. 31 ratio of loans to deposits was 128%, increasing from 127% at the end of 2012. CEO Joseph Ficalora has repeatedly said the company is on the prowl for an acquisition that would have an immediate positive effect on earnings, and has also stressed that the company focuses on acquisitions for deposit growth.
Astoria Financial (AF) of Lake Success, N.Y.: The bank's ratio of loans to deposits was 125% as of Dec. 31, down slightly from 126% a year earlier.
Kelley also listed 12 Northeast banks that could potentially be targets for acquirers looking for significant boosts to deposits. These banks all have loans-to-deposits ratios of less than 80% and trade for 1.5 times tangible book value or less.
Here's the list of Kelley's potential Northeast takeout targets for banks looking to improve their ratios of loans to deposits, with balance-sheet data as of Dec. 31, except as indicated, with data provided by Thomson Reuters Bank Insight:
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.