Bank mergers expected to pick up, analysts say


Ronald D. Paul, CEO and chairman of EagleBank. (Rebecca D'Angelo/FOR THE WASHINGTON POST)

Mergers and acquisitions at Washington area banks have been on the rise since the recession, as community banks and credit unions look to expand.

Now analysts say they predict a renewed wave of deals in the wake of last week’s announcement by Eagle Bancorp that it plans to purchase Virginia Heritage Bank for an estimated $182.9 million.

The improving economy, coupled with low interest rates and rising regulatory costs, has made scooping up smaller banks particularly attractive. But as demand rises, supply continues to shrink, further adding to the frenzy. Analysts say the number of area banks is dwindling with each new deal, and the creation of new banks has all but come to a standstill.

“There is a scarcity issue in markets such as D.C.,” said Allan Bach, founder of Dogwood Research, an advisory firm based in Richmond. “There are only a handful of community banks where you can pull the trigger on one bank and make a large difference.”

Ronald D. Paul, chief executive of Eagle Bancorp, knows this first hand.

“That’s candidly been the difficulty we’ve had at Eagle,” said Paul, who also serves as chairman of the Bethesda-based company. “The number of banks of substance has been getting smaller and smaller.”

Paul said Eagle bid on Virginia Heritage in early April. The deal, which is awaiting shareholder approval, would add $917.4 million in assets for Eagle Bank, the area’s largest community bank with assets of $3.8 billion.

The deal comes six years after the company’s last acquisition, a purchase of Bethesda-based Fidelity & Trust Financial for $48.82 million.

“There’s a lot of romancing that goes into these deals,” said Bert Ely, a banking industry consultant in Alexandria. “We’re shifting into more of a seller’s market. There is a sense that there is going to be further consolidation driven in part by the need to cut costs.”

Dozens of local banks and credit unions have merged since the beginning of 2013.

Among the more recent deals is Charleston, W.Va.-based United Bankshares’s $491 million purchase of Arlington’s Virginia Commerce Bancorp in February.

“A lot of buyers have regained their confidence in what they are buying,” Bach said. “Growth has been the primary way to absorb regulation costs — and one easy way to do that is by buying a bank.”

But that may be easier said than done as fewer new banks crop up.

Newly charted banks “traditionally have been the feedstock for acquisition activity,” Ely said. “A bunch of bankers get together, they start up a bank and then they sell it in three or five or seven years. We don’t have that supply coming in anymore.”

Ely likened the dwindling supply of community banks to what he saw at the tail end of the savings and loans crisis in the early 1990s.

“During the peak of the crisis, prospective buyers were keeping a certain distance,” he said. “But then an attitude developed that, boy, there aren’t that many deals left. If you want to pick up something, you better go and do it before Joe down the street or in the next town goes and does it.”

At Eagle, however, Paul says he has no new plans to buy or sell.

“There is nothing on the horizon for us,” he said. “You really want to capi­tal­ize on what you bought. It’s silly to buy something and not get the most out of it. We’re going to really hunker down.”

Abha Bhattarai covers local retail, hospitality and banking for The Washington Post. She has previously written for The New York Times, The Wall Street Journal, Reuters and the St. Petersburg (Fla.) Times.
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