Looking to buy: Verus Bank seeks acquisitions as way to shore up long-term profits

Premium content from Wichita Business Journal - by Chris Moon

Date: Sunday, March 21, 2010, 11:00pm CDT

For the first time in its history, Derby-based Verus Bank is looking to make a deal.

Executives at the $102 million institution say declining bank values and a desire to get bigger to offset shrinking profit margins has made 2010 the bank’s year to acquire. At least that’s the plan.

“This has been a strategic item on our radar for three or four years,” says Verus Bank President Kyle Russell. “But the environment at that point in time was such that competition was really fierce, credit was pretty easy and prices to acquire were very high — almost historically high. ... The environment has changed.”

Verus has been seeking merger and acquisition opportunities for months now.

Russell says the bank recently made an unsolicited offer to purchase one institution — and was rejected — and has looked at a couple of other possible purchase opportunities. Nothing has fallen into place. But for now, the bank remains committed to seeking acquisition opportunities.

“We’re ready to perform on that goal,” Russell says.

He declined to identify the banks Verus has considered purchasing. Verus has been talking to banks both inside and outside the Wichita metropolitan area.

More Interest in Buying

It’s a change of pace for Verus, which hasn’t acquired another bank in its 36-year history. And it’s perhaps a sign of the times for other Kansas banks that have relatively clean bills of health during the recession.

Dean Johnson, managing director of Lenexa-based Capital Corp. LLC, which brokers bank deals in Kansas and surrounding states, says he’s sensed more interest during the past three to six months from banks seeking acquisitions. Dropping bank prices have driven the demand, he says.

Where a bank might have expected to sell for 1.5 to two times its capital before the economic downturn started in earnest in late 2008, it now is looking at prices ranging from 1.25 to 1.5 times its capital, Johnson says.

But bankers still are cautious.

“Buyers are being a lot more selective of where they buy, even if it’s clean,” says Johnson, who’s worked in the past with Verus.

Johnson says banks are difficult to sell in small markets, under 500 residents.

And banks looking to acquire are doing so only if they don’t face regulatory exams in the near future. A bank would want plenty of time to clean up problem assets before regulators came to town, Johnson says.

But deals are getting done.

The Capital Corp. recently worked Wilson State Bank’s deal with Hoisington National Bank. Johnson says his company has nine or 10 other deals in the works.

Verus’ growth during the past decade has been entirely organic. It opened a start-up branch in El Dorado in 1995 and in Augusta in 2004. It has five locations total.

The bank recently was examined by federal regulators, but executives declined to discuss the outcome. By outward appearances, Verus is healthy. It posted net income of $920,000 last year, roughly on par with previous years, and has identified just 0.59 percent of its loans as noncurrent.

“So many of the banks we compete with have a lot of internal issues (such as loan-workouts and problem assets),” says Kevin Chase, Verus’ CEO. “Right now, that’s not taking any of our time.”

Part of the bank’s motive is to grow in size and earnings potential, especially as its profits are increasingly cramped by new expenses, such as FDIC assessments.

“We know organic growth at a steady, good quality pace like we have been doing may not be enough to perform at the level we expect to,” Russell says. “We know we need to get a little larger to adapt to a tougher climate and lower profit margins in the industry.”

Not Looking

Not all banks are positioning themselves for acquisitions.

Emprise Bank CEO Tom Page says there are always more banks looking to buy than there are available institutions. And right now, he says, many don’t want to make moves.

“There are an awful lot of banks in wait-and-see mode,” says Page, who led his bank through a merger several years ago with Prairie State Bank. “For the most part, I think people are in good shape right now (and), unless there’s a compelling situation to look at, are happy to set tight and let this thing play out a little bit.”

Rose Hill Bank CEO Rocky Waitt says his bank’s growth philosophy won’t change.

The bank never has made an acquisition.

“I like slower growth,” he says. “For me in this economy, there could be some good buys out there. But I am just content with running it the way we’re running it.”

Verus Bank

Headquarters: 1033 N. Buckner, Derby, Kan., 67037.
Branches: Two in Derby, two in El Dorado and one in Augusta.
Assets: $102 million.
Total capital: $10 million.