Sovereign Bancorp of Wyomissing, Pa., announced a $325 million acquisition Thursday that would push it well past $10 billion of assets and closer to parity with major banks in the Pennsylvania-New Jersey region.
Sovereign said it reached a definitive stock-purchase agreement for $2.5 billion-asset Bankers Corp., parent of Bankers Savings in Perth Amboy, N.J.
The deal would help Sovereign, once purely a thrift company, expand in small-business lending and continue its drive to become more of a commercial bank.
"Our reasoning for this aggressive push is that there is a strong concentration of small businesses, our target customers, in central and northern New Jersey," said Jay S. Sidhu, Sovereign's president and chief executive.
And producing a pro forma asset total of $12.3 billion, "This acquisition propels Sovereign into the big time, slugging it out with the big commercial banks it has already begun competing with," said Thomas O'Donnell, a savings and loan analyst at Smith Barney Inc.
Sovereign would also be adding 15 branches to its current network of 122 in New Jersey, eastern Pennsylvania, and northern Delaware.
Analysts considered the deal attractive, at 1.64 times Bankers Corp.'s book value. Bankers Savings has branches in three New Jersey counties: Middlesex, Monmouth, and Ocean.
In the wake of the 1996 purchase of Newark-based First Fidelity Bancorp by First Union Corp., of Charlotte, N.C., analysts said Sovereign and other area banks have been intent on increasing their New Jersey market shares.
Sovereign also noted that Bankers' would bring $1.6 billion in low-cost deposits, which could be used for lending.
According to Sheshunoff Information Services, Sovereign currently ranks eighth in New Jersey deposits, with a 3.2% share. Adding Bankers Savings would bring it to No. 6, passing Valley National Bancorp of Wayne and Hudson City Savings of Paramus.
Assuming the deal closes as scheduled by Sept. 30, Sovereign would have a pro forma $5.6 billion in New Jersey deposits, for a 4.5% share.
Mr. Sidhu said there would be some branch consolidation as a result of the deal, but he added the two companies' overlap is limited to four or five offices.
Upon completion of the transaction, Sovereign would rank first in Monmouth County deposit share, with 17.5%. The deal would move it ahead of Fleet Financial Group, which has 15.36% in Monmouth, and First Union, which has 11.59% in the county.
Sovereign would also rank second in Ocean County and third in Middlesex.
According to the agreement, Sovereign will exchange $25.50 of its common stock for each Bankers Corp. share. The price stays fixed if Sovereign's average stock price remains between $11 and $16.50 per share during a 15- day pricing period before closing.
Sovereign's shares closed Thursday at $13.75, up 25 cents. Bankers Corp. was up 62.5 cents, to $24.375.
Mr. Sidhu said the combination will add to Sovereign's earnings immediately and continue to be accretive in 1997 and 1998.
Sovereign expects to cut costs by a pretax $7.7 million as a result of the deal. The thrift would take an after-tax charge of $19.5 million in the third quarter this year for restructuring, Mr. Sidhu said.
Sovereign said it expects to complete the pending acquisition of $600 million-asset First State Financial Services, West Caldwell, N.J., at the end of this month, adding another 14 branches.
