Striking its second in-market deal in as many weeks, North Fork Bancorp. has agreed to buy Reliance Bancorp of Garden City, N.Y., for $352 million in stock.
The deal, announced Monday and slated to close in the first quarter after regulatory and shareholder approval, would bring $11.5 billion-asset North Fork 29 additional branches in the New York City borough of Queens and on Long Island, as well as $2.5 billion of assets and $1.6 billion of deposits.
North Fork, based in Melville on Long Island, had until recently been on the losing end of bidding contests for several New York-area thrifts. Analysts said Monday's announcement - on top of the $570 million deal to acquire Lynbrook, N.Y.-based JSB Financial Inc., also announced this month - indicates that North Fork is back in the merger hunt.
"Their bottom-line growth has depended on acquisitions, but they went into a dry spell in late 1998," said Gerard Cassidy, an analyst at Tucker Cleary. The two latest deals "indicate to investors that the company is back on its growth path."
"It's a clear home run," said John Wimsatt, an analyst at Friedman Billings Ramsey & Co.
Once the two deals are closed, North Fork would have $15.5 billion of assets, $9.2 billion of deposits, and 152 branches throughout the New York metropolitan area.
John Adam Kanas, chairman and chief executive officer of North Fork, said he has consistently refused to pay the rich acquisition premiums that recent banking deals have commanded. He said these two transactions indicate "a sea change." North Fork is paying approximately 15 times earnings for Reliance, or 2.8 times tangible book value. Analysts said recent deals have had price/earnings multiples closer to 20.
Mr. Kanas characteristically added that his company will still be in the market for acquisitions. "Our phone has been ringing," he said.
Reliance is the holding company for Reliance Federal Savings Bank, which, Mr. Kanas said, would bring a strong deposit base and help round out North Fork's market position, especially on Long Island.
The company expects to see cost savings of about 50% of Reliance's overhead, or $15 million after tax. As many as 10 branches in overlapping areas would be closed, though exact locations have not been determined, Mr. Kanas said.
Once the deal is closed, North Fork expects to take a $54.2 million pretax earnings charge, mostly to account for severance costs. The bank said the deal would add to earnings immediately.
For accounting reasons, the Reliance transaction is slated to close just before the JSB Financial sale. Analysts said the structure and timing of the two deals would help absorb many of the shares that North Fork had planned to reissue to buy JSB Financial, in addition to some of the excess capital on JSB's books. "It's a great use of excess capital," said Mr. Wimsatt of Friedman Billings. "These two deals make a great pair."
Analysts said the Reliance deal, accounted for as a purchase rather than a pooling of interests, would allow North Fork to preserve its pooling treatment for JSB Financial. North Fork has agreed to exchange two of its shares for each share of Reliance. The deal was based on North Fork's Aug. 27 closing price of $19.06 per share, for a total of $38.12 per Reliance share.North Fork said it would buy back 8.5 million shares.
Raymond A. Nielsen, president and chief executive officer of Reliance, would join North Fork's board as a nonexecutive director. JSB's chairman, Park T. Adikes, is also expected to join the board in a similar capacity.