In another sign of life for the bank mergers-and-acquisitions market, OceanFirst Financial Corp. has agreed to buy another New Jersey company, Central Jersey Bancorp, for $68.4 million of stock.
The deal, announced Wednesday, is OceanFirst's first for another banking company but may not be its last.
John R. Garbarino, the $1.9 billion-asset OceanFirst's chairman, president and chief executive officer, said his Toms River company is preparing a shelf registration for a sale of equity and debt. Though it plans to use the proceeds to buttress its balance sheet, some of the money may go toward repaying the $38.3 million it received from the Treasury Department's Troubled Asset Relief Program or to making further deals, he said.
"We haven't done much in the way of acquisitions. We've looked at them and put out bids, but we are disciplined pricers," Garbarino said. "But all financial stocks are depressed right now, and there is a lot of value there."
He would not say how much OceanFirst plans to raise through the offering but said the registration could be filed next week.
Any acquisition would have to add value to OceanFirst, Garbarino said. "We are not looking to run the state of New Jersey."
By buying the $576 million-asset Central Jersey in Oakhurst, OceanFirst would increase its retail network by more than half, to 36 branches. It said it expects the deal to boost profits next year, after a 35% reduction of Central Jersey's operating expenses.
"We've known the Central Jersey team for years, and we competed against them," Garbarino said. "There is very little direct overlap."
James Vaccaro, Central Jersey's president and CEO, would become an executive vice president at OceanFirst after the acquisition. He called the buyer "a perfect fit" for his company.
"There is the geographic complement, as well as the possibilities we will have as a much larger company," Vaccaro said.
Central Jersey shareholders would get half a share of OceanFirst for each of their shares. The price equals 90% of book value and 149% of tangible book value. The deal is expected to close by yearend.
Jeff Marsico, an executive vice president at Kafafian Group, a bank consultancy in Parsippany, N.J., said he could envision OceanFirst striking similar deals. "I don't see them as a serial acquirer, but I do see them becoming more of a prudent acquirer in the markets that they have an interest in," he said. Likely targets could include struggling banks, he said.
Central Jersey is not exactly troubled, though its first-quarter profit dropped 46% from a year earlier, to $310,000, as credit problems spiked. Nonperforming loans jumped 288% from Dec. 31, to $10.5 million at March 31, and accounted for 2.91% of total loans. A year earlier nonperformers totaled $264,000.
Garbarino said he is confident in the steps Central Jersey has taken and in his own company's ability to deal with the problems.
"We understand the market that they operate in," he said. "We think they are well reserved, and I think we are in a good place with the pricing."
Central Jersey also got $11.3 million in Tarp funds. Garbarino said the companies would not have made a deal if they did not think it would be approved but said he is unsure whether Tarp will present any problem. "I hope it is not a hurdle, obviously, but we just don't know."
Marsico said Tarp should not be an issue since OceanFirst is paying with stock. "They are doing it with their own currency, so I don't think they should run afoul of the Tarp regulations," he said.
In 2000, OceanFirst bought Columbia Home Loans LLC, which wiped out five quarters of earnings before the banking company shuttered it in 2007. OceanFirst rebounded quickly, returning to the black that year, and has remained profitable since.
"That really blew up on us," Garbarino said. "But we acknowledged the losses and put it in our past as quickly as possible. I never want to relive those days."