Brookline Bancorp in Boston has agreed to acquire PCSB Financial Corp in Yorktown Heights, New York, for $313 million in stock and cash.
The deal would give the $8.6 billion-asset Brookline an entry into the deposit-rich metropolitan New York marketplace. It would also result in Brookline adding a third charter, since the company plans to operate the $1.98 billion-asset PCSB as a separate subsidiary.
Preserving PCSB’s brand and corporate identity “allows us to expand efficiently, with minimum disruption to clients and staff,” Paul Perrault, Brookline’s chairman and CEO, said Tuesday on a conference call with analysts. “We think operating in a multicharter environment will let them prosper quickly.”
In addition to its 151-year-old namesake brand, Brookline owns Providence-based Bank Rhode Island, which it acquired in January 2012 for $234 million in cash and stock.
Perrault has a track record running multi-charter banking organizations. Chittenden Corp., where he was chairman and CEO from 1998 to 2008, operated five separately chartered subsidiaries. The $7.4 billion-asset Chittenden was acquired by People's United Financial for $1.9 billion in 2008.
Expected to close in the second half of 2022, Brookline’s merger with PCSB would create a $10.6 billion-asset bank with loans of $8.5 billion and deposits of $8.7 billion. PCSB, which operated as a depositor-owned thrift for most of its history, converted to stock ownership in April 2017. Both Brookline and PCSB were founded in 1871.
Brookline’s hometown of Boston is considered one of the country's most attractive regions for banks, with a $514.5 billion deposit market, according to the Federal Deposit Insurance Corp. That said, Boston is dwarfed by metro New York’s $2.6 trillion of deposits. The New York region is also home to more than 200,000 small businesses.
Brookline’s immediate plans involve growing in the four Hudson Valley counties — Putnam, Westchester, Rockland and Dutchess — where PCSB currently operates, though a more active New York City presence is possible down the road, according to Perrault.
PCSB “has plenty to do in its existing markets,” Perrault said. “We can prosper without going into New York City, but as time goes on, I will take the counsel of management there and see what they have in mind.”
In Putnam County, where PCSB was founded, the company maintains a No. 2 deposit share with 22.8% of the $2.7 billion-asset deposit market. Westchester County, where PCSB moved its headquarters in 2015, is one of the most affluent jurisdictions in the United States, with a median household income topping $99,000, according to the U.S. Census Bureau.
The $313 million purchase price amounts to 118% of PCSB’s tangible book value and 10.5 times the combined company’s projected 2023 earnings after factoring in estimated cost savings of 30%, Carl Carlson, Brookline’s co-president and chief financial officer, said Tuesday on the conference call. Brookline expects to achieve those cost saves without closing any of PCSB’s 14 branches.
The deal is approximately 13% accretive to Brookline’s 2023 earnings. Tangible book value dilution of 7.5% would be earned back in less than four years. “This is an accretive, value-creating transaction which builds on our existing strengths while extending us into another outstanding market with an outstanding and like-minded team," Carlson said.
According to Perrault, the merger came together after the companies were introduced by their respective advisors.
“Their friends and advisors knew our friends and advisors and thought this looked like a good idea for what we do,” Perrault said. Brookline "looked into it" and concluded "it’s a terrific situation that fits our style perfectly,” he said.
Perrault characterized PCSB as a conservative lender focused on real estate loans. Brookline plans to help the New York bank expand commercial and industrial lending while adding more robust wealth management and foreign exchange services.
“Partnering with Brookline will allow PCSB to deliver even more value to our communities and customers as we continue to expand in the lower Hudson Valley,” PCSB President and CEO Joseph Roberto said in a press release. “Paul and his team have built an impressive regional financial services company with a bedrock culture of performance, service and support of their customers, employees and shareholders.”
Once the merger is completed, Michael Goldrick, currently PCSB Bank’s executive vice president and chief lending officer, will become PCSB’s president and chief executive. Roberto will remain on the board of PCSB Bank.
Brookline announced its deal for PCSB a day after the $5 billion-asset
According to analyst Laurie Havener Hunsicker, who covers Brookline for Compass Point, Brookline’s planned acquisition of PCSB marks just the fourth bank deal since the start of April involving a seller with more than $1 billion in assets. Year-to-date total deal volume of $16.1 billion is down 79% from the same period in 2021, Hunsicker wrote Tuesday in a research note.
