Investors Bancorp (ISBC) is one of the nation's last big mutual thrifts, leaving industry observers wondering when the $11.5 billion-asset company will scrap the model and complete a second-step conversion.
Doing so would add millions of dollars in capital, better equipping Investors to become a major consolidator in New York. This year, Investors bought Brooklyn Federal Savings bank and Marathon National Bank.
In a wide-ranging interview, Kevin Cummings, the Short Hills, N.J., company's president and chief executive, said the conversion should occur next year. The planned conversion and its implication for acquisitions around New York led American Banker to select Cummings as one of five Community Bankers to Watch in 2013.
Here as an edited excerpt of our recent interview.
What do you expect from Investors in 2013?
CUMMINGS: We're pretty much focused on three principal objectives. One is integrating our Marathon acquisition. We'll be doing the systems conversion in January, including communicating with employees and customers. We've already had two meet-and-greets [at Marathon offices] in Astoria and in Brooklyn, meeting with the top-50 customers in different locations. That's going to be a significant undertaking.
The second thing is building out the business-lending platform. We're really focused on [middle-market companies with] $75 million of [annual] revenue and less. We believe that's a space that larger banks don't play well in. We're out hiring new officers and teams in New York and New Jersey to service that business. Those are $2 million to $5 million loans.
We think we can be a category-killer. I don't know why big banks are not focused on those loans. I just think they are looking at bigger deals. Why they do that, I'm not sure. [JPMorgan Chase CEO] Jamie Dimon has said that, 'If you have less than $100,000 in deposits at my bank, you're not a profitable customer.' We feel we can do a great job of servicing the local, grass-roots business. We've got to be laser-like focused in serving that niche.
There's competition for this kind of loan, but a lot of community banks shy away from it. New York Community Bancorp (NYCB), Dime Community Bancshares (DCOM), Flushing Financial (FFIC) are really focused on commercial real estate. We're trying to diversify and not be known as a one-trick pony.
The third thing, we expect and hope to execute a second-step transaction, because we've leveraged our capital down below 8% and hit our return-on-equity targets, and we're at 10% on tangible equity and we started to pay a dividend.
Can you discuss when the conversion could take place?
No, it depends on the fiscal cliff and on market conditions. It's not a matter of 'if,' it's a matter of 'when.'
Does Investors really need the capital?
When you can get the capital, you better get it. It's like a loan; you don't want to ask a banker for a loan when you need a loan.
Can you discuss Investors' multifamily lending strategy?
We have a great group doing that already. We opened our New York loan-production office at the beginning of 2010. Multifamily is our largest loan component right now. We went from $44 million [in multifamily loans at the end of 2007] to over $2.2 billion [today]. Certainly, the competition was much more favorable when no one was making loans in that category in 2010. It's a very hot market now. But we're very much committed to it. We like it as an asset class, but from a pricing point of view today, it's getting a little too competitive.
Investors bought two banks this year. What's your outlook for M&A in 2013?
We consider ourselves a buyer, and we consider ourselves a company that has executed both on the pricing side and on the integration side. We've done six acquisitions since 2008 and we have done them — just on the results and the deposit growth — relatively well. We feel that, in our three-year plan, organic growth and acquisitions are part of our plan to expand the bank to the next level, to $16 billion in assets.
You have said that it would be very challenging to buy another mutual thrift in the New York area. Has there been any change in your outlook for buying those institutions?
In different conversations after the Marathon announcement, people have said, 'You're done [with acquisitions] until the second-step conversion.' But I have said that, if a mutual thrift or another mutual holding company came along, it would certainly be of interest because of the favorable financial impact to us on our second-step conversion [for us to buy one].
That's what our shareholders are most interested in. But we would not acquire one outside the New York/New Jersey area. I think we've spoken to most of the ones that are in the New York/New Jersey area. And, really, your stars have to be aligned. The Brooklyn transaction happened because it happened to be under a cease-and-desist order.
Our very first transaction [involving Summit Federal Savings Bank in June 2008] was with a mutual and it happened because of a personal relationship with the Summit management team. The fact that we've done two of these transactions puts us on the radar screen if any of those mutuals want to partner with a larger institution.
What financial institution in New York or New Jersey is the most similar to Investors?
At one time I would have said Dime, because of the personality of Dime. It's a well-run bank, very disciplined. They know what they don't know, and they do what they do very well.