Managers at Investors Bancorp hit the streets to pull in deposits
Kevin Cummings is pressing his senior managers to go outside — for more than just fresh air.
Cummings, chairman and CEO of Investors Bancorp in Short Hills, N.J., wants his leaders to spend more time with potential clients. So he prodded Bill Brown, the $26 billion-asset company's chief retail banking officer, to replace corporate meetings with out-of-office visits.
“The same thing goes for me,” Cummings said. "You can't meet customers at the headquarters."
Cummings, who has run the former mutual since 2008, has set a goal to spend at least 40% of his time with clients.
The push is one of several moves designed to bring in more low-cost deposits. It comes three months after published reports speculated that the company could be looking to sell itself.
Adding deposits “is the single most important priority of this management team and the entire bank,” said Cummings, who declined to discuss whether Investors was seeking a buyer. “That’s been the tone here in every meeting. Sometimes our loan officers are calling loan committee meetings 'deposit meetings.' ”
Rumors about a sale haven't hurt Investors' ability to lend. The company originated nearly $650 million in loans during the fourth quarter, or more than triple the amount of deposits it brought in. As a result, the company’s loan-to-deposit ratio increased to 123% at Dec. 31 from 116% a year earlier.
If Investors struggles to bring in deposits, loan growth will likely grind to a halt.
“Things can’t continue if funding dries up,” Cummings said.
So Cummings is determined to pull every lever he can to bring in deposits. The company recently launched an online deposit platform that extends throughout the continental U.S. It is also mulling opening three branches in New York markets where it does significant lending, and incentive compensation is being tied more tightly to hitting deposit targets.
Still, the single biggest component of Investors strategy appears to be shoe leather.
Investors hired a senior business development officer to lead a 13-member deposit-gathering team that is expected to triple in size this year. Cummings said he wants the team — along with every bank officer — on the streets drumming up business.
“Let’s get out there and meet with customers; let’s put feet on the street,” Cummings said.
“You don’t get a customer on the first call,” he added. “You have to follow-up and keep in front of them. At the very least, you’re on deck so that when their principal bank makes a mistake, you’re the first person they call. It’s a volume business. You have to do that. Not two calls a day but three, four, five calls a day.”
The goal is to grow increase loans and deposits by 6% to 7% in 2019.
The online platform is expected to produce a quarter of that growth, David Bishop, an analyst at FIG Partners, wrote Monday in a note to clients. Another 40% should come from noninterest funding generated by the bank’s all-hands-on-deck selling effort, Bishop wrote.
It’s a far cry from mid-2017, when Investors used a pricing promotion to attract deposits. Deposits rose by 5% in the third quarter of that year, but the average rate paid increased 25 basis points.
Investors’ current push comes amid a trend of increasingly fierce competition for deposits. Kroll Bond Rating Agency, in a report last month, noted that the cost of interest-bearing deposits among the more than 100 community and regional banks it rates had increased by 68 basis points from early 2016 through the third quarter of 2018.
Many other banks, including several that compete against Investors in the Northeastern corridor between Boston and Philadelphia, have also embarked on deposit initiatives.
The $22 billion-asset Bank OZK, which is based in Arkansas but has extensive New York operations, hired banking veteran Ottie Kerley as its chief deposit officer. The $1.7 billion-asset First Bank in Hamilton, N.J., made a similar move in October, hiring Emilio Cooper, who led retail banking for BMO Harris Bank in Chicago, as its first-ever chief deposit officer.
Like Investors, they are prioritizing deposits to keep pace with loan growth.
“Our strong balance sheet growth requires us to focus on optimizing our funding profile with the primary objective of improving our deposit strategies,” Cindy Wolfe, First Bank's chief banking officer, said in a recent press release.
First Bank's 2019 originations jumped by 40% from a year earlier, to a record $490 million.
Cummings and his team have more flexibility to meet with customers since the company exited an informal agreement with regulators tied to Bank Secrecy Act compliance.
“Getting out of the informal agreement was a high priority for the management team,” Cummings said. “I think we’ve made tremendous strides. We have that risk management infrastructure in place to continue to grow and expand our operation without additional expenses. If anything, we’ll do it a little bit better and hopefully reduce expenses going forward.”
That progress came with a high price. In January 2017, Investors was forced to terminate a planned acquisition of the then-$1 billion-asset Bank of Princeton. The deal would have added more than $800 million of deposits and raised Investors' profile in Philadelphia.
Acquiring another deposit-rich community banking franchise could go a long way toward solving Investors’ deposit issues, but a deal seems unlikely with the company's shares trading at roughly 118% of tangible book value.
Acquisitions are "on a back burner at this point,” President and Chief Operating Officer Dominick Cama said during Investors' quarterly earnings call.
A sale is possible, though an acquirer would have to be willing and able to digest Investors' balance sheet, which is tilted toward loans, particularly credits tied to commercial real estate. Still, Investors holds more deposits in New Jersey than any other community bank.
For its part, Investors isn’t ruling out any of its strategic options.
“We will do whatever is best for our shareholders,” Cama said during the earnings call. Whether it’s a sale to another bank, "whether it’s a merger of equals, whether it’s us acquiring someone, we always want to make sure whatever we do is in the best interest of shareholders.”