Investors Bancorp is taking a meaningful step to becoming a major commercial lender in the New York area.
The $23.9 billion-asset company, which is already the largest bank based in New Jersey, is scaling up efforts to land midsize clients, targeting businesses that earn $10 million to $50 million annually. In doing so, the bank, just three years removed from being a mutual, will lock horns with many of the area’s biggest commercial banks.
The effort lets Investors put more of the capital it raised from its 2014 second-step conversion to work at a time when an informal agreement with regulators bars it from buying banks.
It also allows the Short Hills, N.J., company to diversify a portfolio where commercial-and-industrial loans made up just 7% of total loans at March 31. Nearly a quarter of Investors' loans involve commercial real estate; such loans were equal to 360% of total risk-based capital in the first quarter.
“We’re really trying to appeal to a broad base of customers,” said Domenick Cama, the company’s chief operating officer. Investors, which has experience working in the health care and insurance sectors, will limit overall C&I exposure to about a fifth of its loan portfolio, he said.
Having a strong commercial-and-industrial lending pipeline — Investors expects to add $600 million in loans by the end of this year — should help the company bring in lower-cost deposits and increase its overall market value, Cama said during a April conference call to discuss quarterly results.
Investors has grown significantly since its conversion, when it had about $15.5 billion in assets. It has opened 23 branches in the last three years, or a roughly 18% increase, while adding $5.9 billion in loans and $4 billion in deposits.
One of the biggest challenges for the commercial expansion will be to increase name recognition around New York. Cama admitted that the bank isn’t as well known in the city as other institutions even though a third of its roughly 150 branches are there. There are plans for an aggressive marketing push that will include advertisements during popular television programs.
“Our objective is to demonstrate to larger … clients that we can compete with the national banks,” Cama said. “The objective is to raise the level of brand awareness. … Our logo is a weave and it would be nice one day to be able to just display the weave and have people know that it means Investors Bank.”
Mark Fitzgibbon, an analyst at Sandler O’Neill, isn’t concerned about Investors' ability to vie for commercial clients.
“I think they’ll fare well” competing against the big banks, Fitzgibbon said. “They can be more responsive. They can be more flexible, and they can really know their customers.”
Investors, which scooped up a number of thrifts before its second-step conversion, has taken an atypical path for a converted mutual by making it clear that it wants to keep buying other institutions.
Most converted mutuals wind up selling after a mandatory three-year waiting period ends, said Jared Shaw, an analyst at Wells Fargo Securities.
M&A is on hold for now as Investors addresses Bank Secrecy Act issues that contributed to a decision in January to nix plans to buy Bank of Princeton.
Kevin Cummings, Investors’ president and CEO, and his team updated analysts on efforts to resolve the issue during the first-quarter earnings call. Investors, for instance, hired 35 people in the quarter to handle BSA and other risk management tasks.
“For the last 10 months, we've been improving and investing in all areas of risk management, including BSA, credit, technology and operations,” Cummings said. “We’re focused on this situation and we will get there. The progress has been steady, but to be honest we’re impatient and we will not be satisfied until it is completed to both our heightened expectations and those of our regulators.”
Investors should resolve the BSA issue by early 2018, Cama said, setting the stage for more acquisitions. The company, for instance, wants to expand into Suffolk and Nassau counties on Long Island and New York’s outer boroughs.
The company also plans to expand digitally. It is working on an internet bank that could go live in the next eight to 12 months, Cama said.
“As we continue to evolve we'll look for ways to leverage the technology,” Cama said.
That effort could help the company bring in more deposits; its loan-to-deposit ratio at March 31 was about 125%.
“They need to be going after deposits more aggressively,” Shaw said.
Investors expects organic growth to add $1.5 billion in assets annually over the next four years, Cummings said the earnings call. The company could add another $5 billion in assets over that time with two or three acquisitions, getting to roughly $35 billion in assets by the end of 2020.
“We want to create something special, create a legacy here for ourselves over the next four years,” Cummings said.