With a deal to buy a New Jersey thrift, Investors Bancorp Inc. in Short Hills, N.J., is edging closer to reaching its goal of $10 billion of assets.
Investors announced Monday that it has agreed to buy the $622 million-asset American Bancorp of New Jersey Inc. for $140 million in stock and cash. Absorbing the Bloomfield thrift would boost its asset size to $7.7 billion and give Investors more core deposits in two northern New Jersey counties where it wants to grow.
"This is an ideal opportunity to expand," Kevin Cummings, Investors' president and CEO, said on a conference call with analysts and investors. "It creates a lot of momentum and sizzle in our organization."
Mr. Cummings, who took over as CEO in January, has set a goal of building Investors into a $10 billion-asset company within five years and diversifying a loan portfolio that is now dominated by mortgages.
Though American is a thrift, about 40% of its loans are commercial, Investors said in the conference call.
American has "transformed" its balance sheet since an initial public offering in October 2003, Mr. Cummings said. The deal, which is expected to close in the second quarter, would be Investors' second since June, when it closed a deal for the $112 million-asset Summit Federal Bankshares Inc. That was its first acquisition since 1991.
American is a converted mutual that just recently became eligible to sell itself. It completed a second-step offering in September 2005, and regulators restrict mutuals from selling within three years of going fully public.
Partly because of the offering, American's 86% efficiency ratio is worse than average, Domenick Cama, Investors' chief operating officer, said on the conference call.
Investors expects to cut 45% of American's expenses, or $6 million, after closing the deal, he said.
Mr. Cummings said American's deposit base is part of its allure. Its five branches in Essex and Passaic counties average $90 million of deposits, with 43% of the total being core deposits, he said.
"One of the things that is attractive is the average branch size," he said. "That's a beautiful thing here in New Jersey, having that size."
Investors' 52 branches average $80 million in deposits, with 27% being core, he said.
American's nonperforming loan ratio was 0.24% at Sept. 30, and reserves totaled 267% of the nonperformers.
Still, Investors intends to make an $8 million mark-to-market adjustment on the loans it is acquiring — just in case. "We look at that as a general reserve to make sure we didn't miss anything in our process," Mr. Cama said.
The deal works out to $12.50 for each American share, a 43% premium over the thinly traded stock's Friday closing price. On news of the deal Monday, American's stock rose 27.8% in very heavy trading, to $11.18 a share. Investors' stock fell 7%, to $12.60.
Mark Fitzgibbon, the head of research at Sandler O'Neill & Partners LP, said that Investors paid a "fair" price and that American's relatively small size makes the deal a "low-risk" one. He said Investors — which raised $500 million in a public offering in October 2005 — would shave 89 basis points from its tangible capital ratio with the deal, to 11%.
"They have a lot of excess capital, so they can afford to bring it down some," Mr. Fitzgibbon said.
Theodore Kovaleff, an analyst at Granta Capital LLC who owns stock in Investors and American, said the deal is good for both companies.
Investors said the price works out to 1.49 times American's tangible book value and a 14.1% premium on core deposits. On average, buyers have paid two times tangible book value for banks of similar size in the Northeast in the last 18 months, Investors said.
"That's a good price in today's market," Mr. Kovaleff said. "But I don't think Investors overpaid."
American positioned itself to be an attractive target, he said, by controlling nearly the top deposit market share in its hometown. "I always felt … it was an acquisition candidate and it was only a matter of time," he said. "My thinking was, if a larger institution comes along and wants to have a good presence in the area, they're going to pay for it."