With its latest deal, Investors Bancorp Inc. has made strides toward achieving two of its goals: extending its reach to New York City and adding to its commercial loan portfolio.
Under its agreement announced last week with the Millennium BCP Bank unit of Banco Comercial Portugues SA, the Short Hills, N.J., company would essentially take over the Portuguese company's U.S. operations without purchasing the bank outright.
Though unusually structured, the deal fits nicely into the mutual holding company's master plan of remaking itself from a hometown New Jersey thrift into a $25 billion-asset bank operating in the New York metropolitan area.
"All of the deals they have struck have been out of the box; they were deals that several other New Jersey banks had a chance at and passed," said Mark Fitzgibbon, the head of research at Sandler O'Neill & Partners LP. "I think they are developing a reputation as an astute buyer."
Investors Bancorp isn't lacking in ambition. Kevin Cummings, its president and chief executive, said in an interview Tuesday that the latest deal "brings us closer to our goal of becoming the largest full-service community bank in the metropolitan area."
Investors Bancorp is expected to pay Millennium a $632,500 premium for $575 million in deposits and 17 branches. The $8.3 billion-asset company would buy up to 40% of Millennium's performing loans, or as much as $220 million, and enter into a servicing agreement for the remainder of the loans. Though it remains to be seen what loans Investors Bancorp takes in the deal, Millennium's focus on commercial banking will aid in its objective of becoming less thriftlike. As of Dec. 31, single-family mortgages made up 75% of its loans.
Cummings would not say exactly what mix he hopes to have, but said he wants more commercial business.
Millennium has been operating under a cease-and-desist order with the Office of the Comptroller of the Currency since last July. The terse agreement ordered Millennium to give the OCC monthly updates on efforts to "sell, merge or liquidate the bank."
In the past two years, meanwhile, Investors Bancorp has grown nearly 44% organically and by making other unusual deals. An example of its creative dealmaking is its acquisition in June 2008 of the $112 million-asset Summit Federal Bankshares Inc., which added five branches and deposits of $95 million. Using "pooling of interests" accounting, Investors Bancorp absorbed the mutual, rather than paying for it.
Cummings said the company's acquisition strategy is driven by a desire to avoid building goodwill, which would weigh on the company's tangible book value and could affect its next intended phase: full conversion.
Investors Bancorp completed its first-step conversion in 2005, bringing in $500 million of capital by selling 45% of the company on the open market. That capital paved the way for the current growth phase.
As of Dec. 31 its tangible common equity ratio was 9.8%. Analysts say that ratio would drop to 8.6% on completion of the Millennium deal, which is expected to close in the third quarter. Cummings said the company is aiming to raise as much as $1 billion when it completes its second phase.
Investors Bancorp is not racing to complete the conversion but will do so when its assets reach $11 billion to $12 billion, or its tangible common equity ratio drops to 7.5% to 8%.
Still, analysts view the Millennium deal as a sign that Investors Bancorp is inching toward conversion. In a research note, Matthew Kelley, an analyst at Sterne, Agee & Leach Inc., said he expects the New Jersey company to convert within the next 12 to 15 months. Cummings said his company is open to another deal, but that it may have its hands full with this one.
The 11 branches it will add in New Jersey bulk up Investors Bancorp's home-state network and give it a toehold in the Ironbound district of Newark, which has a large Portuguese population. Cummings said the company is also taking over Millennium's remittance business, which should add $1 million annually in fee income.
One odd aspect of the deal is that it will move the company into Massachusetts. While Cummings and analysts said it would be logical for Investors Bancorp to sell those branches, the CEO said he is at least pondering another concept. "I've thought about maybe pairing with the local community there and maybe we will take a small equity stake in starting a community bank there," he said. "We like to think out of the box."