Tuesday, March 30, 2010

Investors Bancorp, growing deposits the opportunistic way (ISBC)

In turbulent (to say the least) times, many banks find that the best way to get their hands on some pristine deposits is from failed or struggling banks.

New Jersey-based Investors Bancorp (ISBC) just announced they will acquire $575million in deposits and 17 branch locations of Millennium BCP Bank, as well as a yet to be determined portion of Millennium's loan portfolio.  ISBC shareholders should hope that any loans taken off the hands of Millennium are subject to exhaustive due diligence, as their website shows a pretty low-rent operation.

Millennium's loan profile is 35% weighted toward commercial real estate, triple the weighting at Investors.  I would also take Millennium's estimates of problem loans as a "starting point," if you will.  There could be some real garbage lurking in there:

From the release:

SHORT HILLS, N.J.March 30 /PRNewswire-FirstCall/ -- Investors Bancorp, Inc. (Nasdaq:ISBC - News) announced today that Investors Savings Bank ("Investors"), its wholly-owned subsidiary, has signed a Purchase and Assumption Agreement with Millennium bcpbank ("Millennium") to acquire approximately $575 million of deposits and seventeen branch offices in New Jersey,New York and Massachusetts for a deposit premium of 0.11%.
Under the purchase and assumption agreement the parties intend to enter into a Loan Purchase Agreement in which Investors will purchase a portion of Millennium's performing loan portfolio. Also under the Purchase and Assumption Agreement the parties will negotiate a Loan Servicing Agreement for Investors to service those loans it does not purchase.
Commenting on the transaction, Kevin Cummings, President and CEO of Investors said, "This is an excellent opportunity to expand our branch network and improve our core deposit mix. We look forward to providing the same high quality, personalized level of customer service these depositors have become accustomed to."

Usually as of late, banks have bought assets & deposits from the FDIC after another bank has failed, with FDIC assurance that they will share in any losses.  In this case, Millennium is selling ALL their 17 branches and ALL their deposits, if the information on their website is accurate.

This deal will increase ISBC's deposit base by 10%, so it's certainly not a "game-changer" in terms of size.  I worry though that they are buying the ENTIRE loan portfolio of this questionable-looking bank.  Often times, a bank like this might be largely dependent on brokered deposits, or "hot money."  According to the most recent FDIC report on Millennium however, the deposit profile looks pretty healthy, with only $22million in brokered deposits out of a total $647million in total deposits, as of December 2009.  ISBC is likely not even buying those deposits.

This deal looks to be a nice growth driver for Investors Savings.  Cheers to them, and BIG CHEERS to their healthy loan profile:

Copyright 2010 AlphaNinja

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