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Investors Bancorp (ISBC) to Buy 8 Branches From Berkshire Bank

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Investors Bancorp, Inc. has entered into an agreement to acquire eight branches of Berkshire Bank, the wholly-owned subsidiary of Berkshire Hills Bancorp, Inc. (BHLB - Free Report) . These branches are located in New Jersey and Eastern Pennsylvania.

Investors Bancorp will carry out the deal through its wholly-owned subsidiary, Investors Bank. The transaction, subject to regulatory approval, is likely to conclude in the first half of 2021.

With the completion of this acquisition, Investors Bancorp will gain access to about $639 million of deposits, and $308 million of consumer and commercial loans. Further, the company will add about 8,000 new clients and double its market share in the Trenton, New Jersey Metropolitan Statistical Area (MSA). Notably, four branches, which will be acquired, are located within 2.5 miles of an Investors Bank branch.

Kevin Cummings, chairman and chief executive officer (CEO) of Investors Bancorp, stated, "This is a good opportunity to strengthen our central New Jersey deposit franchise and reduce higher cost wholesale funding. We are also pleased to expand our branch footprint and add two branches in affluent Pennsylvania markets."

Investors Bancorp will pay a 3% deposit premium on deposits acquired at close. Moreover, the company expects to use the lower funding costs to immediately pay off about $250 million of Federal Home Loan Bank System (FHLB) borrowings. This, in turn, is projected to lower its wholesale borrowing ratio, loan to deposit ratio and improve overall net interest margin.

Investors Bancop anticipates the acquisition to be earnings per share (EPS) accretive by roughly 5%. Moreover, tangible book value is likely to be diluted by 1.6%, including FHLB prepayment fees, earned back in less than three years using the "crossover method."

Further, the company estimates after-tax transaction costs of $9.7 million, which includes $4.2 million of FHLB prepayment fees. Also, a gross credit mark of 4.2% has been arrived at by the company after a detailed credit review of the New Jersey and Pennsylvania residential and commercial loans.

The bank believes the branch buyout is a low risk transaction and will not adversely impact its capital levels. So, given its robust tangible capital levels and the improving economic situation, the company has decided to resume share repurchases.

With the deal’s closure, Investors Bancorp expects to lower its wholesale cost of funding that will enable operational efficiency and also enhance profitability.

In the past year, shares of Investors Bancorp have lost 15.2% compared with the 14.8% decline of the industry it belongs to.

Currently, Investors Bancorp carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amid the coronavirus pandemic-induced economic slowdown, several banks are taking initiatives to focus on core businesses with an aim to improve profitability. Last month, People’s United Financial’s banking subsidiary People's United Bank completed the divesture of People's United Insurance Agency to AssuredPartners.

Earlier in September, Umpqua Holdings Corporation signed an agreement to divest the wealth management business to Steward Partners Global Advisory, LLC. Also, CIT Group sold the trust and wealth advisory business to Sunflower Bank, N.A., a subsidiary of Denver, CO-based FirstSun Capital Bancorp.

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