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Banks without borders: More and more N.J. financial institutions are looking elsewhere for growth prospects

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Gerald H. Lipkin, Valley National Bank’s chairman, CEO and president.
Gerald H. Lipkin, Valley National Bank’s chairman, CEO and president. - ()

The resources Valley National Bank fused together from numerous banks throughout its history — being the product of 29 acquisitions — has made it a top competitor for the title of largest commercial bank headquartered in New Jersey.

But, recently, the Wayne-based institution has mined more from outside the state’s borders than inside them. Its announcement late last month that it would be acquiring USAmeriBancorp Inc. in an $816 million deal marked the third acquisition it has made in Florida since 2014. The move gave the bank 15 offices in Alabama, as well.

Though Valley National has reached particularly far in its buyout maneuvers, established local banks looking primarily outside the Garden State for purchases of other banks has become much more of the norm over the past few years, as industry experts expected it would.

After a long history of being just another community bank in the local mix, Valley National Bank has expanded its franchise into four states. But don’t insinuate to Gerald H. Lipkin, the bank’s chairman, CEO and president, that the institution can be considered any less of a local today.

“We’re still very dedicated to New Jersey; over half our offices are here,” Lipkin said. “It’s still our strongest base. … It’s just that it’s not growing as fast as other places in the country are in this sector. A bank is dependent on both population growth and economic growth to thrive.”

The market the bank is particularly excited about is Tampa Bay. And the area has other advantages for an institution that has been in New Jersey for as long as Valley National Bank has.

Piquing interest

One trend that Don Musso of bank consulting firm FinPro Inc., sees as having an impact on future mergers and acquisitions is interest rates as they apply to deposits.

… The effect of which is usually about as clear as mud to anyone besides banking experts.

As Musso explained it (the best he could), significant rises in the benchmark Fed funds rate are slated to create a gap between the rate on money market accounts — deposit accounts with higher interest paybacks — and what banks are paying on those deposits. He said this interplay will put pressure on deposits at banks, which will either have to start raising rates or find different funding mechanisms.

“Part of what it’s going to do is make those banks that have a lot of deposits and not a lot of loans more valuable,” he said.

This would be great thing for consumers, whom industry folks said would finally get a better return on their deposits.

“Savers will be affected by that, particularly senior citizens that probably tend to keep their money in bank deposits with less investment in stocks and equity,” John McWeeney of NJ Bankers said. “Customers have for a long time wanted to see rates creep up.”

Tom Comiskey, New Jersey regional president of M&T Bank, expects some time to pass before that happens.

“We’ve had a few interest rate increases, but we haven’t seen deposits move dramatically yet,” he said. “I don’t think interest rates (on deposits) are at the level in which it’s material in the eyes of a lot of people at the moment. That’s why it’s nice for (a bank like us) to have wealth management associated with it, which means there’s always alternative choices for investments that may not necessarily be a deposit account.”

“One of the attractions of Florida is that residents of New Jersey — people we’ve done business with for many years and who know our name — have moved down there, and this is a way of reuniting with them,” Lipkin said.

As the number of banks in New Jersey hits a low of about 85 after being well over 100 for many years, and with the large amount of local mutual savings banks unable to be acquired, there’s a certain pragmatism in looking for merger and acquisition opportunities even great distances away from the Garden State.

FinPro Inc. founder Don Musso is one of the industry watchers who saw it coming miles away.

“We’ve known New Jersey has a lot of players with a lot of capital — it’s big shops competing for a small pool (of acquisition targets),” Musso said. “It’s highly competitive, even more so than adjoining states. But it’s really gotten to the point now in which there’s not many banks that can be sold anymore here. Most of the small banks that want to sell have done so already, and the remaining ones want to stay as they are.”

Chris Martin, chairman, CEO and president of Iselin-based Provident Bank, realizes the audience of bankers looking to sell their institution has significantly shrank.

“That’s part of why we’re looking at eastern Pennsylvania for that sort of opportunity, but we never swear off any opportunities in our contiguous market,” he said.

Provident Bank’s last purchase, in 2014, allowed it to capitalize on the name it made for itself in the Lehigh Valley. Martin doesn’t expect the bank to get too far outside the box.

“Are we going to go to Wisconsin to get an acquisition? No,” Martin said. “It just has to make sense. We don’t suspend shareholder money to get bigger, just to get better.”

OceanFirst Bank is another larger-than-average community bank in New Jersey with a leadership that shares a similar view.

On the heels of a significant deal to acquire Sun National Bank and its footprint in New York, Joseph Lebel III, chief banking officer and executive vice president at the Toms River-based OceanFirst, said building on a presence in neighboring states made sense from a contiguous market perspective.

And, like other New Jersey bank leaders doing the same, he was quick to quash doubt about local credentials.

“We’re still very much and southern and central New Jersey bank,” he said. Even if it means that, also like most New Jersey banks today, his bank “isn’t afraid to follow clients into varying geography.”

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