Rockland Trust Co.’s acquisition of East Boston Savings Bank will give it the size needed to stay competitive and opportunities to increase revenue, analysts say, allowing the bank to keep pace with growing rival Eastern Bank.
After Eastern Bank announced on April 7 that it would acquire Century Bank to create an institution with about $22 billion in assets, Rockland Trust followed suit on April 22 with the East Boston Savings Bank deal, which will give Rockland Trust about $20 billion in assets.
The deal marked the fifth transaction this year involving banks with a significant presence in Massachusetts and the second combination of some of the largest stock banks based in Greater Boston.
“It’s a pretty nice pairing with the Eastern Bank and Century Bank deal,” said David Bishop, a senior analyst with Seaport Global. “It definitely puts them neck–and–neck to continue to compete very effectively with Eastern Bank in the Greater Boston market.”
A Disciplined Acquisition
Valued at approximately $1.15 billion, Rockland Trust’s all-stock deal to acquire East Boston Savings Bank is expected to close in the fourth quarter, subject to regulatory and shareholder approvals and other standard conditions.
Rockland Trust paid 150 percent of East Boston Savings Bank’s tangible book value, a reasonable price for the bank, said Arthur Loomis, president of Loomis & Co., a New York-based investment bank that works with banks in the Northeast on mergers and acquisitions.
He compared the pricing to what Buffalo-based M&T Bank paid for Connecticut-based People’s United Bank, another deal announced earlier this year that will affect the Massachusetts market.
“This is very much like the M&T transaction in terms of being a reasonable price to pay for it without getting excessive or exuberant,” Loomis said. “It was just a very disciplined acquisition.”
Loomis said East Boston Savings Bank operates with great efficiency but added that the bank’s strengths weren’t “sizzling” to create a larger market value. Rockland Trust and East Boston Savings Bank have different structures, Loomis said, with East Boston Savings’ focus on residential and commercial real estate lending making it more like a thrift bank than a traditional commercial bank, like Rockland Trust.
Rockland Trust (branches marked in yellow) has significant footprint overlap with East Boston Savings Bank (branches marked in blue), giving it savings opportunities via branch consolidation. Image courtesy of Rockland Trust
“[East Boston Savings Bank is] very careful about what they spend; they take virtually no risk,” Loomis said. “They’re very risk–adverse to loan losses for example, and they are very careful in terms of how they run the bank – it tends to be what I call a classic thrift structure.”
Rockland Trust has a greater percentage of noninterest–bearing deposits compared to East Boston Savings Bank, helping the larger bank to produce earnings during different types of market conditions. The deal with East Boston Savings Bank will give Rockland Trust opportunities to build its noninterest-bearing deposits even more, Loomis said, while also providing opportunities to bring in more noninterest income, particularly with its wealth management services.
Help to Weather Low Rates
When the deal is complete Rockland Trust will rank sixth behind Eastern Bank in deposit share in both the Boston metropolitan statistical area and in Massachusetts, giving them the largest local deposit shares for banks based in Massachusetts. Laurie Havener Hunsicker, managing director of equity research for banks at Compass Point Research & Trading, noted in an analyst’s report that Rockland Trust will also have more than three times the deposits in the Boston area of the next-biggest publicly traded bank, Brookline Bank.
Hunsicker called the deal a “home-run acquisition” for shareholders of both Rockland Trust and East Boston Savings Bank. She added that Rockland Trust “now has a Boston franchise that can’t be replicated.”
Bishop, with Seaport Global, said the deal will help Rockland Trust generate revenue in the coming years, especially in a low interest rate environment.
“From a profitability standpoint it moves the needle up into the right in terms of return on assets, especially within a low and flat yield curve environment,” Bishop said.
Bishop added that Rockland Trust CEO Christopher Oddleifson has been vocal about increasing the bank’s scale to deal with the additional costs that come with having more than $10 billion in assets, including risk management and compliance costs. The additional size will also help Rockland Trust address costs and demands associated with digital banking, Bishop said.
Diane McLaughlin
This will be Rockland Trust’s 10th acquisition since 2008. Bishop said the bank has a track record of creating efficiencies within the first two quarters of an acquisition. With some overlap in their footprints, efficiencies will include branch consolidation. Rockland Trust has not yet said how many branches will close.
Oddleifson said during a conference call to discuss the acquisition that he would expect acquisitions to continue, including if an opportunity arose while still working on the East Boston Savings Bank transaction.
“We have always characterized ourselves as an opportunistic and a very disciplined acquirer,” Oddleifson said. “By augmenting our long-term organic growth performance with periodic selective acquisitions, we strongly believe that we are building considerable franchise value.”
