November 4, 2021
OceanFirst Financial Corp. has accelerated its entry into the Maryland and Washington, D.C., markets with the planned acquisition of Salisbury, Maryland-based Partners Bancorp for $186 million.
The proposed deal represents Toms River, New Jersey-based OceanFirst’s eighth acquisition in a little over six years. Partners Bancorp (NASDAQ: PTRS), created by the 2019 merger of Seaford, Delaware’s The Bank of Delmarva and Fredericksburg, Virginia’s Virginia Partners Bank, has $1.6 billion in assets, $1.1 billion in loans, $1.4 billion in deposits and 20 branches in Delaware, Maryland, Virginia and New Jersey.
The merger is expected to close in the first half of 2022, subject to Partners receiving stockholder approval, the transaction earning all required regulatory approvals, and fulfillment of other customary closing conditions.
OceanFirst stock was down more than 5% in midday trading Thursday at $21.96 per share. Shares in Partners were trading up 12% at $9.74.
The 125-year-old Bank of Delmarva is a venerable community bank in southern Delaware and Maryland that entered the Philadelphia market in 2018 with the acquisition of Cherry Hill’s Liberty Bell Bank. Virginia Partners Bank was founded in 2008 and is focused in Northern Virginia but recently executed a lift out of a lending team in Washington, D.C.
The deal gives a turbo boost to Ocean First’s organic move into the Maryland and Virginia markets that began in May when it entered Baltimore with four lenders from BBVA and Washington with one lender from Wells Fargo. On the bank’s third quarter earnings call on Friday, CEO Chris Maher said OceanFirst currently has $50 million in loans in Baltimore with the ultimate goal of reaching $1 billion in loans like it did in Philadelphia through purely organic means. It could now reach that $1 billion threshold when the deal closes as The Bank of Delmarva has $693 million and Virginia Partners has $418 million.
Based on Sept. 30 results and the impact of purchase accounting, OceanFirst (NASDAQ: OCFC) said the combined company is expected to have roughly $13.5 billion in assets, $9.3 billion in loans and $11.2 billion in deposits on a pro forma basis.
Based on OceanFirst’s closing stock price of $23.21 on November 3, the transaction is valued at approximately $10.38 per Partners common share, or approximately $186 million. OceanFirst said in an investor presentation that it paid 146% of tangible book value.
Under the terms of the merger agreement, in exchange for each share of Partners common stock, Partners stockholders may elect to receive $10 in cash or 0.4512 shares of OceanFirst common stock. The agreement provides that only up to 40% of Partners common stock will be exchanged for cash and the remaining shares exchanged for OceanFirst common stock, subject to proration.
Assuming 80% of the shares of Partners common stock are converted into OceanFirst common stock and 20% of the shares of Partners common stock are converted into cash, the aggregate consideration to be paid in exchange for the Partners common stock will consist of approximately 6.5 million shares of OceanFirst common stock and $37 million in cash.
Certain stockholders of Partners owning in the aggregate approximately 44% of Partners’ outstanding common stock have entered into support agreements with OceanFirst pursuant to which they have agreed to vote in favor of the merger agreement.
OceanFirst said the transaction is expected to result in approximately 10% earnings per share accretion in 2023 (the first full year of fully phased-in synergies).
“The banks that comprise Partners Bancorp are each strong organizations operating community commercial banking models and have demonstrated strong growth in their markets,” Maher said in a statement. “Joining the OceanFirst family will allow these highly professional commercial bankers to continue to build new relationships while leveraging the technology and operating efficiency offered by our company.”
Maher added that the deal provides an opportunity to expand OceanFirst’s digitally focused commercial banking franchise further into Delaware, Maryland, Virginia, and the Washington, D.C., metro area.
Partners President and COO John W. Breda said by being part of a larger and more diverse institution, Partners employees will have additional opportunities to grow and develop, customers will have greater access to expanded banking services, and shareholders should benefit from what he believes will be increased profitability, liquidity, and increased market capitalization.
OceanFirst has grown from $2.4 billion in assets to $11.8 billion largely on the strength of the following seven mergers that have allowed the Central New Jersey bank to expand its presence in South Jersey, North Jersey and New York:
- Middletown-based Colonial American Bank for $11.3 million in July 2015;
- Cape May Courthouse-based Cape Bancorp for $208 million in May 2016;
- Ocean City-based Ocean Shore Holding Co. for $145.6 million in November 2016;
- Mount Laurel-based Sun Bancorp for $475 million in February 2018;
- Vineland-based Capital Bank of New Jersey for $77 million in February 2019;
- Two River Bancorp of Tinton Falls in Monmouth County for $197 million and Country Bank Holding Co. of New York City for $112.8 million in January 2020.
Based on the strategy employed in each of these deals, OceanFirst will most likely prune a number of the 20 branches it will inherit from Partners. The only mitigating factor on that score is that there is very little geographic overlap that would inspire such contraction. In September, OceanFirst said it would close 20 of its 58 branches and also plans to sell two other locations to First Bank. That leaves OceanFirst with 33 branches in New Jersey and five in New York.
OceanFirst opened its first Pennsylvania retail branch in Center City Philadelphia this month and already has loan production offices in Philadelphia, Doylestown, Newtown Square, Baltimore and Boston with eyes also set on Washington, D.C. — which it now should have through this deal. OceanFirst has been rumored to be looking to acquire a bank in Southeastern Pennsylvania but has not found a suitable partner as of yet. It still managed to grow its loan book in Philadelphia to more than $1 billion just two years after entering the market.
Raymond James & Associates served as financial advisor to OceanFirst and Skadden Arps, Slate, Meagher & Flom served as its legal counsel. Piper Sandler Companies served as financial advisor to Partners and Troutman Pepper Hamilton Sanders served as legal counsel.