With a regional bank on the sales block and a couple serial acquirers approaching $10 billion, M&A activity could be picking up in New Jersey.

Investors Bancorp Inc. has reportedly hired an investment bank to pursue a sale of the franchise. With $25.52 billion of assets, the bank is the second-largest company headquartered in New Jersey, behind Valley National Bancorp at $30.88 billion. Meanwhile, Toms River, N.J.-based OceanFirst Financial Corp. is processing yet another acquisition of a local community bank, and Iselin, N.J.-based Provident Financial Services Inc. is knocking on the door of the $10 billion asset threshold, which can spur deal interest.

OceanFirst's recent agreement to buy Capital Bank of New Jersey was the eighth New Jersey bank deal announced in the past 12 months, and the company's CEO said the bank would keep looking.

"Obviously, we're focused on making sure that we do the capital integration properly, but I would also say that we have done multiple deals in a single year," OceanFirst CEO Christopher Maher said in an interview. "We certainly have an ability to multitask, and if the right opportunity came around tomorrow, we wouldn't feel restricted from being able to do that."

With $7.56 billion in assets as of Dec. 5, and an additional $483 million coming from the Capital Bank deal, OceanFirst is rapidly approaching the $10 billion asset threshold that subjects banks to additional regulatory scrutiny. Provident Financial is even closer at $9.71 billion in assets.

Bankers have said depositories should aim to "leap" over the threshold to gain scale that can defray the additional costs. While President Donald Trump has signed into law a regulatory reform package that lessens the burden of crossing the threshold, Maher said it is still important. He pointed to the unchanged Durbin Amendment, which governs how much interchange income a larger bank can collect, as the most significant financial cost when crossing $10 billion.

"If you're going to cross $10 billion, you have to be committed to get to $12 [billion] or $13 [billion] over time," he said. "That doesn't mean you have to do a perfect deal to get there. But it would be a bad thing to get to $10.1 [billion] and tread water."

Russell Gunther, an analyst for D.A. Davidson & Co., said OceanFirst's deal for Capital Bank is a strong fit for the company because Capital Bank's footprint is largely in-market, and the bank has a strong funding profile with low deposit beta.

Funding considerations are playing a larger role in dealmaking, and the New Jersey market is no exception. There are several community banks in the state with high loan-to-deposit ratios, and they might struggle to gather additional deposits at attractive rates considering New Jersey is one of the nation's more competitive markets. Analysts have pointed to funding pressures as a reason for Investors' interest in a sale as the company's loan-to-deposit ratio exceeds 120%.

"The biggest driver of M&A and consolidation at this point of the cycle is funding … and Northern New Jersey and the New York metro area is as competitive as it gets," Gunther said.

Banks are paying an average of 1.44% for 18-month certificates of deposit in the New York metro area, compared to the U.S. average of 1.25%.

While New Jersey presents some funding cost challenges, the state could be attractive to out-of-state banks due to proximity to the nation's largest market in New York City as well as a top market in Philadelphia, said Christopher Olsen, managing partner of Olsen Palmer LLC, an investment banking firm.

"It has one of the highest household wealth levels in the country," Olsen said. "A lot of regionals would like to have a presence there."

On the other hand, bankers might see New Jersey as less attractive following recently passed tax changes. The state's governor in July signed legislation that changed the business tax code, and Gunther said that could spur consideration of a Pennsylvania-based acquisition to reduce the portion of revenue subject to New Jersey tax.

Further, the federal tax cut legislation could hurt New Jersey businesses by limiting the deduction for state and local taxes. Small businesses and high-net-worth individuals in high-tax states like New Jersey were some of the largest beneficiaries of the deduction.

"We're sitting here with a toxic situation," said Donald Musso, president and CEO of FinPro Capital Advisors, an investment banking firm. "If you're a bank, I'm not sure you want to come in and subject yourself to New Jersey taxation."

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