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OceanFirst nixes Partners deal after regulators hint closing would push into '23

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OceanFirst nixes Partners deal after regulators hint closing would push into '23

OceanFirst Financial Corp. will focus on organic growth rather than face a lengthy delay to close its planned deal for Partners Bancorp.

Red Bank, N.J.-based OceanFirst and Partners mutually terminated their proposed $188.6 million merger on Nov. 9, more than a year after originally announcing the deal. In an interview with S&P Global Market Intelligence, OceanFirst Chairman and CEO Christopher Maher said an uncertain completion timeline led to the company's decision to end the deal. Partners Bancorp did not immediately reply to a request for comment.

"Our latest conversations indicated that the process would at best likely stretch into 2023," Maher said. "Given the amount of time that we've been working on this ... to take on the additional risk and uncertainty of going through potentially another couple of months of the process, we didn't think it was right for us."

Distracting delays

Lately, a number of other banks have been contending with long timelines for closing deals amid heightened regulatory scrutiny. That can distract the companies involved from organic growth and increase risk, banking industry experts said.

"It diverts attention from your staff and it puts an overhang in terms of investors' minds," Hovde Group analyst David Bishop said in an interview. "It was just subtracting too much energy where [OceanFirst has] plenty of opportunities to grow."

OceanFirst, a seasoned acquirer, has struck seven whole-bank transactions since 2015, excluding the now-terminated Partners deal. The company typically has closed those deals within five to six months.

"We had originally entered into the deal last year, when transaction approval times were much shorter," Maher said. "The time just winds up being risk. It was in our best interest to take the risk off the table and focus on our business."

OceanFirst will now turn its attention to growing its commercial lines of business, including commercial lending and corporate treasury accounts. The bank is also focused on continuing to grow consumer deposits and residential lending.

"We've been very fortunate over the last six years to build our franchise with the addition of what I would call tactical M&A, meaning the opportunity to bring smaller banks into our business and to build on them," Maher said. "We will not be focused on that tactical M&A as we move forward."

OceanFirst shifting gears is an acknowledgment that dealmaking is now less certain and a bit riskier, the CEO said.

"If there's more uncertainty, there's a higher level of risk, and you don't want to do a transaction unless it's going to have a significant benefit to you," said Maher.

Analysts upbeat

Equity analysts were bullish on OceanFirst's growth prospects without bringing Partners into the fold. While the transaction would have expanded OceanFirst's footprint further into Maryland and Virginia with an attractive deposit base, adding Partners was not a prerequisite for success, according to Janney Montgomery Scott analyst Christopher Marinac.

Partners was a "means to an end" in terms of bringing in deposits at a "reasonable price," Marinac said in an interview.

"But the fact that they're not going to do the transaction, in my opinion, it's not that big of a deal," the analyst said.

Hovde's Bishop was also positive about OceanFirst's future without Partners.

"There's going to be plenty of growth opportunities on the commercial front to backfill what might have went way from the Partners acquisition," Bishop said.

Bishop also expects OceanFirst to be "opportunistic" in hiring seasoned commercial bankers through team lift-outs.

OceanFirst's organic growth may benefit from the recently announced merger between Provident Financial Services Inc. and Lakeland Bancorp Inc., according to Marinac.

"The fact that one of the competitors has sold really creates an opportunity to go win business from the turnover that occurs," Marinac said.

OceanFirst stock buoyed; Partners tumbles

OceanFirst's stock price closed up 1.1% on the day the termination was announced, while Partners' shares closed down 12.27%. The S&P U.S. BMI Banks index was down 1.76% on the same day.

Equity analysts said OceanFirst investors were likely pleased with the termination, given their initial shock when the deal was announced and the fact that the company can now refocus on organic growth.

"When the deal was initially announced, I think it took a lot of people by surprise, me included," Bishop said. "I had talked to a number of investors after that were frustrated with that sort of turn of events and implications of potential tangible book value dilution. ... Now, that goes away."