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Fresh off closing major acquisition, OceanFirst Financial inks another NJ deal

A little over two months after completing its CapeBancorp Inc. acquisition, Toms River, N.J.-based OceanFirst Financial Corp. ($2.59 billion) has agreed toacquire Ocean City,N.J.-based Ocean Shore Holding Co.($1.05 billion) in a deal valued at $22.47 per share, or $145.6 million.

Shareholders of Ocean Shore common stock will be entitled toreceive $4.35 in cash and 0.9667 share of OceanFirst common stock for each shareof Ocean Shore common stock.

As part of the deal, OceanCity Home Bank will merge into OceanFirstBank. Ocean Shore operates 11 full-service banking centersin Atlantic and Cape May counties in New Jersey. Unit Ocean City Home Bank has approximately$818 million in total deposits and $796 million in gross loans.

The merger will make OceanFirst the fourth-largest New Jersey-basedbanking institution by deposit market share. As of March 31, and pro forma for theCape Bancorp transaction, the combined institution would have approximately $5.3billion in total assets, $4.0 billion in total deposits, $4.0 billion in gross loansand 61 full-service banking locations.

Data compiledby SNL shows that OceanFirst Financial Corp. will expand in Atlantic County, N.J.,with nine branches to be ranked second with a 19.53% share of approximately $5.06billion in total market deposits and will expand in Cape May County, N.J., withtwo branches to be ranked second with a 20.99% share of approximately $2.81 billionin total market deposits.

The purchase price, according to the merger press release, equatesto 132% of Ocean Shore's tangible book value, as of March 31, a 4.9% premium tocore deposits, 20.1x trailing 12-month earnings, and 9.3x estimated 2017 (forward)earnings (assuming fully phased-in cost savings). OceanFirst expects tangible bookvalue per common share to be diluted by approximately 3.1% at closing, with a projectedearn-back period of approximately 3.7 years using the cross-over method.

On a per-share basis, SNL calculates the deal value to be 126.5%of book, 132.4% tangible book and 20.1x last-12-months earnings. The price is 18.10%of deposits and 14.08% of assets, and the tangible book premium to core depositsratio is 5.28%.

The one-day premium is 32.50% based on Ocean Shore July 12 closingprice of $16.96. The one-month premium is also 30.54% based on Ocean Shore's June13 closing price of $17.21.

For comparison, SNL valuations for bank and thrift targets inthe Mid-Atlantic region between July 13, 2015, and July 13, 2016, averaged 137.77%of book and 149.50% of tangible book and had a median of 21.27x LTM earnings, ona per-share basis.

The bank projects approximately 5.4% earnings per share accretionin 2018, in addition to the projected double-digit earnings accretion from the CapeBancorp transaction.

OceanFirst expects to incur pretax merger and integration costsof approximately $19 million and to achieve cost savings of approximately 53% ofOcean Shore's non-interest expenses, or $12.4 million if 2017 cost savings wereto be fully phased in. It plans to consolidate five to seven branches.

The banks are targeting a closing late in the fourth quarteror early in the first quarter of next year, with systems conversion expected byJune 2017.

Three current Ocean Shore board members will join the OceanFirstboard, including Ocean Shore President and CEO Steven Brady. Brady will also serveas vice chairman for the southern New Jersey division and serve in an advisory capacityfor OceanFirst.

Piper Jaffray & Co., represented by Robert Hutchinson, MichaelBarry, Lorenzo Zefferino and Andrew Stager, is serving as financial adviser to OceanFirst,and Skadden Arps Slate Meagher & Flom LLP is serving as the company's legalcounsel. Sandler O'Neill & Partners LP, represented by Derek Szot, Josh Shropa,Kate Lawton, James Joseph Dunne III and John Beckelman, is serving as financialadviser to Ocean Shore, and Kilpatrick Townsend & Stockton LLP is serving asthe company's legal counsel.

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