Why Jap Financial institution is paying prime greenback for longtime rival

Jap Bankshares has returned to financial institution acquisitions with a deal that can seemingly shake up the panorama in Boston.

The $16 billion-asset firm introduced late Wednesday that it plans to buy Century Bancorp in Medford, Mass., for $643 million in money.

The proposed deal, which might be Jap’s first financial institution acquisition because it purchased Centrix Financial institution & Belief in 2014, comes six months after the previous mutual raised $1.7 billion from an preliminary public providing. It might cement Jap’s place as Boston’s greatest neighborhood financial institution whereas eradicating one of many final banks out there that may have supplied a competitor with immediate scale.

“We talked about our intention to do that in a disciplined means that improved our market place, monetary efficiency and return to our shareholders,” Chairman and CEO Robert Rivers mentioned throughout a Thursday convention name to debate the deal. “We imagine that this transaction does all of those.”

Jap moved with haste, trade observers mentioned, to make sure it was on the entrance finish of a mounting M&A wave in New England.

“They made it clear with the conversion that they wished to make the most of deal alternatives rapidly,” mentioned Damon DelMonte, an analyst at Keefe, Bruyette & Woods.

Since 2018, at the least six banks with Boston-area operations have bought, or are within the means of promoting. These banks collectively account for practically $20 billion of deposits out there, based on the Federal Deposit Insurance coverage Corp.

Two different offers introduced this yr will result in deposits altering arms.

The $97 billion-asset SVB Monetary Group in Santa Clara, Calif., agreed in January to purchase the $9.7 billion-asset Boston Personal Monetary Holdings. The $63 billion-asset Individuals’s United in Bridgeport, Conn., which has greater than 50 branches and $6.8 billion of Boston-area deposits, announced plans in February to promote to the $143 billion-asset M&T Financial institution in Buffalo, N.Y.

Shopping for Century would enhance Jap’s deposit market share within the Boston space from 2.5% to three.7%, primarily based on June 2020 information from the Federal Deposit Insurance coverage Corp. It might put the corporate only a hair behind TD Financial institution’s 3.9% share.

It additionally places a substantial quantity of daylight between Jap and different neighborhood banks, and would make it a extra enticing financial institution for anybody seeking to ultimately enter the market, trade observers mentioned.

Boston had a median family wage of $94,000 in 2019, or roughly $29,000 greater than the nationwide media, based on information from the Census Bureau. With $439 billion of deposits, Boston is among the many eight-biggest markets within the nation, primarily based on FDIC information. Town is also residence to 14 Fortune 500 firms.

Jap “now has a Boston moat that may’t be replicated,” Laurie Hunsicker, an analyst at Compass Level Buying and selling & Analysis, mentioned in a Thursday consumer word. It got here with a value, with Hunsicker noting the “outsized” dilution of a deal that valued Century advert 175% of its tangible ebook worth.

Jap mentioned it will take about 4 years to earn again the estimated 9% dilution to its tangible ebook worth.

Nonetheless, the deal offers an “extraordinary” alternative to spice up earnings, Hunsicker mentioned.

The plan is to chop virtually half of Century’s annual working bills. Department closures can be a key part since virtually all of Century’s 27 workplaces are inside three miles of an Jap location.

Jap, which didn’t issue income into its forecast, additionally plans to supply insurance coverage, brokerage and wealth administration merchandise to Century clients.

“It is one thing we have achieved very efficiently right here at Jap, and I feel it represents a major alternative,” Rivers mentioned. The deal is a “complement actually on either side — with issues that we deliver to their buyer base and definitely issues their buyer base brings to us.”

Century has been extra lively than Jap lending to the well being care and better schooling sectors — long-established and rising components of the Boston financial system — and it was an early entrant into hashish banking.

Massachusetts legalized leisure marijuana in late 2016.

“They’re the biggest marijuana banking enterprise right here in Massachusetts,” Rivers mentioned. “That is one thing that I imagine solely three different banks out there have achieved.”

Hashish banking is “one thing that we have not achieved prior to now, however one which we’re excited to study and one thing that definitely Century has been a pacesetter in,” he added.

DelMonte mentioned the deal makes clear that Jap is doubling down on its hometown.

“They’re actually sticking their flag within the floor,” DelMonte mentioned. “They need to be probably the most distinguished native financial institution in Boston.”

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