Investors Bancorp, Short Hills, NJ (ISBC)

A Case of Big and Liquid

You may have noticed that many of the banks I review here are small and thinly traded. Happily, ISBC is big and trades like water!

I foresee Investors Bank being acquired in the next 18 months for as much as $15 per share. Given today's price of $11.19, that's not quite the splash I prefer, but it's no mere drop in a bucket either.

If Management opts not to sell, their buybacks and 3.9% dividend yield should protect investors from much downside, as ISBC already trades near book value.

Disclosure: As of this posting, I own shares of ISBC and may subsequently either dispose of them or purchase more.

Prospective Buyers

If and when ISBC decides to sell, bids will flow in from a number of industry consolidators like these.

BB&T Corp, Winston-Salem, NC (BBT)
Capital One Financial, McLean, VA (COF)
M&T Bank Corp, Buffalo, NY (MTB)
Toronto-Dominion Bank, Toronto, Canada (TD)

Financial Snapshot
as of 09/30/2018

Total assets:
Tangible book value per share:   
NPAs to assets:
Price to book:
Market cap:
Dividend yield:
Trailing 12-month ROA:
Trailing 12-month ROE:

The Crew

Kevin Cummings, Chairman and CEO
Domenick Cama, President and COO
Richard Spengler, Executive VP, Chief Lending Officer

The Skinny

Why do I believe Investors Bank will sell?

A) Bank management stands to be seriously enriched by a sale.

Together, Cummings and Cama own 3.5 million shares and 660,000 stock options. At a $15 strike price, those shares and options will be worth $56 million. Plus, upon a sale, these gentlemen will receive a combined Change in Control payout of $50 million.

B) There's a large strategic investor on the Board whom I'd imagine will be advocating for a sale sometime soon.

Blue Harbour Group has owned a filing position in Investors Bancorp since 2014, was given a Board seat in 2017, and is likely losing some patience given the pullback in the stock price to Blue Harbour’s cost basis. Blue Harbour currently owns 9.9% of ISBC.

C) Investors Bank is about to have no regulatory impediments to selling.

The second step capital raise Investors Bancorp concluded in May 2014 at $10 precluded a sale for three years. That expired in May 2017.

Since 2016, Investors Bank has been under a Bank Secrecy Act (BSA) order that halted its proposed purchase of the Bank of Princeton. Management expects the BSA order to be lifted soon.

D) Selling is the most strategically advantageous option available to Investors Bank at this time.

Deposit costs are rising faster than loan yields making it likely ISBC earnings have peaked for the near term. Keefe Bruyette & Woods (KBW) predicts lower earnings for ISBC in 2019 than 2018 and still lower in 2020. Growth by acquisition is essentially no longer an option for the bank, due to ISBC’s low currency.