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.

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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: $25.5B† Tangible book value per share:    $10.03† NPAs to assets: 0.5%† Price to book: 111% Market cap: $3.1B Dividend yield: 3.9% Trailing 12-month ROA: 0.65%† Trailing 12-month ROE: 5.27%†
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.
Sources	Investors Bank website 2018 Proxy Statement 2017 Annual Report July 2016 CNN Business article SNL Financial

Bank of Utica, Utica, NY (BKUT, BKUTK)

The Case of an Odd Duck on the Erie Canal

Here's a scenario that would really get this duck swimming: Imagine if the Sinnott family were to use $67M of the Bank of Utica's excess capital to tender for 123,000 shares of BKUTK at $545 per share, and then channel the $15M it already earns each year into buying back stock.

Book value would soar from $667 per share to $745. Earnings would fly from $65 to $111 per share. The stock could plump up to $1,500 in the next few years. And the bank would still have over 10% capital to secure the nest. Wouldn't that be just ducky?

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

Prospective Buyers	The one-branch Bank of Utica may be an odd duck, but I'd bet any of these area banks would jump at the chance to line their own nests with its dominant market share — an impressive 24% in Oneida County and 55% in the City of Utica. Berkshire Hills Bancorp, Pittsfield, MA (BHLB) Community Bank System, Dewitt, NY (CBU) M&T Bank, Buffalo, NY (MTB)
Financial Snapshot (as of 12/31/2013)	Total assets: $951.5M Tangible book value per share: $667.65 NPAs to assets: 0.57% Price to book: 67% Market cap: $112M Dividend yield: 2.65% Trailing 12-month return on assets: 1.62% Trailing 12-month return on equity: 10.98% TARP: $0M
The Crew	Roger Sinnott, Chairman (deceased) Tom Sinnott, President and CEO Brian Laughlin, Executive VP
The Skinny	Let me count the ways that the Bank of Utica is a bit of an odd duck in banking that calls all investors hunting for a value stock to pick it up: It's oddly sized. Deposits at the Bank of Utica top $757M — more than 10x the average one-branch bank's holdings, more than 8x the $90M in deposits at the $88B M&T Bank's huge building across the street, and more than 6x the $119M in deposits at Berkshire Hills Bancorp's 8th largest branch (out of 96) just two blocks away. Its stock is oddly structured. There are only 250,000 shares of stock in this publicly traded bank, of which 200,000 are non-voting (BKUTK). The founding Sinnott family controls most of the 50,000 voting shares (BKUT). It has been family-held for an oddly long time. The Bank of Utica was founded by John Sinnott in 1927, and has been controlled by the Sinnott family without interruption to the present day. It pursues an odd strategy for making money. As Dave Waters pointed out in his own review last October, the Bank of Utica doesn't rely upon lending to make its money like most banks, but upon investing in liquid debt securities. Its 7% loan/deposits is the lowest I've ever seen, and its 25% efficiency ratio is among the best in banking. It is oddly undervalued. If you know of any other bank averaging over 10% ROE and 1.5% ROA for the past three years that trades at a discount to book value and 71% of book value, let me know! I'd sure love to hear about it.
Sources	Bank of Utica website FDIC Filings SNL Financial OTC Adventures article

Embassy Bancorp, Bethlehem, PA (EMYB)

A Case of a Dynamic Duo in the Steel City

The two in charge at Embassy sure know how to pack a punch. This is one bank that I believe could get 150%-160% of book value in a sale. If this pair succeeds in growing book value to over $8 over the next three years, a sale would present a really nice opportunity to double one's money.

And given the Chairman's previous experience selling Ambassador to Fulton in 1998, I think it's reasonable to anticipate that the bank will sell when the price is right. That being said, at a discount to book and only 8x earnings, EMBY will almost certainly make shareholders money even if the bank never sells.

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

Prospective Buyers	In addition to the obvious neighborhood heavyweights, F. N. B. Corp (FNB) and M & T Bank Corp (MTB), each of these three banks has good reason to be interested in Embassy, given its 5% share of the deposit market in both Lehigh County and North Hampton County First Niagara Financial, Buffalo, NY (FNFG) - acquiring EMYB would double FNFG's deposit market share in Lehigh and make it #2 in the county Fulton Financial, Lancaster, PA (FULT) National Penn Bancshares, Boyertown, PA (NPBC) - acquiring EMYB would make NPBC #1 in North Hampton and a solid #2 in Lehigh
Financial Snapshot (as of 03/31/2013)	Total assets: $636M Tangible book value per share: $7.07 NPAs to assets: 1.5% Price to book: 95% Market cap: $47M Dividend yield: 0.6% Trailing 12-month return on assets: 0.92% Trailing 12-month return on equity: 12.9% TARP: $0M
Luminaries	David Lobach, Jr, Chairman, President, CEO Judith Hunsicker, Senior Executive VP, Secretary, CFO, COO
Gold Stars	I just love how efficient and committed Embassy is! Just look at how many jobs the two leaders at the helm take on their own shoulders. Here are a few numbers that speak volumes, as well. Employees per branch. With just 70 employees across its 7 branches, Embassy is operating 30% to 90% more efficiently than its peers. M & T has almost twice as many employees per branch (19) First Niagara, Fulton, and National Penn have 30% more per branch (13) Assets per employee. With a whopping $9.2M in assets per employee, Embassy is operating 50% to 100% more efficiently than its peers Fulton has half the assets per employee ($4.6M) First Niagara is managing a third less assets per employee ($6M) National Penn and M & T aren't managing any more, with $5M and $5.7M in assets per employee each, respectively Insider ownership. With insiders owning an impressive 32% of EMYB stock, Embassy managers and directors are 3x to 20x as invested in their bank's success as their peers are in their own Fulton and First Niagara insiders own a measly 1.5% and 2% of their own FULT and FNFG stocks, respectively M & T and National Penn insiders, although wildly beating the average bank's level of insider ownership with 10% and 20% of their respective MTB and NPBC stocks, still fall far short of Embassy's impressive level
Sources	Embassy Bank website 2012 Annual Report 2012 Annual Meeting and Proxy Statement SNL Financial Confidential interviews with shareholders

Franklin Financial Services, Chambersburg, PA (FRAF)

The Case of a Deeply-Rooted Pennsylvania Money Tree

If you're looking for a safe place to earn a solid dividend at a bargain price, Franklin Financial Services might just be your money tree. 

You can buy this undervalued bank's stock today at $13.60, earn a 5% dividend for the foreseeable future, and obtain a reasonable chance of doubling your money.

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

Prospective Buyers	F.N.B. Corp, Hermitage, PA (FNB) M&T Bank Corp, Buffalo, NY (MTB) PNC Financial Services, Pittsburgh, PA (PNC)
Financial Snapshot (as of 3/31/2012)	Total assets: $1.067B Book value per share: $21.75 NPAs to assets: 3.9% Price to book: 66% Market cap: $56M Dividend yield: 4.9% Trailing 12-month return on assets: 0.6% Trailing 12-month return on equity: 7.1%
The Crew	G Warren Elliott, Chairman William Snell Jr, President and CEO Mark Hollar, Senior VP, Treasurer, and CFO
The Skinny	How undervalued is FRAF's stock price? Over the past 12 months, the KBW Bank Index climbed 12.2%, while FRAF stock fell 17% The average bank in the KBW Index trades at 124% of book value, while investors can now buy FRAF at 61% of book value The average bank in the KBW Index trades at 15x earnings, while FRAF is trading at 8x earnings Therefore, Franklin Financial Services is effectively trading at a 50% discount  Why is FRAF so cheap? Most investors have never heard of it FRAF recently cut its dividend so many people who did own it appear to be selling Current EPS of $1.60 is well below historical level of $2.50 NPAs were still rising in Q1 and may not have peaked Brokerage firms do not appear to be following FRAF What would make the stock price double? When NPAs start to decline… Then earnings and book value will grow… And people will start to trust that the dividend will not be cut again… Then FRAF could trade at book value  What makes this stock relatively safe? The bank has been around for over 100 years and is very conservative Its managers don’t pay themselves exorbitant salaries or take big risks It has maintained profitability through the Great Recession It never took TARP Regional unemployment is significantly below the national average
Sources	F&M Trust website 2011 Annual Report SNL Corporate Profile Franklin County Development Corporation website Yahoo! Finance Key Statistics