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Investors shows deal discipline in 1st buy following second-stage

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Investors shows deal discipline in 1st buy following second-stage

has foundits "single" base hit in its first deal after shedding its mutual holding companystatus, management said on a May 4 call following its of .

President and CEO Kevin Cummings touted the deal as a "fantastic transaction" that fillsin the hole in its franchise created through previous acquisitions, opens thebank up to further opportunity in a desirable market and incurs minimal andmanageable dilution to the franchise.

Executives also highlighted the high performance and assetquality of Bank of Princeton, an institution founded in 2007 that had $1.04billion in assets at the end of the first quarter and 13 branches in centralNew Jersey and Philadelphia. The deal metrics were disciplined to commentsmanagement made days ago on its earnings calls as they discussed deals theywould consider, and it showed the commitment they have to an earnback periodwithin the previously stated range of three to five years.

Cummings said the deal complements and extends the thrift'spresence in New Jersey's Mercer County, adding that it had been difficult tofind a franchise with an appealing branch presence in Princeton to takeadvantage of the area's attractive demographics. Princeton has limited regionalbanking competitors, averages higher loan yields and supports industries suchas education, health care, professional services and government, according tothe accompanying investor presentation, he said.

Executives also highlighted the math behind the transaction.The announced deal price of $154 million translates into a deal value of 150%of tangible book value per share, or 13.0x last-12-months EPS, according to aninvestor presentation. It is expected to be 2% dilutive to tangible book valueper share and will take a projected 3.5 years to earn back under the crossovermethod, or five years when dividing tangible book value per share by 2017 EPSaccretion, according to the presentation.

"In a simple way, that's less than two quarters' worthof earnings for us to recover that dilution," Cummings said. "So whenI sit here and look at that transaction: Will I work four-and-a-half months toget that type of franchise and look at the potential that this organizationhas, as we've done in the past in our eight prior transactions? How we canbuild on this and create value for shareholders? Again, this is part of ourplan: It's singles and doubles."

The deal discipline prompted Compass Point analyst LaurieHavener Hunsicker to call the deal a "homerun," given the geographicfit acquired with nominal dilution, and upgrade the company to"neutral" from "sell" in a May 4 report. The upgrade undoesthe demotion in her Jan. 29report where she detailed why she believed Investors had been acompetitive bidder for AstoriaFinancial Corp., structuring a transaction that would have carrieda 7% dilutive hit to tangible book value.Astoria announced it would sell to NewYork Community Bancorp Inc. in October 2015. However, HavenerHunsicker wrote that she still has reservations on the company with theuncertainty of its acquisition appetite going forward.

"[I]s this the first in a series of deals or is this aslower growth approach of acquire/digest before the next deal isexecuted?" she wrote. "Finally, we also remain cautious about ISBC'sapproach to dilution as the 'Party A' bidder on [Astoria], and while we viewThe Bank of Princeton as a solid acquisition ... with minimal dilution, we notethat recently, on the 4/29/2016 [earnings] call during Q&A, CEO KevinCummings stated that 'yes' he would do a deal that was potentially 15-20% dilutiveto tangible book."

Investors still has the capacity to do deals even as itworks on approvals and integration with Bank of Princeton but will actprudently, executives said. They highlighted the Roma Financial and transactions that closed in late 2013 and early 2014 as proof that they canjuggle multiple integration efforts.

"This is a small deal from an integration point ofview," Cummings said. "[Bank of Princeton has] the same outsourcedFiserv technology provider, and while I would never say it's a routinetransaction, it's certainly a great opportunity and I don't think it takes usout of the market at this point in time."