As Interchange Financial Services Corp. of Saddle Brook, N.J., and its largest shareholder, the activist investor Lawrence B. Seidman, continue to attack each other, predicted improvement in its performance may resolve the conflict.
Mr. Seidman, who acquired a 5% stake in the $1.5 billion-asset company in April, is trying to force its sale. He argues that its earnings have been "unsatisfactory" in recent years.
Interchange's president and chief executive, Anthony S. Abbate, counters that Mr. Seidman is out to "make a quick buck," and that his suggestion - made in a recent letter to Interchange's board - that it hire an investment banker and solicit takeover bids "is a poor financial alternative."
But in an interview Friday, Mr. Seidman said he would reconsider his position if it could be shown that Mr. Abbate and his management team are taking steps to boost earnings.
"Sometimes companies are doing things that create future earnings," he said, and as an outsider, he has little insight into Interchange's inner workings. "If that's the case, I'd be the happiest shareholder in the world."
According to analysts who cover Interchange, it is doing precisely that.
David W. Darst of First Horizon National Corp.'s FTN Midwest Research in Nashville said he expected Interchange's bottom line to grow over the next few years.
"Loan growth has been good for them, and they have some very attractive noninterest income products, as well," including commercial leasing and Small Business Administration loans, Mr. Darst said.
Gerard S. Cassidy, who covers Interchange for Royal Bank of Canada's RBC Capital Markets in Portland, Maine, said Interchange "is building its franchise organically and through acquisitions.
"We don't foresee any earnings-growth problems," he said. "I'd be very surprised if this company decided to sell itself, nor should it, in our view."
Albert Savastano, who covers Interchange for Janney Montgomery Scott LLC in New York, said he expects it to earn 94 cents a share this year and $1.02 next year.
If Interchange can hit the 2006 target, it would go a long way toward fulfilling Mr. Seidman's demand that it improve its bottom line.
But Mr. Seidman said he is unwilling to take the word of analysts. He has indicated that he would like representation on the board, but the company has rejected his overtures.
In a press release Friday, the board said it had complete faith in Mr. Abbate, who has been the president and CEO since 1981. "We expect Mr. Abbate to stay the course that has proven so successful for so long, rather than focus on short-term gains for short-term investors."
During the first half Interchange's loan portfolio grew by 9.2%, to $1.02 billion, while asset quality improved. Nonperforming assets dropped 31%, to $6.4 million, or 0.63% of loans and foreclosed assets. Mr. Abbate said the asset quality has improved even further this quarter.
"We're not a troubled company," he said Monday. "We're a consistent moneymaker, and we're paying a decent dividend. There are a whole lot of people out there scratching their heads and wondering what is going on" when they hear talk of a sale.
Mr. Seidman, however, has focused on Interchange's earnings per share, which totaled 46 cents in the first half, an increase of 7% over the comparable period in 2004. He said those results do not justify the premium investors have given the stock.
According to Mr. Seidman, Interchange shares, which were trading at $17.14 midday Monday, are selling at more than 3 times their book value and 18 times the company's earnings for the past 12 months. His concern is that the price will decline unless the company boosts its performance.
"I have a simple proposition: Earn more money," he said. "If management can get earnings up to about $1.05 a year, the company should stay independent. If it can't, it should sell. … Everyone reaches the end of their rope."
Mr. Seidman has a long history of investing in banks and thrifts and then pressing for their sale as a means of maximizing shareholder value. In an Securities and Exchange Commission filing in April, he noted that he had invested in more than 20 banking companies since 1998, 14 of which were later sold.
Mr. Cassidy said Mr. Seidman's activism has been healthy, over all, since many of the companies in which he invested were "chronic underperformers," but he was quick to add that Interchange does not fall in that category.
The company has established a strong niche serving small and family-owned businesses, and it has "ample room for growth" in its northern New Jersey markets, Mr. Cassidy said.
