Investors Bancorp, Inc. Announces Fourth Quarter Financial Results and Cash Dividend

SHORT HILLS, N.J., Jan. 27, 2021 /PRNewswire/ -- Investors Bancorp, Inc. (NASDAQ: ISBC) ("Company"), the holding company for Investors Bank ("Bank"), reported net income of $75.1 million, or  $0.32 per diluted share, for the three months ended December 31, 2020 as compared to $64.3 million, or $0.27 per diluted share, for the three months ended September 30, 2020 and $48.7 million, or $0.19 per diluted share, for the three months ended December 31, 2019. 

For the year ended December 31, 2020, net income totaled $221.6 million, or $0.94 per diluted share, compared to $195.5 million, or $0.74 per diluted share, for the year ended December 31, 2019.

Net income for the three months and year ended December 31, 2020 included costs of approximately $9 million, after-tax, or $0.04 per diluted share, associated with the Company's consolidation of ten branches announced in December 2020.

The Company also announced today that its Board of Directors declared a cash dividend of $0.14 per share to be paid on February 25, 2021 for stockholders of record as of February 10, 2021, representing a 17% increase from the prior quarter.

Kevin Cummings, Chairman and CEO, commented, "Despite a challenging 2020, we were pleased with our strong operating results.  Our net interest margin expanded 19 basis points quarter over quarter while our return on assets and return on tangible equity for the fourth quarter improved to 1.14% and 11.60%, respectively."

Mr. Cummings also commented, "Deferred loan balances remained relatively stable with the majority of our deferred borrowers making interest payments. We remain cautiously optimistic on credit for 2021."

Performance Highlights

• Net interest margin increased 19 basis points to 2.98% for the three months ended December 31, 2020 compared to the three months ended September 30, 2020.
• Return on average assets and return on average tangible equity improved to 1.14% and 11.60%, respectively, for the three months ended December 31, 2020.
• Non-interest-bearing deposits increased $318.1 million, or 9.5%, and borrowed funds decreased $1.01 billion, or 23.5%, during the three months ended December 31, 2020. The cost of interest-bearing deposits decreased 11 basis points to 0.73% for the three months ended December 31, 2020 compared to the three months ended September 30, 2020.
• The Company sold approximately $328 million of PPP loans during the three months ended December 31, 2020. Excluding the impact of the PPP loan sale, C&I loans increased $504.5 million, or 14.8%, during the three months ended December 31, 2020. 
• Provision for credit losses was a negative $2.7 million for the three months ended December 31, 2020 compared with $8.3 million for the three months ended September 30, 2020. The Company recorded net recoveries of $2.1 million during the quarter ended December 31, 2020 compared to net charge-offs of $667,000 in the quarter ended September 30, 2020. The allowance for loan losses as a percent of total loans was 1.36% at December 31, 2020 compared to 1.37% at September 30, 2020.
• Total non-interest income was $45.8 million for the three months ended December 31, 2020, an increase of $25.9 million compared to the three months ended September 30, 2020. Included in total non-interest income were $23.1 million of gains from sale-leaseback transactions during the three months ended December 31, 2020.
• Total non-interest expenses were $142.9 million for the three months ended December 31, 2020, an increase of $38.8 million compared to the three months ended September 30, 2020. Excluding $22.8 million of previously announced costs from the early extinguishment of $1.0 billion of wholesale funding during the three months ended December 31, 2020, $11.7 million of costs associated with the Company's branch rationalization announcement in December 2020 and a $1.0 million tax credit investment, non-interest expenses for the three months ended December 31, 2020 were $107.4 million, an increase of $3.3 million compared to the three months ended September 30, 2020.
• As of January 17, 2021, COVID-19 related loan deferrals totaled $742 million, or 3.6% of loans, compared to $730 million, or 3.5% of loans, as of October 20, 2020. Approximately 70% of loan deferral borrowers are making interest payments.
• Non-accrual loans were $107.1 million, or 0.51% of total loans, at December 31, 2020 as compared to $132.0 million, or 0.63% of total loans, at September 30, 2020 and $95.2 million, or 0.44% of total loans, at December 31, 2019.
• Tier 1 Leverage, Common Equity Tier 1 Risk-Based, Tier 1 Risk-Based and Total Risk-Based Capital Ratios were 10.14%, 13.07%, 13.07% and 14.39%, respectively, at December 31, 2020.
• During the three months ended December 31, 2020, the Company repurchased 2.0 million shares of its outstanding common stock for $20.5 million.

Financial Performance Overview

Fourth Quarter 2020 compared to Third Quarter 2020

For the fourth quarter of 2020, net income totaled $75.1 million, an increase of $10.8 million as compared to $64.3 million for the third quarter of 2020.  The changes in net income on a sequential quarter basis are highlighted below.

Net interest income increased by $7.2 million, or 3.9%, as compared to the third quarter of 2020.  Changes within interest income and expense categories were as follows:

• Interest expense decreased $10.0 million, primarily attributed to the average balance of total borrowed funds, which decreased $1.02 billion, or 22.8%, to $3.47 billion for the three months ended December 31, 2020 and the average balance of interest-bearing deposits, which decreased $66.3 million, or 0.4%, to $16.14 billion for the three months ended December 31, 2020. In addition, the weighted average cost of interest-bearing liabilities decreased 14 basis points to 1.00% for the three months ended December 31, 2020.
• Interest and dividend income decreased $2.8 million, or 1.2%, to $237.9 million as compared to the third quarter of 2020, primarily attributed to the average balance of net loans, which decreased $184.5 million, mainly as a result of the sale of PPP loans, paydowns and payoffs, offset by loan originations. In addition, the weighted average yield on securities decreased 10 basis points to 2.10%. Offsetting these declines was a 1 basis point increase in the weighted average yield on net loans to 4.13%.
• Prepayment penalties, which are included in interest income, totaled $9.2 million for the three months ended December 31, 2020 as compared to $7.4 million for the three months ended September 30, 2020.

Net interest margin increased 19 basis points to 2.98% for the three months ended December 31, 2020 compared to the three months ended September 30, 2020, driven primarily by the lower cost of interest-bearing liabilities, the decline in lower yielding average cash balances and the increase in prepayment penalties.

Total non-interest income was $45.8 million for the three months ended December 31, 2020, an increase of $25.9 million, as compared to $19.9 million for the third quarter of 2020.  The increase in non-interest income was due primarily to a gain of $23.1 million on the sale-leaseback of 15 branch locations and one corporate location during the three months ended December 31, 2020.

Total non-interest expenses were $142.9 million for the three months ended December 31, 2020, an increase of $38.8 million compared to the three months ended September 30, 2020. Excluding $22.8 million of costs from the early extinguishment of $1.00 billion of wholesale funding during the three months ended December 31, 2020, $11.7 million of costs associated with the Company's branch rationalization announcement in December 2020 and a $1.0 million tax credit investment, non-interest expenses for the three months ended December 31, 2020 were $107.4 million, an increase of $3.3 million compared to the three months ended September 30, 2020.  The increase was primarily driven by incentive compensation.

Income tax expense was $19.3 million for the three months ended December 31, 2020 and $24.8 million for the three months ended September 30, 2020.  The effective tax rate was 20.4% for the three months ended December 31, 2020 and 27.9% for the three months ended September 30, 2020.  The effective tax rate was positively impacted in the fourth quarter primarily by tax credit investments, as well as state income apportionment.

Fourth Quarter 2020 compared to Fourth Quarter 2019

For the fourth quarter of 2020, net income totaled $75.1 million, an increase of $26.4 million as compared to $48.7 million in the fourth quarter of 2019.  The changes in net income on a year over year quarter basis are highlighted below.

On a year over year basis, fourth quarter of 2020 net interest income increased by $20.0 million, or 11.9%, as compared to the fourth quarter of 2019 due to:

• Interest expense decreased $42.5 million, or 46.4%, primarily attributed to the weighted average cost of interest-bearing liabilities, which decreased 74 basis points to 1.00% for the three months ended December 31, 2020. In addition, the average balance of total borrowed funds decreased $2.27 billion, or 39.6%, to $3.47 billion, while the average balance of interest-bearing deposits increased $848.6 million, or 5.6%, to $16.14 billion for the three months ended December 31, 2020.
• Interest and dividend income decreased $22.5 million, or 8.6%, to $237.9 million, primarily attributed to the average balance of net loans, which decreased $824.8 million, mainly as a result of paydowns and payoffs, offset by loan originations and $453.3 million of loans acquired from Gold Coast. In addition, the weighted average yield on net loans decreased 11 basis points to 4.13% and the weighted average yield on securities decreased 78 basis points to 2.10%.
• Prepayment penalties, which are included in interest income, totaled $9.2 million for the three months ended December 31, 2020 as compared to $5.4 million for the three months ended December 31, 2019.

Net interest margin increased 37 basis points year over year to 2.98% for the three months ended December 31, 2020 from 2.61% for the three months ended December 31, 2019, driven primarily by the lower cost of interest-bearing liabilities and an increase in prepayment penalties, partially offset by the lower yields on interest-earnings assets. 

Total non-interest income was $45.8 million for the three months ended December 31, 2020, an increase of $25.3 million year over year.  The increase in non-interest income was due primarily to a gain of $23.1 million on the sale-leaseback of 15 branch locations and one corporate location during the three months ended December 31, 2020.  In addition, gain on loans increased $3.3 million due to a higher volume of mortgage banking loan sales to third parties. 

Total non-interest expenses were $142.9 million for the three months ended December 31, 2020, an increase of $36.0 million compared to the three months ended December 31, 2019. Excluding $22.8 million of costs from the early extinguishment of $1.00 billion of wholesale funding during the three months ended December 31, 2020, $11.7 million of costs associated with the Company's branch rationalization announcement in December 2020 and a $1.0 million tax credit investment, non-interest expenses for the three months ended December 31, 2020 were $107.4 million, an increase of $579,000 compared to the three months ended December 31, 2019.

Income tax expense was $19.3 million for the three months ended December 31, 2020 and $32.2 million for the three months ended December 31, 2019.  The effective tax rate was 20.4% for the three months ended December 31, 2020 and 39.8% for the three months ended December 31, 2019.  The effective tax rate for the fourth quarter of 2019 was negatively impacted when the Company revalued its net deferred tax asset as the State of New Jersey provided clarification in December 2019 in regard to previously enacted tax law changes.

Year Ended December 31, 2020 compared to Year Ended December 31, 2019

Net income increased by $26.1 million year over year to $221.6 million for the year ended December 31, 2020.  The change in net income year over year is the result of the following:

Net interest income increased by $70.6 million as compared to the year ended December 31, 2019 due to:

• Interest expense decreased by $129.9 million, or 33.7%, to $255.2 million for the year ended December 31, 2020, as compared to $385.1 million for the year ended December 31, 2019, primarily attributed to a decrease in the weighted average cost of interest-bearing liabilities of 61 basis points to 1.23% for the year ended December 31, 2020. In addition, the average balance of total borrowed funds decreased $946.1 million, or 16.9%, to $4.67 billion for the year ended December 31, 2020. These decreases were partially offset by the average balance of interest-bearing deposits, which increased $777.2 million, or 5.1%, to $16.10 billion for the year ended December 31, 2020.
• Total interest and dividend income decreased by $59.3 million, or 5.7%, to $980.9 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019, primarily attributed to the average balance of net loans, which decreased $535.9 million, mainly from paydowns and payoffs, partially offset by loan originations and $453.3 million of loans acquired from Gold Coast. In addition, the weighted average yield on net loans decreased 9 basis points to 4.14% primarily driven by lower average yields on new loan origination volume and adjustable loans, partially offset by an increase in prepayment penalties, and the weighted average yield on securities decreased 49 basis points to 2.41%.
• Prepayment penalties, which are included in interest income, totaled $32.4 million for the year ended December 31, 2020, as compared to $16.8 million for the year ended December 31, 2019.

Net interest margin increased 26 basis points to 2.80% for the year ended December 31, 2020 from 2.54% for the year ended December 31, 2019, primarily driven by the lower cost of interest-bearing liabilities, partially offset by the lower yield on interest-earning assets.

Total non-interest income was $90.5 million for the year ended December 31, 2020, an increase of $37.1 million as compared to the year ended December 31, 2019. The increase in non-interest income was due primarily to a gain of $23.1 million on the sale-leaseback of 15 branch locations and one corporate location during the three months ended December 31, 2020. In addition, gain on loans increased $10.9 million as a result of a higher volume of mortgage banking loan sales to third parties and the Company recognized a $5.7 million loss on the sale of securities during the second quarter of 2019.

Total non-interest expenses were $449.5 million for the year ended December 31, 2020, an increase of $26.8 million compared to the year ended December 31, 2019.  Excluding $24.1 million of costs from the early extinguishment of $1.40 billion of wholesale funding during the year ended December 31, 2020, $11.7 million of costs associated with the Company's branch rationalization announcement in December 2020, $3.6 million of Gold Coast acquisition-related expenses and a $1.0 million tax credit investment, non-interest expenses for the year ended December 31, 2020 were $409.1 million, a decrease of $13.6 million compared to the year ended December 31, 2019.  This decrease was driven by a decrease of $8.6 million in other non-interest expense, a decrease of $4.5 million in advertising and promotional expense and a decrease of $3.5 million in compensation and fringe benefit expense. 

Income tax expense was $75.0 million for the year ended December 31, 2020 compared to $91.2 million for the year ended December 31, 2019.  The effective tax rate was 25.3% for the year ended December 31, 2020 and 31.8% for the year ended December 31, 2019. 

Asset Quality

On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL"). CECL requires the measurement of all expected credit losses over the life of financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.  CECL replaced the incurred loss methodology and therefore, the allowance and provision for credit losses is based upon estimated expected credit losses rather than incurred losses.

Our provision for credit losses is primarily a result of the expected credit losses on our loans, unfunded commitments and held-to-maturity debt securities over the life of these financial instruments, including the inherent credit risk in these financial instruments, the composition of and changes in our portfolios of these financial instruments, and the level of charge-offs.  At December 31, 2020, our allowance for credit losses continues to be affected by the impact of COVID-19 on the current and forecasted economic conditions.  For the three months ended December 31, 2020, our provision for credit losses was a negative $2.7 million, compared to $8.3 million for the three months ended September 30, 2020 and $1.5 million for the three months ended December 31, 2019.  For the three months ended December 31, 2020, net recoveries were $2.1 million compared to net charge-offs of $667,000 for the three months ended September 30, 2020 and net charge-offs of $1.4 million for the three months ended December 31, 2019.  Our provision was $70.2 million for the year ended December 31, 2020 compared to a negative provision of $1.0 million for the year ended December 31, 2019.  For the year ended December 31, 2020, net charge-offs were $10.7 million compared to $6.7 million for the year ended December 31, 2019.

Total non-accrual loans were $107.1 million, or 0.51% of total loans, at December 31, 2020 compared to $132.0 million, or 0.63% of total loans, at September 30, 2020 and $95.2 million, or 0.44% of total loans, at December 31, 2019.  We continue to proactively and diligently work to resolve our troubled loans.

At December 31, 2020, there were $34.5 million of loans deemed as troubled debt restructured loans ("TDRs"), of which $25.3 million were residential and consumer loans, $5.7 million were commercial real estate loans and $3.5 million were commercial and industrial loans.  TDRs of $9.2 million were classified as accruing and $25.3 million were classified as non-accrual at December 31, 2020.

The following table sets forth non-accrual loans and accruing past due loans (excluding loans held for sale) on the dates indicated as well as certain asset quality ratios.

Balance Sheet Summary

Total assets decreased $675.6 million, or 2.5%, to $26.02 billion at December 31, 2020 from December 31, 2019.  Net loans decreased $895.6 million, or 4.2%, to $20.58 billion at December 31, 2020.  Securities increased $192.0 million, or 5.0%, to $4.04 billion at December 31, 2020.

The detail of the loan portfolio is below:

During the year ended December 31, 2020, we originated $1.08 billion in commercial and industrial loans (including $334.7 million of PPP loans), $1.03 billion in multi-family loans, $652.5 million in residential loans, $605.5 million in commercial real estate loans, $129.6 million in construction loans and $102.5 million in consumer and other loans.  Our originations reflect our continued focus on diversifying our loan portfolio.  In addition, we acquired $453.3 million of loans from Gold Coast on April 3, 2020.  Our loans are primarily on properties and businesses located in New Jersey and New York.  The Company sold approximately $328 million of PPP loans during the three months ended December 31, 2020.

In addition to the loans originated for our portfolio, we originated residential mortgage loans for sale to third parties totaling $564.5 million during the year ended December 31, 2020.  As of December 31, 2020, loans held for sale were $30.4 million.

The allowance for loan losses increased by $54.9 million to $283.0 million at December 31, 2020 from $228.1 million at December 31, 2019.  The increase of $54.9 million reflects an increase of $64.9 million from the provision for credit losses related to our loan portfolio and an increase of $4.2 million from acquired loans accounted for as PCD loans, partially offset by a decrease of $10.7 million resulting from net charge-offs and a decrease of $3.6 million upon CECL adoption.  Our allowance for loan losses was significantly affected by the impact of COVID-19 on current and forecasted economic conditions.  Future increases in the allowance for loan losses may be necessary based on the growth and composition of the loan portfolio, the level of loan delinquency and the current and forecasted economic conditions over the life of our loans.  At December 31, 2020, our allowance for loan losses as a percent of total loans was 1.36%, an increase from 1.05% at December 31, 2019 which was driven by the factors noted above.

Securities increased by $192.0 million, or 5.0%, to $4.04 billion at December 31, 2020 from $3.85 billion at December 31, 2019.  This increase was primarily a result of purchases, partially offset by paydowns.  At December 31, 2020, our allowance for credit losses on held-to-maturity debt securities was $3.3 million.

Deposits increased by $1.67 billion, or 9.3%, to $19.53 billion at December 31, 2020 from $17.86 billion at December 31, 2019 primarily driven by increases in checking and money market deposits, offset by a decrease in time deposits.  Checking accounts increased $1.72 billion to $9.71 billion at December 31, 2020 from $7.99 billion at December 31, 2019.  Core deposits (savings, checking and money market) represented approximately 86% of our total deposit portfolio at December 31, 2020 compared to 78% at December 31, 2019.

Borrowed funds decreased by $2.53 billion, or 43.4%, to $3.30 billion at December 31, 2020 from $5.83 billion at December 31, 2019 primarily driven by the increase in deposits.  The decrease includes the early extinguishment of $1.40 billion of wholesale funding during the year ended December 31, 2020.

Other liabilities increased by $81.8 million to $163.7 million at December 31, 2020 from $81.8 million at December 31, 2019 primarily driven by increases in income taxes payable and our allowance for credit losses on unfunded commitments.  At December 31, 2020, our allowance for credit losses on unfunded commitments was $17.7 million.

Stockholders' equity increased by $88.1 million to $2.71 billion at December 31, 2020 from $2.62 billion at December 31, 2019, primarily attributed to net income of $221.6 million, common stock issued to finance the Gold Coast acquisition of $20.9 million and share-based plan activity of $19.1 million for the year ended December 31, 2020.  These increases were partially offset by cash dividends of $0.48 per share totaling $119.7 million, the repurchase of 2.4 million shares of common stock for $23.9 million and other comprehensive loss of $21.4 million during the year ended December 31, 2020.  In addition, stockholders' equity decreased by $8.5 million on January 1, 2020 in connection with the adoption of CECL.  The Company remains above the FDIC's "well capitalized" standards, with a Common Equity Tier 1 Risk-Based Ratio of 13.07% at December 31, 2020.

About the Company

Investors Bancorp, Inc. is the holding company for Investors Bank, which as of December 31, 2020 operated from its corporate headquarters in Short Hills, New Jersey and 156 branches located throughout New Jersey and New York.

Earnings Conference Call January 28, 2021 at 11:00 a.m. (ET)

The Company, as previously announced, will host an earnings conference call on Thursday, January 28, 2021 at 11:00 a.m. (ET).  The toll-free dial-in number is: (866) 218-2404.  Callers who pre-register will bypass the live operator and may avoid any delays in joining the conference call.  Participants will immediately receive an online confirmation, an email and a calendar invitation for the event.

Conference Call Pre-registration link: http://dpregister.com/10150819

A telephone replay will be available beginning on January 28, 2021 from 1:00 p.m. (ET) through 9:00 a.m. (ET) on April 28, 2021.  The replay number is (877) 344-7529, password 10150819.  The conference call will also be simultaneously webcast on the Company's website www.investorsbank.com and archived for one year.

Forward Looking Statements

Certain statements contained herein are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Such forward looking statements may be identified by reference to a future period or periods, or by the use of forward looking terminology, such as "may," "will," "believe," "expect," "estimate," "anticipate," "continue," or similar terms or variations on those terms, or the negative of those terms.  Forward looking statements are subject to numerous risks and uncertainties, as described in the "Risk Factors" disclosures included in our Annual Report on Form 10-K, as supplemented in quarterly reports on Form 10-Q, including, but not limited to, those related to the real estate and economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.  Further, given its ongoing and dynamic nature, it is difficult to predict what the continuing effects of the COVID-19 pandemic will have on our business and results of operations. The pandemic and related local and national economic disruption may, among other effects, continue to result in a material adverse change for the demand for our products and services; increased levels of loan delinquencies, problem assets and foreclosures; branch disruptions, unavailability of personnel and increased cybersecurity risks as employees work remotely.

The Company wishes to caution readers not to place undue reliance on any such forward looking statements, which speak only as of the date made.  The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.  The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions that may be made to any forward looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Non-GAAP Financial Measures

We believe that providing certain non-GAAP financial measures provides investors with information useful in understanding our financial performance, our performance trends and financial position.  We utilize these measures for internal planning and forecasting purposes.  We believe that our presentation and discussion, together with the accompanying reconciliations, provides a complete understanding of factors and trends affecting our business and allows investors to view performance in a manner similar to management.  These non-GAAP measures should not be considered a substitute for GAAP basis measures and results, and we strongly encourage investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure.  Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.