Investors Bancorp, Inc. Announces Third Quarter Financial Results

SHORT HILLS, N.J., Oct. 25 /PRNewswire-FirstCall/ -- Investors Bancorp, Inc. (Nasdaq: ISBC) ("Company"), the holding company for Investors Savings Bank ("Bank"), reported net income of $16.6 million for the three months ended September 30, 2010 compared to net income of $10.5 million for the three months ended September 30, 2009. Net income for the nine months ended September 30, 2010 was $45.1 million compared to net income of $23.0 million for the nine months ended September 30, 2009. Basic and diluted earnings per share were $0.15 for the three months ended September 30, 2010 compared to $0.10 for the three months ended September 30, 2009. Basic and diluted earnings per share were $0.41 for the nine months ended September 30, 2010 compared to $0.22 for the nine months ended September 30, 2009.

Kevin Cummings, President and Chief Executive Officer commented, "We are pleased to report net income of $16.6 million or $0.15 per share for the 2010 third quarter. We continue to grow our loan portfolio with high quality commercial real estate and residential mortgage loans funded primarily with growth in lower cost core deposits which has resulted in net interest margin expansion to 3.31% for the quarter."

Regarding credit quality Mr. Cummings commented, "We do not anticipate a marked improvement in our non-performing loans in the near term as the economy continues to struggle with high unemployment rates."

"We completed our acquisition of approximately $600 million in deposits and 17 branch locations from Millennium bcpbank in October and concurrently entered into an agreement to sell Millennium's four Massachusetts branches. This acquisition, while enhancing our existing footprint in New Jersey, expands our branch network into New York and complements our loan production office in New York City. We will remain focused on expanding our branch network into new markets with acquisitions which enhance shareholder value and through de novo branches."

The following represents performance highlights and significant events that occurred during the three and nine month periods ended September 30, 2010:

• Net interest margin for the three months ended September 30, 2010 increased 69 basis points to 3.31% compared to prior year quarter and an increase of 21 basis points compared to linked quarter.
• The efficiency ratio improved to 40.87% for the three months ended September 30, 2010 compared to 46.84% for the three months ended September 30, 2009 and improved to 43.67% for the nine months ended September 30, 2010 compared to 53.85% for the nine months ended September 30, 2009.
• The return on average equity improved to 7.32% for the three months ended September 30, 2010 compared to 5.12% for the three months ended September 30, 2009 and improved to 6.80% for the nine months ended September 30, 2010 compared to 3.88% for the nine months ended September 30, 2009.
• Deposits increased $271.0 million, or 4.6%, to $6.11 billion at September 30, 2010 from $5.84 billion at December 31, 2009.
• Core deposits, which exclude time deposits, increased $322.1 million, or 12.6%, to $2.87 billion at September 30, 2010 from $2.55 billion at December 31, 2009.
• Net loans increased $800.7 million, or 12.1%, to $7.42 billion at September 30, 2010 from $6.62 billion at December 31, 2009.
• The allowance for loan losses increased to $84.6 million or 1.13% of total loans at September 30, 2010 from $55.1 million or 0.83% at December 31, 2009 as the provision for loan loss totaled $19.0 million for the quarter ended September 30, 2010.
• The Company maintains a strong tangible capital ratio of 9.68%, and is considered well capitalized under regulatory guidelines.
• Stock buybacks during the quarter totaled 1,178,322 shares at an average cost per share of $11.29.

Comparison of Operating Results

Interest and Dividend Income

Total interest and dividend income increased by $10.8 million, or 10.9%, to $109.4 million for the three months ended September 30, 2010 from $98.6 million for the three months ended September 30, 2009.  This increase is attributed to the average balance of interest-earning assets increasing $657.5 million, or 8.4%, to $8.50 billion for the three months ended September 30, 2010 from $7.85 billion for the three months ended September 30, 2009.  In addition, the weighted average yield on interest-earning assets increased 12 basis points to 5.15% for the three months ended September 30, 2010 compared to 5.03% for the three months ended September 30, 2009.  

Interest income on loans increased by $13.6 million, or 16.0%, to $98.7 million for the three months ended September 30, 2010 from $85.1 million for the three months September 30, 2009, reflecting a $1.09 billion, or 17.4%, increase in the average balance of net loans to $7.34 billion for the three months ended September 30, 2010 from $6.25 billion for the three months ended September 30, 2009.  The increase is primarily attributed to the average balance of commercial real estate loans and multi-family loans increasing $462.1 million and $341.4 million, respectively. This activity is consistent with our strategy to diversify our loan portfolio by adding more commercial real estate and multi-family loans. In addition, the yield was favorably impacted by two commercial real estate prepayment penalties totaling $957,000.  These were partially offset by a 7 basis point decrease in the average yield on loans to 5.38% for the three months ended September 30, 2010 from 5.45% for the three months ended September 30, 2009.

Interest income on all other interest-earning assets, excluding loans, decreased by $2.8 million, or 20.8%, to $10.7 million for the three months ended September 30, 2010 from $13.5 million for the three months ended September 30, 2009.  This decrease reflected a $427.6 million decrease in the average balance of all other interest-earning assets, excluding loans, to $1.17 billion for the three months ended September 30, 2010 from $1.59 billion for the three months ended September 30, 2009.  

Total interest and dividend income increased by $33.6 million, or 11.8%, to $318.4 million for the nine months ended September 30, 2010 from $284.7 million for the nine months ended September 30, 2009.  This increase is attributed to the average balance of interest-earning assets increasing $892.2 million, or 12.0%, to $8.34 billion for the nine months ended September 30, 2010 from $7.44 billion for the nine months ended September 30, 2009.  This was partially offset by a 1 basis point decrease in the weighted average yield on interest-earning assets to 5.09% for the nine months ended September 30, 2010 compared to 5.10% for the nine months ended September 30, 2009.  

Interest income on loans increased by $43.0 million, or 17.9%, to $284.0 million for the nine months ended September 30, 2010 from $241.0 million for the nine months ended September 30, 2009, reflecting a $1.11 billion, or 18.7%, increase in the average balance of net loans to $7.01 billion for the nine months ended September 30, 2010 from $5.90 billion for the nine months ended September 30, 2009.  The increase is primarily attributed to the average balance of commercial real estate loans and multi-family loans increasing by $513.9 million and $351.8 million, respectively. This activity is consistent with our strategy to diversify our loan portfolio by adding more commercial real estate and multi-family loans. In addition, the yield was favorably impacted by two commercial real estate prepayment penalties totaling $957,000. These increases were partially offset by a 5 basis point decrease in the average yield on loans to 5.40% for the nine months ended September 30, 2010 from 5.45% for the nine months ended September 30, 2009.  

Interest income on all other interest-earning assets, excluding loans, decreased by $9.4 million, or 21.5%, to $34.3 million for the nine months ended September 30, 2010 from $43.7 million for the nine months ended September 30, 2009.  This decrease reflected a 34 basis point decrease in the average yield on all other interest-earning assets, excluding loans, to 3.44% for the nine months ended September 30, 2010 from 3.78% for the nine months ended September 30, 2009. The decrease in yield is primarily attributed to the purchase of additional securities at lower yields and the repricing of our adjustable rate securities.

Interest Expense

Total interest expense decreased by $8.2 million, or 17.4%, to $39.0 million for the three months ended September 30, 2010 from $47.2 million for the three months ended September 30, 2009.  This decrease is attributed to the weighted average cost of total interest-bearing liabilities decreasing 62 basis points to 2.02% for the three months ended September 30, 2010 compared to 2.64% for the three months ended September 30, 2009.  This was partially offset by the average balance of total interest-bearing liabilities increasing by $567.7 million, or 8.0%, to $7.71 billion for the three months ended September 30, 2010 from $7.14 billion for the three months ended September 30, 2009.  

Interest expense on interest-bearing deposits decreased $7.9 million, or 26.6% to $21.9 million for the three months ended September 30, 2010 from $29.8 million for the three months ended September 30, 2009.  This decrease is attributed to a 70 basis point decrease in the average cost of interest-bearing deposits to 1.49% for the three months ended September 30, 2010 from 2.19% for the three months ended September 30, 2009 as deposit rates decreased to reflect the current interest rate environment. This was partially offset by the average balance of total interest-bearing deposits increasing $415.5 million, or 7.6% to $5.86 billion for the three months ended September 30, 2010 from $5.44 billion for the three months ended September 30, 2009. Core deposit growth represented 118.4%, or $492.1 million of the increase in the average balance of total interest-bearing deposits.

Interest expense on borrowed funds decreased by $275,000, or 1.6%, to $17.1 million for the three months ended September 30, 2010 from $17.4 million for the three months ended September 30, 2009. This decrease is attributed to the average cost of borrowed funds decreasing 40 basis points to 3.70% for the three months ended September 30, 2010 from 4.10% for the three months ended September 30, 2009 due to the lower interest rate environment. This was partially offset by the average balance of borrowed funds increasing by $152.2 million or 9.0%, to $1.85 billion for the three months ended September 30, 2010 from $1.70 billion for the three months ended September 30, 2009.

Total interest expense decreased by $28.0 million, or 18.8%, to $120.8 million for the nine months ended September 30, 2010 from $148.8 million for the nine months ended September 30, 2009.  This decrease is attributed to the weighted average cost of total interest-bearing liabilities decreasing 81 basis points to 2.12% for the nine months ended September 30, 2010 compared to 2.93% for the nine months ended September 30, 2009.  This was partially offset by the average balance of total interest-bearing liabilities increasing by $807.9 million, or 11.9%, to $7.59 billion for the nine months ended September 30, 2010 from $6.78 billion for the nine months ended September 30, 2009.  

Interest expense on interest-bearing deposits decreased $27.7 million, or 28.8% to $68.5 million for the nine months ended September 30, 2010 from $96.2 million for the nine months ended September 30, 2009.  This decrease is attributed to a 98 basis point decrease in the average cost of interest-bearing deposits to 1.58% for the nine months ended September 30, 2010 from 2.56% for the nine months ended September 30, 2009 as deposit rates decreased to reflect the current interest rate environment. This was partially offset by the average balance of total interest-bearing deposits increasing $761.1 million, or 15.2% to $5.78 billion for the nine months ended September 30, 2010 from $5.02 billion for the nine months ended September 30, 2009. Core deposits growth represented 82.8%, or $630.2 million of the increase in the average balance of total interest-bearing deposits.

Interest expense on borrowed funds decreased by $279,000, or 0.5%, to $52.3 million for the nine months ended September 30, 2010 from $52.6 million for the nine months ended September 30, 2009. This decrease is attributed to the average cost of borrowed funds decreasing 12 basis points to 3.86% for the nine months ended September 30, 2010 from 3.98% for the nine months ended September 30, 2009 due to the lower interest rate environment. This was partially offset by the average balance of borrowed funds increasing by $46.8 million or 2.7%, to $1.81 billion for the nine months ended September 30, 2010 from $1.76 billion for the nine months ended September 30, 2009.

Net Interest Income

Net interest income increased by $19.0 million, or 36.9%, to $70.4 million for the three months ended September 30, 2010 from $51.5 million for the three months ended September 30, 2009.  The increase was primarily due to a 62 basis point decrease in our cost of interest-bearing liabilities to 2.02% for the three months ended September 30, 2010 from 2.64% for the three months ended September 30, 2009. In addition, the yield on our interest-earning assets increased 12 basis points to 5.15% for the three months ended September 30, 2010 from 5.03% for the three months ended September 30, 2009. Short term interest rates remaining at historically low levels resulted in many of our deposits repricing downward. This had a positive impact on our net interest margin which improved by 69 basis points from 2.62% for the three months ended September 30, 2009 to 3.31% for the three months ended September 30, 2010.

Net interest income increased by $61.6 million, or 45.3%, to $197.5 million for the nine months ended September 30, 2010 from $135.9 million for the nine months ended September 30, 2009.  The increase was primarily due to an 81 basis point decrease in our cost of interest-bearing liabilities to 2.12% for the nine months ended September 30, 2010 from 2.93% for the nine months ended September 30, 2009. This was partially offset by a 1 basis point decrease in our yield on interest-earning assets to 5.09% for the nine months ended September 30, 2010 from 5.10% for the nine months ended September 30, 2009. Short term interest rates remaining at historically low levels resulted in many of our deposits repricing downward. This had a positive impact on our net interest margin which improved by 72 basis points from 2.44% for the nine months ended September 30, 2009 to 3.16% for the nine months ended September 30, 2010.

Provision for Loan Losses

Our provision for loan losses was $19.0 million for the three months ended September 30, 2010 compared to $12.4 million for the three months ended September 30, 2009. For the three months ended September 30, 2010, net charge-offs were $6.7 million compared to $5.4 million for the three months ended September 30, 2009. For the nine month period ended September 30, 2010, our provision for loan losses was $47.5 million compared to $28.4 million for the nine months ended September 30, 2009. Net charge-offs totaled $17.9 million for the nine months ended September 30, 2010 compared to net charge-offs of $5.4 million for the nine months ended September 30, 2009. The increase in our provision is due to continued growth in the loan portfolio; the increased inherent credit risk in our overall portfolio, particularly the credit risk associated with commercial real estate lending; an increase in loan delinquency and non-performing loans; and the adverse economic conditions in our lending area.

The following table sets forth non-performing assets and accruing past due loans on the dates indicated in conjunction with our quality ratios:

Total non-performing loans, defined as non-accruing loans, were $144.9 million at September 30, 2010 compared to $120.2 million at December 31, 2009. At September 30, 2010 there are 9 residential loans totaling $2.6 million which are deemed troubled debt restructurings. These loans are performing under the restructured terms and are accruing interest.

The allowance for loan losses increased by $29.5 million to $84.6 million at September 30, 2010 from $55.1 million at December 31, 2009.  Future increases in the allowance for loan losses may be necessary based on growth of the loan portfolio, change in composition of the loan portfolio, increasing loan delinquency and the impact of the deterioration of the real estate and economic environments in our lending area.  

Non-Interest  Income

Total non-interest income was $7.0 million for the three months ended September 30, 2010 compared to $5.4 million for the three months ended September 30, 2009.  The increase is attributed to an increase in gain on loan sales of $912,000 to $3.9 million for the three months ended September 30, 2010. Increased refinancing activity during the current quarter resulted in more loans being sold into the secondary market. In addition, there was an $814,000 increase in fees and service charges to $2.3 million for the three months ended September 30, 2010.  This is partially attributed to the servicing of Millennium bcpbank's loan portfolio. In addition, the increase in the loan and deposit portfolios resulted in higher volume of fee generating activity.

Total non-interest income was $15.1 million for the nine months ended September 30, 2010 compared to $11.2 million for the nine months ended September 30, 2009.  The increase is primarily attributed to a $2.3 million increase in fees and service charges to $5.5 million. In addition, the nine months ended September 30, 2009 included a $1.8 million gain from the sale of our largest non-performing loan and a $1.3 million pre-tax other-than-temporary impairment ("OTTI") non-cash charge on certain pooled trust preferred securities ("TruPS").

Non-Interest Expenses

Total non-interest expenses increased by $5.0 million, or 19.0%, to $31.7 million for the three months ended September 30, 2010 from $26.6 million for the three months ended September 30, 2009. Compensation and fringe benefits increased $2.1 million as a result of staff additions in our retail banking areas due to the Banco Popular branch acquisition in October 2009, staff additions in our mortgage company and commercial real estate lending department, particularly our New York lending office, as well as normal merit increases.  Occupancy expense increased $822,000 as a result of the costs associated with expanding our branch network. Professional fees increased $623,000 as a result of outsourcing certain professional services and the Bank's internal audit function, as well as, other projects involving the use of consultants.  

Total non-interest expenses increased by $13.6 million, or 17.2%, to $92.9 million for the nine months ended September 30, 2010 from $79.2 million for the nine months ended September 30, 2009. Compensation and fringe benefits increased $6.3 million as a result of staff additions in our retail banking areas due to the acquisition of American Bancorp of New Jersey in May 2009 and the Banco Popular branch acquisition in October 2009, staff additions in our mortgage company and commercial real estate lending department, particularly our New York lending office, as well as normal merit increases.  Occupancy expense increased $3.4 million as a result of the costs associated with expanding our branch network. Professional fees increased $1.7 million as a result of outsourcing certain professional services and the Bank's internal audit function, as well as, other projects involving the use of consultants.  This was partially offset by a reduction of $1.4 million in FDIC insurance premiums as the nine months ended September 30, 2009 included a $3.6 million special assessment on insured financial institutions to rebuild the Deposit Insurance Fund.

Income Taxes

Income tax expense was $10.2 million for the three months ended September 30, 2010, representing a 38.22% effective tax rate. For the three months ended September 30, 2009, there was an income tax expense of $7.4 million representing a 41.26% effective tax rate. The decrease in the effective tax rate is due to more revenue being generated in states other than New Jersey.

Income tax expense was $27.1 million for the nine months ended September 30, 2010, representing a 37.52% effective tax rate. For the nine months ended September 30, 2009, there was an income tax expense of $16.5 million representing a 41.72% effective tax rate. The decrease in the effective tax rate is due to more revenue being generated in states other than New Jersey.

Balance Sheet Summary

Total assets increased by $593.5 million, or 7.1%, to $8.95 billion at September 30, 2010 from $8.36 billion at December 31, 2009.  This increase was largely the result of an $797.3 million increase in our net loans, including loans held for sale, to $7.44 billion at September 30, 2010 from $6.64 billion at December 31, 2009. This was partially offset by a $216.3 million, or 18.2%, decrease in securities to $972.4 million at September 30, 2010 from $1.19 billion at December 31, 2009.

Net loans, including loans held for sale, increased by $797.3 million, or 12.0%, to $7.44 billion at September 30, 2010 from $6.64 billion at December 31, 2009.  This increase in loans reflects our continued focus on loan originations and purchases, which was partially offset by paydowns and payoffs of loans. The loans we originate and purchase are on properties in New Jersey and states in close proximity to New Jersey. We do not originate or purchase, and our loan portfolio does not include, any sub-prime loans or option ARMs.  

At September 30, 2010, total loans were $7.48 billion and included $4.98 billion in residential loans, $922.1 million in commercial real estate loans, $951.0 million in multi-family loans, $405.7 million in construction loans, $179.0 million in consumer and other loans, and $39.4 million in commercial and industrial loans.

We originate residential mortgage loans through our mortgage subsidiary, ISB Mortgage Co. During the nine month period ended September 30, 2010, ISB Mortgage Co. originated $1.03 billion in residential mortgage loans of which $460.7 million were sold to third party investors and $571.6 million remained in our portfolio. In addition, we purchase mortgage loans from correspondent entities including other banks and mortgage bankers. Our agreements with these correspondent entities require them to originate loans that adhere to our underwriting standards. During the nine month period ended September 30, 2010, we purchased loans totaling $613.8 million from these entities. We also purchase, on a "bulk purchase" basis, pools of mortgage loans that meet our underwriting criteria from several well-established financial institutions in the secondary market. During the nine month period ended September 30, 2010, we purchased $30.8 million of residential mortgage loans on a "bulk purchase" basis.  Additionally, for the nine month period ended September 30, 2010, we originated $258.0 million in commercial real estate loans, $300.6 million in multi-family loans, $169.4 million in construction loans, $59.4 million in consumer and other loans, and $27.1 million in commercial and industrial loans. This activity is consistent with our strategy to diversify our loan portfolio by adding more multi-family and commercial real estate loans.

Securities, in the aggregate, decreased by $216.3 million, or 18.2%, to $972.4 million at September 30, 2010, from $1.19 billion at December 31, 2009. The decrease in the portfolio was due to paydowns, calls or maturities and was partially offset by the purchase of $104.6 million of agency issued mortgage backed securities during the nine months ended September 30, 2010.

The amount of stock we own in the Federal Home Loan Bank (FHLB) increased by $14.3 million from $66.2 million at December 31, 2009 to $80.5 million at September 30, 2010 as a result of an increase in our level of borrowings at September 30, 2010. Other assets decreased $8.5 million as prepaid FDIC insurance premiums amortized.

Deposits increased by $271.0 million, or 4.6%, to $6.11 billion at September 30, 2010 from $5.84 billion at December 31, 2009. Core deposits increased by $322.1 million, or 12.6% and certificates of deposit decreased $51.1 million, or 1.6%. Our deposit gathering efforts continue to be successful in our markets.

Borrowed funds increased $249.0 million, or 15.6%, to $1.85 billion at September 30, 2010 from $1.60 billion at December 31, 2009 as new loan originations have outpaced the core deposit growth and principal run-off from the securities portfolio.

Stockholders' equity increased $46.3 million to $896.5 million at September 30, 2010 from $850.2 million at December 31, 2009. The increase is primarily attributed to the $45.1 million net income for the nine month period.

About the Company

Investors Bancorp, Inc. is the holding company for Investors Savings Bank, which operates from its corporate headquarters in Short Hills, New Jersey, and as of September 30, 2010 had sixty-seven branch offices located in New Jersey.  

Earnings Conference Call October 26, 2010 at 2:00 p.m. (ET)

The Company, as previously announced, will host an earnings conference call Tuesday, October 26, 2010 at 2:00 p.m. (ET). The toll-free dial-in number is: (877) 317-6789. A telephone replay will be available on October 26, 2010 from 4:00 p.m. (ET) through January 26, 2011, 9:00 a.m. (ET). The replay number is (877) 344-7529 password 445290. The conference call will also be simultaneously webcast on the Company's website www.isbnj.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 our SEC filings, 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.

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, which 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.

SOURCE Investors Bancorp, Inc.