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

SHORT HILLS, N.J., Oct. 23, 2019 /PRNewswire/ -- Investors Bancorp, Inc. (NASDAQ:ISBC) ("Company"), the holding company for Investors Bank ("Bank"), reported net income of $52.0 million, or  $0.20 per diluted share, for the three months ended September 30, 2019 as compared to $46.6 million, or $0.18 per diluted share, for the three months ended June 30, 2019 and $54.2 million, or $0.19 per diluted share, for the three months ended September 30, 2018.

For the nine months ended September 30, 2019, net income totaled $146.8 million, or $0.55 per diluted share, compared to $169.2 million, or $0.59 per diluted share, for the nine months ended September 30, 2018.

The Company also announced today that its Board of Directors declared a cash dividend of $0.11 per share to be paid on November 25, 2019 for stockholders of record as of November 11, 2019.

Kevin Cummings, Chairman and CEO, commented, "Several positive trends contributed to our earnings results this quarter including increased net interest income, strong fee income, and improving asset quality metrics.  Net interest margin expanded 6 basis points this quarter as we benefited from stable deposit costs, our continued focus on higher yielding commercial and industrial loans, and deemphasis on lower yielding real estate loans."

Mr. Cummings also commented, "Importantly, our deposit costs appear to have reached an inflection point and stand to benefit from past and potential future rate cuts by the Federal Reserve."

Performance Highlights

• Net interest margin increased 6 basis points to 2.53% for the three months ended September 30, 2019 compared to the three months ended June 30, 2019.
• Total assets decreased $339.0 million, or 1.3%, to $26.73 billion at September 30, 2019 from $27.06 billion at June 30, 2019.
• Net loans decreased $248.6 million, or 1.1%, to $21.52 billion at September 30, 2019 from $21.76 billion at June 30, 2019. Commercial and industrial loans increased $96.5 million, or 3.7%, during the three months ended September 30, 2019.
• Total deposits increased $28.3 million, or 0.2%, to $17.67 billion at September 30, 2019 from $17.64 billion at June 30, 2019.
• Total non-interest income was $14.8 million for the three months ended September 30, 2019, an increase of $7.8 million compared to the three months ended June 30, 2019. Excluding a $5.7 million loss on the sale of securities during the three months ended June 30, 2019, non-interest income increased $2.1 million for the three months ended September 30, 2019.
• Total non-interest expenses were $108.7 million for the three months ended September 30, 2019, an increase of $4.9 million, or 4.7%, compared to the three months ended June 30, 2019. Included in non-interest expenses for the three months ended September 30, 2019 were $3.3 million of compensation expenses related to employee severance expense and the settlement of our shareholder litigation. In addition, professional fees increased $2.5 million due primarily to costs associated with implementing enhanced commercial treasury management and online banking products, as well as costs to improve risk management process efficiency.
• During the three months ended September 30, 2019, the Company repurchased 2.0 million shares of its outstanding common stock for approximately $22.5 million.

Financial Performance Overview

Third Quarter 2019 compared to Second Quarter 2019

For the third quarter of 2019, net income totaled $52.0 million, an increase of $5.3 million as compared to $46.6 million for the second quarter of 2019.  The changes in net income on a sequential quarter basis are highlighted below.

Net interest income increased by $5.3 million, or 3.3%, as compared to the second quarter of 2019.  Changes within interest income and expense categories are as follows:

• An increase in interest and dividend income of $5.5 million, or 2.1%, to $264.6 million as compared to the second quarter of 2019 primarily attributable to the weighted average yield on net loans, which increased 6 basis points to 4.27%. The average balance of net loans increased $113.4 million primarily from loan originations, offset by paydowns and payoffs.
• Interest expense increased $202,000, primarily attributable to the average balance of interest-bearing deposits, which increased $136.8 million, or 0.9%, to $15.36 billion and the average balance of total borrowed funds, which increased $49.0 million, or 0.9%, to $5.76 billion for the three months ended September 30, 2019. The weighted average cost of interest-bearing liabilities decreased 1 basis point to 1.90% for the three months ended September 30, 2019.
• Prepayment penalties, which are included in interest income, totaled $5.2 million for the three months ended September 30, 2019 as compared to $2.6 million for the three months ended June 30, 2019.

Net interest margin increased 6 basis points to 2.53% for the three months ended September 30, 2019 compared to the three months ended June 30, 2019, driven primarily by higher prepayment penalty fees, higher yields on interest-earning assets and lower cost of interest-bearing liabilities.

Total non-interest income was $14.8 million for the three months ended September 30, 2019, an increase of $7.8 million, as compared to $7.0 million for the second quarter of 2019.  Excluding a $5.7 million loss on the sale of securities in the second quarter, the increase in non-interest income was primarily due to a $2.0 million increase in customer swap fee income.

Total non-interest expenses were $108.7 million for the three months ended September 30, 2019, an increase of $4.9 million, or 4.7%, as compared to the second quarter of 2019.  The change was due to an increase in compensation and benefit expense of $3.7 million, of which $2.0 million was accelerated stock compensation expense related to the settlement of our shareholder litigation and $1.3 million was employee severance expense related to a workforce reduction.  In addition, professional fees increased $2.5 million due primarily to costs associated with implementing enhanced commercial treasury management and online banking products, as well as costs to improve risk management process efficiency.  Partially offsetting these increases, advertising and promotional expense decreased $1.3 million.

Income tax expense was $21.0 million for the three months ended September 30, 2019 and $18.7 million for the three months ended June 30, 2019.  The effective tax rate was 28.8% for the three months ended September 30, 2019 and 28.6% for the three months ended June 30, 2019.

Third Quarter 2019 compared to Third Quarter 2018

For the third quarter of 2019, net income totaled $52.0 million, a decrease of $2.3 million as compared to $54.2 million in the third quarter of 2018.  The changes in net income on a year over year quarter basis are highlighted below.

On a year over year basis, third quarter of 2019 net interest income decreased by $2.5 million, or 1.5%, as compared to the third quarter of 2018 due to:

• Interest expense increased $23.0 million, or 29.8%, primarily attributable to an increase in the weighted average cost of interest-bearing liabilities of 34 basis points to 1.90% for the three months ended September 30, 2019. The average balance of interest-bearing deposits increased $457.9 million, or 3.1%, to $15.36 billion for the three months ended September 30, 2019 and the average balance of total borrowed funds increased $859.1 million, or 17.5%, to $5.76 billion.
• An increase in interest and dividend income of $20.5 million, or 8.4%, to $264.6 million primarily as a result of a $1.08 billion increase in the average balance of net loans mainly from loan originations, offset by paydowns and payoffs. The weighted average yield on net loans increased 7 basis points to 4.27% primarily driven by higher average yields on loan originations and an increase in prepayment penalties. In addition, the weighted average yield on securities increased 50 basis points to 2.96%.
• Prepayment penalties, which are included in interest income, totaled $5.2 million for the three months ended September 30, 2019 as compared to $4.6 million for the three months ended September 30, 2018.

Net interest margin decreased 16 basis points year over year to 2.53% for the three months ended September 30, 2019 from 2.69% for the three months ended September 30, 2018, primarily driven by the higher cost of interest-bearing liabilities, partially offset by higher yields on interest-earning assets.

Total non-interest income was $14.8 million for the three months ended September 30, 2019, an increase of $4.5 million, or 43.7%, year over year.  This increase was primarily due to an increase of $2.5 million in other income attributed to customer swap fee income and an increase of $1.2 million in gain on loans.

Total non-interest expenses were $108.7 million for the three months ended September 30, 2019, an increase of $6.9 million, or 6.8%, year over year.  The increase was due to an increase of $4.3 million in compensation and benefit expense, of which $2.0 million was accelerated stock compensation expense related to the settlement of our shareholder litigation and $1.3 million was employee severance expense related to a workforce reduction.  In addition, professional fees increased $2.4 million due primarily to costs associated with implementing enhanced commercial treasury management and online banking products, as well as costs to improve risk management process efficiency.

Income tax expense was $21.0 million for the three months ended September 30, 2019 and $19.2 million for the three months ended September 30, 2018.  The effective tax rate was 28.8% for the three months ended September 30, 2019 and 26.2% for the three months ended September 30, 2018.  The increase in the tax rate is primarily related to the change in New Jersey state tax law.

Nine Months Ended September 30, 2019 compared to Nine Months Ended September 30, 2018

Net income decreased by $22.5 million year over year to $146.8 million for the nine months ended September 30, 2019.  The change in net income year over year is the result of the following:

Net interest income decreased by $24.4 million as compared to the nine months ended September 30, 2018 due to:

• Interest expense increased by $90.3 million, or 44.4%, to $293.5 million for the nine months ended September 30, 2019, as compared to $203.3 million for the nine months ended September 30, 2018, primarily attributable to an increase in the weighted average cost of interest-bearing liabilities of 48 basis points to 1.87% for the nine months ended September 30, 2019. The average balance of total borrowed funds increased $690.4 million, or 14.2%, to $5.57 billion for the nine months ended September 30, 2019 and the average balance of interest-bearing deposits increased $644.4 million, or 4.4%, to $15.33 billion.
• Total interest and dividend income increased by $65.8 million, or 9.2%, to $779.8 million for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, primarily attributed to a $1.26 billion increase in the average balance of net loans primarily from loan originations, offset by paydowns and payoffs. The weighted average yield on net loans increased 7 basis points to 4.22% primarily driven by higher average yields on new loan origination volume, partially offset by a decrease in prepayment penalties. In addition, the weighted average yield on securities increased 49 basis points to 2.91%.
• Prepayment penalties, which are included in interest income, totaled $11.4 million for the nine months ended September 30, 2019, as compared to $15.4 million for the nine months ended September 30, 2018.

Net interest margin decreased 26 basis points to 2.52% for the nine months ended September 30, 2019 from 2.78% for the nine months ended September 30, 2018, primarily driven by the higher cost of interest-bearing liabilities, partially offset by higher yields on interest-earning assets.

Total non-interest income was $33.0 million for the nine months ended September 30, 2019, an increase of $2.1 million, or 6.7%, as compared to the nine months ended September 30, 2018.  The increase is primarily due to an increase of $5.4 million in other income primarily attributed to customer swaps, a sale-leaseback transaction and non-depository investment products.  In addition, gain on loans, fees and service charges, income on bank owned life insurance and gain on the sale of other real estate owned increased $1.7 million, $591,000, $524,000 and $513,000, respectively.  These increases were partially offset by a decrease of $6.7 million in non-interest income on securities primarily resulting from a $5.7 million loss on the sale of securities during the second quarter of 2019.

Total non-interest expenses were $315.9 million for the nine months ended September 30, 2019, an increase of $10.5 million, or 3.4%, as compared to the nine months ended September 30, 2018.  This increase is due to an increase of $5.3 million in compensation and fringe benefit expense, an increase of $3.7 million in data processing and communication expense, an increase of $2.6 million in other non-interest expense and an increase of $1.8 million in advertising and promotional expense.  These increases were partially offset by a decrease of $4.1 million in federal insurance premiums.

Income tax expense was $59.1 million for the nine months ended September 30, 2019 compared to $58.4 million for the nine months ended September 30, 2018.  The effective tax rate was 28.7% for the nine months ended September 30, 2019 and 25.6% for the nine months ended September 30, 2018. The increase in the tax rate is primarily related to the change in New Jersey state tax law.

Asset Quality

Our provision for loan losses is primarily a result of the inherent credit risk in our overall portfolio, the growth and composition of the loan portfolio, and the level of non-accrual loans and charge-offs.  At September 30, 2019, our allowance for loan losses and related year-to-date provision were impacted by improved credit quality, including the level of non-accrual loans and charge-offs/recoveries, and modest loan growth.  For the three months ended September 30, 2019, our provision for loan losses was a $2.5 million reduction to the allowance for loan losses, compared to a reduction to the allowance for loan losses of $3.0 million for the three months ended June 30, 2019 and an addition to the allowance for loan losses of $2.0 million for the three months ended September 30, 2018.  For the three months ended September 30, 2019, net charge-offs were $1.5 million compared to net recoveries of $221,000 for the three months ended June 30, 2019 and net charge-offs of $2.0 million for the three months ended September 30, 2018.  Our provision was a $2.5 million reduction to the allowance for loan losses for the nine months ended September 30, 2019 and an $8.5 million addition to the allowance for the nine months ended September 30, 2018.  For the nine months ended September 30, 2019, net charge-offs were $5.3 million compared to $8.7 million for the nine months ended September 30, 2018.

Our accruing past due loans and non-accrual loans discussed below exclude certain purchased credit impaired ("PCI") loans, primarily consisting of loans recorded in the Company's acquisitions.  Under U.S. GAAP, the PCI loans (acquired at a discount that is due, in part, to credit quality) are not subject to delinquency classification in the same manner as loans originated by the Bank.

Total non-accrual loans were $92.1 million, or 0.42% of total loans, at September 30, 2019 compared to $111.6 million, or 0.51% of total loans, at June 30, 2019 and $124.9 million, or 0.58% of total loans, at December 31, 2018.  We continue to proactively and diligently work to resolve our troubled loans.

At September 30, 2019, there were $37.3 million of loans deemed as troubled debt restructured loans ("TDRs"), of which $27.8 million were residential and consumer loans, $6.9 million were commercial and industrial loans and $2.6 million were commercial real estate loans.  TDRs of $12.5 million were classified as accruing and $24.8 million were classified as non-accrual at September 30, 2019.

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

Balance Sheet Summary

Total assets increased $496.2 million, or 1.9%, to $26.73 billion at September 30, 2019 from December 31, 2018.  Net loans increased $138.1 million, or 0.6%, to $21.52 billion at September 30, 2019.  Securities increased $84.7 million, or 2.3%, to $3.77 billion at September 30, 2019.

Effective January 1, 2019, the Company adopted new accounting guidance that requires leases to be recognized on our Consolidated Balance Sheet as a right-of-use asset and a lease liability.  Our operating lease right-of-use assets and operating lease liabilities were $179.6 million and $189.9 million, respectively, at September 30, 2019.

The detail of the loan portfolio (including PCI loans) is below:

During the nine months ended September 30, 2019, we originated $794.3 million in commercial and industrial loans, $634.1 million in multi-family loans, $461.3 million in commercial real estate loans, $355.2 million in residential loans, $61.0 million in consumer and other loans and $27.6 million in construction loans.  The growth in the loan portfolio reflects our continued focus on growing and diversifying our loan portfolio.  Our loans are primarily on properties and businesses located in New Jersey and New York.

We also 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 months ended September 30, 2019, we purchased loans totaling $258.0 million from these entities.  In addition to the loans originated for our portfolio, we originated residential mortgage loans for sale to third parties totaling $160.3 million during the nine months ended September 30, 2019.

The allowance for loan losses decreased by $7.8 million to $228.0 million at September 30, 2019 from $235.8 million at December 31, 2018.  Our allowance for loan losses was positively impacted by improved credit quality, including the level of non-accrual loans and charge-offs/recoveries, and modest loan growth.  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 economic conditions in our lending area.  At September 30, 2019 and June 30, 2019, our allowance for loan losses as a percent of total loans was 1.05%, a decrease from 1.09% at December 31, 2018 which was driven by the factors noted above.

Securities increased by $84.7 million, or 2.3%, to $3.77 billion at September 30, 2019 from $3.68 billion at December 31, 2018.  This increase was primarily a result of purchases, partially offset by sales and paydowns.

Deposits increased by $92.5 million, or 0.5%, from $17.58 billion at December 31, 2018 to $17.67 billion at September 30, 2019 primarily driven by increases in interest-bearing checking and money market accounts, partially offset by decreases in non-interest checking, savings and time deposit accounts.  Checking accounts increased $216.7 million to $7.54 billion at September 30, 2019 from $7.32 billion at December 31, 2018.  Core deposits (savings, checking and money market) represented approximately 75% of our total deposit portfolio at September 30, 2019 compared to 74% at December 31, 2018.

Borrowed funds increased by $258.9 million, or 4.8%, to $5.69 billion at September 30, 2019 from $5.44 billion at December 31, 2018 to help fund the growth of the loan portfolio.

Stockholders' equity decreased by $74.0 million to $2.93 billion at September 30, 2019 from $3.01 billion at December 31, 2018, primarily attributed to the repurchase of 12.0 million shares of common stock for $140.2 million and cash dividends of $0.33 per share totaling $91.9 million during the nine months ended September 30, 2019.  These decreases were partially offset by net income of $146.8 million and share-based plan activity of $20.8 million for the nine months ended September 30, 2019.  The Bank remains above FDIC "well capitalized" standards, with a Tier 1 Leverage Ratio of 9.68% at September 30, 2019.

About the Company

Investors Bancorp, Inc. is the holding company for Investors Bank, which as of September 30, 2019 operated from its corporate headquarters in Short Hills, New Jersey and 147 branches located throughout New Jersey and New York.

Earnings Conference Call October 24, 2019 at 11:00 a.m. (ET)

The Company, as previously announced, will host an earnings conference call on Thursday, October 24, 2019 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/10135533

A telephone replay will be available beginning on October 24, 2019 from 1:00 p.m. (ET) through 9:00 a.m. (ET) on January 24, 2020.  The replay number is (877) 344-7529, password 10135533.  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.

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.