ISBC Investors Bancorp Inc

SHORT HILLS, N.J., July 27, 2016 /PRNewswire/ -- Investors Bancorp, Inc. (NASDAQ: ISBC) ("Company"), the holding company for Investors Bank ("Bank"), reported net income of $44.4 million, or $0.15 per diluted share, for the three months ended June 30, 2016, compared to $43.6 million, or $0.14 per diluted share for the three months ended March 31, 2016, and $46.4 million, or $0.14 per diluted share for the three months ended June 30, 2015.

For the six months ended June 30, 2016, net income totaled $88.0 million, or $0.29 per diluted share, compared to $88.3 million, or $0.26 for the six months ended June 30, 2015.

Kevin Cummings, President and CEO commented, "Investors' results for the second quarter were strong, highlighted by earnings per share growth and improving asset quality trends. We remain mindful of cost control as we continue to grow and enhance our infrastructure."

The Company announced today that its Board of Directors declared a cash dividend of $0.06 per share to be paid on August 25, 2016 for stockholders of record as of August 10, 2016, representing a 40% payout ratio for the three months ended June 30, 2016. 

Performance Highlights

• Total assets increased $528.3 million, or 2% to $21.72 billion at June 30, 2016, from $21.19 billion at March 31, 2016.
• Net loans increased $488.1 million, or 3%, to $17.41 billion at June 30, 2016 from $16.92 billion at March 31, 2016. During the three months ended June 30, 2016, we originated $639.0 million in multi-family loans, $288.5 million in commercial and industrial loans, $144.4 million in construction loans, $131.7 million in residential loans, $122.9 million in commercial real estate loans and $110.1 million in consumer and other loans.
• Deposits increased by $224.5 million, or 2% from $14.20 billion at March 31, 2016 to $14.43 billion at June 30, 2016. Core deposit accounts (savings, checking and money market) represent approximately 78% of total deposits as of June 30, 2016.
• Net interest margin for the three months ended June 30, 2016 was 3.04%, which was a 1 basis point decrease compared to the three months ended March 31, 2016 and a 10 basis point decrease compared to the three months ended June 30, 2015.
• For the three months ended June 30, 2016, the Company repurchased 10.7 million shares of its outstanding common stock for approximately $123.6 million. As of June 30, 2016, the Company has approximately 30 million shares remaining under its current repurchase plan.
• On May 3, 2016, the Company announced the signing of a definitive merger agreement with The Bank of Princeton, which operates 13 branches primarily in the greater Princeton, NJ area and in Philadelphia, PA. As of March 31, 2016, The Bank of Princeton had assets of $1.0 billion, loans of $842 million and deposits of $820 million. Consideration will be paid to The Bank of Princeton stockholders in a combination of stock and cash valued at the time of announcement of approximately $154 million.

Financial Performance Overview - Second Quarter 2016

For the second quarter of 2016, net income totaled $44.4 million, an increase of $729,000 as compared to the first quarter of 2016 and a decrease of $2.0 million as compared to the second quarter of 2015.  The changes in net income on both a sequential and year over year quarter basis are the result of the following:

Net interest income increased by $2.7 million, or 1.8% as compared to the first quarter of 2016 due to:

• An increase in interest and dividend income of $2.9 million, or 1.5% to $195.0 million as compared to the first quarter of 2016 primarily attributed to commercial loan growth, offset by a decrease of 2 basis points on the weighted average loan yield to 4.10%.
• Prepayment penalties, which are included in interest income, totaled $5.9 million for the three months ended June 30, 2016 compared to $4.7 million for the three months ended March 31, 2016.
• An increase in total interest expense of $111,000 was primarily attributed to an increase in interest expense on borrowed funds of $248,000 to $17.1 million, or 1%, partially offset by a decrease of 1 basis point to 0.66% on the weighted average cost of interest-bearing deposits for the three months ended June 30, 2016.

The net interest margin decreased 1 basis point to 3.04% for the three months ended June 30, 2016 from 3.05% for the three months ended March 31, 2016.

On a year over year basis, net interest income increased by $8.8 million, or 5.9% in the second quarter of 2016, as compared to the second quarter of 2015 due to:

• An increase in interest and dividend income of $13.4 million, or 7.4% to $195.0 million as a result of a $1.53 billion increase in the average balance of net loans, partially offset by the weighted average yield on net loans decreasing 13 basis points to 4.10%.
• Prepayment penalties, which are included in interest income, totaled $5.9 million for the three months ended June 30, 2016 and $5.6 million for the three months ended June 30, 2015.
• An increase in total interest expense of $4.7 million was primarily attributed to an increase in the average balance of total interest-bearing deposits of $1.21 billion, or 10.8% to $12.40 billion for the three months ended June 30, 2016. In addition, the weighted average cost of interest-bearing deposits increased 7 basis points to 0.66% for the three months ended June 30, 2016.

The net interest margin decreased 10 basis points year over year to 3.04% for the three months ended June 30, 2016 from 3.14% for the three months ended June 30, 2015.

Total non-interest income was $11.5 million for the three months ended June 30, 2016, an increase of $2.8 million, or 31.7% as compared to the first quarter of 2016.  Gain on loans increased $1.2 million primarily as a result of loan sales through our mortgage subsidiary as well as the Bank.  Other income increased $708,000 attributed to non-depository investment products and gain on securities transactions increased $252,000 primarily due to the sale of $37.4 million of securities resulting in a gain of $1.6 million.  During the first quarter of 2016, gain on securities transactions totaled $1.4 million.

Compared to the second quarter of 2015, total non-interest income decreased $116,000, or 1.0% year over year.  Gain on loans decreased $1.4 million for the three months ended June 30, 2016 primarily as a result of lower loan sales through our mortgage subsidiary as well as the Bank.  This decrease was offset by a $1.6 million gain on securities transactions for the three months ended June 30, 2016 primarily due to the sale of $37.4 million of securities.

Total non-interest expenses was $91.0 million for the three months ended June 30, 2016, an increase of $3.9 million, or 4.4% as compared to the first quarter of 2016.  Compensation and fringe benefits increased $1.8 million caused by higher staffing levels to support our continued growth and infrastructure.  Other increases were related to professional fees and advertising and promotional expense of $794,000 and $757,000, respectively. 

Compared to the second quarter of 2015, total non-interest expenses increased $11.2 million, or 14.0% year over year.  Compensation and fringe benefits increased $8.3 million for the three months ended June 30, 2016 primarily due to equity incentive expense of $5.4 million for the three months ended June 30, 2016, resulting from the restricted stock and stock option grants on June 23, 2015 to certain employees, officers and directors of the Company, pursuant to the Investors Bancorp, Inc. 2015 Equity Incentive Plan; normal merit increases; and additions to our staff to support continued growth and infrastructure.  Office occupancy and equipment expense increased $1.7 million for the three months ended June 30, 2016 primarily due to new branch openings.

Income tax expense was $28.4 million for the three months ended June 30, 2016 and $27.5 million for the three months ended March 31, 2016, representing an effective tax rate of 39.0% and 38.7%, respectively.  Income tax expense was $26.9 million for the three months ended June 30, 2015, representing an effective tax rate of 36.8% which includes a tax benefit realized from revaluing the Company's deferred tax asset related to changes in New York City tax law.  Absent this benefit, the tax rate for the three months ended June 30, 2015 would have been 38.3%. 

Financial Performance Overview- Six Months of 2016

Net income decreased by $328,000, year over year to $88.0 million for the six months ended June 30, 2016.  The changes in net income for the six months ended year over year are the result of the following:

• Total interest and dividend income increased by $30.4 million, or 8.5% to $387.1 million for the six months ended June 30, 2016 as compared to the six months of 2015 primarily attributed to growth in the commercial loan portfolio. This increase was offset by a decrease of 12 basis points to the weighted average yield on net loans to 4.11%.
• Prepayment penalties, which are included in interest income, totaled $10.6 million for the six months ended June 30, 2016 compared to $10.2 million for the six months ended June 30, 2015.
• Total interest expense increased by $11.5 million or 18.1% to $75.2 million for the six months ended June 30, 2016 as compared to the six months of 2015. The average balance of total interest-bearing deposits increased $1.26 billion, or 11.3% to $12.37 billion for the six months ended June 30, 2016. In addition, the weighted average cost of interest-bearing deposits increased 9 basis points to 0.67% for the six months ended June 30, 2016.
• Net interest margin decreased 11 basis points as compared to the six months of 2015 to 3.05% for the six months ended June 30, 2016.

Total non-interest income was $20.2 million for the six months ended June 30, 2016, an increase of $59,000, or 0.3% as compared to the six months of 2015.  Gain on securities transactions increased $2.9 million for the six months ended June 30, 2016 primarily due to the sale of securities totaling $69.1 million, resulting in a gain of $3.0 million.  This increase was offset by a decrease in gain on loans of $2.2 million for the six months ended June 30, 2016 primarily as a result of lower loan sales through our mortgage subsidiary as well as the Bank.  Other income decreased $729,000 for the six months ended June 30, 2016 attributed to non-depository investment products.  

Total non-interest expense was $178.2 million for the six months ended June 30, 2016, an increase of $21.4 million, or 13.7% as compared to the six months of 2015.  Compensation and fringe benefits increased $16.7 million for the six months ended June 30, 2016 primarily due to equity incentive expense of $9.7 million for the six months ended June 30, 2016 resulting from the restricted stock and stock option grants on June 23, 2015 to certain employees, officers and directors of the Company, pursuant to the Investors Bancorp, Inc. 2015 Equity Incentive Plan; normal merit increases; and additions to our staff to support continued growth.  Office occupancy and equipment expense increased $3.0 million for the six months ended June 30, 2016 primarily due to new branch openings.   Professional fees and other operating expenses increased $1.1 million and $1.3 million, respectively for the six months ended June 30, 2016.

Income tax expense was $55.9 million for the six months ended June 30, 2016 compared to $52.1 million for the six months ended June 30, 2015, representing an effective tax rate of 38.9%  and 37.1%, respectively.  The tax rate for the six months ended June 30, 2015 includes a tax benefit realized from revaluing the Company's deferred tax asset related to changes in New York City tax law.  Absent this benefit, the tax rate for the six months ended June 30, 2015 would have been 37.9%.

Asset Quality

Our provision for loan losses was $5.0 million for the three months ended June 30, 2016 and first quarter of 2016.  For the three months ended June 30, 2015 our provision for loan loss was $7.0 million. For the three months ended June 30, 2016, net charge-offs were $1.3 million compared to $6.9 million for the first quarter of 2016 and $1.2 million for the three months ended June 30, 2015.  For the six months ended June 30, 2016 our provision for loan loss was $10.0 million compared with $16.0 million for the six months June 30, 2015.  For the six months ended June 30, 2016, net charge-offs were $8.2 million  compared to $2.3 million  for the the six months June 30, 2015.

Our provision for the three and six months ended June 30, 2016 is primarily a result of continued organic growth in the loan portfolio, specifically the multi-family, commercial real estate and commercial and industrial portfolios; the inherent credit risk in our overall portfolio, particularly the credit risk associated with commercial real estate lending and commercial and industrial lending; and the improvement in the level of non-performing loans.

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.  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.

Total non-accrual loans decreased to $100.3 million at June 30, 2016 compared to $105.2 million at March 31, 2016 and $106.7 million at June 30, 2015.  We continue to diligently resolve our troubled loans, however it takes a long period of time to resolve residential credits in our lending area.  At June 30, 2016, there were $34.9 million of loans deemed as troubled debt restructurings, of which $23.3 million were residential and consumer loans, $8.1 million were commercial real estate loans, $1.0 million were multi-family loans and  $2.4 million were commercial and industrial loans.  Troubled debt restructured loans in the amount of $12.1 million were classified as accruing and $22.8 million were classified as non-accrual at June 30, 2016.

Balance Sheet Summary

Total assets increased by $829.6 million, or 4.0% to $21.72 billion at June 30, 2016 from December 31, 2015.  Net loans increased $749.7 million or 4.5%, to $17.41 billion at June 30, 2016, and securities increased by $59.9 million, or 1.9%, to $3.21 billion at June 30, 2016 from December 31, 2015. 

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

During the six months ended June 30, 2016, we originated $1.11 billion in multi-family loans,  $452.8 million in commercial and industrial loans, $301.0 million in commercial real estate loans, $229.5 million in residential loans, $190.5 million in consumer and other loans and $197.8 million in construction loans.  This increase in loans reflects our continued focus on generating multi-family loans, commercial real estate loans and commercial and industrial loans, which was partially offset by pay downs and payoffs of loans.  Our loans are primarily on properties and businesses located in New Jersey and New York.

In addition to the loans originated for our portfolio, our mortgage subsidiary, Investors Home Mortgage Co., originated $87.0 million in residential mortgage loans for the six months ended June 30, 2016 that were for sale to third party investors.

The allowance for loan losses increased by $1.8 million to $220.3 million at June 30, 2016 from $218.5 million at December 31, 2015.  The increase in our allowance for loan losses is due to the growth of the loan portfolio, particularly the inherent credit risk associated with commercial real estate lending as well as commercial and industrial loans. 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 June 30, 2016, our allowance for loan loss as a percent of total loans was 1.25%.

Securities, in the aggregate, increased by $59.9 million, or 1.9%, to $3.21 billion at June 30, 2016 from $3.15 billion at December 31, 2015.  This increase was a result of purchases partially offset by paydowns and sales. 

Deposits increased by $362.2 million, or 2.6%, from $14.06 billion at December 31, 2015 to $14.43 billion at June 30, 2016.  Checking accounts increased $639.5 million to $5.28 billion at June 30, 2016 from $4.64 billion at December 31, 2015.  Core deposits represented approximately 78% of our total deposit portfolio at June 30, 2016.

Borrowed funds increased by $631.1 million, or 19.3%, to $3.89 billion at June 30, 2016 from $3.26 billion at  December 31, 2015 to help fund the continued growth of the loan portfolio. 

Stockholders' equity decreased by $179.4 million to $3.13 billion at June 30, 2016 from $3.31 billion at December 31, 2015.  The decrease is primarily attributed to the repurchase of 22.8 million shares of common stock for $263.8 million as well as cash dividends of $0.12 per share totaling $39.0 million for the  six months ended June 30, 2016.  These decreases are offset by net income of $88.0 million for the six months ended June 30, 2016.

About the Company

Investors Bancorp, Inc. is the holding company for Investors Bank, which as of June 30, 2016 operates from its corporate headquarters in Short Hills, New Jersey and 146 branches located throughout New Jersey and New York.

Earnings Conference Call July 28, 2016 at 11:00 a.m. (ET)

The Company, as previously announced, will host an earnings conference call on Thursday, July 28, 2016 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/10089401

A telephone replay will be available beginning on July 28, 2016 from 1:00 p.m. (ET) through 9:00 a.m. (ET) on October 28, 2016.  The replay number is (877) 344-7529 password 10089401.  The conference call will also be simultaneously webcast on the Company's website www.myinvestorsbank.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.