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

SHORT HILLS, N.J., Jan. 29, 2020/PRNewswire/ -- Investors Bancorp, Inc. (NASDAQ: ISBC) ("Company"), the holding company for Investors Bank ("Bank"), reported net income of $48.7 million, or  $0.19 per diluted share, for the three months ended December 31, 2019 as compared to $52.0 million, or $0.20 per diluted share, for the three months ended September 30, 2019 and $33.3 million, or $0.12 per diluted share, for the three months ended December 31, 2018.  Included for the three months ended December 31, 2019 is $7.8 million, or $0.03 per diluted share, of additional income tax expense resulting from the revaluation of the Company's net deferred tax asset as the State of New Jersey provided clarification in December 2019 relating to previously enacted tax law changes.

For the year ended December 31, 2019, net income totaled $195.5 million, or $0.74 per diluted share, compared to $202.6 million, or $0.72 per diluted share, for the year ended December 31, 2018.  Included for the year ended December 31, 2019 is $7.8 million, or $0.03 per diluted share, of additional income tax expense resulting from the revaluation of the Company's net deferred tax asset as the State of New Jersey provided clarification in December 2019 relating to previously enacted tax law changes.

The Company also announced today that its Board of Directors declared a cash dividend of $0.12 per share to be paid on February 25, 2020 for stockholders of record as of February 10, 2020, representing a 9% increase from the prior quarter.

Kevin Cummings, Chairman and CEO, commented, "Increased net interest income and fee income, in addition to lower expenses, contributed to our strong fourth quarter results. Our net interest margin expanded eight basis points this quarter as our deposit costs declined and we continued our focus on higher yielding commericial and industrial loans."

Performance Highlights

• Net interest margin increased 8 basis points to 2.61% for the three months ended December 31, 2019 compared to the three months ended September 30, 2019.
• The cost of interest-bearing deposits decreased 18 basis points to 1.59% for the three months ended December 31, 2019 compared to the three months ended September 30, 2019.
• Total deposits increased $187.6 million, or 1.1%, to $17.86 billion at December 31, 2019 from $17.67 billion at September 30, 2019.
• Net loans decreased $40.2 million, or 0.2%, to $21.48 billion at December 31, 2019 from $21.52 billion at September 30, 2019.  Commercial and industrial loans increased $269.7 million, or 10.1%, during the three months ended December 31, 2019.
• Total non-interest income was $20.5 million for the three months ended December 31, 2019, an increase of $5.7 million compared to the three months ended September 30, 2019.
• Total non-interest expenses were $106.8 million for the three months ended December 31, 2019, a decrease of $1.9 million, or 1.7%, compared to the three months ended September 30, 2019.
• 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 that is expected to lower the Company's state tax rate going forward.  As a result, income tax expense for the three months ended December 31, 2019 included $7.8 million, or $0.03 per diluted share, of additional income tax expense related to the write down of the Company's net deferred tax asset.
• During December 2019, the Company entered into a purchase and sale agreement with Blue Harbour Group, L.P. ("Blue Harbour"), pursuant to which the Company repurchased from Blue Harbour the 27,318,628 shares of the Company's common stock beneficially owned by Blue Harbour, at a purchase price of $12.29 per share, representing aggregate consideration of approximately $335.7 million.

Financial Performance Overview

Fourth Quarter 2019 compared to Third Quarter 2019

For the fourth quarter of 2019, net income totaled $48.7 million, a decrease of $3.2 million as compared to $52.0 million for the third quarter of 2019.  The changes in net income on a sequential quarter basis are highlighted below.

Net interest income increased by $4.3 million, or 2.6%, as compared to the third quarter of 2019.  Changes within interest income and expense categories are as follows:

• Interest expense decreased $8.5 million, primarily attributed to the weighted average cost of interest-bearing liabilities, which decreased 16 basis points to 1.74% for the three months ended December 31, 2019.  The average balance of interest-bearing deposits decreased $66.8 million, or 0.4%, to $15.29 billion and the average balance of total borrowed funds decreased $11.7 million, or 0.2%, to $5.74 billion for the three months ended December 31, 2019.
• A decrease in interest and dividend income of $4.2 million, or 1.6%, to $260.4 million as compared to the third quarter of 2019, primarily attributed to the average balance of net loans, which decreased $202.8 million, mainly from paydowns and payoffs, partially offset by loan originations.  The weighted average yield on net loans decreased3 basis points to 4.24%.
• Prepayment penalties, which are included in interest income, totaled $5.4 million for the three months ended December 31, 2019 as compared to $5.2 million for the three months ended September 30, 2019.

Net interest margin increased 8 basis points to 2.61% for the three months ended December 31, 2019 compared to the three months ended September 30, 2019, driven primarily by the lower cost of interest-bearing liabilities, partially offset by the lower yield on interest-earning assets.

Total non-interest income was $20.5 million for the three months ended December 31, 2019, an increase of $5.7 million, as compared to $14.8 million for the third quarter of 2019.  The increase in non-interest income was primarily due to a $2.6 million increase in net gains on our equipment finance portfolio, a $1.5 million increase in customer swap fee income and a $1.0 million increase in fees and service charges.

Total non-interest expenses were $106.8 million for the three months ended December 31, 2019, a decrease of $1.9 million, or 1.7%, as compared to the third quarter of 2019.  The change was primarily due to a decrease in compensation and benefit expense of $4.3 million, driven mainly by accelerated stock compensation expense related to the settlement of our shareholder litigation and employee severance expense related to a workforce reduction recorded during the three months ended September 30, 2019.  Partially offsetting this decrease, other non-interest expense increased $2.9 million driven by overdraft losses and customer swap expense.

Income tax expense was $32.2 million for the three months ended December 31, 2019 and $21.0 million for the three months ended September 30, 2019.  The effective tax rate was 39.8% for the three months ended December 31, 2019 and 28.8% for the three months ended September 30, 2019.  The increase in the effective tax rate was primarily related to a clarification of the change in New Jersey state tax law.

Fourth Quarter 2019 compared to Fourth Quarter 2018

For the fourth quarter of 2019, net income totaled $48.7 million, an increase of $15.4 million as compared to $33.3 million in the fourth quarter of 2018.  The changes in net income on a year over year quarter basis are highlighted below.

On a year over year basis, fourth quarter of 2019 net interest income decreased by $531,000, or 0.3%, as compared to the fourth quarter of 2018 due to:

• Interest expense increased $6.5 million, or 7.6%, primarily attributed to the average balance of total borrowed funds, which increased $777.4 million, or 15.7%, to $5.74 billion, and the average balance of interest-bearing deposits, which increased $112.8 million, or 0.7%, to $15.29 billion for the three months ended December 31, 2019.  The weighted average cost of interest-bearing liabilities increased 5 basis points to 1.74% for the three months ended December 31, 2019.
• An increase in interest and dividend income of $6.0 million, or 2.3%, to $260.4 million, primarily as a result of a $541.6 million increase in the average balance of net loans, mainly from loan originations, partially offset by paydowns and payoffs.  The weighted average yield on net loans increased 2 basis points to 4.24%.
• Prepayment penalties, which are included in interest income, totaled $5.4 million for the three months ended December 31, 2019 as compared to $5.2 million for the three months ended December 31, 2018.

Net interest margin decreased 8 basis points year over year to 2.61% for the three months ended December 31, 2019 from 2.69% for the three months ended December 31, 2018, primarily driven by the higher cost of interest-bearing liabilities.

Total non-interest income was $20.5 million for the three months ended December 31, 2019, an increase of $41.3 million year over year.  Excluding the $32.8 million loss on the sale of securities in the fourth quarter of 2018, total non-interest income increased $8.4 million as compared with the three months ended December 31, 2018.  This increase was primarily due to an increase of $3.9 million in customer swap fee income, an increase of $2.1 million in net gains on our equipment finance portfolio and an increase of $1.5 million in gain on loans.

Total non-interest expenses were $106.8 million for the three months ended December 31, 2019, an increase of $4.6 million, or 4.5%, year over year.  The increase was due to an increase of $2.5 million in compensation and benefit expense and other non-interest expense which increased $2.2 million.

Income tax expense was $32.2 million for the three months ended December 31, 2019 and $9.5 million for the three months ended December 31, 2018.  The effective tax rate was 39.8% for the three months ended December 31, 2019 and 22.1% for the three months ended December 31, 2018.  The increase in the effective tax rate was primarily related to a clarification of the change in New Jersey state tax law.  In addition, the effective tax rate for the three months ended December 31, 2018 was positively impacted by a charitable contribution to the State of New Jersey's Neighborhood Revitalization Tax Credit Program, which provided a $1.0 million tax credit.

Year Ended December 31, 2019 compared to Year Ended December 31, 2018

Net income decreased by $7.1 million year over year to $195.5 million for the year ended December 31, 2019.  The change in net income year over year is the result of the following:

Net interest income decreased by $24.9 million as compared to the year ended December 31, 2018 due to:

• Interest expense increased by $96.7 million, or 33.5%, to $385.1 million for the year ended December 31, 2019, as compared to $288.4 million for the year ended December 31, 2018, primarily attributed to an increase in the weighted average cost of interest-bearing liabilities of 38 basis points to 1.84% for the year ended December 31, 2019.  The average balance of total borrowed funds increased $712.3 million, or 14.5%, to $5.61 billion for the year ended December 31, 2019 and the average balance of interest-bearing deposits increased $510.4 million, or 3.5%, to $15.32 billion.
• Total interest and dividend income increased by $71.8 million, or 7.4%, to $1.04 billion for the year ended December 31, 2019 as compared to the year ended December 31, 2018, primarily attributed to 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 6 basis points to 4.23% 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 34 basis points to 2.90%.
• Prepayment penalties, which are included in interest income, totaled $16.8 million for the year ended December 31, 2019, as compared to $20.6 million for the year ended December 31, 2018.

Net interest margin decreased 22 basis points to 2.54% for the year ended December 31, 2019 from 2.76% for the year ended December 31, 2018, primarily driven by the higher cost of interest-bearing liabilities, partially offset by the higher yield on interest-earning assets.

Total non-interest income was $53.4 million for the year ended December 31, 2019, an increase of $43.3 million as compared to the year ended December 31, 2018.  The increase was primarily due to an increase of $26.1 million in non-interest income on securities predominately resulting from a $5.7 million loss on the sale of securities during 2019 as compared to a $32.8 million loss on the sale of securities during 2018.  In addition, other income increased $11.8 million primarily attributed to customer swap fee income, gains on our equipment finance portfolio, non-depository investment products and a sale-leaseback transaction.

Total non-interest expenses were $422.8 million for the year ended December 31, 2019, an increase of $15.1 million, or 3.7%, as compared to the year ended December 31, 2018.  This increase was due to an increase of $7.9 million in compensation and fringe benefit expense, an increase of $4.8 million in other non-interest expense, an increase of $4.2 million in data processing and communication expense, and an increase of $2.0 million in professional fees.  These increases were partially offset by a decrease of $4.6 million in federal insurance premiums.

Income tax expense was $91.2 million for the year ended December 31, 2019 compared to $67.8 million for the year ended December 31, 2018.  The effective tax rate was 31.8% for the year ended December 31, 2019 and 25.1% for the year ended December 31, 2018. The increase in the tax rate was primarily related to a clarification of 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 December 31, 2019, our allowance for loan losses and related year-ended 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 December 31, 2019, our provision for loan losses was a $1.5 million addition to the allowance for loan losses, compared to a reduction to the allowance for loan losses of $2.5 million for the three months ended September 30, 2019 and an addition to the allowance for loan losses of $3.5 million for the three months ended December 31, 2018.  For the three months ended December 31, 2019, net charge-offs were $1.4 million compared to net charge-offs of $1.5 million for the three months ended September 30, 2019 and net recoveries of $1.5 million for the three months ended December 31, 2018.  Our provision was a $1.0 million reduction to the allowance for loan losses for the year ended December 31, 2019 and a $12.0 million addition to the allowance for the year ended December 31, 2018.  For the year ended December 31, 2019, net charge-offs were $6.7 million compared to $7.2 million for the year ended December 31, 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 $95.2 million, or 0.44% of total loans, at December 31, 2019 compared to $92.1 million, or 0.42% of total loans, at September 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 December 31, 2019, there were $36.6 million of loans deemed as troubled debt restructured loans ("TDRs"), of which $27.0 million were residential and consumer loans, $7.2 million were commercial and industrial loans and $2.4 million were commercial real estate loans.  TDRs of $13.1 million were classified as accruing and $23.5 million were classified as non-accrual at December 31, 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 $469.8 million, or 1.8%, to $26.70 billion at December 31, 2019 from December 31, 2018.  Net loans increased $97.9 million, or 0.5%, to $21.48 billion at December 31, 2019.  Securities increased $167.2 million, or 4.5%, to $3.85 billion at December 31, 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 $175.1 million and $185.8 million, respectively, at December 31, 2019.

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

During the year ended December 31, 2019, we originated $1.27 billion in commercial and industrial loans, $861.0 million in commercial real estate loans, $793.6 million in multi-family loans, $462.6 million in residential loans, $76.2 million in consumer and other loans and $69.8 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 year ended December 31, 2019, we purchased loans totaling $294.1 million from these entities.  In addition to the loans originated for our portfolio, we originated residential mortgage loans for sale to third parties totaling $269.8 million during the year ended December 31, 2019.

The allowance for loan losses decreased by $7.7 million to $228.1 million at December 31, 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 December 31, 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 $167.2 million, or 4.5%, to $3.85 billion at December 31, 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 $280.1 million, or 1.6%, from $17.58 billion at December 31, 2018 to $17.86 billion at December 31, 2019 primarily driven by increases in interest-bearing checking and money market accounts, partially offset by decreases in time deposit and non-interest checking accounts.  Checking accounts increased $665.8 million to $7.99 billion at December 31, 2019 from $7.32 billion at December 31, 2018.  Core deposits (savings, checking and money market) represented approximately 78% of our total deposit portfolio at December 31, 2019 compared to 74% at December 31, 2018.

Borrowed funds increased by $391.4 million, or 7.2%, to $5.83 billion at December 31, 2019 from $5.44 billion at December 31, 2018 to help fund the growth of the security and loan portfolios and our share repurchases.

Stockholders' equity decreased by $383.4 million to $2.62 billion at December 31, 2019 from $3.01 billion at December 31, 2018, primarily attributed to the repurchase of 39.4 million shares of common stock for $475.9 million and cash dividends of $0.44 per share totaling $122.2 million during the year ended December 31, 2019.  As previously noted, during December 2019, the Company repurchased 27,318,628 shares beneficially owned by Blue Harbour for approximately $335.7 million.  These decreases were partially offset by net income of $195.5 million and share-based plan activity of $26.3 million for the year ended December 31, 2019.  The Bank remains above the FDIC's "well capitalized" standards, with a Tier 1 Leverage Ratio of 8.27% at December 31, 2019.

About the Company

Investors Bancorp, Inc. is the holding company for Investors Bank, which as of December 31, 2019 operated from its corporate headquarters in Short Hills, New Jersey and 147 branches located throughout New Jersey and New York.

Earnings Conference Call January 30, 2020 at 11:00 a.m. (ET)

The Company, as previously announced, will host an earnings conference call on Thursday, January 30, 2020 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/10137873

A telephone replay will be available beginning on January 30, 2020 from 1:00 p.m. (ET) through 9:00 a.m. (ET) on April 30, 2020.  The replay number is (877) 344-7529, password 10137873.  The conference call will also be simultaneously webcast on the Company's website www.investorsbank.comand 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.