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

SHORT HILLS, N.J., April 26, 2018 /PRNewswire/ -- Investors Bancorp, Inc. (NASDAQ: ISBC) ("Company"), the holding company for Investors Bank ("Bank"), reported net income of $57.9 million, or $0.20 per diluted share, for the three months ended March 31, 2018 compared to $46.0 million, or $0.16 per diluted share, for the three months ended March 31, 2017.

The Company also announced today that its Board of Directors declared a cash dividend of $0.09 per share to be paid on May 25, 2018 for stockholders of record as of May 10, 2018.

Kevin Cummings, President and CEO commented, "We are pleased to report strong quarterly net income of $57.9 million, or $0.20 per diluted share, and return on assets of 0.93%.  Expense control efforts, a lower tax rate and strong asset quality metrics helped drive our results despite heightened competition for deposits. During the quarter, we repurchased 4.5 million shares, which demonstrates our continued commitment to efficiently manage capital."

Mr. Cummings also commented, "We completed the acquisition of an experienced equipment leasing team and portfolio this quarter. We feel this acquisition and the launch of our Equipment Finance Group supports our strategic plan to grow and diversify our commercial loan portfolio."

Performance Highlights

• Total assets increased $96.4 million to $25.23 billion at March 31, 2018 from $25.13 billion at December 31, 2017.
  
  
• Net loans increased $499.1 million, or 2.5%, to $20.35 billion at March 31, 2018 from $19.85 billion at December 31, 2017.
  
  
• During February, we completed the acquisition of a $345.8 million equipment finance portfolio, comprised of both loans and leases, which is classified within our commercial and industrial ("C&I") loan portfolio. In connection with the acquisition, we launched an Equipment Finance Group, a seven-person team of professionals, within our C&I team.
  
  
• Net interest income for the three months ended March 31, 2018 was $172.5 million, a 1.3% decrease compared to the three months ended December 31, 2017 driven primarily by interest expense on deposits. Net interest income increased 3.2% for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 driven primarily by loan growth.
  
  
• Deposits decreased $811.4 million from $17.36 billion at December 31, 2017 to $16.55 billion at March 31, 2018, reflecting seasonality, the timing and impact of tax reform on government and municipal deposits and rising interest rates. Government and municipal deposits accounted for approximately 65% of the quarterly deposit decline.
  
  
• Non-interest expenses were $101.1 million for the three months ended March 31, 2018 compared to $109.5 million for the three months ended December 31, 2017. Our efficiency ratio declined to 55.67% for the three months ended March 31, 2018 from 59.85% for the three months ended December 31, 2017. The decrease was primarily driven by professional fees which decreased $4.3 million. Included in the three months ended December 31, 2017 were $5.9 million of severance benefits and branch closure costs from our plan to reduce operating expenses.
  
  
• During the three months ended March 31, 2018, the Company repurchased 4.5 million shares of its outstanding common stock for approximately $61.9 million.

Financial Performance Overview

First Quarter 2018 compared to Fourth Quarter 2017

For the first quarter of 2018, net income totaled $57.9 million, an increase of $62.7 million as compared to a net loss of $4.8 million in the fourth quarter of 2017.  Income before income tax expense increased $9.1 million over the same periods, while the income tax expense decrease was due to the impact of the Tax Cuts and Jobs Act ("Tax Act") in December 2017.⁽¹⁾  The changes in net income on a sequential quarter basis are highlighted below.

Net interest income decreased by $2.2 million, or 1.3%, as compared to the fourth quarter of 2017.  Changes within interest income and expense categories are as follows:

• Interest expense increased $3.5 million, primarily attributed to an increase in the weighted average cost of interest-bearing liabilities of 6 basis points to 1.22% for the three months ended March 31, 2018. Additionally, the average balance of total interest-bearing liabilities increased $141.6 million, or 0.7%, to $19.30 billion.
• An increase in interest and dividend income of $1.3 million, or 0.5%, to $231.6 million as compared to the fourth quarter of 2017 was primarily attributed to a $231.8 million increase in the average balance of net loans resulting from the acquired equipment finance portfolio. Additionally, the weighted average securities yield increased 6 basis points to 2.39%. These increases were partially offset by a 4 basis point decrease in the weighted average loan yield to 4.09%.
• Prepayment penalties, which are included in interest income, totaled $5.2 million for the three months ended March 31, 2018 as compared to $5.7 million for the three months ended December 31, 2017.

Net interest margin decreased 5 basis points to 2.85% for the three months ended March 31, 2018 compared to the three months ended December 31, 2017, primarily driven by the higher costs of interest-bearing deposits.

Total non-interest income was $9.1 million for the three months ended March 31, 2018, an increase of $891,000, or 10.8%, as compared to the three months ended December 31, 2017, primarily driven by gain on sales of other real estate owned which increased $433,000 and income on bank owned life insurance which increased $370,000.

Total non-interest expenses were $101.1 million for the three months ended March 31, 2018, a decrease of $8.4 million, or 7.7%, as compared to the fourth quarter of 2017.  In December 2017, we announced a plan to reduce operating expenses including a workforce reduction and the closure of branches.  This plan resulted in the recognition of $5.9 million of expenses during the three months ended December 31, 2017 attributed to $3.4 million of severance benefits and $2.5 million related to the branch closures.  Excluding these expenses, for the three months ended March 31, 2018, total non-interest expenses decreased $2.5 million primarily driven by professional fees which decreased $4.3 million and advertising and promotional expenses which decreased $1.4 million. Excluding $3.4 million of severance benefits recognized in the fourth quarter of 2017, compensation and fringe benefits increased $3.5 million, primarily due to normal merit and benefit increases.

Income tax expense was $20.1 million for the three months ended March 31, 2018 and $73.7 million for the three months ended December 31, 2017.  The three months ended December 2017 included a $49.2 million increase to income tax expense related to the enactment of the Tax Act.  The effective tax rate was 25.7% for the three months ended March 31, 2018 and 106.9% for the three months ended December 31, 2017.  The decrease in effective tax rate is primarily driven by the enactment of the Tax Act.  Additionally, income tax expense includes the excess tax benefits related to the Company's stock plans of $811,000 for the three months ended March 31, 2018 compared to $144,000 for the three months ended December 31, 2017.

First Quarter 2018 compared to First Quarter 2017

For the first quarter of 2018, net income totaled $57.9 million, an increase of $11.9 million as compared to net income of $46.0 million in the first quarter of 2017.  Income before income tax expense increased $4.7 million over the same periods.  The changes in net income on a year over year quarter basis are highlighted below.

On a year over year basis, net interest income increased by $5.4 million, or 3.2%, as compared to the first quarter of 2017 due to:

• An increase in interest and dividend income of $21.5 million, or 10.2%, to $231.6 million primarily as a result of a $1.19 billion increase in the average balance of net loans from continued loan origination growth as well as the acquired equipment finance portfolio. The weighted average yield on net loans increased 14 basis points to 4.09% primarily driven by higher average yields on new loan origination volume as well as an increase in prepayment penalties.
• Prepayment penalties, which are included in interest income, totaled $5.2 million for the three months ended March 31, 2018 as compared to $3.2 million for the three months ended March 31, 2017.
• Interest expense increased $16.1 million, primarily attributed to an increase in the weighted average cost of interest-bearing liabilities of 26 basis points to 1.22% for the three months ended March 31, 2018. Additionally, the average balance of interest-bearing deposits increased $1.36 billion, or 10.2%, to $14.63 billion for the three months ended March 31, 2018 and the average balance of total borrowed funds increased $47.5 million, or 1.0%, to $4.67 billion.

The net interest margin decreased 10 basis points year over year to 2.85% for the three months ended March 31, 2018 from 2.95% for the three months ended March 31, 2017, primarily driven by higher costs of interest-bearing liabilities.

Total non-interest expenses increased $1.5 million, or 1.5%, year over year.  For the three months ended March 31, 2018, compensation and fringe benefits increased $1.8 million primarily due to normal merit and benefit increases.  Additionally, occupancy expense increased $1.7 million and federal insurance premiums increased $790,000 for the three months ended March 31, 2018.  Partially offsetting these increases, professional fees decreased $3.0 million largely attributable to lower consulting fees associated with risk management and compliance efforts.  

Income tax expense was $20.1 million for the three months ended March 31, 2018 and $27.2 million for the three months ended March 31, 2017.  The effective tax rate was 25.7% for the three months ended March 31, 2018 and 37.2% for the three months ended March 31, 2017.  The decrease in effective tax rate is primarily driven by the enactment of the Tax Act.  Additionally, income tax expense includes the excess tax benefits related to the Company's stock plans of $811,000 for the three months ended March 31, 2018 as compared to $1.3 million for the three months ended March 31, 2017.

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.  For the three months ended March 31, 2018, our provision for loan losses was $2.5 million, compared to $4.5 million for the three months ended December 31, 2017 and $4.0 million for the three months ended March 31, 2017.  For the three months ended March 31, 2018, net charge-offs were $2.3 million compared to net charge-offs of $3.6 million for the three months ended December 31, 2017 and net charge-offs of $1.5 million for the three months ended March 31, 2017.

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 $136.0 million, or 0.66% of total loans, at March 31, 2018 compared to $135.7 million, or 0.68% of total loans, at December 31, 2017.  We continue to proactively and diligently work to resolve our troubled loans.

At March 31, 2018, there were $30.4 million of loans deemed as troubled debt restructured loans ("TDRs"), of which $27.1 million were residential and consumer loans, $1.8 million were commercial and industrial loans, $911,000 were multi-family loans and $659,000 were commercial real estate loans.  TDRs of $12.4 million were classified as accruing and $18.0 million were classified as non-accrual at March 31, 2018.

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 $96.4 million, or 0.4%, to $25.23 billion at March 31, 2018 from December 31, 2017.  Net loans increased $499.1 million, or 2.5%, to $20.35 billion at March 31, 2018, securities decreased $122.6 million, or 3.2%, to $3.66 billion at March 31, 2018, and cash decreased $465.0 million to $153.4 million at March 31, 2018 from December 31, 2017.

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

During February, we completed the acquisition of a $345.8 million equipment finance portfolio, comprised of both loans and leases, which is classified within our C&I portfolio.  During the three months ended March 31, 2018, we originated $344.1 million in multi-family loans, $182.7 million in commercial real estate loans, $175.1 million in commercial and industrial loans, $140.0 million in residential loans, $62.3 million in construction loans and $15.4 million in consumer and other 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. 

We also purchased 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 three months ended March 31, 2018, we purchased loans totaling $85.8 million from these entities.  In addition to the loans originated for our portfolio, our mortgage subsidiary, Investors Home Mortgage Co., originated residential mortgage loans for sale to third parties totaling $5.3 million during the three months ended March 31, 2018.

The allowance for loan losses increased by $175,000 to $231.1 million at March 31, 2018 from $231.0 million at December 31, 2017.  The slight increase in our allowance for loan losses from December 31, 2017 is due to 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.  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 March 31, 2018, our allowance for loan losses as a percent of total loans was 1.12%.

Securities decreased by $122.6 million, or 3.2%, to $3.66 billion at March 31, 2018 from $3.78 billion at December 31, 2017.  This decrease was a result of paydowns, partially offset by purchases.  Bank owned life insurance increased $51.6 million to $207.3 million at March 31, 2018.  During the quarter, we purchased $125.0 million of bank owned life insurance and surrendered $71.1 million of an older policy.  The proceeds from the surrendered policy are included in other assets.   

Goodwill and intangible assets increased $3.9 million to $101.6 million at March 31, 2018.  The acquisition of the equipment finance portfolio was accounted for under the acquisition method of accounting under GAAP, resulting in the recognition of $5.0 million in goodwill. 

Deposits decreased by $811.4 million, or 4.7%, from $17.36 billion at December 31, 2017 to $16.55 billion at March 31, 2018 with approximately 65% of the decrease driven by government and municipal deposits.  The decrease reflects seasonality, the timing and impact of tax reform on government and municipal deposits and rising interest rates.  Checking accounts decreased $658.2 million to $6.68 billion at March 31, 2018 from $7.33 billion at December 31, 2017.  Core deposits (savings, checking and money market) represented approximately 78% of our total deposit portfolio at March 31, 2018 compared to 80% at December 31, 2017.

Borrowed funds increased by $899.7 million, or 20.2%, to $5.36 billion at March 31, 2018 from $4.46 billion at December 31, 2017 primarily as a result of the decline in deposits. 

Stockholders' equity decreased by $33.4 million to $3.09 billion at March 31, 2018 from $3.13 billion at December 31, 2017, primarily attributed to the repurchase of 4.5 million shares of common stock for $61.9 million and cash dividends of $0.09 per share totaling $27.4 million during the three months ended March 31, 2018.  These decreases were partially offset by net income of $57.9 million and share-based plan activity of $7.7 million for the three months ended March 31, 2018.  The Bank remains significantly above FDIC "well capitalized" standards, with a Tier 1 Leverage Ratio of 11.27% at March 31, 2018.

About the Company

Investors Bancorp, Inc. is the holding company for Investors Bank, which as of March 31, 2018 operated from its corporate headquarters in Short Hills, New Jersey and 150 branches located throughout New Jersey and New York.

Earnings Conference Call April 27, 2018 at 11:00 a.m. (ET)

The Company, as previously announced, will host an earnings conference call on Friday, April 27, 2018 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/10118686

A telephone replay will be available beginning on April 27, 2018 from 1:00 p.m. (ET) through 9:00 a.m. (ET) on July 27, 2018.  The replay number is (877) 344-7529, password 10118686.  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.

(1) 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.

SOURCE Investors Bancorp, Inc.