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

SHORT HILLS, N.J., Oct. 28, 2020 /PRNewswire/ -- Investors Bancorp, Inc. (NASDAQ:ISBC) ("Company"), the holding company for Investors Bank ("Bank"), reported net income of $64.3 million, or  $0.27 per diluted share, for the three months ended September 30, 2020 as compared to $42.6 million, or $0.18 per diluted share, for the three months ended June 30, 2020 and $52.0 million, or $0.20 per diluted share, for the three months ended September 30, 2019. 

For the nine months ended September 30, 2020, net income totaled $146.4 million, or $0.62 per diluted share, compared to $146.8 million, or $0.55 per diluted share, for the nine months ended September 30, 2019.

Net income for the three and nine months ended September 30, 2020 was impacted by a provision for credit losses of $8.3 million and $72.8 million, respectively.  The primary driver of our provision for credit losses was the current and forecasted economic conditions that include the estimated impact of the COVID-19 pandemic.

The Company also announced today that its Board of Directors declared a cash dividend of $0.12 per share to be paid on November 25, 2020 for stockholders of record as of November 10, 2020.

Kevin Cummings, Chairman and CEO, commented, "Earnings per share increased 51% quarter over quarter and 12% year-to-date.  Our margin expanded six basis points quarter over quarter, despite a continued drag from an elevated cash position, and our non-interest income improved nicely this quarter."

Mr. Cummings also commented, "We are encouraged by the decline in our deferred loan balances from $4.29 billion or 20% of loans reported in the first quarter to $730 million or 3% of loans as of October 20.  Despite a lower provision for credit losses this quarter, our allowance as a percentage of loans increased nine basis points.  Our delinquent loans and credit quality ratios remained relatively stable and we feel prepared for the continued economic uncertainty ahead."

Performance Highlights

• Net interest margin increased six basis points to 2.79% for the three months ended September 30, 2020 compared to the three months ended June 30, 2020.  Net interest margin continued to be negatively impacted by an elevated cash position during the quarter.
• Cash and cash equivalents were $557.7 million at September 30, 2020 as compared to $735.2 million at June 30, 2020.  Average interest-earning cash and cash equivalents were $978.0 million for the three months ended September 30, 2020 compared with $1.29 billion for the three months ended June 30, 2020.
• Non-interest-bearing deposits increased $304.6 million, or 10.0%, during the three months ended September 30, 2020.  The cost of interest-bearing deposits decreased 9 basis points to 0.84% for the three months ended September 30, 2020 compared to the three months ended June 30, 2020. 
• Total loans decreased $364.2 million, or 1.7%, to $21.00 billion at September 30, 2020 from $21.36 billion at June 30, 2020. 
• The provision for credit losses was $8.3 million for the three months ended September 30, 2020 compared with $33.3 million for the three months ended June 30, 2020.
• Total non-interest income was $19.9 million for the three months ended September 30, 2020, an increase of $9.8 million compared to the three months ended June 30, 2020.
• Total non-interest expenses were $104.1 million for the three months ended September 30, 2020, an increase of $4.0 million, or 4.0%, compared to the three months ended June 30, 2020.  Included in total non-interest expenses were $965,000 of costs from the early extinguishment of $200 million of borrowings during the three months ended September 30, 2020.  The efficiency ratio declined to 51.63% for the three months ended September 30, 2020 from 52.06% for the three months ended June 30, 2020.
• As of October 20, 2020, COVID-19 related loan deferrals totaled $730 million, or 3% of loans, compared to $2.7 billion, or 13% of loans, as of July 22, 2020.
• Non-accrual loans were $132.0 million, or 0.63% of total loans, at September 30, 2020 as compared to $126.8 million, or 0.59% of total loans, at June 30, 2020 and $92.1 million, or 0.42% of total loans, at September 30, 2019.
• Tier 1 Leverage, Common Equity Tier 1 Risk-Based, Tier 1 Risk-Based and Total Risk-Based Capital Ratios were 9.76%, 13.24%, 13.24% and 14.49%, respectively, at September 30, 2020.

Financial Performance Overview

Third Quarter 2020 compared to Second Quarter 2020

For the third quarter of 2020, net income totaled $64.3 million, an increase of $21.7 million as compared to $42.6 million for the second quarter of 2020.  The changes in net income on a sequential quarter basis are highlighted below.

Net interest income decreased by $365,000, or 0.2%, as compared to the second quarter of 2020.  Changes within interest income and expense categories were as follows:

• Interest and dividend income decreased $5.5 million, or 2.2%, to $240.7 million as compared to the second quarter of 2020, primarily attributed to the average balance of net loans, which decreased $487.7 million, mainly as a result of paydowns and payoffs, offset by loan originations. Offsetting this decline was a 4 basis point increase in the weighted average yield on net loans to 4.12%.
• Prepayment penalties, which are included in interest income, totaled $7.4 million for the three months ended September 30, 2020 as compared to $8.1 million for the three months ended June 30, 2020.
• Interest expense decreased $5.1 million, primarily attributed to the average balance of total borrowed funds, which decreased $536.5 million, or 10.7%, to $4.49 billion for the three months ended September 30, 2020 and the average balance of interest-bearing deposits, which decreased $486.9 million, or 2.9%, to $16.21 billion for the three months ended September 30, 2020.  In addition, the weighted average cost of interest-bearing liabilities decreased 4 basis points to 1.14% for the three months ended September 30, 2020.

Net interest margin increased six basis points to 2.79% for the three months ended September 30, 2020 compared to the three months ended June 30, 2020, driven primarily by the lower cost of interest-bearing liabilities and the decline in lower yielding average cash balances.

Total non-interest income was $19.9 million for the three months ended September 30, 2020, an increase of $9.8 million, as compared to $10.1 million for the second quarter of 2020.  The increase in non-interest income was due in part to a $4.2 million increase in fees and service charge income stemming primarily from a $2.6 million charge against our mortgage servicing asset during the second quarter.  In addition, customer swap fee income increased $3.1 million, gain on loans from mortgage banking activity increased $1.7 million and income from wealth and investment products increased $1.3 million.

Total non-interest expenses were $104.1 million for the three months ended September 30, 2020, an increase of $4.0 million, or 4.0%, as compared to the second quarter of 2020.  The change was primarily due to an increase of $4.1 million in compensation and benefit expenses primarily driven by higher incentive compensation expense and medical expense. Included in total non-interest expenses were $965,000 of costs from the early extinguishment of $200 million of borrowings during the three months ended September 30, 2020.

Income tax expense was $24.8 million for the three months ended September 30, 2020 and $16.2 million for the three months ended June 30, 2020.  The effective tax rate was 27.9% for the three months ended September 30, 2020 and 27.6% for the three months ended June 30, 2020. 

Third Quarter 2020 compared to Third Quarter 2019

For the third quarter of 2020, net income totaled $64.3 million, an increase of $12.3 million as compared to $52.0 million in the third quarter of 2019.  The changes in net income on a year over year quarter basis are highlighted below.

On a year over year basis, third quarter of 2020 net interest income increased by $17.2 million, or 10.4%, as compared to the third quarter of 2019 due to:

• Interest expense decreased $41.0 million, or 41.0%, primarily attributed to the weighted average cost of interest-bearing liabilities, which decreased 76 basis points to 1.14% for the three months ended September 30, 2020.  In addition, the average balance of total borrowed funds decreased $1.26 billion, or 21.9%, to $4.49 billion, while the average balance of interest-bearing deposits increased $848.1 million, or 5.5%, to $16.21 billion for the three months ended September 30, 2020. 
• Interest and dividend income decreased $23.9 million, or 9.0%, to $240.7 million, primarily attributed to the weighted average yield on net loans, which decreased 15 basis points to 4.12%. In addition, the average balance of net loans decreased $843.1 million, mainly as a result of paydowns and payoffs, offset by loan originations, including $334.7 million of PPP loans, and $453.3 million of loans acquired from Gold Coast.
• Prepayment penalties, which are included in interest income, totaled $7.4 million for the three months ended September 30, 2020 as compared to $5.2 million for the three months ended September 30, 2019.

Net interest margin increased 26 basis points year over year to 2.79% for the three months ended September 30, 2020 from 2.53% for the three months ended September 30, 2019, driven primarily by the lower cost of interest-bearing liabilities and an increase in prepayment penalties, partially offset by the growth in lower yielding average cash balances. 

Total non-interest income was $19.9 million for the three months ended September 30, 2020, an increase of $5.1 million year over year.  This increase was primarily due to gain on loans, which increased $3.6 million due to a higher volume of mortgage banking loan sales to third parties. 

Total non-interest expenses were $104.1 million for the three months ended September 30, 2020, a decrease of $4.7 million, or 4.3%, year over year.  The decrease was due to a decrease of $3.7 million in compensation and benefit expense driven by lower headcount, stock-based compensation expense and benefits expense.

Income tax expense was $24.8 million for the three months ended September 30, 2020 and $21.0 million for the three months ended September 30, 2019.  The effective tax rate was 27.9% for the three months ended September 30, 2020 and 28.8% for the three months ended September 30, 2019. 

Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019

Net income decreased by $319,000 year over year to $146.4 million for the nine months ended September 30, 2020.  The change in net income year over year is the result of the following:

Net interest income increased by $50.6 million as compared to the nine months ended September 30, 2019 due to:

• Interest expense decreased by $87.4 million, or 29.8%, to $206.1 million for the nine months ended September 30, 2020, as compared to $293.5 million for the nine months ended September 30, 2019, primarily attributed to a decrease in the weighted average cost of interest-bearing liabilities of 57 basis points to 1.30% for the nine months ended September 30, 2020.  In addition, the average balance of total borrowed funds decreased $500.0 million, or 9.0%, to $5.07 billion for the nine months ended September 30, 2020. These decreases were partially offset by the average balance of interest-bearing deposits, which increased $753.2 million, or 4.9%, to $16.08 billion for the nine months ended September 30, 2020.
• Total interest and dividend income decreased by $36.8 million, or 4.7%, to $743.0 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, primarily attributed to the weighted average yield on net loans, which decreased 8 basis points to 4.14% primarily driven by lower average yields on new loan origination volume, partially offset by an increase in prepayment penalties. In addition, the average balance of net loans decreased $438.9 million, mainly from paydowns and payoffs, partially offset by loan originations, including $334.7 million of PPP loans, and $453.3 million of loans acquired from Gold Coast. 
• Prepayment penalties, which are included in interest income, totaled $23.2 million for the nine months ended September 30, 2020, as compared to $11.4 million for the nine months ended September 30, 2019.

Net interest margin increased 22 basis points to 2.74% for the nine months ended September 30, 2020 from 2.52% for the nine months ended September 30, 2019, primarily driven by the lower cost of interest-bearing liabilities, partially offset by the lower yield on interest-earning assets.

Total non-interest income was $44.7 million for the nine months ended September 30, 2020, an increase of $11.8 million as compared to the nine months ended September 30, 2019.  The increase was primarily due to gain on loans, which increased $7.6 million as a result of a higher volume of mortgage banking loan sales to third parties.  In addition, the Company recognized a $5.7 million loss on the sale of securities during the second quarter of 2019.

Total non-interest expenses were $306.6 million for the nine months ended September 30, 2020, a decrease of $9.3 million, or 2.9%, as compared to the nine months ended September 30, 2019.  This decrease was due to a decrease of $8.4 million in compensation and fringe benefit expense, a decrease of $4.0 million in advertising and promotional expense and a decrease of $2.5 million in other non-interest expense.  These decreases were partially offset by an increase of $2.7 million in data processing and communication expense and an increase of $2.0 million in occupancy expense.  Included in non-interest expenses for the nine months ended September 30, 2020 was $3.6 million of Gold Coast acquisition-related expenses.

Income tax expense was $55.7 million for the nine months ended September 30, 2020 compared to $59.1 million for the nine months ended September 30, 2019.  The effective tax rate was 27.6% for the nine months ended September 30, 2020 and 28.7% for the nine months ended September 30, 2019. 

Asset Quality

On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL"). CECL requires the measurement of all expected credit losses over the life of financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.  CECL replaced the incurred loss methodology and therefore, the allowance and provision for credit losses is based upon estimated expected credit losses rather than incurred losses.

Our provision for credit losses is primarily a result of the expected credit losses on our loans, unfunded commitments and held-to-maturity debt securities over the life of these financial instruments, including the inherent credit risk in these financial instruments, the composition of and changes in our portfolios of these financial instruments, and the level of charge-offs.  At September 30, 2020, our allowance for credit losses and related quarterly provision continue to be affected by the impact of COVID-19 on the current and forecasted economic conditions.  For the three months ended September 30, 2020, our provision for credit losses was $8.3 million, compared to $33.3 million for the three months ended June 30, 2020 and a negative provision of $2.5 million for the three months ended September 30, 2019.  For the three months ended September 30, 2020, net charge-offs were $667,000 compared to net charge-offs of $4.1 million for the three months ended June 30, 2020 and net charge-offs of $1.5 million for the three months ended September 30, 2019.  Our provision was $72.8 million for the nine months ended September 30, 2020 compared to a negative provision of $2.5 million for the nine months ended September 30, 2019.  For the nine months ended September 30, 2020, net charge-offs were $12.8 million compared to $5.3 million for the nine months ended September 30, 2019.

Total non-accrual loans were $132.0 million, or 0.63% of total loans, at September 30, 2020 compared to $126.8 million, or 0.59% of total loans, at June 30, 2020 and $95.2 million, or 0.44% of total loans, at December 31, 2019.  We continue to proactively and diligently work to resolve our troubled loans.

At September 30, 2020, there were $35.7 million of loans deemed as troubled debt restructured loans ("TDRs"), of which $26.5 million were residential and consumer loans, $3.8 million were commercial and industrial loans and $5.4 million were commercial real estate loans.  TDRs of $9.8 million were classified as accruing and $25.9 million were classified as non-accrual at September 30, 2020.

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

Balance Sheet Summary

Total assets decreased $91.8 million, or 0.3%, to $26.61 billion at September 30, 2020 from December 31, 2019.  Cash and cash equivalents increased $382.8 million to $557.7 million at September 30, 2020.  Securities increased $224.0 million, or 5.8%, to $4.07 billion at September 30, 2020.  Net loans decreased $778.0 million, or 3.6%, to $20.70 billion at September 30, 2020.

The detail of the loan portfolio is below:

During the nine months ended September 30, 2020, we originated $814.3 million in commercial and industrial loans (including $334.7 million of PPP loans), $733.9 million in multi-family loans, $447.8 million in residential loans, $368.9 million in commercial real estate loans, $67.3 million in consumer and other loans and $59.0 million in construction loans. Our originations reflect our continued focus on diversifying our loan portfolio.  In addition, we acquired $453.3 million of loans from Gold Coast on April 3, 2020.  Our loans are primarily on properties and businesses located in New Jersey and New York.

In addition to the loans originated for our portfolio, we originated residential mortgage loans for sale to third parties totaling $410.5 million during the nine months ended September 30, 2020.  As of September 30, 2020, loans held for sale were $20.0 million.

The allowance for loan losses increased by $59.4 million to $287.5 million at September 30, 2020 from $228.1 million at December 31, 2019.  The increase of $59.4 million reflects an increase of $71.5 million from the provision for credit losses related to our loan portfolio and an increase of $4.2 million from acquired loans accounted for as PCD loans, partially offset by a decrease of $12.8 million resulting from net charge-offs and a decrease of $3.6 million upon CECL adoption.  Our allowance for loan losses was significantly affected by the impact of COVID-19 on current and forecasted economic conditions.  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 current and forecasted economic conditions over the life of our loans.  At September 30, 2020, our allowance for loan losses as a percent of total loans was 1.37%, an increase from 1.05% at December 31, 2019 which was driven by the factors noted above.

Securities increased by $224.0 million, or 5.8%, to $4.07 billion at September 30, 2020 from $3.85 billion at December 31, 2019.  This increase was primarily a result of purchases, partially offset by paydowns.  At September 30, 2020, our allowance for credit losses on held-to-maturity debt securities was $3.1 million.

Deposits increased by $1.24 billion, or 7.0%, to $19.10 billion at September 30, 2020 from $17.86 billion at December 31, 2019 primarily driven by increases in checking and money market deposits, offset by a decrease in time deposits.  Checking accounts increased $1.06 billion to $9.04 billion at September 30, 2020 from $7.99 billion at December 31, 2019.  Core deposits (savings, checking and money market) represented approximately 81% of our total deposit portfolio at September 30, 2020 compared to 78% at December 31, 2019.

Borrowed funds decreased by $1.52 billion, or 26.1%, to $4.31 billion at September 30, 2020 from $5.83 billion at December 31, 2019 primarily driven by the increase in deposits.  The decrease includes the early extinguishment of $400 million of borrowings during the second and third quarters of 2020.

Other liabilities increased by $115.8 million, or 141.6%, to $197.7 million at September 30, 2020 from $81.8 million at December 31, 2019 primarily driven by increases in income taxes payable and our allowance for credit losses on unfunded commitments, as well as a commitment to purchase investment securities.  At September 30, 2020, our allowance for credit losses on unfunded commitments was $13.9 million.

Stockholders' equity increased by $47.8 million to $2.67 billion at September 30, 2020 from $2.62 billion at December 31, 2019, primarily attributed to net income of $146.4 million, common stock issued to finance the Gold Coast acquisition of $20.9 million and share-based plan activity of $14.5 million for the nine months ended September 30, 2020.  These increases were partially offset by other comprehensive loss of $32.4 million and cash dividends of $0.36 per share totaling $89.7 million during the nine months ended September 30, 2020.  In addition, stockholders' equity decreased by $8.5 million on January 1, 2020 in connection with the adoption of CECL.  The Company remains above the FDIC's "well capitalized" standards, with a Common Equity Tier 1 Risk-Based Ratio of 13.24% at September 30, 2020.

About the Company

Investors Bancorp, Inc. is the holding company for Investors Bank, which as of September 30, 2020 operated from its corporate headquarters in Short Hills, New Jersey and 155 branches located throughout New Jersey and New York.

Earnings Conference Call October 29, 2020 at 11:00 a.m. (ET)

The Company, as previously announced, will host an earnings conference call on Thursday, October 29, 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/10148558

A telephone replay will be available beginning on October 29, 2020 from 1:00 p.m. (ET) through 9:00 a.m. (ET) on January 29, 2021.  The replay number is (877) 344-7529, password 10148558.  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.  Further, given its ongoing and dynamic nature, it is difficult to predict what the continuing effects of the COVID-19 pandemic will have on our business and results of operations. The pandemic and related local and national economic disruption may, among other effects, continue to result in a material adverse change for the demand for our products and services; increased levels of loan delinquencies, problem assets and foreclosures; branch disruptions, unavailability of personnel and increased cybersecurity risks as employees work remotely.

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.