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

SHORT HILLS, N.J., July 29, 2020 /PRNewswire/ -- Investors Bancorp, Inc. (NASDAQ: ISBC) ("Company"), the holding company for Investors Bank ("Bank"), reported net income of $42.6 million, or  $0.18 per diluted share, for the three months ended June 30, 2020 as compared to $39.5 million, or $0.17 per diluted share, for the three months ended March 31, 2020 and $46.6 million, or $0.18 per diluted share, for the three months ended June 30, 2019. 

For the six months ended June 30, 2020, net income totaled $82.1 million, or $0.35 per diluted share, compared to $94.8 million, or $0.36 per diluted share, for the six months ended June 30, 2019.

Net income for the three and six months ended June 30, 2020 was impacted by a provision for credit losses of $33.3 million and $64.5 million, respectively.  The primary driver of the increase in 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 August 25, 2020 for stockholders of record as of August 10, 2020.

Kevin Cummings, Chairman and CEO, commented, "Amidst continued economic uncertainty caused by the COVID-19 pandemic, the Company is working tirelessly to provide essential banking services both digitally and in a safe, physical environment.  I am incredibly proud of the way our employees have been supporting our customers and communities during these unprecedented times.  Earnings before income taxes and provision for credit losses were strong and increased by 8% for the quarter and 34% year-to-date."

Mr. Cummings also commented, "We are encouraged by the decline in our deferred commercial loan balances from $3.58 billion or 23% of commercial loans reported in the first quarter to $2.20 billion or 14% of commercial loans as of July 22.  We are optimistic that we will see continued improvement.  In addition, our margin expanded two basis points quarter over quarter, despite an approximate 10 basis point drag from an elevated cash position driven by strong quarterly deposit inflows."

Performance Highlights

• Earnings before income taxes and provision for credit losses were $92.1 million for the three months ended June 30, 2020, an increase of $6.7 million, or 7.9%, compared to the three months ended March 31, 2020 and an increase of $29.8 million, or 47.7%, compared to the three months ended June 30, 2019.
• Net interest margin increased two basis points to 2.73% for the three months ended June 30, 2020 compared to the three months ended March 31, 2020. Net interest margin was negatively impacted by an elevated cash position during the quarter.
• Cash and cash equivalents were $735.2 million at June 30, 2020 as compared to $672.0 million at March 31, 2020. Average cash and cash equivalents were $1.29 billion for the three months ended June 30, 2020 as compared to $368.0 million for the three months ended March 31, 2020. During the second quarter of 2020, the Company maintained a significantly higher cash and cash equivalents balance than during the first quarter of 2020 with the balance moderating at June 30, 2020 compared to the average balance during the quarter.
• The cost of interest-bearing deposits decreased 46 basis points to 0.93% for the three months ended June 30, 2020 compared to the three months ended March 31, 2020.
• Total deposits increased $1.30 billion, or 7.2%, to $19.49 billion at June 30, 2020 from $18.18 billion at March 31, 2020. Non-interest deposits increased $617.6 million, or 25.5%, during the three months ended June 30, 2020. The loan to deposit ratio declined from 117.1% at March 31, 2020 to 109.6% at June 30, 2020.
• Total loans increased $75.9 million, or 0.4%, to $21.36 billion at June 30, 2020 from $21.29 billion at March 31, 2020. Commercial and industrial loans increased $373.4 million, or 12.2%, during the three months ended June 30, 2020. At June 30, 2020, commercial and industrial loans included $328.5 million of loans originated through the Small Business Administration's Paycheck Protection Program ("PPP").
• As of July 22, 2020, of the $2.07 billion of commercial loans ending their COVID-19 related deferral period, $1.42 billion returned to current payment status. As of July 22, 2020, COVID-19 related commercial deferrals totaled $2.20 billion.
• Non-accrual loans were $126.8 million, or 0.59% of total loans, at June 30, 2020 as compared to $98.3 million, or 0.46% of total loans, at March 31, 2020 and $111.6 million, or 0.51% of total loans, at June 30, 2019.
• Total non-interest income was $10.1 million for the three months ended June 30, 2020, a decrease of $4.5 million compared to the three months ended March 31, 2020.
• Total non-interest expenses were $100.0 million for the three months ended June 30, 2020, a decrease of $2.5 million, or 2.5%, compared to the three months ended March 31, 2020. The efficiency ratio declined to 52.06% for the three months ended June 30, 2020 from 54.57% for the three months ended March 31, 2020. Included in non-interest expenses for the three months ended June 30, 2020 were $3.3 million of Gold Coast related acquisition expenses.
• Tier 1 Leverage, Common Equity Tier 1 Risk-Based, Tier 1 Risk-Based and Total Risk-Based Capital Ratios were 9.36%, 13.06%, 13.06% and 14.31%, respectively, at June 30, 2020.
• The Company completed its acquisition of Gold Coast Bancorp, Inc. ("Gold Coast") on April 3, 2020. Inclusive of purchase accounting adjustments, the Company acquired $535.3 million in total assets, $443.5 million in net loans and $489.9 million in total deposits. The acquisition resulted in the recognition of $12.0 million of goodwill, $2.5 million of a core deposit intangible and $3.3 million of acquisition-related expense during the three months ended June 30, 2020.

Financial Performance Overview

Second Quarter 2020 compared to First Quarter 2020

For the second quarter of 2020, net income totaled $42.6 million, an increase of $3.1 million as compared to $39.5 million for the first quarter of 2020.  The changes in net income on a sequential quarter basis are highlighted below.

Net interest income increased by $8.7 million, or 5.0%, as compared to the first quarter of 2020.  Changes within interest income and expense categories were as follows:

• Interest expense decreased $18.6 million, primarily attributed to the weighted average cost of interest-bearing liabilities, which decreased 40 basis points to 1.18% for the three months ended June 30, 2020. In addition, the average balance of total borrowed funds decreased $651.2 million, or 11.5%, to $5.03 billion for the three months ended June 30, 2020. These decreases were partially offset by an increase of $1.36 billion, or 8.9%, in the average balance of interest-bearing deposits to $16.70 billion for the three months ended June 30, 2020.
• Interest and dividend income decreased $9.9 million, or 3.9%, to $246.2 million as compared to the first quarter of 2020, primarily attributed to a 15 basis point decrease in the weighted average yield on net loans to 4.08%. The average balance of net loans increased $140.0 million, mainly as a result of loan originations, including $328.5 million of PPP loans, and $453.3 million of loans acquired from Gold Coast, partially offset by paydowns and payoffs.
• Prepayment penalties, which are included in interest income, totaled $8.1 million for the three months ended June 30, 2020 as compared to $7.6 million for the three months ended March 31, 2020.

Net interest margin increased two basis points to 2.73% for the three months ended June 30, 2020 compared to the three months ended March 31, 2020, driven primarily by the lower cost of interest-bearing liabilities and an increase in prepayment penalties, partially offset by the lower yield on interest-earning assets.

Total non-interest income was $10.1 million for the three months ended June 30, 2020, a decrease of $4.5 million, as compared to $14.7 million for the first quarter of 2020.  The decrease in non-interest income was primarily due to a $4.7 million decrease in fees and service charge income which reflected a $2.6 million increase in the valuation allowance on our mortgage servicing asset as a result of the current environment as well as a reduction in fees due to lower transaction volumes.

Total non-interest expenses were $100.0 million for the three months ended June 30, 2020, a decrease of $2.5 million, or 2.5%, as compared to the first quarter of 2020.  The change was primarily due to a decrease of $4.6 million in compensation and benefit expenses predominately due to a reduction in incentive compensation and benefit expense.  Partially offsetting this decrease is an increase of $2.1 million in data processing and communication expense.  Included in non-interest expenses for the three months ended June 30, 2020 were $3.3 million of Gold Coast acquisition-related expenses.

Income tax expense was $16.2 million for the three months ended June 30, 2020 and $14.6 million for the three months ended March 31, 2020.  The effective tax rate was 27.6% for the three months ended June 30, 2020 and 27.0% for the three months ended March 31, 2020. 

Second Quarter 2020 compared to Second Quarter 2019

For the second quarter of 2020, net income totaled $42.6 million, a decrease of $4.0 million as compared to $46.6 million in the second quarter of 2019.  The changes in net income on a year over year quarter basis are highlighted below.

On a year over year basis, second quarter of 2020 net interest income increased by $22.8 million, or 14.3%, as compared to the second quarter of 2019 due to:

• Interest expense decreased $35.7 million, or 35.7%, primarily attributed to the weighted average cost of interest-bearing liabilities, which decreased 73 basis points to 1.18% for the three months ended June 30, 2020. In addition, the average balance of total borrowed funds decreased $677.1 million, or 11.9%, to $5.03 billion, while the average balance of interest-bearing deposits increased $1.47 billion, or 9.7%, to $16.70 billion for the three months ended June 30, 2020.
• Interest and dividend income decreased $12.9 million, or 5.0%, to $246.2 million, primarily attributed to the weighted average yield on net loans, which decreased 13 basis points to 4.08%. The average balance of net loans decreased $242.0 million, mainly as a result of paydowns and payoffs, partially offset by loan originations, including $328.5 million of PPP loans, and $453.3 million of loans acquired from Gold Coast.
• Prepayment penalties, which are included in interest income, totaled $8.1 million for the three months ended June 30, 2020 as compared to $2.6 million for the three months ended June 30, 2019.

Net interest margin increased 26 basis points year over year to 2.73% for the three months ended June 30, 2020 from 2.47% for the three months ended June 30, 2019, driven primarily by the lower cost of interest-bearing liabilities and an increase in prepayment penalties, partially offset by the lower yield on interest-earning assets.

Total non-interest income was $10.1 million for the three months ended June 30, 2020, an increase of $3.2 million year over year.  This increase was primarily due to a $5.7 million loss on the sale of securities during the second quarter of 2019.  In addition, gain on loans increased $2.5 million due to a higher volume of mortgage banking loan sales to third parties.  These increases were partially offset by a decrease of $4.3 million in fees and service charge income which reflected a $2.6 million increase in the valuation allowance on our mortgage servicing asset as a result of the current environment as well as a reduction in fees due to lower transaction volumes.

Total non-interest expenses were $100.0 million for the three months ended June 30, 2020, a decrease of $3.8 million, or 3.6%, year over year.  The decrease was due to a decrease of $4.1 million in compensation and benefit expense, a $2.1 million decrease in other non-interest expense and a decrease of $2.1 million in advertising and promotional expense. Partially offsetting these decreases are an increase of $2.3 million in data processing and communication expense and an increase of $1.0 million in occupancy expense.  Included in non-interest expenses for the three months ended June 30, 2020 were $3.3 million of Gold Coast acquisition-related expenses.

Income tax expense was $16.2 million for the three months ended June 30, 2020 and $18.7 million for the three months ended June 30, 2019.  The effective tax rate was 27.6% for the three months ended June 30, 2020 and 28.6% for the three months ended June 30, 2019. 

Six Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019

Net income decreased by $12.7 million year over year to $82.1 million for the six months ended June 30, 2020.  The change in net income year over year is the result of the following:

Net interest income increased by $33.4 million as compared to the six months ended June 30, 2019 due to:

• Interest expense decreased by $46.4 million, or 24.0%, to $147.0 million for the six months ended June 30, 2020, as compared to $193.4 million for the six months ended June 30, 2019, primarily attributed to a decrease in the weighted average cost of interest-bearing liabilities of 48 basis points to 1.38% for the six months ended June 30, 2020. In addition, the average balance of total borrowed funds decreased $114.0 million, or 2.1%, to $5.36 billion for the six months ended June 30, 2020, while the average balance of interest-bearing deposits increased $705.3 million, or 4.6%, to $16.02 billion.
• Total interest and dividend income decreased by $13.0 million, or 2.5%, to $502.3 million for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019, primarily attributed to the weighted average yield on net loans, which decreased 5 basis points to 4.15% primarily driven by lower average yields on new loan origination volume, partially offset by an increase in prepayment penalties. The average balance of net loans decreased $234.3 million, mainly from paydowns and payoffs, partially offset by loan originations, including $328.5 million of PPP loans, and $453.3 million of loans acquired from Gold Coast.
• Prepayment penalties, which are included in interest income, totaled $15.8 million for the six months ended June 30, 2020, as compared to $6.3 million for the six months ended June 30, 2019.

Net interest margin increased 21 basis points to 2.72% for the six months ended June 30, 2020 from 2.51% for the six months ended June 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 $24.8 million for the six months ended June 30, 2020, an increase of $6.6 million as compared to the six months ended June 30, 2019.  The increase was primarily due to a $5.7 million loss on the sale of securities during the second quarter of 2019.  In addition, gain on loans increased $4.0 million due to a higher volume of mortgage banking loan sales to third parties.  Partially offsetting these increases, fee and service charge income decreased $3.6 million which reflected a $2.6 million increase in the valuation allowance on our mortgage servicing asset as a result of the current environment as well as a reduction in fees due to lower transaction volumes.

Total non-interest expenses were $202.6 million for the six months ended June 30, 2020, a decrease of $4.6 million, or 2.2%, as compared to the six months ended June 30, 2019.  This decrease was due to a decrease of $4.7 million in compensation and fringe benefit expense, a decrease of $3.3 million in advertising and promotional expense and a decrease of $2.8 million in other non-interest expense.  These decreases were partially offset by an increase of $2.1 million in data processing and communication expense, an increase of $1.9 million in professional fees and an increase of $1.2 million in federal insurance premiums. Included in non-interest expenses for the six months ended June 30, 2020 were $3.6 million of Gold Coast acquisition-related expenses.

Income tax expense was $30.9 million for the six months ended June 30, 2020 compared to $38.0 million for the six months ended June 30, 2019.  The effective tax rate was 27.3% for the six months ended June 30, 2020 and 28.6% for the six months ended June 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 replaces the incurred loss methodology and therefore, the allowance and provision for credit losses is based upon estimated expected credit losses rather than incurred losses. In connection with the adoption of CECL, the Company recognized a cumulative effect adjustment that reduced stockholders' equity by $8.5 million, net of tax. At adoption, the Company increased its allowance for credit losses by $11.7 million, comprised of $12.7 million and $2.6 million, respectively, for unfunded commitments and held-to-maturity debt securities, partially offset by a decrease of $3.6 million for loans.

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 growth and composition of our portfolios of these financial instruments, and the level of charge-offs.  At June 30, 2020, our allowance for credit losses and related quarterly provision were significantly affected by the impact of COVID-19 on the current and forecasted economic conditions.  For the three months ended June 30, 2020, our provision for credit losses was $33.3 million, compared to $31.2 million for the three months ended March 31, 2020 and a negative provision of $3.0 million for the three months ended June 30, 2019.  For the three months ended June 30, 2020, net charge-offs were $4.1 million compared to net charge-offs of $8.0 million for the three months ended March 31, 2020 and net recoveries of $220,000 for the three months ended June 30, 2019.  Our provision was $64.5 million for the six months ended June 30, 2020 and we recorded no provision for the six months ended June 30, 2019.  For the six months ended June 30, 2020, net charge-offs were $12.1 million compared to $3.9 million for the six months ended June 30, 2019.

Total non-accrual loans were $126.8 million, or 0.59% of total loans, at June 30, 2020 compared to $98.3 million, or 0.46% of total loans, at March 31, 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 June 30, 2020, there were $36.2 million of loans deemed as troubled debt restructured loans ("TDRs"), of which $25.9 million were residential and consumer loans, $6.7 million were commercial and industrial loans and $3.6 million were commercial real estate loans.  TDRs of $12.2 million were classified as accruing and $24.0 million were classified as non-accrual at June 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 increased $495.4 million, or 1.9%, to $27.19 billion at June 30, 2020 from December 31, 2019.  Cash and cash equivalents increased $560.3 million to $735.2 million at June 30, 2020 as a result of management's focus on strong liquidity in light of the COVID-19 pandemic.  Securities increased $240.9 million, or 6.3%, to $4.09 billion at June 30, 2020.  Net loans decreased $397.4 million, or 1.9%, to $21.08 billion at June 30, 2020.

The detail of the loan portfolio is below:

During the six months ended June 30, 2020, we originated $651.7 million in commercial and industrial loans (including $328.5 million of PPP loans), $382.9 million in multi-family loans, $275.8 million in residential loans, $203.6 million in commercial real estate loans, $43.6 million in consumer and other loans and $34.0 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.  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 $280.2 million during the six months ended June 30, 2020.  As of June 30, 2020, loans held for sale were $39.8 million.

The allowance for loan losses increased by $45.2 million to $273.3 million at June 30, 2020 from $228.1 million at December 31, 2019.  The increase of $45.2 million reflects a decrease of $3.6 million upon CECL adoption, a decrease of $12.1 million resulting from net charge-offs, an increase of $4.2 million from acquired loans accounted for as PCD loans and an increase of $56.7 million from the provision for credit losses related to our loan portfolio.  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 June 30, 2020, our allowance for loan losses as a percent of total loans was 1.28%, an increase from 1.05% at December 31, 2019 which was driven by the factors noted above.

Securities increased by $240.9 million, or 6.3%, to $4.09 billion at June 30, 2020 from $3.85 billion at December 31, 2019.  This increase was primarily a result of purchases, partially offset by paydowns.  At June 30, 2020, our allowance for credit losses on held-to-maturity debt securities was $3.2 million.

Deposits increased by $1.63 billion, or 9.1%, to $19.49 billion at June 30, 2020 from $17.86 billion at December 31, 2019 primarily driven by increases in checking, money market and time deposits.  Checking accounts increased $907.6 million to $8.89 billion at June 30, 2020 from $7.99 billion at December 31, 2019.  Core deposits (savings, checking and money market) represented approximately 78% of our total deposit portfolio at June 30, 2020 compared to 78% at December 31, 2019.

Borrowed funds decreased by $1.20 billion, or 20.5%, to $4.63 billion at June 30, 2020 from $5.83 billion at December 31, 2019 primarily driven by the increase in deposits.  The decrease includes the early extinguishment of $200 million of borrowings during the second quarter of 2020.

Other liabilities increased by $60.1 million, or 73.4%, to $141.9 million at June 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.  At June 30, 2020, our allowance for credit losses on unfunded commitments was $20.2 million.

Stockholders' equity increased by $1.0 million to $2.62 billion at June 30, 2020 from $2.62 billion at December 31, 2019, primarily attributed to net income of $82.1 million, common stock issued to finance the Gold Coast acquisition of $20.9 million and share-based plan activity of $10.1 million for the six months ended June 30, 2020.  These increases were partially offset by other comprehensive loss of $40.6 million and cash dividends of $0.24 per share totaling $59.7 million during the six months ended June 30, 2020.  In addition, stockholders' equity decreased by $8.5 million on January 1, 2020 in connection with the adoption of CECL.  The Bank remains above the FDIC's "well capitalized" standards, with a Common Equity Tier 1 Risk-Based Ratio of 13.06% at June 30, 2020.

About the Company

Investors Bancorp, Inc. is the holding company for Investors Bank, which as of June 30, 2020 operated from its corporate headquarters in Short Hills, New Jersey and 154 branches located throughout New Jersey and New York.

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

The Company, as previously announced, will host an earnings conference call on Thursday, July 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/10145821

A telephone replay will be available beginning on July 30, 2020 from 1:00 p.m. (ET) through 9:00 a.m. (ET) on October 30, 2020.  The replay number is (877) 344-7529, password 10145821.  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.  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.

Contact:      Marianne Wade
(973) 924-5100
investorrelations@investorsbank.com