ISBC Investors Bancorp Inc

SHORT HILLS, N.J., July 28, 2021 /PRNewswire/ -- Investors Bancorp, Inc. (NASDAQ: ISBC) ("Company"), the holding company for Investors Bank ("Bank"), reported net income of $79.8 million, or  $0.34 per diluted share, for the three months ended June 30, 2021 as compared to $72.3 million, or $0.31 per diluted share, for the three months ended March 31, 2021 and $42.6 million, or $0.18 per diluted share, for the three months ended June 30, 2020. 

For the six months ended June 30, 2021, net income totaled $152.1 million, or $0.64 per diluted share, compared to $82.1 million, or $0.35 per diluted share, for the six months ended June 30, 2020.

The Company also announced today that its Board of Directors declared a cash dividend of $0.14 per share to be paid on August 25, 2021 for stockholders of record as of August 10, 2021.

Kevin Cummings, Chairman and CEO, commented, "It was an impressive quarter for the bank as we continued our solid start to 2021.  Net income and diluted earnings per share for the quarter were at record highs with return on average assets at 1.22% and return on average tangible equity at 12%."

Mr. Cummings also commented, "Our net interest margin expanded by 21 basis points quarter-over-quarter to 3.11% as deposit costs continued to drop and loan prepayments rebounded nicely. It was the third straight quarter that our return on average assets was at least 1% and our return on average equity was at least 10%.  In addition, our credit quality remains strong as our non-accrual loans have decreased to 0.36% of total loans from 0.59% a year ago."

Performance Highlights

• Return on average assets and return on average equity improved to 1.22% and 11.42%, respectively, for the three months ended June 30, 2021.
• Net interest margin increased 21 basis points to 3.11% for the three months ended June 30, 2021 compared to the three months ended March 31, 2021 driven by higher prepayment penalties and the lower cost of interest-bearing liabilities. Net interest margin excluding prepayment penalties increased 8 basis points.
• Provision for credit losses was a negative $9.7 million for the three months ended June 30, 2021 compared with a negative $3.0 million for the three months ended March 31, 2021. The Company recorded net recoveries of $807,000 during the quarter ended June 30, 2021 compared to net recoveries of $1.7 million during the quarter ended March 31, 2021. The allowance for loan losses as a percent of total loans was 1.26% at June 30, 2021 compared to 1.36% at March 31, 2021.
• Total non-interest income was $13.1 million for the three months ended June 30, 2021, a decrease of $6.9 million compared to the three months ended March 31, 2021 and an increase of $2.9 million compared to the three months ended June 30, 2020.
• Total non-interest expenses were $108.4 million for the three months ended June 30, 2021, an increase of $4.1 million compared to the three months ended March 31, 2021. Included in non-interest expenses for the second quarter were $1.7 million of acquisition-related costs.
• Non-interest-bearing deposits increased $332.5 million, or 8.7%, during the three months ended June 30, 2021. The cost of interest-bearing deposits decreased 11 basis points to 0.43% for the three months ended June 30, 2021 compared to the three months ended March 31, 2021.
• Total loans increased $494.8 million, or 2.4%, to $21.37 billion during the three months ended June 30, 2021. Multi-family loans increased $335.6 million, or 4.6%, and C&I loans increased $124.4 million, or 3.4%, during the three months ended June 30, 2021.
• At June 30, 2021, COVID-19 related loan deferrals totaled $599 million, or 2.8% of loans, compared to $693 million, or 3.3% of loans, as of March 31, 2021. Approximately 87% of borrowers with a loan payment deferral are making interest payments.
• Non-accrual loans decreased to $77.6 million, or 0.36% of total loans, at June 30, 2021 as compared to $83.3 million, or 0.40% of total loans, at March 31, 2021 and $126.8 million, or 0.59% of total loans, at June 30, 2020.
• Tier 1 Leverage, Common Equity Tier 1 Risk-Based, Tier 1 Risk-Based and Total Risk-Based Capital Ratios were 10.61%, 13.17%, 13.17% and 14.48%, respectively, at June 30, 2021.
• During July 2021, the Company received approval from the FDIC for the previously announced purchase of Berkshire Bank's New Jersey and eastern Pennsylvania branches. The Company expects to complete the transaction in the third quarter.

Financial Performance Overview

Second Quarter 2021 compared to First Quarter 2021

For the second quarter of 2021, net income totaled $79.8 million, an increase of $7.5 million as compared to $72.3 million for the first quarter of 2021.  The changes in net income on a sequential quarter basis are highlighted below.

Net interest income increased by $14.0 million, or 7.7%, as compared to the first quarter of 2021.  Changes within interest income and expense categories were as follows:

• Interest and dividend income increased $11.3 million, or 5.1%, to $231.9 million as compared to the first quarter of 2021, primarily attributable to the weighted average yield on net loans which increased 19 basis points to 4.07% including the impact of higher prepayment penalties. In addition, the average balance of net loans increased $286.3 million, mainly as a result of loan originations, partially offset by paydowns and payoffs.
• Prepayment penalties, which are included in interest income, totaled $10.8 million for the three months ended June 30, 2021 as compared to $2.3 million for the three months ended March 31, 2021.
• Interest expense decreased $2.7 million, primarily attributed to the weighted average cost of interest-bearing liabilities which decreased 5 basis points to 0.79% for the three months ended June 30, 2021. In addition, the average balance of interest-bearing deposits decreased $914.0 million, or 5.9%, to $14.71 billion for the three months ended June 30, 2021, while the average balance of total borrowed funds increased $584.3 million, or 17.0%, to $4.02 billion for the three months ended June 30, 2021.

Net interest margin increased 21 basis points to 3.11% for the three months ended June 30, 2021 compared to the three months ended March 31, 2021, driven primarily by higher prepayment penalties and the lower cost of interest-bearing liabilities.  Excluding prepayment penalties, net interest margin increased 8 basis points for the three months ended June 30, 2021.

Total non-interest income was $13.1 million for the three months ended June 30, 2021, a decrease of $6.9 million, as compared to $20.0 million for the first quarter of 2021.  The decrease in non-interest income was due primarily to a decrease of $2.5 million in gain on loans due to a lower volume of mortgage banking loan sales to third parties, a decline of $1.8 million in customer swap fee income, a decrease of $1.0 million in fees and service charges related to our mortgage servicing rights valuation, a decline of $639,000 in gains on our equipment finance portfolio and a decrease of $586,000 in PPP referral income during the three months ended June 30, 2021. 

Total non-interest expenses were $108.4 million for the three months ended June 30, 2021, an increase of $4.1 million compared to the three months ended March 31, 2021.  The increase was primarily driven by an increase of $2.8 million in other operating expenses and an increase of $2.1 million in professional fees. Included in non-interest expenses for the second quarter were $1.7 million of acquisition-related costs.

Income tax expense was $29.2 million for the three months ended June 30, 2021 and $27.1 million for the three months ended March 31, 2021. The effective tax rate was 26.8% for the three months ended June 30, 2021 and 27.3% for the three months ended March 31, 2021.

Second Quarter 2021 compared to Second Quarter 2020

For the second quarter of 2021, net income totaled $79.8 million, an increase of $37.2 million as compared to $42.6 million in the second quarter of 2020.  The changes in net income on a year over year quarter basis are highlighted below.

On a year over year basis, second quarter of 2021 net interest income increased by $12.7 million, or 7.0%, as compared to the second quarter of 2020 due to:

• Interest expense decreased $27.1 million, or 42.2%, primarily attributed to the weighted average cost of interest-bearing liabilities, which decreased 39 basis points to 0.79% for the three months ended June 30, 2021. In addition, the average balance of total borrowed funds decreased $1.01 billion, or 20.1%, to $4.02 billion and the average balance of interest-bearing deposits decreased $1.98 billion, or 11.9%, to $14.71 billion for the three months ended June 30, 2021.
• Interest and dividend income decreased $14.4 million, or 5.8%, to $231.9 million, primarily attributed to the average balance of net loans which decreased $589.4 million, mainly as a result of paydowns and payoffs, offset by loan originations. In addition, the weighted average yield on securities decreased 62 basis points to 1.94% and the weighted average yield on net loans decreased 1 basis point to 4.07%.
• Prepayment penalties, which are included in interest income, totaled $10.8 million for the three months ended June 30, 2021 as compared to $8.1 million for the three months ended June 30, 2020.

Net interest margin increased 38 basis points year over year to 3.11% for the three months ended June 30, 2021 from 2.73% for the three months ended June 30, 2020, driven primarily by the lower cost of interest-bearing liabilities.

Total non-interest income was $13.1 million for the three months ended June 30, 2021, an increase of $2.9 million year over year.  The increase was due primarily to an increase of $3.5 million in fees and service charges primarily related to our mortgage servicing rights valuation and an increase of $2.1 million in income from our wealth and investment products, partially offset by a decrease of $2.3 million in gain on loans due to a lower volume of mortgage banking loan sales to third parties. 

Total non-interest expenses were $108.4 million for the three months ended June 30, 2021, an increase of $8.4 million compared to the three months ended June 30, 2020.  The increase was driven by an increase of $5.6 million in compensation and fringe benefit expense primarily related to medical expenses and incentive compensation. Included in non-interest expenses for the second quarter of 2021 were $1.7 million of acquisition-related costs.

Income tax expense was $29.2 million for the three months ended June 30, 2021 and $16.2 million for the three months ended June 30, 2020.  The effective tax rate was 26.8% for the three months ended June 30, 2021 and 27.6% for the three months ended June 30, 2020.

Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020

Net income increased by $70.0 million year over year to $152.1 million for the six months ended June 30, 2021.  The change in net income year over year is the result of the following:

Net interest income increased by $20.2 million as compared to the six months ended June 30, 2020 due to:

• Interest expense decreased by $70.1 million, or 47.7%, to $77.0 million for the six months ended June 30, 2021, as compared to $147.0 million for the six months ended June 30, 2020, primarily attributed to a decrease in the weighted average cost of interest-bearing liabilities of 57 basis points to 0.81% for the six months ended June 30, 2021. In addition, the average balance of total borrowed funds decreased $1.63 billion, or 30.4%, to $3.73 billion for the six months ended June 30, 2021 and the average balance of interest-bearing deposits decreased $850.8 million, or 5.3%, to $15.17 billion for the six months ended June 30, 2021.
• Interest and dividend income decreased by $49.9 million, or 9.9%, to $452.4 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily attributed to the weighted average yield on net loans, which decreased 17 basis points to 3.98%, and the weighted average yield on securities, which decreased 72 basis points to 1.97%. In addition, the average balance of net loans decreased $661.7 million, mainly from paydowns and payoffs, partially offset by loan originations and $453.3 million of loans acquired from Gold Coast in April 2020.
• Prepayment penalties, which are included in interest income, totaled $13.1 million for the six months ended June 30, 2021, as compared to $15.8 million for the six months ended June 30, 2020.

Net interest margin increased 29 basis points to 3.01% for the six months ended June 30, 2021 from 2.72% for the six months ended June 30, 2020, 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 $33.1 million for the six months ended June 30, 2021, an increase of $8.3 million as compared to the six months ended June 30, 2020. The increase in non-interest income was due primarily to an increase of $3.3 million in fees and service charges related to our mortgage servicing rights valuation, an increase of $2.8 million in income from our wealth and investment products, an increase of $1.1 million in PPP referral income and an increase of $819,000 in customer swap fee income.

Total non-interest expenses were $212.8 million for the six months ended June 30, 2021, an increase of $10.2 million compared to the year ended June 30, 2020.  This increase was driven by an increase of $7.6 million in compensation and fringe benefit expense primarily related to medical expenses and incentive compensation. 

Income tax expense was $56.3 million for the six months ended June 30, 2021 compared to $30.9 million for the six months ended June 30, 2020.  The effective tax rate was 27.0% for the six months ended June 30, 2021 and 27.3% for the six months ended June 30, 2020. 

Asset Quality

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 based on historical experience, current conditions and reasonable and supportable forecasts. Our provision for credit losses is also impacted by 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 June 30, 2021, our allowance for credit losses continues to be affected by the impact of the COVID-19 pandemic on the current and forecasted economic conditions.  For the three months ended June 30, 2021, our provision for credit losses was negative $9.7 million, compared to negative $3.0 million for the three months ended March 31, 2021 and $33.3 million for the three months ended June 30, 2020.  Our provision was impacted by net loan recoveries of $807,000 for the three months ended June 30, 2021, net loan recoveries of $1.7 million for the three months ended March 31, 2021 and net loan charge-offs of $4.1 million for the three months ended June 30, 2020.  Our provision for credit losses was negative $12.7 million for the six months ended June 30, 2021 compared to $64.5 million for the six months ended June 30, 2020.  Our provision was impacted by net loan recoveries of $2.5 million for the six months ended June 30, 2021 and net loan charge-offs of $12.1 million for the six months ended June 30, 2020.

Total non-accrual loans were $77.6 million, or 0.36% of total loans, at June 30, 2021 compared to $83.3 million, or 0.40% of total loans, at March 31, 2021 and $126.8 million, or 0.59% of total loans, at June 30, 2020.  We continue to proactively and diligently work to resolve our troubled loans.

At June 30, 2021, there were $28.3 million of loans deemed as troubled debt restructured loans ("TDRs"), of which $23.4 million were residential and consumer loans, $4.5 million were commercial real estate loans and $430,000 were commercial and industrial loans. TDRs of $9.3 million were classified as accruing and $19.0 million were classified as non-accrual at June 30, 2021.

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 $779.0 million, or 3.0%, to $26.80 billion at June 30, 2021 from December 31, 2020.  Cash and cash equivalents increased $600.0 million to $770.4 million at June 30, 2021.  Net loans increased $502.1 million, or 2.4%, to $21.08 billion at June 30, 2021.  Securities decreased $309.4 million, or 7.7%, to $3.73 billion at June 30, 2021. 

The detail of the loan portfolio is below:

During the six months ended June 30, 2021, we originated $1.25 billion in multi-family loans, $658.8 million in residential loans, $572.4 million in commercial and industrial loans, $412.5 million in commercial real estate loans, $47.2 million in construction loans and $33.4 million in consumer and other loans.  Our originations reflect our continued focus on diversifying our loan portfolio. 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 $143.2 million during the six months ended June 30, 2021.  As of June 30, 2021, all of these loans were sold and there were no loans held for sale.

The allowance for loan losses decreased by $12.9 million to $270.1 million at June 30, 2021 from $283.0 million at December 31, 2020.  The decrease reflects a negative provision for loan losses of $15.4 million, partially offset by an increase of $2.5 million resulting from net recoveries. Our allowance for loan losses and related provision were affected by the improving 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, 2021, our allowance for loan losses as a percent of total loans was 1.26%, a decrease from 1.36% at December 31, 2020 which was driven by the factors noted above.

Securities decreased by $309.4 million, or 7.7%, to $3.73 billion at June 30, 2021 from $4.04 billion at December 31, 2020.  This decrease was primarily a result of paydowns and sales, partially offset by purchases.

Deposits decreased by $86.5 million, or 0.4%, to $19.44 billion at June 30, 2021 from $19.53 billion at December 31, 2020 primarily driven by decreases in money market and time deposits, partially offset by an increase in checking account deposits.  Checking account deposits increased $817.7 million to $10.52 billion at June 30, 2021 from $9.71 billion at December 31, 2020.  Core deposits (savings, checking and money market) represented approximately 88% of our total deposit portfolio at June 30, 2021 compared to 86% at December 31, 2020.

Borrowed funds increased by $738.1 million, or 22.4%, to $4.03 billion at June 30, 2021 from $3.30 billion at December 31, 2020 to support balance sheet growth.

Stockholders' equity increased by $104.0 million to $2.81 billion at June 30, 2021 from $2.71 billion at December 31, 2020, primarily attributable to net income of $152.1 million, other comprehensive income of $17.7 million and share-based plan activity of $15.5 million for the six months ended June 30, 2021.  These increases were partially offset by cash dividends of $0.28 per share totaling $69.2 million and the repurchase of 1.0 million shares of common stock for $12.0 million during the six months ended June 30, 2021.  The Company remains above the FDIC's "well capitalized" standards, with a Common Equity Tier 1 Risk-Based Ratio of 13.17% at June 30, 2021.

About the Company

Investors Bancorp, Inc. is the holding company for Investors Bank, which as of June 30, 2021 operated from its corporate headquarters in Short Hills, New Jersey and 146 branches located throughout New Jersey and New York.

With today's announcement that Citizens Financial Group, Inc. ("Citizens") and Investors Bancorp Inc. have entered into a plan of merger under which Citizens will acquire all of the outstanding shares of Investors, Investors Bancorp has canceled its live conference webcast to review second quarter 2021 financial results that was scheduled for Thursday, July 29, 2021 at 11:00 am ET.  Citizens will host a live conference call and webcast at 8:00 am ET on Wednesday, July 28, 2021 to discuss the transaction. To listen to the live call, please dial 844-291-5495 and enter 1199032 for the conference ID.  The webcast of the conference call, along with related slides, will be accessible at http://investor.citizensbank.com. The conference call will also be available for replay beginning at 11:00 a.m. ET on July 28, 2021 through August 28, 2021.  To listen to the replay dial 866-207-1041. The passcode is 6041235.  The webcast replay will be available at http://investor.citizensbank.com under Events & Presentations. 

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.