ISBC Investors Bancorp Inc

SHORT HILLS, N.J., Oct. 27, 2021 /PRNewswire/ -- Investors Bancorp, Inc. (NASDAQ:ISBC) ("Company"), the holding company for Investors Bank ("Bank"), reported net income of $66.9 million, or  $0.28 per diluted share, for the three months ended September 30, 2021 as compared to $79.8 million, or $0.34 per diluted share, for the three months ended June 30, 2021 and $64.3 million, or $0.27 per diluted share, for the three months ended September 30, 2020. 

For the nine months ended September 30, 2021, net income totaled $219.0 million, or $0.93 per diluted share, compared to $146.4 million, or $0.62 per diluted share, for the nine months ended September 30, 2020.

Net income for the three months ended September 30, 2021 included approximately $10.9 million, or $0.05 per diluted share, of after-tax costs associated with the Company's pending merger with Citizens Financial Group, Inc. and completed Berkshire Bank branch acquisition and approximately $7.4 million, or $0.03 per diluted share, of after-tax costs in connection with the Company's extinguishment of $600 million of FHLB borrowings announced in August 2021.

The Company also announced today that its Board of Directors declared a cash dividend of $0.14 per share to be paid on November 26, 2021 for stockholders of record as of November 10, 2021.

Kevin Cummings, Chairman and CEO, commented, "This quarter was another strong quarter for the bank. Our loan portfolio grew by $539 million, or 10% annualized, while our funding mix continued to improve, with non-interest bearing deposits now representing 21% of total deposits.  In addition, our credit quality metrics continue to trend in a positive direction."

Mr. Cummings also commented, "We completed our acquisition of Berkshire Bank's New Jersey and eastern Pennsylvania branches in August and we are excited about the strategic partnership that we announced with Citizens in July.  We look forward to the completion of the merger with Citizens, and we are working hard on the anticipated integration of these two great banks."

Performance Highlights

• Net interest margin decreased 12 basis points to 2.99% for the three months ended September 30, 2021 compared to the three months ended June 30, 2021 as a result of lower prepayment penalties and an elevated average cash position.
• Provision for credit losses was a negative $13.0 million for the three months ended September 30, 2021 compared with a negative $9.7 million for the three months ended June 30, 2021. The Company recorded net charge-offs of $252,000 during the quarter ended September 30, 2021 compared to net recoveries of $807,000 during the quarter ended June 30, 2021. The allowance for loan losses as a percent of total loans was 1.20% at September 30, 2021 compared to 1.26% at June 30, 2021.
• Total non-interest income was $16.0 million for the three months ended September 30, 2021, an increase of $2.9 million compared to the three months ended June 30, 2021 and a decrease of $4.0 million compared to the three months ended September 30, 2020.
• Total non-interest expenses were $132.0 million for the three months ended September 30, 2021, an increase of $23.6 million compared to the three months ended June 30, 2021. Included in non-interest expenses for the third quarter were $10.2 million of costs associated with the Company's extinguishment of $600 million of FHLB borrowings and $14.9 million of merger and acquisition related costs resulting from the Berkshire Bank branch acquisition and Citizens proposed merger transaction, inclusive of $6.6 million of branch closure costs related to the Berkshire Bank branch acquisition.
• Non-interest-bearing deposits increased $176.1 million, or 4.2%, during the three months ended September 30, 2021. The cost of interest-bearing deposits decreased 3 basis points to 0.40% for the three months ended September 30, 2021 compared to the three months ended June 30, 2021.
• Total loans increased $539.3 million, or 2.5%, to $21.91 billion during the three months ended September 30, 2021. C&I loans increased $167.4 million, or 4.4%, during the three months ended September 30, 2021.
• Non-accrual loans decreased to $76.5 million, or 0.35% of total loans, at September 30, 2021 as compared to $77.6 million, or 0.36% of total loans, at June 30, 2021 and $132.0 million, or 0.63% of total loans, at September 30, 2020.
• At September 30, 2021, COVID-19 related loan deferrals totaled $496 million, or 2.3% of loans, compared to $599 million, or 2.8% of loans, as of June 30, 2021. Approximately 90% of borrowers with a loan payment deferral are making interest payments as of September 30, 2021. As of October 19, 2021, COVID-19 related loan deferrals totaled $410 million, or 1.9% of loans.
• Tier 1 Leverage, Common Equity Tier 1 Risk-Based, Tier 1 Risk-Based and Total Risk-Based Capital Ratios were 10.24%, 12.83%, 12.83% and 14.11%, respectively, at September 30, 2021.
• On July 28, 2021, Citizens Financial Group, Inc. ("Citizens") and the Company announced that they have entered into a definitive agreement and plan of merger under which Citizens will acquire all of the outstanding shares of the Company. The agreement and plan of merger has been unanimously approved by the boards of directors of each company and the transaction is expected to close in the first or second quarter of 2022, subject to approval by the shareholders of the Company, receipt of required regulatory approvals and other customary closing conditions.
• On August 27, 2021, the Bank completed the acquisition of Berkshire Bank's New Jersey and eastern Pennsylvania branches including $219 million of loans and $632 million of deposits.

Financial Performance Overview

Third Quarter 2021 compared to Second Quarter 2021

For the third quarter of 2021, net income totaled $66.9 million, a decrease of $12.9 million as compared to $79.8 million for the second quarter of 2021.  The changes in net income on a sequential quarter basis are highlighted below.

Net interest income decreased by $108,000, or 0.1%, as compared to the second quarter of 2021.  Changes within interest income and expense categories were as follows:

• Interest and dividend income decreased $606,000, or 0.3%, to $231.2 million as compared to the second quarter of 2021, primarily attributable to the weighted average yield on net loans which decreased 10 basis points to 3.97% driven by the impact of lower prepayment penalties. Partially offsetting this decrease, the average balance of net loans increased $506.3 million, mainly as a result of loan originations and $219 million of loans acquired from Berkshire Bank, reduced by paydowns and payoffs.
• Prepayment penalties, which are included in interest income, totaled $5.3 million for the three months ended September 30, 2021 as compared to $10.8 million for the three months ended June 30, 2021.
• Interest expense decreased $498,000, primarily attributed to the weighted average cost of interest-bearing liabilities which decreased 4 basis points to 0.75% for the three months ended September 30, 2021. In addition, the average balance of total borrowed funds decreased $156.1 million, or 3.9%, to $3.86 billion for the three months ended September 30, 2021, while the average balance of interest-bearing deposits increased $921.5 million, or 6.3%, to $15.63 billion for the three months ended September 30, 2021.

Net interest margin decreased 12 basis points to 2.99% for the three months ended September 30, 2021 compared to the three months ended June 30, 2021 as a result of lower prepayment penalties and an elevated average cash position. 

Total non-interest income was $16.0 million for the three months ended September 30, 2021, an increase of $2.9 million, as compared to $13.1 million for the second quarter of 2021.  The increase in non-interest income was due primarily to an increase of $4.3 million in customer swap fee income, partially offset by a $931,000 unrealized loss on equity securities during the three months ended September 30, 2021. 

Total non-interest expenses were $132.0 million for the three months ended September 30, 2021, an increase of $23.6 million compared to the three months ended June 30, 2021.  The increase was primarily driven by $10.2 million of costs associated with the Company's extinguishment of $600 million of FHLB borrowings and $14.9 million of merger and acquisition related costs resulting from the Berkshire Bank and Citizens transactions inclusive of $6.6 million of branch closure costs related to the Berkshire Bank branch acquisition.  

Income tax expense was $24.6 million for the three months ended September 30, 2021 and $29.2 million for the three months ended June 30, 2021. The effective tax rate was 26.9% for the three months ended September 30, 2021 and 26.8% for the three months ended June 30, 2021.

Third Quarter 2021 compared to Third Quarter 2020

For the third quarter of 2021, net income totaled $66.9 million, an increase of $2.6 million as compared to $64.3 million in the third quarter of 2020.  The changes in net income on a year over year quarter basis are highlighted below.

On a year over year basis, third quarter of 2021 net interest income increased by $13.0 million, or 7.1%, as compared to the third quarter of 2020 due to:

• Interest expense decreased $22.4 million, or 38.0%, primarily attributed to the weighted average cost of interest-bearing liabilities, which decreased 39 basis points to 0.75% for the three months ended September 30, 2021. In addition, the average balance of total borrowed funds decreased $630.1 million, or 14.0%, to $3.86 billion and the average balance of interest-bearing deposits decreased $576.4 million, or 3.6%, to $15.63 billion for the three months ended September 30, 2021.
• Interest and dividend income decreased $9.5 million, or 3.9%, to $231.2 million, primarily attributable to the weighted average yield on net loans which decreased 15 basis point to 3.97% and the weighted average yield on securities which decreased 29 basis points to 1.91%. Partially offsetting this decrease, the average balance of net loans increased $404.6 million, mainly as a result of loan originations and $219 million of loans acquired from Berkshire Bank, partially offset by paydowns and payoffs.
• Prepayment penalties, which are included in interest income, totaled $5.3 million for the three months ended September 30, 2021 as compared to $7.4 million for the three months ended September 30, 2020.

Net interest margin increased 20 basis points year over year to 2.99% for the three months ended September 30, 2021 from 2.79% for the three months ended September 30, 2020, driven primarily by the lower cost of interest-bearing liabilities, partially offset by the lower yield on interest-earning assets.

Total non-interest income was $16.0 million for the three months ended September 30, 2021, a decrease of $4.0 million year over year.  The decrease was due primarily to a decrease of $3.6 million in gain on loans due to a lower volume of mortgage banking loan sales to third parties and a $931,000 unrealized loss on equity securities during the three months ended September 30, 2021, partially offset by an increase of $1.2 million in customer swap fee income. 

Total non-interest expenses were $132.0 million for the three months ended September 30, 2021, an increase of $28.0 million compared to the three months ended September 30, 2020. The increase was primarily driven by $10.2 million of costs associated with the Company's extinguishment of $600 million of FHLB borrowings and $14.9 million of merger and acquisition related costs resulting from the Berkshire Bank and Citizens transactions inclusive of $6.6 million of branch closure costs related to the Berkshire Bank branch acquisition.

Income tax expense was $24.6 million for the three months ended September 30, 2021 and $24.8 million for the three months ended September 30, 2020.  The effective tax rate was 26.9% for the three months ended September 30, 2021 and 27.9% for the three months ended September 30, 2020.

Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020

Net income increased by $72.6 million year over year to $219.0 million for the nine months ended September 30, 2021.  The change in net income year over year is the result of the following:

Net interest income increased by $33.2 million as compared to the nine months ended September 30, 2020 due to:

• Interest expense decreased by $92.5 million, or 44.9%, to $113.6 million for the nine months ended September 30, 2021, as compared to $206.1 million for the nine months ended September 30, 2020, primarily attributed to a decrease in the weighted average cost of interest-bearing liabilities of 51 basis points to 0.79% for the nine months ended September 30, 2021. In addition, the average balance of total borrowed funds decreased $1.29 billion, or 25.5%, to $3.77 billion for the nine months ended September 30, 2021 and the average balance of interest-bearing deposits decreased $758.1 million, or 4.7%, to $15.32 billion for the nine months ended September 30, 2021.
• Interest and dividend income decreased by $59.4 million, or 8.0%, to $683.6 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily attributed to the weighted average yield on net loans, which decreased 17 basis points to 3.97%, and the weighted average yield on securities, which decreased 57 basis points to 1.95%. In addition, the average balance of net loans decreased $302.9 million, mainly from paydowns and payoffs, partially offset by loan originations, $219 million of loans acquired from Berkshire Bank in August 2021 and $453.3 million of loans acquired from Gold Coast in April 2020.
• Prepayment penalties, which are included in interest income, totaled $18.4 million for the nine months ended September 30, 2021, as compared to $23.2 million for the nine months ended September 30, 2020.

Net interest margin increased 26 basis points to 3.00% for the nine months ended September 30, 2021 from 2.74% for the nine months ended September 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 $49.0 million for the nine months ended September 30, 2021, an increase of $4.3 million as compared to the nine months ended September 30, 2020. The increase in non-interest income was due primarily to an increase of $3.0 million in fees and service charges predominately related to our mortgage servicing rights valuation, an increase of $2.8 million in income from our wealth and investment products and an increase of $2.0 million in customer swap fee income, partially offset by a decrease of $3.9 million in gain on loans due to a lower volume of mortgage banking loan sales to third parties.

Total non-interest expenses were $344.8 million for the nine months ended September 30, 2021, an increase of $38.2 million compared to the year ended September 30, 2020.  This increase was driven by an increase of $8.9 million in debt extinguishment costs, an increase of $8.5 million in professional fees driven by acquisition-related fees, an increase of $8.0 million in compensation and fringe benefit expense primarily related to incentive compensation and medical expenses and $6.6 million of branch closure costs related to the Berkshire acquisition.  Included in non-interest expenses for the nine months ended September 30, 2021 were $10.0 million of acquisition-related costs.

Income tax expense was $80.9 million for the nine months ended September 30, 2021 compared to $55.7 million for the nine months ended September 30, 2020.  The effective tax rate was 27.0% for the nine months ended September 30, 2021 and 27.6% for the nine months ended September 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 September 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 September 30, 2021, our provision for credit losses was impacted by improving economic conditions and commercial real estate prices.  For the three months ended September 30, 2021, our provision for credit losses was negative $13.0 million, compared to negative $9.7 million for the three months ended June 30, 2021 and $8.3 million for the three months ended September 30, 2020.  Our provision was impacted by net loan charge-offs of $252,000 for the three months ended September 30, 2021, net loan recoveries of $807,000 for the three months ended June 30, 2021 and net loan charge-offs of $667,000 for the three months ended September 30, 2020.  Our provision for credit losses was negative $25.7 million for the nine months ended September 30, 2021 compared to $72.8 million for the nine months ended September 30, 2020.  Our provision was impacted by net loan recoveries of $2.3 million for the nine months ended September 30, 2021 and net loan charge-offs of $12.8 million for the nine months ended September 30, 2020.

Total non-accrual loans were $76.5 million, or 0.35% of total loans, at September 30, 2021 compared to $77.6 million, or 0.36% of total loans, at June 30, 2021 and $132.0 million, or 0.63% of total loans, at September 30, 2020.  We continue to proactively and diligently work to resolve our troubled loans.

At September 30, 2021, there were $26.4 million of loans deemed as troubled debt restructured loans ("TDRs"), of which $22.0 million were residential and consumer loans and $4.4 million were commercial real estate loans. TDRs of $8.1 million were classified as accruing and $18.3 million were classified as non-accrual at September 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 $1.29 billion, or 5.0%, to $27.32 billion at September 30, 2021 from December 31, 2020.  Cash and cash equivalents increased $499.9 million to $670.3 million at September 30, 2021.  Net loans increased $1.04 billion, or 5.1%, to $21.62 billion at September 30, 2021.  Securities decreased $230.4 million, or 5.7%, to $3.81 billion at September 30, 2021. 

The detail of the loan portfolio is below:

During the nine months ended September 30, 2021, we originated $1.87 billion in multi-family loans, $1.01 billion in residential loans, $858.0 million in commercial and industrial loans, $580.0 million in commercial real estate loans, $101.6 million in construction loans and $86.1 million in consumer and other loans.  Our originations reflect our continued focus on diversifying our loan portfolio. In addition, we acquired $219 million of loans from Berkshire Bank. 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 $144.2 million during the nine months ended September 30, 2021.  As of September 30, 2021, loans held for sale were $397,000.

The allowance for loan losses decreased by $19.5 million to $263.5 million at September 30, 2021 from $283.0 million at December 31, 2020.  The decrease reflects a negative provision for loan losses of $22.8 million, partially offset by an increase of $2.3 million resulting from net recoveries and an increase of approximately $1.0 million from the initial allowance on loans identified as PCD which were acquired from Berkshire Bank. Our allowance for loan losses and related provision were affected by the improving current and forecasted economic conditions and commercial real estate prices.  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, 2021, our allowance for loan losses as a percent of total loans was 1.20%, a decrease from 1.36% at December 31, 2020 which was driven by the factors noted above.

Securities decreased by $230.4 million, or 5.7%, to $3.81 billion at September 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 increased by $875.0 million, or 4.5%, to $20.40 billion at September 30, 2021 from $19.53 billion at December 31, 2020 primarily driven by an increase in checking account deposits, partially offset by decreases in time deposits and money market deposits.  Checking account deposits increased $1.56 billion to $11.26 billion at September 30, 2021 from $9.71 billion at December 31, 2020.  Core deposits (savings, checking and money market) represented approximately 89% of our total deposit portfolio at September 30, 2021 compared to 86% at December 31, 2020.  The Company acquired $632 million of deposits from Berkshire Bank during the quarter ended September 30, 2021.

Borrowed funds increased by $238.7 million, or 7.2%, to $3.53 billion at September 30, 2021 from $3.30 billion at December 31, 2020 to support balance sheet growth.

Stockholders' equity increased by $142.6 million to $2.85 billion at September 30, 2021 from $2.71 billion at December 31, 2020, primarily attributable to net income of $219.0 million, share-based plan activity of $21.8 million and other comprehensive income of $17.7 million for the nine months ended September 30, 2021.  These increases were partially offset by cash dividends of $0.42 per share totaling $103.9 million and the repurchase of approximately 1.0 million shares of common stock for $12.1 million during the nine months ended September 30, 2021.  The Company remains above the FDIC's "well capitalized" standards, with a Common Equity Tier 1 Risk-Based Ratio of 12.83% at September 30, 2021.

About the Company

Investors Bancorp, Inc. is the holding company for Investors Bank, which as of September 30, 2021 operated from its corporate headquarters in Short Hills, New Jersey and 154 branches located throughout New Jersey, New York and Pennsylvania.

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, failure to consummate the transaction with Citizens Financial Group, Inc. for any reason, including the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company), failure to obtain shareholder approval or failure to satisfy any of the other closing conditions in a timely basis or at all; the diversion of management's time from ongoing business operations due to issues relating to the transaction with Citizens Financial Group, Inc., the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement between the Company and Citizens Financial Group, Inc., the outcome of any legal proceedings that may be instituted against Citizens Financial Group, Inc. or the Company, potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction, 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.