FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: March 31, 2008
Commission file number: 0-51557
Investors Bancorp, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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22-3493930 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
101 JFK Parkway, Short Hills, New Jersey 07078
(Address of principal executive offices)
(973) 924-5100
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act) Yes o No þ
As of April 30, 2008 there were 116,275,688 shares of the Registrants common stock, par value
$0.01 per share, issued and 107,995,967 outstanding, of which 63,099,781 shares, or 58.42% of the
Registrants outstanding common stock, were held by Investors Bancorp, MHC, the Registrants mutual
holding company parent.
Investors Bancorp, Inc.
FORM 10-Q
Index
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2008 (Unaudited) and June 30, 2007
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March 31, |
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June 30, |
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2008 |
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2007 |
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|
(In thousands) |
|
Assets |
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|
|
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|
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|
Cash and cash equivalents |
|
$ |
90,938 |
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|
24,810 |
|
Securities available-for-sale, at estimated fair value |
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|
214,049 |
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|
251,970 |
|
Securities held-to-maturity, net (estimated fair value of
$1,271,313 and $1,472,385 at March 31, 2008
and June 30, 2007, respectively) |
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1,302,356 |
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|
1,517,664 |
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Loans receivable, net |
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|
4,078,254 |
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|
3,589,373 |
|
Loans held-for-sale |
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6,722 |
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|
3,410 |
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Stock in the Federal Home Loan Bank |
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41,846 |
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|
33,887 |
|
Accrued interest receivable |
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26,183 |
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|
24,300 |
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Office properties and equipment, net |
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28,009 |
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|
27,155 |
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Net deferred tax asset |
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38,571 |
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|
39,399 |
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Bank owned life insurance contract |
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90,949 |
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|
88,018 |
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Other assets |
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|
1,153 |
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|
1,102 |
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Total assets |
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$ |
5,919,030 |
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|
5,601,088 |
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Liabilities and Stockholders Equity |
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Liabilities: |
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Deposits |
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$ |
3,887,967 |
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|
3,664,966 |
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Borrowed funds |
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|
1,155,589 |
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|
1,038,710 |
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Advance payments by borrowers for taxes and insurance |
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19,374 |
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|
17,671 |
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Other liabilities |
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36,215 |
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36,376 |
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Total liabilities |
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5,099,145 |
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4,757,723 |
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Stockholders equity: |
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Preferred stock, $0.01 par value, 50,000,000 authorized shares;
none issued |
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Common stock, $0.01 par value, 200,000,000 shares authorized; 116,275,688 issued; 108,135,665
and 111,468,952 outstanding
at March 31, 2008 and June 30, 2007, respectively |
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532 |
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|
532 |
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Additional paid-in capital |
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|
511,850 |
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|
506,016 |
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Retained earnings |
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465,575 |
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|
453,751 |
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Treasury stock, at cost; 8,276,765 and 4,806,736 shares at
March 31, 2008 and June 30, 2007, respectively |
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|
(116,774 |
) |
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|
(70,973 |
) |
Unallocated common stock held by the employee stock
ownership plan |
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|
(37,932 |
) |
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|
(38,996 |
) |
Accumulated other comprehensive loss |
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|
(3,366 |
) |
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|
(6,965 |
) |
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|
|
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Total stockholders equity |
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|
819,885 |
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|
843,365 |
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|
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|
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Total liabilities and stockholders equity |
|
$ |
5,919,030 |
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|
5,601,088 |
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See accompanying notes to consolidated financial statements.
1
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
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For the Three Months |
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For the Nine Months |
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Ended March 31, |
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Ended March 31, |
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2008 |
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2007 |
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2008 |
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2007 |
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(Dollars in thousands, except per share data) |
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Interest and dividend income: |
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Loans receivable and loans held-for-sale |
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$ |
57,123 |
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45,868 |
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166,777 |
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131,906 |
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Securities: |
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Government-sponsored enterprise obligations |
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1,042 |
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1,339 |
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3,714 |
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4,017 |
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Mortgage-backed securities |
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14,919 |
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18,286 |
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47,358 |
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60,988 |
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Equity securities available-for-sale |
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443 |
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1,370 |
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Municipal bonds and other debt |
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2,627 |
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|
2,410 |
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8,773 |
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|
7,228 |
|
Interest-bearing deposits |
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151 |
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|
154 |
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|
452 |
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|
545 |
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Repurchase agreements |
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162 |
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162 |
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Federal Home Loan Bank stock |
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971 |
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|
798 |
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2,364 |
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2,248 |
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Total interest and dividend income |
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76,995 |
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|
|
69,298 |
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|
229,600 |
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|
208,302 |
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Interest expense: |
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Deposits |
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37,980 |
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|
|
35,673 |
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|
116,899 |
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|
100,467 |
|
Secured borrowings |
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|
12,887 |
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|
11,995 |
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|
|
41,414 |
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|
42,744 |
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|
|
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|
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Total interest expense |
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50,867 |
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|
47,668 |
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158,313 |
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|
143,211 |
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|
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|
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Net interest income |
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|
26,128 |
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|
21,630 |
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|
71,287 |
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|
|
65,091 |
|
Provision for loan losses |
|
|
1,000 |
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|
|
200 |
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|
2,950 |
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|
|
525 |
|
|
|
|
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|
|
|
|
|
|
|
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|
Net interest income after provision
for loan losses |
|
|
25,128 |
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|
|
21,430 |
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|
|
68,337 |
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|
|
64,566 |
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|
|
|
|
|
|
|
|
|
|
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Non-interest income: |
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|
|
|
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|
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|
|
|
|
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Fees and service charges |
|
|
740 |
|
|
|
642 |
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|
2,219 |
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|
|
1,961 |
|
Income on bank owned life insurance contract |
|
|
954 |
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|
|
910 |
|
|
|
2,931 |
|
|
|
2,629 |
|
Gain on sales of mortgage loans, net |
|
|
234 |
|
|
|
135 |
|
|
|
466 |
|
|
|
89 |
|
Gain (loss) on securities transactions, net |
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|
(17 |
) |
|
|
|
|
|
|
1 |
|
|
|
(3,666 |
) |
Other income |
|
|
171 |
|
|
|
23 |
|
|
|
301 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
2,082 |
|
|
|
1,710 |
|
|
|
5,918 |
|
|
|
1,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and fringe benefits |
|
|
13,027 |
|
|
|
12,962 |
|
|
|
37,378 |
|
|
|
35,520 |
|
Advertising and promotional expense |
|
|
635 |
|
|
|
767 |
|
|
|
1,865 |
|
|
|
2,525 |
|
Office occupancy and equipment expense |
|
|
2,565 |
|
|
|
2,469 |
|
|
|
7,703 |
|
|
|
7,407 |
|
Federal insurance premiums |
|
|
112 |
|
|
|
108 |
|
|
|
326 |
|
|
|
326 |
|
Stationery, printing, supplies and telephone |
|
|
465 |
|
|
|
399 |
|
|
|
1,305 |
|
|
|
1,172 |
|
Legal, audit, accounting, and supervisory examination fees |
|
|
543 |
|
|
|
504 |
|
|
|
1,517 |
|
|
|
1,551 |
|
Data processing service fees |
|
|
1,076 |
|
|
|
1,004 |
|
|
|
3,061 |
|
|
|
2,912 |
|
Other operating expenses |
|
|
878 |
|
|
|
891 |
|
|
|
3,043 |
|
|
|
3,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
|
19,301 |
|
|
|
19,104 |
|
|
|
56,198 |
|
|
|
54,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense (benefit) |
|
|
7,909 |
|
|
|
4,036 |
|
|
|
18,057 |
|
|
|
11,206 |
|
Income tax expense (benefit) |
|
|
2,905 |
|
|
|
1,042 |
|
|
|
6,244 |
|
|
|
(8,159 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,004 |
|
|
|
2,994 |
|
|
|
11,813 |
|
|
|
19,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic and diluted |
|
$ |
0.05 |
|
|
$ |
0.03 |
|
|
$ |
0.11 |
|
|
$ |
0.17 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
102,952,725 |
|
|
|
109,165,928 |
|
|
|
104,064,944 |
|
|
|
111,066,524 |
|
Diluted |
|
|
103,080,783 |
|
|
|
109,252,301 |
|
|
|
104,208,845 |
|
|
|
111,071,493 |
|
See accompanying notes to consolidated financial statements.
2
INVESTORS BANCORP, INC.
Consolidated Statements of Stockholders Equity
Nine months ended March 31, 2008 and 2007
(Unaudited)
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|
|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
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|
|
|
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|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Unallocated |
|
|
other |
|
|
Total |
|
|
|
Common |
|
|
paid-in |
|
|
Retained |
|
|
Treasury |
|
|
Common Stock |
|
|
comprehensive |
|
|
stockholders |
|
|
|
stock |
|
|
capital |
|
|
earnings |
|
|
stock |
|
|
Held by ESOP |
|
|
loss |
|
|
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006 |
|
$ |
532 |
|
|
|
524,962 |
|
|
|
426,233 |
|
|
|
|
|
|
|
(40,414 |
) |
|
|
(11,126 |
) |
|
|
900,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
19,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,365 |
|
Unrealized gain on securities available-
for-sale, net of tax expense of $6,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,117 |
|
|
|
10,117 |
|
Reclassification adjustment for losses
included in net income, net of tax benefit
of $1,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,951 |
) |
|
|
(1,951 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cummulative effect of change
in accounting for bank owned life insurance |
|
|
|
|
|
|
|
|
|
|
5,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,564 |
|
Purchase of treasury stock (4,856,295 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74,082 |
) |
|
|
|
|
|
|
|
|
|
|
(74,082 |
) |
Treasury stock allocated to
restricted stock plan |
|
|
|
|
|
|
(25,421 |
) |
|
|
(312 |
) |
|
|
25,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost for stock
options and restricted stock |
|
|
|
|
|
|
3,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,458 |
|
ESOP shares allocated or commited to be released |
|
|
|
|
|
|
512 |
|
|
|
|
|
|
|
|
|
|
|
1,064 |
|
|
|
|
|
|
|
1,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007 |
|
$ |
532 |
|
|
|
503,511 |
|
|
|
450,850 |
|
|
|
(48,349 |
) |
|
|
(39,350 |
) |
|
|
(2,960 |
) |
|
|
864,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007 |
|
$ |
532 |
|
|
|
506,016 |
|
|
|
453,751 |
|
|
|
(70,973 |
) |
|
|
(38,996 |
) |
|
|
(6,965 |
) |
|
|
843,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
11,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,813 |
|
Change in funded status of postretirement
plan due to plan curtailment and settlement,
net of tax expense of $891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,337 |
|
|
|
1,337 |
|
Amortization related to postretirement
obligations, net of tax expense of $54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80 |
|
|
|
80 |
|
Unrealized gain on securities available-
for-sale, net of tax expense of $1,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,182 |
|
|
|
2,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cummulative effect adjustment
upon adoption of FIN 48 |
|
|
|
|
|
|
|
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300 |
|
Purchase of treasury stock (3,470,029 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,920 |
) |
|
|
|
|
|
|
|
|
|
|
(47,920 |
) |
Treasury stock allocated to
restricted stock plan |
|
|
|
|
|
|
(1,830 |
) |
|
|
(289 |
) |
|
|
2,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost for stock
options and restricted stock |
|
|
|
|
|
|
7,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,215 |
|
ESOP shares allocated or committed to be released |
|
|
|
|
|
|
449 |
|
|
|
|
|
|
|
|
|
|
|
1,064 |
|
|
|
|
|
|
|
1,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008 |
|
$ |
532 |
|
|
|
511,850 |
|
|
|
465,575 |
|
|
|
(116,774 |
) |
|
|
(37,932 |
) |
|
|
(3,366 |
) |
|
|
819,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,813 |
|
|
|
19,365 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
ESOP and stock-based compensation expense |
|
|
8,728 |
|
|
|
5,034 |
|
Amortization of premiums and accretion of discounts on securities, net |
|
|
785 |
|
|
|
1,228 |
|
Amortization of premium and accretion of fees and costs on loans, net |
|
|
1,559 |
|
|
|
1,386 |
|
Provision for loan losses |
|
|
2,950 |
|
|
|
525 |
|
Depreciation and amortization of office properties and equipment |
|
|
2,026 |
|
|
|
2,106 |
|
(Gain) loss on securities transactions, net |
|
|
(1 |
) |
|
|
3,666 |
|
Mortgage loans originated for sale |
|
|
(59,982 |
) |
|
|
(35,225 |
) |
Proceeds from mortgage loan sales |
|
|
57,136 |
|
|
|
30,471 |
|
Gain on sales of mortgage loans, net |
|
|
(466 |
) |
|
|
(89 |
) |
Income on bank owned life insurance contract |
|
|
(2,931 |
) |
|
|
(2,629 |
) |
Increase in accrued interest receivable |
|
|
(1,883 |
) |
|
|
(2,819 |
) |
Deferred tax benefit |
|
|
(1,638 |
) |
|
|
(14,058 |
) |
(Increase) decrease in other assets |
|
|
(51 |
) |
|
|
147 |
|
Increase (decrease) in other liabilities |
|
|
2,501 |
|
|
|
(4,709 |
) |
|
|
|
|
|
|
|
Total adjustments |
|
|
8,732 |
|
|
|
(14,966 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
20,545 |
|
|
|
4,399 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of loans receivable |
|
|
(467,362 |
) |
|
|
(503,647 |
) |
Net (originations) repayments of loans receivable |
|
|
(26,028 |
) |
|
|
73,334 |
|
Purchases of mortgage-backed securities held-to-maturity |
|
|
|
|
|
|
(22,701 |
) |
Purchases of debt securities held-to-maturity |
|
|
(23,118 |
) |
|
|
(13,000 |
) |
Purchases of other investments available-for-sale |
|
|
(1,400 |
) |
|
|
|
|
Proceeds from paydowns/maturities on mortgage-backed
securities held-to-maturity |
|
|
170,072 |
|
|
|
214,761 |
|
Proceeds from calls/maturities on debt securities held-to-maturity |
|
|
67,508 |
|
|
|
2,063 |
|
Proceeds from paydowns/maturities on mortgage-backed
securities available-for-sale |
|
|
43,087 |
|
|
|
70,809 |
|
Proceeds from call of equity securities available-for-sale |
|
|
|
|
|
|
10,000 |
|
Proceeds from sale of mortgage-backed securities held-to-maturity |
|
|
|
|
|
|
22,942 |
|
Proceeds from sale of mortgage-backed securities available-for-sale |
|
|
|
|
|
|
161,112 |
|
Proceeds from redemptions of Federal Home Loan Bank stock |
|
|
21,323 |
|
|
|
29,251 |
|
Purchases of Federal Home Loan Bank stock |
|
|
(29,282 |
) |
|
|
(16,650 |
) |
Purchases of office properties and equipment |
|
|
(2,880 |
) |
|
|
(1,396 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(248,080 |
) |
|
|
26,878 |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
223,001 |
|
|
|
282,066 |
|
Net decrease in funds borrowed under short-term repurchase agreements |
|
|
(160,000 |
) |
|
|
(125,000 |
) |
Proceeds from funds borrowed under other repurchase agreements |
|
|
590,000 |
|
|
|
310,000 |
|
Repayments of funds borrowed under other repurchase agreements |
|
|
(80,000 |
) |
|
|
(475,000 |
) |
Net (decrease) increase in other borrowings |
|
|
(233,121 |
) |
|
|
34,977 |
|
Net increase in advance payments by borrowers for taxes and insurance |
|
|
1,703 |
|
|
|
689 |
|
Purchase of treasury stock |
|
|
(47,920 |
) |
|
|
(74,082 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
293,663 |
|
|
|
(46,350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
66,128 |
|
|
|
(15,073 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
24,810 |
|
|
|
39,824 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
90,938 |
|
|
|
24,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
|
155,635 |
|
|
|
143,168 |
|
Income taxes |
|
|
2,194 |
|
|
|
7,615 |
|
See accompanying notes to consolidated financial statements.
4
INVESTORS BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements are composed of the accounts of Investors Bancorp, Inc. and
its wholly owned subsidiary, Investors Savings Bank (Bank) (collectively, the Company) and the
Banks wholly-owned significant subsidiaries, ISB Mortgage Company LLC and ISB Asset Corporation.
In the opinion of management, all the adjustments (consisting of normal and recurring adjustments)
necessary for the fair presentation of the consolidated financial condition and the consolidated
results of operations for the unaudited periods presented have been included. The results of
operations and other data presented for the three and nine month periods ended March 31, 2008 are
not necessarily indicative of the results of operations that may be expected for the fiscal year
ending June 30, 2008.
Certain information and note disclosures usually included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for the
preparation of the Form 10-Q. The consolidated financial statements presented should be read in
conjunction with the Companys audited consolidated financial statements and notes to consolidated
financial statements included in the Companys June 30, 2007 Annual Report on Form 10-K.
2. Earnings Per Share
The following is a summary of our earnings per share calculations and reconciliation of basic to
diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
|
Share |
|
|
|
|
|
|
|
|
|
|
Share |
|
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
Net Income |
|
$ |
5,004 |
|
|
|
|
|
|
|
|
|
|
$ |
2,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders |
|
$ |
5,004 |
|
|
|
102,952,725 |
|
|
$ |
0.05 |
|
|
$ |
2,994 |
|
|
|
109,165,928 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive common stock
equivalents |
|
|
|
|
|
|
128,058 |
|
|
|
|
|
|
|
|
|
|
|
86,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders |
|
$ |
5,004 |
|
|
|
103,080,783 |
|
|
$ |
0.05 |
|
|
$ |
2,994 |
|
|
|
109,252,301 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
|
Share |
|
|
|
|
|
|
|
|
|
|
Share |
|
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
Net Income |
|
$ |
11,813 |
|
|
|
|
|
|
|
|
|
|
$ |
19,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders |
|
$ |
11,813 |
|
|
|
104,064,944 |
|
|
$ |
0.11 |
|
|
$ |
19,365 |
|
|
|
111,066,524 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive common stock
equivalents |
|
|
|
|
|
|
143,901 |
|
|
|
|
|
|
|
|
|
|
|
4,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders |
|
$ |
11,813 |
|
|
|
104,208,845 |
|
|
$ |
0.11 |
|
|
$ |
19,365 |
|
|
|
111,071,493 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock options and awards totaling 4,925,994 shares at March 31, 2008 were excluded
from the earnings per share calculations.
3. Loans Receivable, Net
Loans receivable, net are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Residential mortgage loans |
|
$ |
3,488,985 |
|
|
|
3,153,212 |
|
Multi-family and commercial |
|
|
155,106 |
|
|
|
107,350 |
|
Construction loans |
|
|
254,766 |
|
|
|
152,670 |
|
Consumer and other loans |
|
|
166,745 |
|
|
|
161,395 |
|
|
|
|
|
|
|
|
Total loans |
|
|
4,065,602 |
|
|
|
3,574,627 |
|
|
|
|
|
|
|
|
Premiums and deferred costs |
|
|
25,011 |
|
|
|
23,587 |
|
Deferred loan fees |
|
|
(2,522 |
) |
|
|
(1,924 |
) |
Allowance for loan losses |
|
|
(9,837 |
) |
|
|
(6,917 |
) |
|
|
|
|
|
|
|
Net loans |
|
$ |
4,078,254 |
|
|
|
3,589,373 |
|
|
|
|
|
|
|
|
6
4. Deposits
Deposits are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Savings accounts |
|
$ |
362,694 |
|
|
|
320,880 |
|
Checking accounts |
|
|
382,866 |
|
|
|
388,215 |
|
Money market accounts |
|
|
211,193 |
|
|
|
182,274 |
|
|
|
|
|
|
|
|
Total core deposits |
|
|
956,753 |
|
|
|
891,369 |
|
Certificates of deposit |
|
|
2,931,214 |
|
|
|
2,773,597 |
|
|
|
|
|
|
|
|
|
|
$ |
3,887,967 |
|
|
|
3,664,966 |
|
|
|
|
|
|
|
|
5. Equity Incentive Plan
During the nine months ended March 31, 2008 and 2007, the Company recorded $7.2 million and $3.5
million, respectively, of share-based compensation expense, comprised of stock option expense of
$3.0 million and $1.5 million, respectively, and restricted stock expense of $4.2 million and $2.0
million, respectively.
At the January 2008 Compensation and Benefits Committee meeting, the Committee approved the
issuance of an additional 136,742 restricted stock awards and 341,851 stock options to the
independent directors of the Board. Additionally, during the quarter ended March 31, 2008, 10,000
stock options were issued to certain officers. The awards were made pursuant to the shareholder
approved 2006 Equity Incentive Plan.
The following is a summary of the Companys stock option activity and related information for its
option plans for the nine months ended March 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31, |
|
|
2008 |
|
2007 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
Number of |
|
Average |
|
Number of |
|
Average |
|
|
Stock |
|
Exercise |
|
Stock |
|
Exercise |
|
|
Options |
|
Price |
|
Options |
|
Price |
Outstanding at beginning of period |
|
|
4,437,401 |
|
|
$ |
15.26 |
|
|
|
|
|
|
$ |
|
|
Granted |
|
|
351,851 |
|
|
|
13.39 |
|
|
|
4,447,401 |
|
|
|
15.26 |
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
4,789,252 |
|
|
$ |
15.12 |
|
|
|
4,447,401 |
|
|
$ |
15.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
887,480 |
|
|
$ |
15.26 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the status of the Companys non-vested options as of March 31, 2008
and 2007 and changes therein during the nine months then ended:
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Number of |
|
|
Average |
|
|
Number of |
|
|
Average |
|
|
|
Stock |
|
|
Grant Date |
|
|
Stock |
|
|
Grant Date |
|
|
|
Options |
|
|
Fair Value |
|
|
Options |
|
|
Fair Value |
|
Non-vested at the beginning of period |
|
|
4,437,401 |
|
|
$ |
4.17 |
|
|
|
|
|
|
$ |
|
|
Granted |
|
|
351,851 |
|
|
|
3.46 |
|
|
|
4,447,401 |
|
|
|
4.17 |
|
Vested |
|
|
(887,480 |
) |
|
|
4.17 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at end of period |
|
|
3,901,772 |
|
|
$ |
4.10 |
|
|
|
4,447,401 |
|
|
$ |
4.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected future expense relating to the 3.9 million non-vested options outstanding as of March 31,
2008 is $14.1 million over a weighted average period of 3.8 years.
Upon exercise of vested options, management expects to draw on treasury stock as the source of the
shares.
The following is a summary of the status of the Companys restricted shares as of March 31, 2008
and 2007 and changes therein during the nine months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Number of |
|
|
Average |
|
|
Number of |
|
|
Average |
|
|
|
Shares |
|
|
Grant Date |
|
|
Shares |
|
|
Grant Date |
|
|
|
Awarded |
|
|
Fair Value |
|
|
Awarded |
|
|
Fair Value |
|
Non-vested at the beginning of period |
|
|
1,666,959 |
|
|
$ |
15.25 |
|
|
|
|
|
|
$ |
|
|
Granted |
|
|
136,742 |
|
|
|
13.38 |
|
|
|
1,666,959 |
|
|
|
15.25 |
|
Vested |
|
|
(333,389 |
) |
|
|
15.25 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at end of period |
|
|
1,470,312 |
|
|
$ |
15.08 |
|
|
|
1,666,959 |
|
|
$ |
15.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected future compensation expense relating to the 1.5 million restricted shares at March 31,
2008 is $19.5 million over a weighted average period of 3.8 years.
6. Net Periodic Benefit Plans Expense
The Company has a Supplemental Employee Retirement Plan (SERP). The SERP is a nonqualified, defined
benefit plan which provides benefits to all employees of the Company if their benefits and/or
contributions under the pension plan are limited by the Internal Revenue Code. The Company also has
a nonqualified, defined benefit plan which provides benefits to its directors. The SERP and the
directors plan are unfunded and the costs of the plans are recognized over the period that
services are provided.
8
Effective December 31, 2006, the Company limited participation in the Directors retirement plan to
the current participants and placed a cap on directors fees for plan purposes at the December 31,
2006 rate.
The Company also provided (i) postretirement health care benefits to retired employees hired prior
to April 1991 who attained at least ten years of service and (ii) certain life insurance benefits
to all retired employees. In December 2007, the Company curtailed the benefits to current employees
and settled its obligations to retired employees related to the postretirement benefit plan and
recognized a pre-tax gain of $2.3 million as a reduction of compensation and fringe benefits
expense in the consolidated statements of income.
The components of net periodic benefit expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
SERP and directors plan |
|
|
Other Benefits |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
( In thousands) |
|
|
|
|
|
Service cost |
|
$ |
135 |
|
|
|
296 |
|
|
|
|
|
|
|
40 |
|
Interest cost |
|
|
253 |
|
|
|
225 |
|
|
|
12 |
|
|
|
135 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition obligation |
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
50 |
|
Prior service cost |
|
|
(25 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
Net loss (gain) |
|
|
49 |
|
|
|
37 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit expense |
|
$ |
412 |
|
|
|
563 |
|
|
|
16 |
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31, |
|
|
|
SERP and directors plan |
|
|
Other Benefits |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Service cost |
|
$ |
404 |
|
|
|
888 |
|
|
|
46 |
|
|
|
119 |
|
Interest cost |
|
|
758 |
|
|
|
674 |
|
|
|
229 |
|
|
|
404 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition obligation |
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
150 |
|
Prior service cost |
|
|
(74 |
) |
|
|
14 |
|
|
|
|
|
|
|
|
|
Net loss (gain) |
|
|
146 |
|
|
|
113 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit expense |
|
$ |
1,234 |
|
|
|
1,689 |
|
|
|
337 |
|
|
|
673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the unfunded nature of these plans, no contributions are expected to be made to the SERP and
Directors plans and Other Benefits plan in fiscal year 2008.
The Company also maintains a defined benefit pension plan for employees. Since it is a
multiemployer plan, costs of the pension plan are based on contributions required to be made to
9
the pension plan. The Company contributed $1.5 million to the defined benefit pension plan during
the first nine months of fiscal year 2008. We anticipate contributing funds to the plan to meet
any minimum funding requirements.
7. Income Taxes
Effective July 1, 2007, the Company adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB
Statement No. 109, or FIN 48, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition. The provisions of FIN 48 are to be applied to all tax positions upon
initial adoption of this standard. Tax positions must meet the more-likely-than-not recognition
threshold at the effective date in order for the related tax benefits to be recognized or continue
to be recognized upon adoption of FIN 48. As a result of the adoption of FIN 48, the Company
recognized a $300,000 decrease in the liability for unrecognized tax benefits, which was accounted
for as an addition to the July 1, 2007, balance of retained earnings. The Company recognizes
accrued interest and penalties related to unrecognized tax benefits, where applicable, in income
tax expense.
A deferred tax asset is recognized for the estimated future tax effects attributable to temporary
differences and carryforwards. The measurement of deferred tax assets is reduced by the amount of
any tax benefits that, based on available evidence, are more likely than not to be realized. On a
quarterly basis the Company assesses the realizability of its deferred tax assets. In December
2006, the Company performed an assessment of its ability to realize certain deferred tax assets and
concluded that, based on the facts and circumstances at the time, a portion of the associated
valuation allowance was no longer required. Those facts and circumstances included, but were not
limited to, the projected amount of taxable income the Company and its subsidiaries are expected to
generate in future years, the Companys ability to generate capital gains, and the decision to
discontinue the operations of the Companys Real Estate Investment Trusts (REIT) operations and
transfer the REITs assets to the Bank due to legislation passed in the State of New Jersey. As a
result, the Company recognized a deferred tax benefit of $9.9 million related to the reversal of
the previously established deferred tax asset valuation allowance during the quarter ended December
31, 2006. This benefit was partially offset by an additional valuation allowance established for
the contribution to the charitable foundation.
The Company files income tax returns in the United States federal jurisdiction and in the state of
New Jersey jurisdiction. With few exceptions, the Company is no longer subject to federal and state
income tax examinations by tax authorities for years prior to 2002. Currently, the Company is not
under examination by any taxing authority.
8. Stock Repurchase Program
At its January 2008 meeting, the Board of Directors approved a third share repurchase program which
authorizes the repurchase of an additional 10% of the Companys publicly-held outstanding common
stock, or 4,307,248 shares. The newly approved share repurchase program will commence immediately
upon completion of the current program, under which an additional
10
159,697 shares may be purchased as of March 31, 2008. Under these programs, Investors Bancorp, Inc.
common stock may be purchased in the open market and through other privately negotiated
transactions in accordance with applicable federal securities laws. During the nine month period
ended March 31, 2008, the Company repurchased 3,470,029 shares of its common stock at an average
cost of $13.81 per share. At March 31, 2008, a total of 4,466,945 shares remained available for
repurchase under the share repurchase programs. As of March 31, 2008, a total of 9,943,724 shares
have been purchased, at an average cost of $14.54 per share, under Board authorized share
repurchase programs, of which 1,803,701 shares were allocated to fund the restricted stock portion
of the Companys 2006 Equity Incentive Plan. The remaining repurchased shares are held for general
corporate use, including stock option exercises.
9. Pending Acquisition
In August 2007, the Company entered into an Agreement and Plan of Merger with Summit Federal
Bankshares, Inc. As required by the Office of Thrift Supervision (OTS), Investors Bancorp has
agreed to issue additional shares of its common stock to Investors Bancorp, MHC (Investors MHC),
based on a pro forma market valuation of Summit Federal. An independent appraisal has determined
that, as of March 17, 2008, Summit Federal had a pro forma market value of $25.0 million.
At the closing of the merger, which is expected to occur in June 2008 subject to receipt of
depositor (Summit Federal) and regulatory approvals, Investors Bancorp will issue the additional
shares of common stock to Investors MHC. The number of shares of common stock to be issued to
Investors MHC will equal $25.0 million divided by the average of the closing sales price of a share
of Investors Bancorp common stock, as reported on the Nasdaq Stock Market, for the twenty (20)
consecutive trading days ending on the second trading day preceding the completion date of the
merger. The merger will be accounted for as a pooling of interest of mutual enterprises. As of
March 31, 2008, Summit Federal Savings Bank had $112 million in assets.
10. Recent Accounting Pronouncements
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments-an amendment of FASB Statements No. 133 and 140. This statement permits fair value
remeasurement of certain hybrid financial instruments, clarifies the scope of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities regarding interest-only and
principal-only strips, and provides further guidance on certain issues regarding beneficial
interests in securitized financial assets, concentrations of credit risk and qualifying special
purpose entities. SFAS No. 155 is effective as of the beginning of the first fiscal year that
begins after September 15, 2006. The adoption of SFAS No. 155 on July 1, 2007 did not impact the
Companys financial condition or results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defines
fair value, establishes a framework for measuring fair value in accordance with generally accepted
accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies
to other accounting pronouncements that require or permit fair value measurements and requires
various additional fair value disclosures, but does not require any new fair value measurements.
SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The Company does not expect that the adoption of SFAS No. 157 on July
1, 2008 will have a material impact on its financial statements.
11
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve financial reporting
by providing entities with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. SFAS No. 159 is effective as of the beginning of an entitys first fiscal
year that begins after November 15, 2007 with early adoption permitted as of the beginning of a
fiscal year that begins on or before November 15, 2007. The Company did not elect early adoption.
The Company does not expect that the adoption of SFAS No. 159 on July 1, 2008 will have a material
impact on its financial statements.
In December 2007, the FASB issued SFAS No.141R, Business Combinations. SFAS 141R requires most
identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business
combination to be recorded at full fair value. SFAS No. 141R applies to all business
combinations, including combinations among mutual entities and combinations by contract alone.
Under SFAS No. 141R, all business combinations will be accounted for by applying the acquisition
method. SFAS No. 141R is effective for business combinations completed on or after January 1,
2009.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial
Statements. SFAS No. 160 will require noncontrolling interests (previously referred to as minority
interests) to be treated as a separate component of equity, not as a liability or other item
outside of permanent equity. SFAS No. 160 applies to the accounting for noncontrolling interests
and transactions with noncontrolling interest holders in consolidated financial statements. SFAS
No. 160 is effective for periods beginning on or after December 15, 2008. Earlier application is
prohibited. SFAS No. 160 is not expected to have a material impact on the Companys financial
statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities SFAS No. 161 is intended to improve financial reporting about derivative instruments
and hedging activities by requiring enhanced disclosures to enable investors to better understand
their effects on an entitys financial position, financial performance, and cash flows. SFAS No.
161 is effective for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early application encouraged. The Company does not expect that the
adoption of SFAS No. 161 will have a material impact on its financial statements.
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Forward Looking Statements
Certain statements contained herein are not based on historical facts and 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, including, but not limited to, those related to the economic environment,
particularly in the market areas in which Investors Bancorp, Inc. (the Company)
12
operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government,
changes in government regulations or interpretations of regulations affecting financial
institutions, changes in prevailing interest rates, acquisitions and the integration of acquired
businesses, credit risk management, asset-liability management, the financial and securities
markets and the availability of and costs associated with sources of liquidity.
The Company wishes to caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The Company wishes to advise that the factors
listed above could affect the Companys financial performance and could cause the Companys 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 result of any revisions, which 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.
Executive Summary
Investors Bancorps fundamental business strategy is to be a well capitalized, full service,
community bank and to provide high quality customer service and competitively priced products and
services to individuals and businesses in the communities we serve.
Our results of operations depend primarily on net interest income, which is directly impacted by
the market interest rate environment. Net interest income is the difference between the interest
income we earn on our interest-earning assets, primarily mortgage loans and investment securities,
and the interest we pay on our interest-bearing liabilities, primarily time deposits,
interest-bearing transaction accounts and borrowed funds. Net interest income is affected by the
shape of the market yield curve, the timing of the placement and repricing of interest-earning
assets and interest-bearing liabilities on our balance sheet, and the prepayment rate on our
mortgage-related assets.
The Federal Reserve Board aggressively reduced the Fed Funds rate during the quarter ended March
31, 2008, including a surprise 75 basis point rate cut on January 22, 2008. These rate reductions
combined with those enacted by the Fed in late 2007 caused a steepening of the yield curve which
should have a positive impact on net interest income going forward as the cost of interest-bearing
liabilities will decrease at a faster pace than the yield on interest-earning assets.
While the interest rate environment is important to our net interest income, so is the composition
of our balance sheet. Although the recent turmoil in the financial markets has created uncertainty
and volatility, we remain committed to the strategy of replacing wholesale assets and liabilities
with more loans and deposits. However, we will evaluate and take advantage of favorable pricing in
the wholesale markets when opportunities exist. This may include purchasing loans on a bulk
purchase basis from well established financial institutions to supplement our normal loan
production as well as borrowing in the wholesale markets when those costs are less than the cost of
raising deposits.
Total loans have increased to $4.07 billion at March 31, 2008 from $3.57 billion at June 30, 2007,
an increase of 13.7%. The majority of the growth came from residential mortgage loans which grew
10.6%, or $335.8 million to $3.49 billion. In order to diversify our loan portfolio we have
continued our expansion into commercial real estate lending. During the nine months ended March 31,
2008 commercial real estate, construction and multi-family loans increased $150.0 million or
13
57.6%. We believe this may provide us with an opportunity to increase net interest income and
improve our interest rate risk position.
During the nine months ended March 31, 2008, we recorded a $3.0 million provision for loan losses.
This reflected the growth in our loan portfolio, particularly in commercial real estate and the
risk associated with this type of lending and an internal downgrade of the risk ratings on two
construction loans. Our nonperforming assets have increased in line with our recent loan growth,
such that the ratio of non-performing assets to total loans has remained consistent at 0.14% at
both March 31, 2008 and June 30, 2007.
Total deposits increased by $223.0 million to $3.89 billion at March 31, 2008, an increase of 6.1%.
We continue to focus on increasing core deposits and de-emphasizing certificates of deposit,
however, this task has proven difficult given the interest rate environment, consumer preference
and the extreme competition in the New Jersey marketplace.
As a result of strong loan growth that exceeded the available cash flows from the investment, loan
and deposit portfolios, borrowed funds increased $116.9 million, or 11.3%, to $1.16 billion at
March 31, 2008 from $1.04 billion at June 30, 2007.
In August 2007, the Company entered into an Agreement and Plan of Merger with Summit Federal
Bankshares, Inc. As required by the Office of Thrift Supervision (OTS), Investors Bancorp has
agreed to issue additional shares of its common stock to Investors Bancorp, MHC (Investors MHC),
based on a pro forma market valuation of Summit Federal. An independent appraisal has determined
that, as of March 17, 2008, Summit Federal had a pro forma market value of $25.0 million.
At the closing of the merger, which is expected to occur in June 2008 subject to receipt of
depositor (Summit Federal) and regulatory approvals, Investors Bancorp will issue the additional
shares of common stock to Investors MHC. The number of shares of common stock to be issued to
Investors MHC will equal $25.0 million divided by the average of the closing sales price of a share
of Investors Bancorp common stock, as reported on the Nasdaq Stock Market, for the twenty (20)
consecutive trading days ending on the second trading day preceding the completion date of the
merger. The merger will be accounted for as a pooling of interest of mutual enterprises. As of
March 31, 2008, Summit Federal Savings Bank had $112 million in assets and five branch locations
that complement our current geographic markets.
Comparison of Financial Condition at March 31, 2008 and June 30, 2007
Total Assets. Total assets increased by $317.9 million, or 5.7%, to $5.92 billion at March 31, 2008
from $5.60 billion at June 30, 2007. This increase was largely the result of an increase in our
loan portfolio partially offset by a decrease in the securities portfolio.
Securities. Securities, in the aggregate, decreased by $253.2 million, or 14.3%, to $1.52 billion
at March 31, 2008, from $1.77 billion at June 30, 2007. The cash flows from our securities
portfolio are being used to fund our loan growth. This is consistent with our strategic plan to
change our mix of assets by reducing the size of our securities portfolio and increasing the size
of our loan portfolio.
Net Loans. Net loans, including loans held for sale, increased by $492.2 million, or 13.7%, to
$4.08 billion at March 31, 2008 from $3.59 billion at June 30, 2007. This increase in loans
14
reflects our continued focus on loan originations and purchases. The loans we originate and
purchase are made primarily on properties in New Jersey. To a lesser degree, we originate and
purchase loans in states in close proximity to New Jersey as a way to geographically diversify our
loan portfolio. We do not originate or purchase, and our loan portfolio does not include, any
sub-prime loans or option ARMs.
We originate residential mortgage loans directly and through our mortgage subsidiary, ISB Mortgage
Co. During the nine months ended March 31, 2008, we originated $173.5 million in residential
mortgage loans. In addition, we purchased mortgage loans from correspondent entities including
other banks and mortgage bankers. Our agreements with these correspondent entities require them to
originate loans that adhere to our underwriting standards. During the nine months ended March 31,
2008, we purchased loans totaling $404.4 million from these entities. We also purchase pools of
mortgage loans in the secondary market on a bulk purchase basis from several well-established
financial institutions. During the nine months ended March 31, 2008, we purchased loans totaling
$62.9 million on a bulk purchase basis.
Additionally, for the nine months ended March 31, 2008, we originated $65.0 million in multi-family
and commercial real estate loans and $146.4 million in construction loans. This is consistent with
our strategy of originating multi-family, commercial real estate and construction loans to
diversify our loan portfolio.
The Company also originates interest-only one-to four-family mortgage loans in which the borrower
makes only interest payments for the first five, seven or ten years of the mortgage loan term.
This feature will result in future increases in the borrowers loan repayment when the
contractually required repayments increase due to the required amortization of the principal
amount. These payment increases could affect the borrowers ability to repay the loan. The amount
of interest-only one-to four-family mortgage loans at March 31, 2008 was $318.2 million compared to
$287.9 million at June 30, 2007. The ability of borrowers to repay their obligations is dependent
upon various factors including the borrowers income and net worth, cash flows generated by the
underlying collateral, value of the underlying collateral and priority of the Companys lien on the
property. Such factors are dependent upon various economic conditions and individual circumstances
beyond the Companys control; the Company is, therefore, subject to risk of loss.
The Company maintains stricter underwriting criteria for these interest-only loans than it does for
its amortizing loans. The Company believes these criteria adequately lessen the potential exposure
to such risks and that adequate provisions for loan losses are provided for all known and inherent
risks.
The allowance for loan losses increased by $2.9 million to $9.8 million at March 31, 2008 from $6.9
million at June 30, 2007. The increase in the allowance reflects the overall growth in the loan
portfolio, particularly commercial real estate loans, as well as the credit risk associated with
this type of lending and an internal downgrade of the risk ratings on two construction loans. The
allowance for loan losses also reflects the overall inherent credit risk in our loan portfolio, the
level of our non-performing loans and our charge-off experience.
Total non-performing loans, defined as non-accruing loans, increased by $556,000 to $5.7 million at
March 31, 2008 from $5.1 million at June 30, 2007. The ratio of non-performing loans to total loans
was 0.14% at both March 31, 2008 and June 30, 2007. The allowance for loan losses as a percentage
of non-performing loans was 172.43% at March 31, 2008 compared with
15
134.33% at June 30, 2007. At March 31, 2008 our allowance for loan losses as a percentage of total
loans was 0.24% compared with 0.19% at June 30, 2007.
Although we believe we have established and maintained an adequate level of allowance for loan
losses, additions may be necessary based on growth of the loan portfolio, the change in composition
of the loan portfolio, and the possible continuation of the current adverse economic environment.
Although we use the best information available, the level of allowance for loan losses remains an
estimate that is subject to significant judgment and short-term change. See Critical Accounting
Policies.
Stock in the Federal Home Loan Bank, Bank Owned Life Insurance and Other Assets. The amount of
stock we own in the Federal Home Loan Bank (FHLB) increased by $8.0 million from $33.9 million at
June 30, 2007 to $41.8 million at March 31, 2008 as a result of an increase in our level of
borrowings at March 31, 2008. Bank owned life insurance increased by $2.9 million from $88.0
million at June 30, 2007 to $90.9 million at March 31, 2008. There was also an increase in accrued
interest receivable of $1.9 million resulting from an increase in the yield on interest-earning
assets and the timing of certain cash flows resulting from the change in the mix of our assets.
Deposits. Deposits increased by $223.0 million, or 6.1%, to $3.89 billion at March 31, 2008 from
$3.66 billion at June 30, 2007. The increase was due primarily to a $157.6 million increase in
certificates of deposits. Savings account deposits and money market account deposits also increased
by $41.8 million and $28.9 million, respectively. These increases were partially offset by a $7.0
million decrease in checking account deposits.
Borrowed Funds. Borrowed funds increased $116.9 million, or 11.3%, to $1.16 billion at March 31,
2008 from $1.04 billion at June 30, 2007. This increase in borrowed funds was the result of strong
loan growth that exceeded the available cash flows from the investment, loan and deposit
portfolios.
Stockholders Equity. Stockholders equity decreased $23.5 million to $819.9 million at March 31,
2008 from $843.4 million at June 30, 2007. The decrease is primarily attributed to the repurchase
of our common stock totaling $45.8 million partially offset by net income of $11.8 million for the
nine months ended March 31, 2008. Other factors impacting stockholders equity were compensation
costs associated with stock options and restricted stock, the change in the accumulated other
comprehensive loss, and the allocation of ESOP shares.
Average Balance Sheets for the Three and Nine Months ended March 31, 2008 and 2007
The following tables present certain information regarding Investors Bancorp, Inc.s financial
condition and net interest income for the three and nine months ended March 31, 2008 and 2007. The
tables present the annualized average yield on interest-earning assets and the annualized average
cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized
income or expense by the average balance of interest-earning assets and interest-bearing
liabilities, respectively, for the periods shown. We derived average balances from daily balances
over the periods indicated. Interest income includes fees that we consider adjustments to yields.
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Three Months Ended |
|
|
|
March 31, 2008 |
|
|
March 31, 2007 |
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Interest |
|
|
Average |
|
|
Outstanding |
|
|
Interest |
|
|
Average |
|
|
|
Balance |
|
|
Earned/Paid |
|
|
Yield/Rate |
|
|
Balance |
|
|
Earned/Paid |
|
|
Yield/Rate |
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
$ |
27,013 |
|
|
$ |
151 |
|
|
|
2.24 |
% |
|
$ |
18,317 |
|
|
$ |
154 |
|
|
|
3.36 |
% |
Repurchase agreements and Fed Funds |
|
|
23,626 |
|
|
|
162 |
|
|
|
2.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale (1) |
|
|
221,914 |
|
|
|
2,557 |
|
|
|
4.61 |
% |
|
|
318,611 |
|
|
|
3,643 |
|
|
|
4.57 |
% |
Securities held-to-maturity |
|
|
1,355,945 |
|
|
|
16,031 |
|
|
|
4.73 |
% |
|
|
1,573,901 |
|
|
|
18,835 |
|
|
|
4.79 |
% |
Net loans |
|
|
4,020,387 |
|
|
|
57,123 |
|
|
|
5.68 |
% |
|
|
3,313,269 |
|
|
|
45,868 |
|
|
|
5.54 |
% |
Stock in FHLB |
|
|
44,088 |
|
|
|
971 |
|
|
|
8.81 |
% |
|
|
35,541 |
|
|
|
798 |
|
|
|
8.98 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-earning
assets |
|
|
5,692,973 |
|
|
|
76,995 |
|
|
|
5.41 |
% |
|
|
5,259,639 |
|
|
|
69,298 |
|
|
|
5.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets |
|
|
176,304 |
|
|
|
|
|
|
|
|
|
|
|
173,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,869,277 |
|
|
|
|
|
|
|
|
|
|
$ |
5,432,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
353,576 |
|
|
|
2,014 |
|
|
|
2.28 |
% |
|
$ |
275,530 |
|
|
|
1,306 |
|
|
|
1.90 |
% |
Interest-bearing checking |
|
|
330,973 |
|
|
|
1,595 |
|
|
|
1.93 |
% |
|
|
303,904 |
|
|
|
1,817 |
|
|
|
2.39 |
% |
Money market accounts |
|
|
208,798 |
|
|
|
1,225 |
|
|
|
2.35 |
% |
|
|
174,671 |
|
|
|
856 |
|
|
|
1.96 |
% |
Certificates of deposit |
|
|
2,880,853 |
|
|
|
33,146 |
|
|
|
4.60 |
% |
|
|
2,711,528 |
|
|
|
31,694 |
|
|
|
4.68 |
% |
Borrowed funds |
|
|
1,190,571 |
|
|
|
12,887 |
|
|
|
4.33 |
% |
|
|
1,003,698 |
|
|
|
11,995 |
|
|
|
4.78 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-bearing
liabilities |
|
|
4,964,771 |
|
|
|
50,867 |
|
|
|
4.10 |
% |
|
|
4,469,331 |
|
|
|
47,668 |
|
|
|
4.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities |
|
|
93,214 |
|
|
|
|
|
|
|
|
|
|
|
83,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
5,057,985 |
|
|
|
|
|
|
|
|
|
|
|
4,552,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
811,292 |
|
|
|
|
|
|
|
|
|
|
|
880,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders
equity |
|
$ |
5,869,277 |
|
|
|
|
|
|
|
|
|
|
$ |
5,432,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
26,128 |
|
|
|
|
|
|
|
|
|
|
$ |
21,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread (2) |
|
|
|
|
|
|
|
|
|
|
1.31 |
% |
|
|
|
|
|
|
|
|
|
|
1.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets (3) |
|
$ |
728,202 |
|
|
|
|
|
|
|
|
|
|
$ |
790,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (4) |
|
|
|
|
|
|
|
|
|
|
1.84 |
% |
|
|
|
|
|
|
|
|
|
|
1.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of interest-earning assets to total interest-
bearing liabilities |
|
|
1.15 |
X |
|
|
|
|
|
|
|
|
|
|
1.18 |
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Nine Months Ended |
|
|
|
March 31, 2008 |
|
|
March 31, 2007 |
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Interest |
|
|
Average |
|
|
Outstanding |
|
|
Interest |
|
|
Average |
|
|
|
Balance |
|
|
Earned/Paid |
|
|
Yield/Rate |
|
|
Balance |
|
|
Earned/Paid |
|
|
Yield/Rate |
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
$ |
19,039 |
|
|
$ |
452 |
|
|
|
3.17 |
% |
|
$ |
20,346 |
|
|
$ |
545 |
|
|
|
3.57 |
% |
Repurchase agreements and Fed Funds |
|
|
7,732 |
|
|
|
162 |
|
|
|
2.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale (1) |
|
|
236,034 |
|
|
|
8,130 |
|
|
|
4.59 |
% |
|
|
441,337 |
|
|
|
14,541 |
|
|
|
4.39 |
% |
Securities held-to-maturity |
|
|
1,428,165 |
|
|
|
51,715 |
|
|
|
4.83 |
% |
|
|
1,650,542 |
|
|
|
59,062 |
|
|
|
4.77 |
% |
Net loans |
|
|
3,893,275 |
|
|
|
166,777 |
|
|
|
5.71 |
% |
|
|
3,204,120 |
|
|
|
131,906 |
|
|
|
5.49 |
% |
Stock in FHLB |
|
|
43,145 |
|
|
|
2,364 |
|
|
|
7.31 |
% |
|
|
42,903 |
|
|
|
2,248 |
|
|
|
6.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-earning
assets |
|
|
5,627,390 |
|
|
|
229,600 |
|
|
|
5.44 |
% |
|
|
5,359,248 |
|
|
|
208,302 |
|
|
|
5.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets |
|
|
176,401 |
|
|
|
|
|
|
|
|
|
|
|
159,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,803,791 |
|
|
|
|
|
|
|
|
|
|
$ |
5,518,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
324,851 |
|
|
|
5,471 |
|
|
|
2.25 |
% |
|
$ |
247,467 |
|
|
|
2,740 |
|
|
|
1.48 |
% |
Interest-bearing checking |
|
|
338,648 |
|
|
|
5,920 |
|
|
|
2.33 |
% |
|
|
303,209 |
|
|
|
5,452 |
|
|
|
2.40 |
% |
Money market accounts |
|
|
201,230 |
|
|
|
3,889 |
|
|
|
2.58 |
% |
|
|
189,401 |
|
|
|
2,658 |
|
|
|
1.87 |
% |
Certificates of deposit |
|
|
2,851,958 |
|
|
|
101,619 |
|
|
|
4.75 |
% |
|
|
2,633,313 |
|
|
|
89,617 |
|
|
|
4.54 |
% |
Borrowed funds |
|
|
1,170,464 |
|
|
|
41,414 |
|
|
|
4.72 |
% |
|
|
1,165,815 |
|
|
|
42,744 |
|
|
|
4.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-bearing
liabilities |
|
|
4,887,151 |
|
|
|
158,313 |
|
|
|
4.32 |
% |
|
|
4,539,205 |
|
|
|
143,211 |
|
|
|
4.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities |
|
|
97,620 |
|
|
|
|
|
|
|
|
|
|
|
83,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
4,984,771 |
|
|
|
|
|
|
|
|
|
|
|
4,622,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
819,020 |
|
|
|
|
|
|
|
|
|
|
|
895,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders
equity |
|
$ |
5,803,791 |
|
|
|
|
|
|
|
|
|
|
$ |
5,518,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
71,287 |
|
|
|
|
|
|
|
|
|
|
$ |
65,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread (2) |
|
|
|
|
|
|
|
|
|
|
1.12 |
% |
|
|
|
|
|
|
|
|
|
|
0.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets (3) |
|
$ |
740,239 |
|
|
|
|
|
|
|
|
|
|
$ |
820,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (4) |
|
|
|
|
|
|
|
|
|
|
1.69 |
% |
|
|
|
|
|
|
|
|
|
|
1.62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of interest-earning assets to total interest-
bearing liabilities |
|
|
1.15 |
X |
|
|
|
|
|
|
|
|
|
|
1.18 |
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Securities available-for-sale are stated at amortized cost, adjusted for unamortized purchase
premiums and discounts. |
|
(2) |
|
Net interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing liabilities. |
|
(3) |
|
Net interest-earning assets represent total interest-earning assets less total
interest-bearing liabilities. |
|
(4) |
|
Net interest margin represents net interest income divided by average total interest-earning
assets. |
18
Comparison of Operating Results for the Three Months Ended March 31, 2008 and 2007
Net Income. Net income was $5.0 million for the three months ended March 31, 2008 compared to net
income of $3.0 million for the three months ended March 31, 2007. This increase reflects an
increase in net interest income, partially offset by an increase in our effective tax rate and an
increase in the provision for loan losses.
Net Interest Income. Net interest income increased by $4.5 million, or 20.8%, to $26.1 million for
the three months ended March 31, 2008 from $21.6 million for the three months ended March 31, 2007.
During the three months ended March 31, 2008, our net interest rate spread increased 31 basis
points to 1.31% as a result of a 14 basis point improvement in our yield on interest-earning assets
to 5.41% for the three months ended March 31, 2008 from 5.27% for the three months ended March 31,
2007 and the cost of interest-bearing liabilities decreasing 17 basis points to 4.10% for the three
months ended March 31, 2008 from 4.27% for the three months ended March 31, 2007. Our net interest
margin increased 20 basis points to 1.84% as compared to the three months ended March 31, 2007.
This improvement can be attributed to the growth in our loan portfolio and the Feds recent
reduction in rates.
Interest and Dividend Income. Total interest and dividend income increased by $7.7 million, or
11.1%, to $77.0 million for the three months ended March 31, 2008 from $69.3 million for the three
months ended March 31, 2007. This increase is primarily due to the average balance of
interest-earning assets increasing $433.3 million, or 8.2%, to $5.69 billion for the three months
ended March 31, 2008 from $5.26 billion for the three months ended March 31, 2007. In addition, the
weighted average yield on interest-earning assets increased 14 basis points to 5.41% for the three
months ended March 31, 2008 compared to 5.27% for the three months ended March 31, 2007.
Interest income on loans increased by $11.3 million, or 24.5%, to $57.1 million for the three
months ended March 31, 2008 from $45.9 million for the three months ended March 31, 2007,
reflecting a $707.1 million, or 21.3%, increase in the average balance of net loans to $4.02
billion for the three months ended March 31, 2008 from $3.31 billion for the three months ended
March 31, 2007. In addition, the average yield on net loans increased 14 basis points to 5.68% for
the three months ended March 31, 2008 from 5.54% for the three months ended March 31, 2007.
Interest income on all other interest-earning assets, excluding loans, decreased by $3.6 million,
or 15.2%, to $19.9 million for the three months ended March 31, 2008 from $23.4 million for the
three months ended March 31, 2007. This decrease reflected a $273.8 million decrease in the average
balance of securities and other interest-earning assets and a 7 basis point decrease in the average
yield on securities and other interest-earning assets to 4.75% for the three months ended March 31,
2008 from 4.82% for the three months ended March 31, 2007.
Interest Expense. Total interest expense increased by $3.2 million, or 6.7%, to $50.9 million for
the three months ended March 31, 2008 from $47.7 million for the three months ended March 31, 2007.
This increase was due to the average balance of total interest-bearing liabilities increasing by
$495.4 million, or 11.1%, to $4.96 billion for the three months ended March 31, 2008 from $4.47
billion for the three months ended March 31, 2007. This was partially offset by a 17 basis point
decrease in the weighted average cost of total interest-bearing liabilities to 4.10% for the three
months ended March 31, 2008 compared to 4.27% for the three months ended March 31, 2007.
19
Interest expense on interest-bearing deposits increased $2.3 million, or 6.5%, to $38.0 million for
the three months ended March 31, 2008 from $35.7 million for the three months ended March 31, 2007.
This increase was due to the average balance of interest-bearing deposits increasing $308.6
million, or 8.9%, to $3.77 billion for the three months ended March 31, 2008 from $3.47 billion for
the three months ended March 31, 2007, partially offset by a 9 basis point decrease in the average
cost of interest-bearing deposits to 4.03% for the three months ended March 31, 2008 from 4.12% for
the three months ended March 31, 2007.
Interest expense on borrowed funds increased by $892,000, or 7.4%, to $12.9 million for the three
months ended March 31, 2008 from $12.0 million for the three months ended March 31, 2007. This is
due to the average balance of borrowed funds increasing $186.9 million, or 18.6% to $1.19 billion
for the three months ended March 31, 2008 from $1.00 billion for the three months ended March 31,
2007. This was partially offset by the average cost of borrowed funds decreasing 45 basis points to
4.33% for the three months ended March 31, 2008 from 4.78% for the three months ended March 31,
2007.
Provision for Loan Losses. Our provision for loan losses was $1.0 million for the three months
ended March 31, 2008 compared to $200,000 for the three months ended March 31, 2007. There were
$21,000 in net charge-offs for the three months ended March 31, 2008 (none for the three months
ended March 31, 2007). See discussion of the allowance for loan losses and non-accrual loans in
"Comparison of Financial Condition at March 31, 2008 and June 30, 2007.
Non-interest Income. Total non-interest income increased by $372,000, or 21.8% to $2.1 million for
the three months ended March 31, 2008 from $1.7 million for the three months ended March 31, 2007.
This was partially due to a $105,000 gain realized on the redemption of the Visa stock received in
connection with Visas initial public offering in the quarter ended March 31, 2008. Additionally
there was a $99,000 increase in gain on loan sales and a $98,000 increase in fees and service
charges.
Non-interest Expenses. Total non-interest expenses increased by $197,000, or 1.0%, to $19.3
million for the three months ended March 31, 2008 from $19.1 million for the three months ended
March 31, 2007.
Income Taxes. Income tax expense was $2.9 million for the three months ended March 31, 2008, as
compared to income tax expense of $1.0 million for the three months ended March 31, 2007. Our
effective tax expense rate was 36.7% for the three months ended March 31, 2008, compared to an
effective tax expense rate of 25.8% for the three months ended March 31, 2007. The increase in the
effective tax rate can be attributed to the liquidation of our New Jersey Real Estate Investment
Trust (REIT) in December 2007. The liquidation was in response to the change in taxation of REITs
by the State of New Jersey.
Comparison of Operating Results for the Nine Months Ended March 31, 2008 and 2007
Net Income. Net income for the nine months ended March 31, 2008 was $11.8 million compared to net
income of $19.4 million for the nine months ended March 31, 2007. During the nine months ended
March 31, 2007 the Company recognized $9.9 million in deferred tax benefits from the net reduction
in previously established valuation allowances for deferred tax assets, partially offset by a $1.2
million additional valuation allowance established for the
20
contribution to our charitable foundation. Additionally, the Company realized a pretax loss of
$3.7 million from a balance sheet restructuring during the nine months ended March 31, 2007.
Net Interest Income. Net interest income increased by $6.2 million, or 9.5%, to $71.3 million for
the nine months ended March 31, 2008 from $65.1 million for the nine months ended March 31, 2007.
During the nine months ended March 31, 2008, our net interest rate spread increased 15 basis points
to 1.12% as a result of a 26 basis point improvement in our yield on interest-earning assets to
5.44% for the nine months ended March 31, 2008 from 5.18% for the nine months ended March 31, 2007.
This was partially offset by the cost of interest-bearing liabilities increasing 11 basis points to
4.32% for the nine months ended March 31, 2008 from 4.21% for the nine months ended March 31, 2007.
Our net interest margin increased 7 basis points to 1.69% as compared to the nine months ended
March 31, 2007. This improvement can be attributed to the growth in our loan portfolio and the
Feds recent reduction in rates.
Interest and Dividend Income. Total interest and dividend income increased by $21.3 million, or
10.2%, to $229.6 million for the nine months ended March 31, 2008 from $208.3 million for the nine
months ended March 31, 2007, reflecting a $268.1 million, or 5.0%, increase in the average balance
of interest-earning assets to $5.63 billion for the nine months ended March 31, 2008 from $5.36
billion for the nine months ended March 31, 2007. In addition, there was a 26 basis point increase
in the weighted average yield on interest-earning assets to 5.44% for the nine months ended March
31, 2008 compared to 5.18% for the nine months ended March 31, 2007.
Interest income on loans increased by $34.9 million, or 26.4%, to $166.8 million for the nine
months ended March 31, 2008 from $131.9 million for the nine months ended March 31, 2007,
reflecting a $689.2 million, or 21.5%, increase in the average balance of net loans to $3.89
billion for the nine months ended March 31, 2008 from $3.2 billion for the nine months ended March
31, 2007. In addition, the average yield on loans increased 22 basis points to 5.71% for the nine
months ended March 31, 2008 from 5.49% for the nine months ended March 31, 2007.
Interest income on all other interest-earning assets, excluding loans, decreased by $13.6 million,
or 17.8%, to $62.8 million for the nine months ended March 31, 2008 from $76.4 million for the nine
months ended March 31, 2007. This decrease reflected a $421.0 million decrease in the average
balance of securities and other interest-earning assets partially offset by a 10 basis point
increase in the average yield on securities and other interest-earning assets to 4.83% for the nine
months ended March 31, 2008 from 4.73% for the nine months ended March 31, 2007.
Interest Expense. Total interest expense increased by $15.1 million, or 10.5%, to $158.3 million
for the nine months ended March 31, 2008 from $143.2 million for the nine months ended March 31,
2007. This increase was primarily due to the average balance of total interest-bearing liabilities
increasing to $4.89 billion for the nine months ended March 31, 2008 from $4.54 billion for the
nine months ended March 31, 2007. In addition there was an 11 basis point increase in the weighted
average cost of total interest-bearing liabilities to 4.32% for the nine months ended March 31,
2008 compared to 4.21% for the nine months ended March 31, 2007.
Interest expense on interest-bearing deposits increased $16.4 million, or 16.4%, to $116.9 million
for the nine months ended March 31, 2008 from $100.5 million for the nine months ended March 31,
2007. This increase was due primarily to the average balance of interest-bearing deposits
increasing $343.3 million, or 10.2%, to $3.72 billion for the nine months ended March 31, 2008 from
$3.37 billion for the nine months ended March 31, 2007. In addition, the
21
average cost of interest-bearing deposits increased 22 basis points to 4.19% for the nine months
ended March 31, 2008 from 3.97% for the nine months ended March 31, 2007.
Interest expense on borrowed funds decreased by $1.3 million, or 3.1%, to $41.4 million for the
nine months ended March 31, 2008 from $42.7 million for the nine months ended March 31, 2007. The
decrease is primarily due to the average cost of borrowed funds decreasing 17 basis points to 4.72%
for the nine months ended March 31, 2008 from 4.89% for the nine months ended March 31, 2007. This
was partially offset by the average balance of borrowed funds increasing $4.6 million, or 0.4%, to
$1.17 billion for the nine months ended March 31, 2008.
Provision for Loan Losses. Our provision for loan losses was $3.0 million for the nine month period
ended March 31, 2008 compared to $525,000 for the nine months ended March 31, 2007. There were net
charge-offs of $29,000 for the nine month period ended March 31, 2008 compared to net charge-offs
of $139,000 for the nine months ended March 31, 2007. See discussion of the allowance for loan
losses and non-accrual loans in Comparison of Financial Condition at March 31, 2008 and June 30,
2007.
Non-interest Income. Total non-interest income increased by $4.8 million to $5.9 million for the
nine months ended March 31, 2008 from $1.1 million for the nine months ended March 31, 2007. The
nine months ended March 31, 2007 included a $3.7 million loss on the sale of securities primarily
attributed to a balance sheet restructuring. Additionally, the gain on loan sales increased by
$377,000 to $466,000 for the nine months ended March 31, 2008 from $89,000 for the nine months
ended March 31, 2007. Income associated with our bank owned life insurance contract also increased
by $302,000 to $2.9 million for the nine months ended March 31, 2008 from $2.6 million for the nine
months ended March 31, 2007.
Non-interest Expenses. Total non-interest expenses increased by $1.8 million, or 3.2%, to $56.2
million for the nine months ended March 31, 2008 from $54.4 million for the nine months ended March
31, 2007. This increase was primarily the result of compensation and fringe benefits increasing by
$1.9 million, or 5.2%, to $37.4 million for the nine months ended March 31, 2008. The nine month
period ended March 31, 2008 included a $3.5 million increase in expense for the 2006 Equity
Incentive Plan compared to the nine month period ended March 31, 2007. This increase was partially
offset by a $2.3 million gain related to the curtailment and settlement of our postretirement
benefit obligation recognized during the nine months ended March 31, 2008. In addition, the
increase also reflects staff additions in our commercial real estate and retail banking areas, as
well as normal merit increases and increases in employee benefit costs.
Income Taxes. Income tax expense was $6.2 million for the nine months ended March 31, 2008,
representing a 35.7% effective tax rate for the period. For the nine months ended March 31, 2007
there was an income tax benefit of $8.2 million. The tax benefit was attributed to the reversal, in
the quarter ended December 31, 2006, of a substantial portion of the previously established
deferred tax asset valuation allowance, as management determined that it is more likely than not
that the deferred tax asset will be recognized.
Liquidity and Capital Resources
The Companys primary sources of funds are deposits, principal and interest payments on loans and
mortgage-backed securities, proceeds from the sale of loans, Federal Home Loan Bank (FHLB) and
other borrowings and, to a lesser extent, investment maturities. While scheduled amortization of
loans is a predictable source of funds, deposit flows and mortgage prepayments
22
are greatly influenced by general interest rates, economic conditions and competition. The Company
has other sources of liquidity if a need for additional funds arises, including an overnight line
of credit and other borrowings from the FHLB and other correspondent banks.
At March 31, 2008 the Company had no overnight borrowings outstanding compared to $200.0 million of
outstanding overnight borrowings at June 30, 2007. The Company utilizes the overnight line from
time to time to fund short-term liquidity needs. The Company had total borrowings of $1.16 billion
at March 31, 2008, an increase from $1.04 billion at June 30, 2007. This increase was primarily the
result of loan growth that exceeded the available cash flows from the investment, loan and deposit
portfolios.
In the normal course of business, the Company routinely enters into various commitments, primarily
relating to the origination of loans. At March 31, 2008, outstanding commitments to originate and
purchase loans totaled $298.1 million; outstanding unused lines of credit totaled $275.2 million;
and outstanding commitments to sell loans totaled $25.0 million. The Company expects to have
sufficient funds available to meet current commitments in the normal course of business.
Time deposits scheduled to mature in one year or less totaled $2.74 billion at March 31, 2008.
Based upon historical experience, management estimates that a significant portion of such deposits
will remain with the Company.
At its January 2008 meeting, the Board of Directors approved a third share repurchase program which
authorizes the repurchase of an additional 10% of the Companys publicly-held outstanding common
stock, or 4,307,248 shares. The newly approved share repurchase program will commence immediately
upon completion of the current program, under which an additional 159,697 shares may be purchased
as of March 31, 2008. Under these programs, Investors Bancorp, Inc. common stock may be purchased
in the open market and through other privately negotiated transactions in accordance with
applicable federal securities laws. During the nine month period ended March 31, 2008, the Company
repurchased 3,470,029 shares of its common stock at an average cost of $13.81 per share. At March
31, 2008, a total of 4,466,945 shares remained available for repurchase under the share repurchase
programs. As of March 31, 2008, a total of 9,943,724 shares have been purchased, at an average cost
of $14.54 per share, under Board authorized share repurchase programs, of which 1,803,701 shares
were allocated to fund the restricted stock portion of the Companys 2006 Equity Incentive Plan.
The remaining repurchased shares are held for general corporate use, including stock option
exercises.
As of March 31, 2008 the Bank exceeded all regulatory capital requirements as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008 |
|
|
Actual |
|
Required |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|
(Dollars in thousands) |
Total capital (to risk-weighted assets)
|
|
$ |
714,675 |
|
|
|
23.1 |
% |
|
$ |
247,194 |
|
|
|
8.0 |
% |
Tier I capital (to risk-weighted assets)
|
|
|
704,838 |
|
|
|
22.8 |
|
|
|
123,597 |
|
|
|
4.0 |
|
Tier I capital (to average assets)
|
|
|
704,838 |
|
|
|
12.0 |
|
|
|
234,335 |
|
|
|
4.0 |
|
23
Off-Balance Sheet Arrangements and Contractual Obligations
In the normal course of operations, the Company engages in a variety of financial transactions
that, in accordance with generally accepted accounting principles, are not recorded in the
financial statements. These transactions primarily relate to lending commitments.
The following table shows the contractual obligations of the Company by expected payment period as
of March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
One-Two |
|
Two-Three |
|
More than |
Contractual Obligations |
|
Total |
|
One Year |
|
Years |
|
Years |
|
Three Years |
Debt obligations (excluding capitalized leases) |
|
$ |
1,155,589 |
|
|
|
325,000 |
|
|
|
260,000 |
|
|
|
175,000 |
|
|
|
395,589 |
|
Commitments to originate and purchase loans |
|
$ |
298,126 |
|
|
|
298,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to sell loans |
|
$ |
24,982 |
|
|
|
24,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, at March 31, 2008, the Companys commitments to fund unused lines of credit totaled
$275.2 million.
Debt obligations include borrowings from the FHLB and other borrowings. The borrowings have defined
terms and, under certain circumstances, $680.0 million of the borrowings are callable at the option
of the lender.
Commitments to originate loans and commitments to fund unused lines of credit are agreements to
lend additional funds to customers as long as there have been no violations of any of the
conditions established in the agreements. Commitments generally have a fixed expiration or other
termination clauses which may or may not require a payment of a fee. Since some of these loan
commitments are expected to expire without being drawn upon, total commitments do not necessarily
represent future cash requirements.
In addition to the contractual obligations previously discussed, we have other liabilities and
capitalized and operating lease obligations. These contractual obligations as of March 31, 2008
have not changed significantly from June 30, 2007.
For further information regarding our off-balance sheet arrangements and contractual obligations,
see Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations, in our 2007 Annual Report on Form 10-K.
Critical Accounting Policies
We consider accounting policies that require management to exercise significant judgment or
discretion or to make significant assumptions that have, or could have, a material impact on the
carrying value of certain assets or on income, to be critical accounting policies. We consider
the following to be our critical accounting policies.
Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered
necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The
allowance is established through the provision for loan losses that is charged against income. In
determining the allowance for loan losses, we make significant estimates and therefore have
identified the allowance as a critical accounting policy. The methodology for determining the
allowance for loan losses is considered a critical accounting policy by management due to the
24
high degree of judgment involved, the subjectivity of the assumptions utilized, and the potential
for changes in the economic environment that could result in changes to the amount of the recorded
allowance for loan losses.
The allowance for loan losses has been determined in accordance with U.S. generally accepted
accounting principles, under which we are required to maintain an allowance for probable losses at
the balance sheet date. We are responsible for the timely and periodic determination of the amount
of the allowance required. We believe that our allowance for loan losses is adequate to cover
specifically identifiable losses, as well as estimated losses inherent in our portfolio for which
certain losses are probable but not specifically identifiable.
Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. The
analysis of the allowance for loan losses has two components: specific and general allocations.
Specific allocations are made for loans determined to be impaired. A loan is deemed to be impaired
if it is a commercial real estate, multi-family or construction loan with an outstanding balance
greater than $3.0 million and on non-accrual status. Impairment is measured by determining the
present value of expected future cash flows or, for collateral-dependent loans, the fair value of
the collateral adjusted for market conditions and selling expenses. The general allocation is
determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and
payment history. We also analyze historical loss experience, delinquency trends, general economic
conditions, geographic concentrations, and industry and peer comparisons. This analysis
establishes factors that are applied to the loan groups to determine the amount of the general
allocations. This evaluation is inherently subjective as it requires material estimates that may
be susceptible to significant revisions based upon changes in economic and real estate market
conditions. Actual loan losses may be significantly more than the allowance for loan losses we
have established which could have a material negative effect on our financial results.
On a quarterly basis, managements Allowance for Loan Loss Committee reviews the current status of
various loan assets in order to evaluate the adequacy of the allowance for loan losses. In this
evaluation process, specific loans are analyzed to determine their potential risk of loss. This
process includes all loans, concentrating on non-accrual and classified loans. Each non-accrual or
classified loan is evaluated for potential loss exposure. Any shortfall results in a
recommendation of a specific allowance if the likelihood of loss is evaluated as probable. To
determine the adequacy of collateral on a particular loan, an estimate of the fair market value of
the collateral is based on the most current appraised value available. This appraised value is
then reduced to reflect estimated liquidation expenses.
The results of this quarterly process are summarized along with recommendations and presented to
Executive and Senior Management for their review. Based on these recommendations, loan loss
allowances are approved by Executive and Senior Management. All supporting documentation with
regard to the evaluation process, loan loss experience, allowance levels and the schedules of
classified loans are maintained by the Lending Administration Department. A summary of loan loss
allowances is presented to the Board of Directors on a quarterly basis.
Our primary lending emphasis has been the origination and purchase of residential mortgage loans
and, to a lesser extent, commercial real estate mortgages. We also originate home equity loans and
home equity lines of credit. These activities resulted in a loan concentration in residential
mortgages. We also have a concentration of loans secured by real property located in New Jersey.
As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the
underlying value of property securing loans are critical in determining the
25
amount of the allowance required for specific loans. Assumptions for appraisal valuations are
instrumental in determining the value of properties. Overly optimistic assumptions or negative
changes to assumptions could significantly impact the valuation of a property securing a loan and
the related allowance determined. The assumptions supporting such appraisals are carefully
reviewed by management to determine that the resulting values reasonably reflect amounts realizable
on the related loans. Based on the composition of our loan portfolio, we believe the primary risks
are increases in interest rates, a decline in the general economy, and a decline in real estate
market values in New Jersey. Any one or combination of these events may adversely affect our loan
portfolio resulting in increased delinquencies, loan losses and future levels of loan loss
provisions. We consider it important to maintain the ratio of our allowance for loan losses to
total loans at an adequate level given current economic conditions, interest rates, and the
composition of the portfolio.
Our provision for loan losses reflects probable losses resulting from the actual growth and change
in composition of our loan portfolio. We believe the allowance for loan losses reflects the
inherent credit risk in our portfolio, the level of our non-performing loans and our charge-off
experience.
Although we believe we have established and maintained the allowance for loan losses at adequate
levels, additions may be necessary if future economic and other conditions differ substantially
from the current operating environment. Although management uses the best information available,
the level of the allowance for loan losses remains an estimate that is subject to significant
judgment and short-term change. In addition, the Federal Deposit Insurance Corporation and the New
Jersey Department of Banking and Insurance, as an integral part of their examination process, will
periodically review our allowance for loan losses. Such agencies may require us to recognize
adjustments to the allowance based on their judgments about information available to them at the
time of their examination.
Deferred Income Taxes. We use the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. If current available
information raises doubt as to the realization of the deferred tax assets, a valuation allowance is
established. We consider the determination of this valuation allowance to be a critical accounting
policy because of the need to exercise significant judgment in evaluating the amount and timing of
recognition of deferred tax liabilities and assets, including projections of future taxable income.
These judgments and estimates are reviewed on a continual basis as regulatory and business factors
change. A valuation allowance for deferred tax assets may be required if the amounts of taxes
recoverable through loss carry back declines, or if we project lower levels of future taxable
income. The increase or decrease of a previously established valuation allowance may occur if our
projection of future taxable income changes or other facts and circumstances change. Such changes
in the valuation allowance would be recorded through income tax expense.
Asset Impairment Judgments. Certain of our assets are carried on our consolidated balance sheets
at cost, fair value or at the lower of cost or fair value. Valuation allowances or write-downs are
established when necessary to recognize impairment of such assets. We periodically perform
analyses to test for impairment of such assets. In addition to the impairment analyses related to
our loans discussed above, another significant impairment analysis is the determination
26
of whether there has been an other-than-temporary decline in the value of one or more of our
securities.
Our available-for-sale portfolio is carried at estimated fair value, with any unrealized gains or
losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders
equity. Our held-to-maturity portfolio, consisting of debt securities for which we have a positive
intent and ability to hold to maturity, is carried at amortized cost. We conduct a periodic review
and evaluation of the securities portfolio to determine if the value of any security has declined
below its cost or amortized cost, and whether such decline is other-than-temporary. If such
decline is deemed other-than-temporary, we would adjust the cost basis of the security by writing
down the security to fair market value through a charge to current period operations. The market
values of our securities are affected by changes in interest rates. When significant changes in
interest rates occur, we evaluate our intent and ability to hold the security to maturity or for a
sufficient time to recover our recorded investment balance.
Stock-Based Compensation. We recognize the cost of employee services received in exchange for
awards of equity instruments based on the grant-date fair value of those awards in accordance with
SFAS No. 123(R).
We estimate the per share fair value of option grants on the date of grant using the Black-Scholes
option pricing model using assumptions for the expected dividend yield, expected stock price
volatility, risk-free interest rate and expected option term. These assumptions are subjective in
nature, involve uncertainties and, therefore, cannot be determined with precision. The
Black-Scholes option pricing model also contains certain inherent limitations when applied to
options that are not traded on public markets.
The per share fair value of options is highly sensitive to changes in assumptions. In general, the
per share fair value of options will move in the same direction as changes in the expected stock
price volatility, risk-free interest rate and expected option term, and in the opposite direction
as changes in the expected dividend yield. For example, the per share fair value of options will
generally increase as expected stock price volatility increases, risk-free interest rate increases,
expected option term increases and expected dividend yield decreases. The use of different
assumptions or different option pricing models could result in materially different per share fair
values of options.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Qualitative Analysis. We believe our most significant form of market risk is interest rate risk.
Interest rate risk results from timing differences in the maturity or re-pricing of our assets,
liabilities and off-balance sheet contracts (i.e., loan commitments); the effect of loan
prepayments, deposits and withdrawals; the difference in the behavior of lending and funding rates
arising from the uses of different indices; and yield curve risk arising from changing interest
rate relationships across the spectrum of maturities for constant or variable credit risk
investments. Besides directly affecting our net interest income, changes in market interest rates
can also affect the amount of new loan originations, the ability of borrowers to repay variable
rate loans, the volume of loan prepayments and refinancings, the carrying value of securities
classified as available for sale and the mix and flow of deposits.
27
The general objective of our interest rate risk management is to determine the appropriate level of
risk given our business model and then manage that risk in a manner consistent with our policy to
reduce, to the extent possible, the exposure of our net interest income to changes in market
interest rates. Our Interest Rate Risk Committee, which consists of executive and senior
management, evaluates the interest rate risk inherent in certain assets and liabilities, our
operating environment and capital and liquidity requirements and modifies our lending, investing
and deposit gathering strategies accordingly. On a quarterly basis, our Board of Directors reviews
the Interest Rate Risk Committee report, the aforementioned activities and strategies, the
estimated effect of those strategies on our net interest margin and the estimated effect that
changes in market interest rates may have on the economic value of our loan and securities
portfolios, as well as the intrinsic value of our deposits and borrowings.
We actively evaluate interest rate risk in connection with our lending, investing and deposit
activities. Historically our lending activities have emphasized one- to four-family fixed- and
variable-rate first mortgages. Variable-rate mortgage related assets can help to reduce exposure in
a rising rate environment as the rate earned in the mortgage loans increase as prevailing market
rates increase. However, the preferences of our customers have resulted in more of a demand for
fixed-rate products. This may adversely impact our net interest income, particularly in a rising
rate environment since our liabilities will reprice more quickly than our assets. In an effort to
help mitigate our exposure, we have increased our focus on the origination of commercial real
estate mortgage loans and adjustable-rate construction loans. Although we have limited our
securities activity, we historically invested in shorter-to-medium duration securities, which
generally have shorter average lives and lower yields compared to longer term securities.
Shortening the average lives of our securities, along with originating more adjustable-rate
mortgages and commercial real estate mortgages, will help to reduce interest rate risk.
We retain two independent, nationally recognized consulting firms who specialize in asset and
liability management to complete our quarterly interest rate risk reports. They use a combination
of analyses to monitor our exposure to changes in interest rates. The economic value of equity
analysis is a model that estimates the change in net portfolio value (NPV) over a range of
immediately changed interest rate scenarios. NPV is the discounted present value of expected cash
flows from assets, liabilities, and off-balance sheet contracts. In calculating changes in NPV,
assumptions estimating loan prepayment rates, reinvestment rates and deposit decay rates that seem
most likely based on historical experience during prior interest rate changes are used.
The net interest income analysis uses data derived from a dynamic asset and liability analysis,
described below, and applies several additional elements, including actual interest rate indices
and margins, contractual limitations and the U.S. Treasury yield curve as of the balance sheet
date. In addition we apply consistent parallel yield curve shifts (in both directions) to
determine possible changes in net interest income if the theoretical yield curve shifts occurred
gradually. Net interest income analysis also adjusts the dynamic asset and liability repricing
analysis based on changes in prepayment rates resulting from the parallel yield curve shifts.
Our dynamic asset and liability analysis determines the relative balance between the repricing of
assets and liabilities over multiple periods of time (ranging from overnight to five years). This
dynamic asset and liability analysis includes expected cash flows from loans and mortgage-backed
securities, applying prepayment rates based on the differential between the current interest rate
and the market interest rate for each loan and security type. This analysis identifies mismatches
in the timing of asset and liability but does not necessarily provide an accurate
28
indicator of interest rate risk because the assumptions used in the analysis may not reflect the
actual response to market changes.
Quantitative Analysis. The table below sets forth, as of March 31, 2008 the estimated changes in
our NPV and our annual net interest income that would result from the designated changes in the
interest rates. Such changes to interest rates are calculated as an immediate and permanent change
for the purposes of computing NPV and a gradual change over a one year period for the purposes of
computing net interest income. Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions including relative levels of market interest rates, loan
prepayments and deposit decay, and should not be relied upon as indicative of actual results. We
did not estimate changes in NPV or net interest income for an interest rate decrease or increase of
greater than 200 basis points.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Portfolio Value (1),(2) |
|
Net Interest Income (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Estimated |
Change in |
|
|
|
|
|
Estimated Increase (Decrease) |
|
|
|
|
|
Net Interest Income |
Interest Rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Net |
|
|
|
|
(basis points) |
|
Estimated NPV |
|
Amount |
|
Percent |
|
Interest Income |
|
Amount |
|
Percent |
(Dollars in thousands) |
+200bp |
|
$ |
338,981 |
|
|
$ |
(300,954 |
) |
|
|
(47.0 |
)% |
|
$ |
119,890 |
|
|
$ |
(16,180 |
) |
|
|
(11.9 |
)% |
0bp |
|
|
639,935 |
|
|
|
|
|
|
|
|
|
|
|
136,070 |
|
|
|
|
|
|
|
|
|
-200bp |
|
|
721,022 |
|
|
|
81,087 |
|
|
|
12.7 |
% |
|
|
145,208 |
|
|
|
9,138 |
|
|
|
6.7 |
% |
|
|
|
(1) |
|
NPV is the discounted present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. |
|
(2) |
|
Assumes an instantaneous uniform change in interest rates at all maturities. |
|
(3) |
|
Assumes a gradual change in interest rates over a one year period at all maturities |
The table set forth above indicates at March 31, 2008 in the event of a 200 basis points increase
in interest rates, we would be expected to experience a 47.0% decrease in NPV and a $16.2 million
or 11.9% decrease in annual net interest income. In the event of a 200 basis points decrease in
interest rates, we would be expected to experience a 12.7% increase in NPV and a $9.1 million or
6.7% increase in annual net interest income. These data do not reflect any future actions we may
take in response to changes in interest rates, such as changing the mix of our assets and
liabilities, which could change the results of the NPV and net interest income calculations.
As mentioned above, we retain two nationally recognized firms to compute our quarterly interest
rate risk reports. Although we are confident of the accuracy of the results, certain shortcomings
are inherent in any methodology used in the above interest rate risk measurements. Modeling
changes in NPV and net interest income require certain assumptions that may or may not reflect the
manner in which actual yields and costs respond to changes in market interest rates. The NPV and
net interest income table presented above assumes the composition of our interest-rate sensitive
assets and liabilities existing at the beginning of a period remains constant over the period being
measured and, accordingly, the data do not reflect any actions we may take in response to changes
in interest rates. The table also assumes a particular change in interest rates is reflected
uniformly across the yield curve regardless of the duration to maturity or the repricing
characteristics of specific assets and liabilities. Accordingly, although the NPV and net interest
income table provide an indication of our sensitivity to interest rate changes at a particular
point in time, such measurement is not intended to and does not provide a precise forecast of the
effects of changes in market interest rates on our NPV and net interest income.
29
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Principal
Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) as of the end of the period covered by this report. Based upon that
evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of
the end of the period covered by this report, our disclosure controls and procedures were effective
to ensure that information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions rules and forms.
There were no changes made in the Companys internal controls over financial reporting during the
period covered by this report that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
Part II Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are subject to various legal actions arising in the normal course
of business. In the opinion of management, the resolution of these legal actions is not expected
to have a material adverse effect on the Companys financial condition or results of operations.
Item 1A. Risk Factors
There have been no material changes in the Risk Factors disclosed in the Companys 2007 Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table reports information regarding repurchases of our common stock during the third
quarter of fiscal 2008 and the stock repurchase plans approved by our Board of Directors.
30
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
of Shares that May |
|
|
|
Total Number of |
|
|
|
|
|
|
Part of Publicly |
|
|
Yet Be Purchased |
|
|
|
Shares |
|
|
Average price |
|
|
Announced Plans or |
|
|
Under the Plans or |
|
Period |
|
Purchased |
|
|
Paid per Share |
|
|
Programs |
|
|
Programs (1) |
|
January 1, 2008
through January 31,
2008 |
|
|
311,000 |
|
|
$ |
13.67 |
|
|
|
311,000 |
|
|
|
4,556,945 |
|
February 1, 2008
through February
29, 2008 |
|
|
40,000 |
|
|
|
14.62 |
|
|
|
40,000 |
|
|
|
4,516,945 |
|
March 1, 2008
through March 31,
2008 |
|
|
50,000 |
|
|
|
14.17 |
|
|
|
50,000 |
|
|
|
4,466,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
401,000 |
|
|
$ |
13.83 |
|
|
|
401,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On April 26, 2007, the Company announced its second Share Repurchase
Program, which authorized the purchase of an additonal 10% of its publicly-held
outstanding shares of common stock, or 4,785,831 shares. This share repurchase
program commenced upon completion of the first program on May 10, 2007. This
program has no expiration date and has 159,697 shares yet to be repurchased as
of March 31, 2008. |
|
(2) |
|
On January 28, 2008, the Company announced its third Share Repurchase
Program, which authorized the purchase of an additonal 10% of its publicly-held
outstanding shares of common stock, or 4,307,248 shares. This share repurchase
program will commence upon completion of the second program. This program has
no expiration date. |
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Not applicable
Item 6. Exhibits
The following exhibits are either filed as part of this report or are incorporated herein by
reference:
|
|
|
3.1
|
|
Certificate of Incorporation of Investors Bancorp, Inc.* |
|
|
|
3.2
|
|
Bylaws of Investors Bancorp, Inc.* |
|
|
|
4
|
|
Form of Common Stock Certificate of Investors Bancorp, Inc.* |
|
|
|
10.1
|
|
Form of Employment Agreement between Investors Bancorp, Inc. and certain
executive officers* |
|
|
|
10.2
|
|
Form of Change in Control Agreement between Investors Bancorp, Inc. and certain
executive officers * |
31
|
|
|
10.3
|
|
Investors Savings Bank Director Retirement Plan* |
|
|
|
10.4
|
|
Investors Savings Bank Supplemental Retirement Plan* |
|
|
|
10.5
|
|
Investors Bancorp, Inc. Supplemental Wage Replacement Plan* |
|
|
|
31.1
|
|
Certification of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
31.2
|
|
Certification of Principal Financial and Accounting Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32
|
|
Certification of Principal Executive Officer and Principal Financial and
accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
* |
|
Filed as exhibits to the Companys Registration Statement on Form S-1, and any amendments
thereto, with the Securities and Exchange Commission (Registration No. 333-125703) |
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Investors Bancorp, Inc.
|
|
Dated: May 9, 2008 |
/s/ Kevin Cummings
|
|
|
Kevin Cummings |
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Dated: May 9, 2008 |
/s/ Thomas F. Splaine, Jr.
|
|
|
Thomas F. Splaine |
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
|
33