e10vk
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
Form 10-K
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þ |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2010
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the transition period from to
Commission File No. 000-51557
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 Number) |
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101 JFK Parkway, Short Hills, New Jersey
(Address of Principal Executive Offices)
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07078
Zip Code |
(973) 924-5100
(Registrants telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
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Common Stock, par value $0.01 per share
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The NASDAQ Stock Market LLC |
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(Title of Class)
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(Name of each exchange on which registered) |
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months
(or for such shorter period that the Registrant was required to file such reports) and (2) has been
subject to such requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. 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 February 22, 2011, the registrant had 118,020,280 shares of common stock, par value
$0.01 per share, issued and 113,274,092 shares outstanding, of which 64,844,373 shares, or 57.3%,
were held by Investors Bancorp, MHC, the registrants mutual holding company.
The aggregate market value of the voting and non-voting common equity held by non-affiliates
of the Registrant, computed by reference to the last sale price on June 30, 2010, as reported by
the NASDAQ Global Select Market, was approximately $656.6 million.
DOCUMENTS INCORPORATED BY REFERENCE
1. |
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Proxy Statement for the 2011 Annual Meeting of Stockholders of the Registrant (Part
III). |
INVESTORS BANCORP, INC.
2010 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
2
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Annual Report on Form 10-K contains a number of forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of
the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements may be
identified by the use of the words anticipate, believe, could, estimate, expect,
intend, may, outlook, plan, potential, predict, project, should, will, would
and similar terms and phrases, including references to assumptions.
Forward-looking statements are based on various assumptions and analyses made by us in light of our
managements experience and its perception of historical trends, current conditions and expected
future developments, as well as other factors we believe are appropriate under the circumstances.
These statements are not guarantees of future performance and are subject to risks, uncertainties
and other factors (many of which are beyond our control) that could cause actual results to differ
materially from future results expressed or implied by such forward-looking statements. These
factors include, without limitation, the following:
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the timing and occurrence or non-occurrence of events may be subject to circumstances
beyond our control; |
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there may be increases in competitive pressure among financial institutions or from
non-financial institutions; |
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changes in the interest rate environment may reduce interest margins or affect the
value of our investments; |
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changes in deposit flows, loan demand or real estate values may adversely affect our
business; |
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changes in accounting principles, policies or guidelines may cause our financial
condition to be perceived differently; |
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general economic conditions, either nationally or locally in some or all areas in which
we do business, or conditions in the real estate or securities markets or the banking
industry may be less favorable than we currently anticipate; |
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legislative or regulatory changes may adversely affect our business; |
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technological changes may be more difficult or expensive than we anticipate; |
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success or consummation of new business initiatives may be more difficult or expensive
than we anticipate; |
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litigation or other matters before regulatory agencies, whether currently existing or
commencing in the future, may be determined adverse to us or may delay the occurrence or
non-occurrence of events longer than we anticipate; |
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the risks associated with continued diversification of assets and adverse changes to
credit quality; |
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difficulties associated with achieving expected future financial results; and |
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the risk of continued economic slowdown that would adversely affect credit quality and
loan originations. |
We have no obligation to update any forward-looking statements to reflect events or circumstances
after the date of this document.
As used in this Form 10-K, we, us and our refer to Investors Bancorp, Inc. and its
consolidated subsidiaries, principally Investors Savings Bank.
PART I
ITEM 1. BUSINESS
Investors Bancorp, Inc.
Investors Bancorp, Inc. (the Company) is a Delaware corporation that was organized on
January 21, 1997 for the purpose of being a holding company for Investors Savings Bank (the
Bank), a New Jersey chartered savings bank. On October 11, 2005, the Company completed its
initial public stock offering in which it sold 51,627,094 shares, or 44.40% of its outstanding
common stock, to subscribers in the offering, including 4,254,072 shares purchased by the Investors
Savings Bank Employee Stock Ownership Plan (the ESOP). Upon completion of the initial public
offering, Investors Bancorp, MHC (the MHC), the Companys New Jersey chartered mutual holding
company parent, held 63,099,781 shares, or 54.27% of the Companys outstanding common stock.
Additionally, the Company contributed $5,163,000 in cash and issued 1,548,813 shares of common
stock, or 1.33% of its outstanding shares, to the Investors Savings Bank Charitable Foundation.
3
Since the formation of the Company in 1997, our primary business has been that of holding the
common stock of the Bank and additionally since our stock offering, a loan to the ESOP. Investors Bancorp, Inc.,
as the holding company of Investors Savings Bank, is authorized to pursue other business activities
permitted by applicable laws and regulations for bank holding companies.
Our cash flow depends on dividends received from Investors Savings Bank. Investors Bancorp,
Inc. neither owns nor leases any property, but instead uses the premises, equipment and furniture
of Investors Savings Bank. At the present time, we employ as officers only certain persons who are
also officers of Investors Savings Bank and we use the support staff of Investors Savings Bank from
time to time. These persons are not separately compensated by Investors Bancorp, Inc. Investors
Bancorp, Inc. may hire additional employees, as appropriate, to the extent it expands its business
in the future.
On October 15, 2010, the Company completed its acquisition of Millennium bcpbank
(Millennium) deposit franchise. In this transaction the Company acquired approximately $600.0 million of deposits
and seventeen branches in New Jersey, New York and Massachusetts for a deposit premium of 0.11%.
In addition, the Company purchased a portion of Millenniums performing loan portfolio and entered
into a loan servicing agreement to service those loans it did not purchase. The Company recorded a
bargain purchase gain of $1.8 million in connection with the purchase of the Millennium deposit
franchise and servicing of their loan portfolio. The Company also entered into a definitive
agreement to sell the Millennium branch locations in Massachusetts to Admirals Bank, headquartered
in Cranston, Rhode Island. The transaction is anticipated to close during the second quarter 2011.
On October 16, 2009, the Company completed the acquisition of six New Jersey bank branches and
approximately $227.0 million of deposits from Banco Popular North America. The Company did not
purchase any loans as part of the transaction. The transaction generated approximately $4.9 million
in goodwill.
On May 31, 2009, the Company completed the acquisition of American Bancorp of New Jersey, Inc.
(American Bancorp), the holding company of American Bank of New Jersey (American Bank), a
federal savings bank with approximately $680.0 million in assets and five full-service branches in
northern New Jersey. The acquisition was accounted for under the purchase method of accounting as
prescribed by Accounting Standard Codification (ASC) 805, Business Combinations, as amended.
Accordingly, American Bancorps results of operations have been included in the Companys results
of operations since the date of acquisition. Under this method of accounting, the purchase price is
allocated to the respective assets acquired and liabilities assumed based on their estimated fair
values, net of applicable income tax effects. The excess cost over fair value of net assets
acquired is recorded as goodwill. The purchase price of $98.2 million was paid through a
combination of the Companys common stock (6,503,897 shares) and cash of $47.5 million. The
transaction generated approximately $17.6 million in goodwill and $3.9 million in core deposit
intangibles subject to amortization beginning June 1, 2009. American Bank was merged into the Bank
as of the acquisition date.
On June 6, 2008, Investors Bancorp, MHC, the Companys New Jersey chartered mutual holding
company, completed its merger of Summit Federal Bankshares, MHC, a federally chartered mutual
holding company. The merger was a combination of mutual enterprises and therefore was accounted for
using the pooling-of-interests method. All financial information prior to the merger date has been
restated to include amounts for Summit Federal for all periods presented. At the merger date,
Summit Federal had assets of $110.0 million and five full service branches in northern New Jersey.
The effect of the merger on the Companys consolidated financial condition and results of
operations was immaterial. In connection with the merger, the Company, as required by the Office of
Thrift Supervision (OTS) which regulated Summit Federal, issued 1,744,592 additional shares of its
common stock to Investors Bancorp, MHC.
Investors Savings Bank
General
Investors Savings Bank is a New Jersey-chartered savings bank headquartered in Short Hills,
New Jersey. Originally founded in 1926 as a New Jersey-chartered mutual savings and loan
association, we have grown through acquisitions and internal growth, including de novo branching.
In 1992, we converted our charter to a mutual savings bank, and in 1997 we converted our charter to
a New Jersey-chartered stock savings bank. We conduct business from our main office located at 101
JFK Parkway, Short Hills, New Jersey, and 82 branch offices located throughout northern and central
New Jersey, New York and Massachusetts. The telephone number at our main office is (973) 924-5100.
At December 31, 2010, our assets totaled $9.60 billion and our deposits totaled $6.77 billion.
We are in the business of attracting deposits from the public through our branch network and borrowing funds in the wholesale markets to originate
loans and to invest in securities. We originate mortgage loans secured by one- to four-family residential real estate, commercial real estate, construction,
multi-family loans, commercial and industrial loans and consumer loans, the majority of which are home equity loans and home equity lines of credit.
Securities, primarily U.S. Government and Federal Agency obligations, mortgage-backed and other securities represented 11.3% of our assets at December 31, 2010. We offer
a variety of deposit accounts and emphasize quality customer service. Investors Savings Bank is subject to comprehensive regulation and examination
by both the New Jersey Department
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of Banking and Insurance and the Federal Deposit Insurance Corporation and we are subject to
regulations as a bank holding company by the Federal Reserve Board.
Our results of operations are dependent primarily on our net interest income, which is the
difference between the interest earned on our assets, primarily our loan and securities portfolios,
and the interest paid on our deposits and borrowings. Our net income is also affected by our
provision for loan losses, non-interest income, non-interest expense and income tax expense.
Non-interest income includes fees and service charges; income from bank owned life insurance, or
BOLI; net gain on sales of mortgage loans; net gain on securities; and other income. Non-interest
expense consists of compensation and benefits expense; advertising and promotional expense; office
occupancy and equipment expense; federal deposit insurance premiums; stationary, printing, supplies
and telephone expense; professional fees; data processing fees; and other operating expenses. Our
earnings are significantly affected by general economic and competitive conditions, particularly
changes in market interest rates and U.S. Treasury yield curves, government policies and actions of
regulatory authorities.
Market Area
We are headquartered in Short Hills, New Jersey, and our primary deposit gathering area is
concentrated in the communities surrounding our headquarters and our 82 branch offices located in
the communities of Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic,
Somerset, Union and Warren Counties, New Jersey; Nassau and Queens, New York and Massachusetts. Our
primary lending area is broader than our deposit-gathering area and includes 14 counties in New
Jersey and 6 counties in New York. It is largely urban and suburban with a broad economic base as is typical for
counties in and surrounding the New York metropolitan area. As one of the wealthiest states in the
nation, New Jersey, with a population of 8.8 million, is considered one of the most attractive
banking markets in the United States.
Our entry into the New York market, which started in 2010 with the the opening of our New York
City lending office and the acquisition of the Millennium branches, allows us to
continue to expand our retail operations and geographic footprint.
Many of the counties we serve are projected to experience strong to moderate population and
household income growth through 2015. Though slower population growth is projected for some of the
counties we serve, it is important to note that these counties represent some of the most densely
populated counties. All of the counties we serve have a strong mature market with median household
incomes greater than $53,000. The household incomes in the counties we serve are all expected to
increase in a range from 14.12% to 17.54% through 2015. The December 2010 unemployment rates for
New Jersey and New York, 8.7% and 8.0%, respectively, were slightly lower than the national rate of
9.4%.
Competition
We face intense competition within our market area both in making loans and attracting
deposits. Our market area has a high concentration of financial institutions, including large money
center and regional banks, community banks and credit unions. Some of our competitors offer
products and services that we currently do not offer, such as trust services and private banking.
As of June 30, 2010, the latest date for which statistics are available, our market share of
deposits was 2.5% of total deposits in the State of New Jersey.
Our competition for loans and deposits comes principally from commercial banks, savings
institutions, mortgage banking firms and credit unions. We face additional competition for deposits
from short-term money market funds, brokerage firms, mutual funds and insurance companies. Our
primary focus is to build and develop profitable customer relationships across all lines of
business while maintaining our role as a community bank.
Lending Activities
While our principal lending activity continues to be the origination and purchase of mortgage
loans collateralized by residential real estate, in recent years we have focused on growing our
commercial real estate portfolio. Residential mortgage loans represented $4.94 billion, or 61.8% of
our total loans at December 31, 2010 compared to $2.69 billion, or 90.3% of our total loans at June
30, 2006. At December 31, 2010, commercial real estate totaled $1.23 billion, or 15.3% of our total
loan portfolio, multi-family loans totaled $1.16 billion, or 14.5% of our total loan portfolio,
construction loans totaled $347.8 million, or 4.4% of our total loan portfolio, and commercial and
industrial loans totaled $60.9 million or 0.8% of our total loan portfolio. We also offer consumer
loans, which consist primarily of home equity loans and home equity lines of credit. At December
31, 2010, consumer loans totaled $259.8 million or 3.3% of our total loan portfolio.
Loan Portfolio Composition. The following table sets forth the composition of our loan
portfolio by type of loan, at the dates indicated.
5
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December 31, |
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June 30, |
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2010 |
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2009 |
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2009 |
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2008 |
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2007 |
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2006 |
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Amount |
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Percent |
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Amount |
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Percent |
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Amount |
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Percent |
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Amount |
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Percent |
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Amount |
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Percent |
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Amount |
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Percent |
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(Dollars in thousands) |
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Residential mortgage
loans: |
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One- to four-family |
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$ |
4,922,901 |
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61.58 |
% |
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$ |
4,756,042 |
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71.50 |
% |
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$ |
4,690,335 |
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76.00 |
% |
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$ |
3,989,334 |
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85.54 |
% |
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$ |
3,159,484 |
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87.51 |
% |
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$ |
2,669,726 |
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89.49 |
% |
FHA |
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16,343 |
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0.20 |
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17,514 |
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0.26 |
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18,564 |
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0.30 |
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20,229 |
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0.43 |
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22,624 |
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0.63 |
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24,928 |
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0.84 |
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Total residential
mortgage loans |
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4,939,244 |
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61.78 |
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4,773,556 |
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71.76 |
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4,708,899 |
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76.30 |
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4,009,563 |
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85.97 |
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3,182,108 |
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88.14 |
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2,694,654 |
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90.33 |
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Multi-family |
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1,161,874 |
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14.53 |
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612,743 |
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9.21 |
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482,783 |
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7.82 |
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82,711 |
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1.77 |
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40,066 |
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1.11 |
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10,936 |
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0.37 |
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Commercial |
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1,225,256 |
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15.33 |
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730,012 |
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10.97 |
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433,204 |
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7.02 |
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142,396 |
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3.06 |
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69,282 |
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1.92 |
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68,087 |
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2.28 |
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Construction loans |
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347,825 |
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4.35 |
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334,480 |
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5.03 |
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346,967 |
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5.62 |
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260,177 |
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5.58 |
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153,420 |
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4.25 |
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66,209 |
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2.22 |
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Commercial and
industrial loans |
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60,903 |
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0.76 |
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23,159 |
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0.35 |
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15,665 |
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0.25 |
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47 |
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Consumer and other loans: |
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Home equity loans |
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147,540 |
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1.84 |
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104,864 |
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1.58 |
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119,193 |
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1.93 |
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139,587 |
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2.99 |
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139,524 |
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3.86 |
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113,572 |
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3.80 |
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Home equity credit lines |
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108,356 |
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1.36 |
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70,341 |
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1.06 |
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61,664 |
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1.00 |
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27,270 |
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0.59 |
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23,927 |
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0.66 |
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28,063 |
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0.94 |
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Other |
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3,861 |
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0.05 |
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2,972 |
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0.04 |
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3,341 |
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0.06 |
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1,962 |
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0.04 |
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1,993 |
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0.06 |
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1,721 |
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0.06 |
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Total consumer and other
loans |
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259,757 |
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3.25 |
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178,177 |
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2.68 |
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184,198 |
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2.99 |
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168,819 |
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3.62 |
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165,444 |
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4.58 |
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143,356 |
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4.80 |
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Total loans |
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$ |
7,994,859 |
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100.00 |
% |
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$ |
6,652,127 |
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100.00 |
% |
|
$ |
6,171,716 |
|
|
|
100.00 |
% |
|
$ |
4,663,713 |
|
|
|
100.00 |
% |
|
$ |
3,610,320 |
|
|
|
100.00 |
% |
|
$ |
2,983,242 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums on purchased
loans, net |
|
|
22,021 |
|
|
|
|
|
|
|
22,958 |
|
|
|
|
|
|
|
21,313 |
|
|
|
|
|
|
|
22,622 |
|
|
|
|
|
|
|
23,587 |
|
|
|
|
|
|
|
20,327 |
|
|
|
|
|
Deferred loan fees, net |
|
|
(8,244 |
) |
|
|
|
|
|
|
(4,574 |
) |
|
|
|
|
|
|
(3,252 |
) |
|
|
|
|
|
|
(2,620 |
) |
|
|
|
|
|
|
(1,958 |
) |
|
|
|
|
|
|
(1,765 |
) |
|
|
|
|
Allowance for loan losses |
|
|
(90,931 |
) |
|
|
|
|
|
|
(55,052 |
) |
|
|
|
|
|
|
(46,608 |
) |
|
|
|
|
|
|
(13,565 |
) |
|
|
|
|
|
|
(6,951 |
) |
|
|
|
|
|
|
(6,369 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
$ |
7,917,705 |
|
|
|
|
|
|
$ |
6,615,459 |
|
|
|
|
|
|
$ |
6,143,169 |
|
|
|
|
|
|
$ |
4,670,150 |
|
|
|
|
|
|
$ |
3,624,998 |
|
|
|
|
|
|
$ |
2,995,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Portfolio Maturities. The following table summarizes the scheduled repayments of
our loan portfolio at December 31, 2010. Overdraft loans are reported as being due in one year or
less.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
Consumer |
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
Industrial |
|
|
and Other |
|
|
|
|
|
|
Mortgage |
|
|
Multi-Family |
|
|
Commercial |
|
|
Loans |
|
|
loans |
|
|
Loans |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Due: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less |
|
$ |
7,819 |
|
|
|
15,933 |
|
|
|
53,339 |
|
|
|
235,449 |
|
|
|
24,625 |
|
|
|
4,601 |
|
|
|
341,766 |
|
After one year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to three years |
|
|
14,302 |
|
|
|
195,727 |
|
|
|
254,443 |
|
|
|
93,618 |
|
|
|
4,698 |
|
|
|
16,553 |
|
|
|
579,341 |
|
Three to five years |
|
|
8,415 |
|
|
|
175,800 |
|
|
|
139,809 |
|
|
|
13,145 |
|
|
|
6,920 |
|
|
|
14,828 |
|
|
|
358,917 |
|
Five to ten years |
|
|
215,554 |
|
|
|
688,396 |
|
|
|
665,270 |
|
|
|
200 |
|
|
|
23,267 |
|
|
|
81,649 |
|
|
|
1,674,336 |
|
Ten to twenty years |
|
|
906,174 |
|
|
|
82,557 |
|
|
|
108,567 |
|
|
|
5,413 |
|
|
|
1,393 |
|
|
|
75,231 |
|
|
|
1,179,335 |
|
Over twenty years |
|
|
3,786,980 |
|
|
|
3,461 |
|
|
|
3,828 |
|
|
|
|
|
|
|
|
|
|
|
66,895 |
|
|
|
3,861,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total due after one year |
|
|
4,931,425 |
|
|
|
1,145,941 |
|
|
|
1,171,917 |
|
|
|
112,376 |
|
|
|
36,278 |
|
|
|
255,156 |
|
|
|
7,653,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
4,939,244 |
|
|
|
1,161,874 |
|
|
|
1,225,256 |
|
|
|
347,825 |
|
|
|
60,903 |
|
|
|
259,757 |
|
|
|
7,994,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums on purchased loans, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,021 |
|
Deferred loan fees, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,244 |
) |
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90,931 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,917,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth fixed- and adjustable-rate loans at December 31, 2010 that are
contractually due after December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due After December 31, 2011 |
|
|
|
Fixed |
|
|
Adjustable |
|
|
Total |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Residential mortgage loans |
|
$ |
2,895,662 |
|
|
|
2,035,763 |
|
|
|
4,931,425 |
|
Multi-family |
|
|
562,321 |
|
|
|
583,620 |
|
|
|
1,145,941 |
|
Commercial |
|
|
777,570 |
|
|
|
394,347 |
|
|
|
1,171,917 |
|
Construction loans |
|
|
12,607 |
|
|
|
99,769 |
|
|
|
112,376 |
|
Commercial and industrial |
|
|
34,776 |
|
|
|
1,502 |
|
|
|
36,278 |
|
Consumer and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
|
147,161 |
|
|
|
|
|
|
|
147,161 |
|
Home equity credit lines |
|
|
|
|
|
|
107,646 |
|
|
|
107,646 |
|
Other |
|
|
|
|
|
|
349 |
|
|
|
349 |
|
|
|
|
|
|
|
|
|
|
|
Total consumer and other loans |
|
|
147,161 |
|
|
|
107,995 |
|
|
|
255,156 |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
4,430,097 |
|
|
|
3,222,996 |
|
|
|
7,653,093 |
|
|
|
|
|
|
|
|
|
|
|
6
Residential Mortgage Loans. Currently, our primary lending activity is originating and
purchasing residential mortgage loans, most of which are secured by properties located in our
primary market area and most of which we hold in portfolio. At December 31, 2010, $4.94 billion, or
61.8%, of our loan portfolio consisted of residential mortgage loans. Residential mortgage loans
are originated by our mortgage subsidiary, ISB Mortgage Company LLC (ISB Mortgage), for our loan
portfolio and for sale to third parties. We also purchase mortgage loans from correspondent
entities including other banks and mortgage bankers. Our agreements call for these correspondent
entities to originate loans that adhere to our underwriting standards. In most cases we acquire the
loans with servicing rights, but we have some arrangements in which the correspondent entity will
sell us the loan without servicing rights. In addition, we purchase pools of mortgage loans in the
secondary market on a bulk purchase basis from several well-established financial institutions.
While some of these financial institutions retain the servicing rights for loans they sell to us,
when presented with the opportunity to purchase the servicing rights as part of the loan, we may
decide to purchase the servicing rights. This decision is generally based on the price and other
relevant factors.
Generally, residential mortgage loans are originated in amounts up to 80% of the lesser of the
appraised value or purchase price of the property to a maximum loan amount of $750,000. Loans over
$750,000 require a lower loan to value ratio. Loans in excess of 80% of value require private
mortgage insurance and cannot exceed $500,000. We will not make loans with a loan-to-value ratio in
excess of 95% or 97% for programs to low or moderate-income borrowers. Fixed-rate mortgage loans
are originated for terms of up to 30 years. Generally, all fixed-rate residential mortgage loans
are underwritten according to Fannie Mae guidelines, policies and procedures. At December 31, 2010,
we held $2.90 billion in fixed-rate residential mortgage loans which represented 58.8% of our
residential mortgage loan portfolio.
We also offer adjustable-rate residential mortgage loans, which adjust annually after three,
five, seven or ten year initial fixed-rate periods. Our adjustable rate loans usually adjust to an
index plus a margin, based on the weekly average yield on U.S. Treasuries adjusted to a constant
maturity of one year. Annual caps of 2% per adjustment apply, with a lifetime maximum adjustment of
5% on most loans. Our adjustable-rate mortgage loans amortize over terms of up to 30 years. In
addition, we originate 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 contractually required payments due to
the required amortization of the principal amount after the interest-only period. The Company
maintains stricter underwriting criteria for these interest-only loans than it does for its
amortizing loans. Borrowers are qualified using the loan rate at the date of origination and the
fully amortized payment amount.
Adjustable-rate mortgage loans decrease the Banks risk associated with changes in market
interest rates by periodically re-pricing, but involve other risks because, as interest rates
increase, the underlying payments by the borrower increase, which increases the potential for
default by the borrower. At the same time, the marketability of the underlying collateral may be
adversely affected by higher interest rates or a decline in housing values. The maximum periodic
and lifetime interest rate adjustments may limit the effectiveness of adjustable-rate mortgages
during periods of rapidly rising interest rates. At December 31, 2010, we held $2.04 billion of
adjustable-rate residential mortgage loans, of which $529.1 million were interest-only one-to
four-family mortgages. Adjustable-rate residential mortgage loans represented 41.2% of our
residential mortgage loan portfolio.
To provide financing for low-and moderate-income home buyers, we also offer various loan
programs some of which include down payment assistance for home purchases. Through these programs,
qualified individuals receive a reduced rate of interest on most of our loan programs and have
their application fee refunded at closing, as well as other incentives if certain conditions are
met.
All residential mortgage loans we originate include a due-on-sale clause, which gives us the
right to declare a loan immediately due and payable if the borrower sells or otherwise disposes of
the real property subject to the mortgage and the loan is not repaid. All borrowers are required to
obtain title insurance, fire and casualty insurance and, if warranted, flood insurance on
properties securing real estate loans.
Multi-family and Commercial Real Estate Loans. As part of our strategy to add to and
diversify our loan portfolio, we offer mortgages on multi-family and commercial real estate
properties. At December 31, 2010, $1.16 billion, or 14.5%, of our total loan portfolio was
multi-family and $1.23 billion or 15.3% of our total loan portfolio was commercial real estate
loans. Our policy generally has been to originate multi-family and commercial real estate loans in
New Jersey, New York and surrounding states. Commercial real estate loans are secured by office
buildings, mixed-use properties and other commercial properties. The multi-family and commercial
real estate loans in our portfolio consist of both fixed-rate and adjustable-rate loans which were
originated at prevailing market rates. Multi-family and commercial real estate loans are generally
five to fifteen year term balloon loans amortized over fifteen to thirty years. The maximum
loan-to-value ratio is 70% for our commercial real estate loans and 75% for multi-family loans. At
December 31, 2010, our largest commercial real estate loan was $30.0 million and is on an
industrial building in New Jersey. Our largest multi-family loan was $29.0 million and is on a high
rise apartment building in New Jersey.
We consider a number of factors when we originate multi-family and commercial real estate
loans. During the underwriting process we evaluate the business qualifications and financial
condition of the borrower, including credit history, profitability of the property being financed,
as well as the value and condition of the mortgaged property securing the loan. When evaluating the
business qualifications of the borrower, we consider the financial resources of the borrower, the
borrowers experience in owning or managing similar property and the borrowers payment history
with us and other financial institutions. In evaluating the property securing the loan, we consider
the net operating income of the mortgaged property before debt service and depreciation, the ratio
of the loan
7
amount to the appraised value of the mortgaged property and the debt service coverage ratio
(the ratio of net operating income to debt service) to ensure it is at least 120% of the monthly
debt service for apartment buildings and 130% for commercial income-producing properties. All
commercial real estate loans are appraised by outside independent appraisers who have been approved
by our Board of Directors. Personal guarantees are obtained from commercial real estate borrowers
although we will consider waiving this requirement based upon the loan-to-value ratio of the
proposed loan and other factors. All borrowers are required to obtain title, fire and casualty
insurance and, if warranted, flood insurance.
Loans secured by commercial real estate generally are larger than residential mortgage loans
and involve greater credit risk. Commercial real estate loans often involve large loan balances to
single borrowers or groups of related borrowers. Repayment of these loans depends to a large degree
on the results of operations and management of the properties securing the loans or the businesses
conducted on such property, and may be affected to a greater extent by adverse conditions in the
real estate market or the economy in general. Accordingly, management annually evaluates the
performance of all commercial loans in excess of $1.0 million.
Construction Loans. We offer loans directly to builders and developers on income-producing properties
and residential for-sale housing units. At December 31, 2010, we held $347.8 million in
construction loans representing 4.4% of our total loan portfolio. Construction loans are originated
through our commercial lending department. If the loan applicant meets our criteria, we issue a
letter of intent listing the terms and conditions of any potential loan. Primarily we offer
adjustable-rate residential construction loans which can be structured with an option for permanent
mortgage financing once the construction is completed. Generally, construction loans will be
structured to be repaid over a three-year period and generally will be made in amounts of up to 70%
of the appraised value of the completed property, or the actual cost of the improvements. Funds are
disbursed based on inspections in accordance with a schedule reflecting the completion of portions
of the project. Construction financing for sold units requires an executed sales contract.
Construction loans generally involve a greater degree of credit risk than residential mortgage
loans. The risk of loss on a construction loan depends on the accuracy of the initial estimate of
the propertys value when the construction is completed compared to the estimated cost of
construction. For all loans, we use outside independent appraisers approved by our Board of
Directors. We require all borrowers to obtain title insurance, fire and casualty insurance and, if
warranted, flood insurance. A detailed plan and cost review by an outside engineering firm is
required on loans in excess of $2.5 million.
At December 31, 2010, the Banks largest construction loan was a $34.0 million note on an
apartment-rental project in New Jersey. The loan had an outstanding balance at December 31, 2010 of
$11.7 million and was performing in accordance with contractual terms.
Commercial and Industrial Loans. We offer commercial and industrial loans. These loans
include term loans, lines of credit and owner occupied commercial real estate loans. These loans
are generally secured by real estate or business assets and include personal guarantees. The loan
to value limit is 75% and businesses will typically have at least a 2 year history. At December 31,
2010, $60.9 million, or 0.76%, of our loan portfolio consisted of these types of loans.
Consumer Loans. We offer consumer loans, most of which consist of home equity loans and home
equity lines of credit. Home equity loans and home equity lines of credit are secured by residences
located in New Jersey and New York. At December 31, 2010, consumer loans totaled $259.8 million or
3.3% of our total loan portfolio. The underwriting standards we use for home equity loans and home
equity lines of credit include a determination of the applicants credit history, an assessment of
the applicants ability to meet existing credit obligations, the payment on the proposed loan and
the value of the collateral securing the loan. The combined (first and second mortgage liens)
loan-to-value ratio for home equity loans and home equity lines of credit is generally limited to a
maximum of 80%. Home equity loans are offered with fixed rates of interest, terms up to 30 years
and to a maximum of $500,000. Home equity lines of credit have adjustable rates of interest,
indexed to the prime rate, as reported in The Wall Street Journal.
The following table shows our loan originations, loan purchases and repayment activities with
respect to our portfolio of loans receivable for the periods indicated. Origination, sale and
repayment activities with respect to our loans-held-for-sale are excluded from the table.
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
Year Ended December 31, |
|
|
Ended December 31, |
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Loan originations and purchases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan originations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family |
|
$ |
800,497 |
|
|
|
548,880 |
|
|
|
359,118 |
|
|
|
407,381 |
|
|
|
284,386 |
|
FHA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244 |
|
|
|
483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage loans |
|
|
800,497 |
|
|
|
548,880 |
|
|
|
359,118 |
|
|
|
407,625 |
|
|
|
284,869 |
|
Multi-family |
|
|
487,933 |
|
|
|
247,388 |
|
|
|
148,386 |
|
|
|
145,521 |
|
|
|
139,995 |
|
Commercial |
|
|
412,623 |
|
|
|
439,531 |
|
|
|
301,603 |
|
|
|
221,964 |
|
|
|
|
|
Construction loans |
|
|
214,437 |
|
|
|
94,342 |
|
|
|
56,275 |
|
|
|
127,631 |
|
|
|
174,110 |
|
Commercial and industrial |
|
|
59,636 |
|
|
|
21,579 |
|
|
|
14,637 |
|
|
|
9,961 |
|
|
|
|
|
Consumer and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
|
12,921 |
|
|
|
10,941 |
|
|
|
6,251 |
|
|
|
14,562 |
|
|
|
34,039 |
|
Home equity credit lines |
|
|
59,731 |
|
|
|
46,064 |
|
|
|
26,018 |
|
|
|
32,190 |
|
|
|
21,759 |
|
Other |
|
|
15,168 |
|
|
|
3,849 |
|
|
|
2,012 |
|
|
|
3,698 |
|
|
|
2,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer and other loans |
|
|
87,820 |
|
|
|
60,854 |
|
|
|
34,281 |
|
|
|
50,450 |
|
|
|
58,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan originations |
|
$ |
2,062,946 |
|
|
|
1,412,574 |
|
|
|
914,300 |
|
|
|
963,152 |
|
|
|
657,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan purchases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family |
|
$ |
862,311 |
|
|
|
794,989 |
|
|
|
452,295 |
|
|
|
1,063,616 |
|
|
|
995,753 |
|
FHA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
274 |
|
|
|
567 |
|
Commercial |
|
|
120,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family |
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
200,914 |
|
|
|
|
|
Consumer and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
|
69,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity credit lines |
|
|
18,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer and other loans |
|
|
87,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan purchases |
|
|
1,070,203 |
|
|
|
894,989 |
|
|
|
452,295 |
|
|
|
1,264,804 |
|
|
|
996,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan principal repayments |
|
|
(1,786,658 |
) |
|
|
(1,743,647 |
) |
|
|
(882,200 |
) |
|
|
(1,190,114 |
) |
|
|
(599,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other items, net(1) |
|
|
(44,245 |
) |
|
|
(37,417 |
) |
|
|
(12,105 |
) |
|
|
(35,598 |
) |
|
|
(9,142 |
) |
Net loans acquired in acquisition |
|
|
|
|
|
|
470,775 |
|
|
|
|
|
|
|
470,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in loan portfolio |
|
$ |
1,302,246 |
|
|
$ |
997,274 |
|
|
$ |
472,290 |
|
|
$ |
1,473,019 |
|
|
$ |
1,045,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other items include charge-offs, loan loss provisions, loans
transferred to other real estate owned, and amortization and accretion
of deferred fees and costs and discounts and premiums. |
Loan Approval Procedures and Authority. Our lending activities follow written,
non-discriminatory underwriting standards and loan origination procedures established by our Board
of Directors. In the approval process for residential loans we assess the borrowers ability to
repay the loan and the value of the property securing the loan. To assess the borrowers ability to
repay, we review the borrowers income and expenses and employment and credit history. In the case
of commercial real estate loans we also review projected income, expenses and the viability of the
project being financed. We generally require appraisals of all real property securing loans, except
for home equity loans and home equity lines of credit, in which case we may use the tax-assessed
value of the property securing such loan or a lesser form of valuation, such as a home value
estimator or by a drive-by value estimated performed by an approved appraisal company. Appraisals
are performed by independent licensed appraisers who are approved by our Board of Directors. We
require borrowers, except for home equity loans and home equity lines of credit, to obtain title
insurance. All real estate secured loans require fire and casualty insurance and, if warranted,
flood insurance in amounts at least equal to the principal amount of the loan or the maximum amount
available.
Our loan approval policies and limits are also established by our Board of Directors. All
residential mortgage loans including home equity loans and home equity lines of credit up to
$250,000 may be approved by loan underwriters, provided the loan meets all of our underwriting
guidelines. If the loan does not meet all of our underwriting guidelines, but can be considered for
approval because of other compensating factors, the loan must be approved by an authorized member
of management. Residential mortgage loans in excess of $250,000 and up to $1,000,000 must be
approved by an authorized member of management. Residential mortgage loans in excess of $1,000,000
and up to $1,500,000 must be approved by three authorized members of management. Residential
9
mortgage loans in excess of $1,500,000 and up to $3,000,000 must be approved by three
authorized members of management, one of whom must be an Executive Officer.
All commercial real estate, multi-family and construction loan requests or total credit
relationships in an amount up to $3,000,000 may be approved by the Chief Lending Officer. All
commercial real estate loan requests or total credit relationships in excess of $3,000,000 and up
to $5,000,000 must be approved by any two of the following the Chief Lending Officer and the
Chief Operating Officer or the Chief Executive Officer. All loan requests or total credit
relationships in excess of $5,000,000 must be approved by the Commercial Loan Committee, consisting
of the Chief Executive Officer, Chief Operating Officer, Chief Lending Officer, Chief Financial
Officer, Executive Vice President- Retail Banking and the Senior Vice President- Lending.
All business loans in an amount up to $1,500,000 must be approved by the Vice President,
Business Lending, Chief Lending Officer, Chief Operating Officer or Chief Executive Officer. All
loan requests or total credit relationships in excess of $1,500,000 and up to $3,000,000 must be
approved by the Vice President, Business Lending and the Chief Lending Officer, Chief Operating
Officer or Chief Executive Officer. All loan requests or total credit relationships in excess of
$3,000,000 and up to $5,000,000 must be approved by the Vice President, Business Lending and two of
the following Chief Lending Officer and the Chief Operating Officer or the Chief Executive
Officer. All loan requests or total credit relationships in excess of $5,000,000 must be approved
the Commercial Loan Committee, consisting of the Chief Executive Officer, Chief Operating Officer,
Chief Lending Officer, Chief Financial Officer, Executive Vice President- Retail Banking and the
Senior Vice President- Lending.
Loans to One Borrower. The Banks regulatory limit on total loans to any borrower or
attributed to any one borrower is 15% of unimpaired capital and surplus. As of December 31, 2010,
the regulatory lending limit was $122.8 million. The Banks internal policy limit is $60.0 million,
with the option to exceed that limit with the Board of Directors approval, on total loans to a
borrower or related borrowers. The Bank reviews these group exposures on a monthly basis. The Bank
also sets additional limits on size of loans by loan type. At December 31, 2010, the Banks largest
relationship with an individual borrower and its related entities was $68.0 million, consisting of
a multi-family loan, a construction loan on an apartment rental project and a commercial line of
credit on properties located in the State of New Jersey. The relationship was approved by the
Board of Directors and was performing in accordance with contractual terms as of December 31, 2010.
Asset Quality
One of the Banks key operating objectives has been, and continues to be, maintaining a high
level of asset quality. The Bank maintains sound credit standards for new loan originations and
purchases. We do not originate or purchase sub-prime loans, negative amortization loans or option
ARM loans. In addition, the Bank uses proactive collection and workout processes in dealing with
delinquent and problem loans.
The underlying credit quality of our loan portfolio is dependent primarily on each borrowers
ability to continue to make required loan payments and, in the event a borrower is unable to
continue to do so, the value of the collateral securing the loan, if any. A borrowers ability to
pay typically is dependent, in the case of one-to-four family mortgage loans and consumer loans,
primarily on employment and other sources of income, and in the case of multi-family and commercial
real estate loans, on the cash flow generated by the property, which in turn is impacted by general
economic conditions. Other factors, such as unanticipated expenditures or changes in the financial
markets, may also impact a borrowers ability to pay. Collateral values, particularly real estate
values, are also impacted by a variety of factors including general economic conditions,
demographics, maintenance and collection or foreclosure delays.
Collection Procedures. We send system-generated reminder notices to start collection efforts
when a loan becomes fifteen days past due. Subsequent late charge and delinquency notices are sent
and the account is monitored on a regular basis thereafter. Direct contact with the borrower is
attempted early in the collection process as a courtesy reminder and later to determine the reason
for the delinquency and to safeguard our collateral. We provide the Board of Directors with a
summary report of loans 30 days or more past due on a monthly basis. When a loan is more than 60
days past due, the credit file is reviewed and, if deemed necessary, information is updated or
confirmed and collateral re-evaluated. We make every effort to contact the borrower and develop a
plan of repayment to cure the delinquency. Loans are placed on non-accrual status when they are 90
days delinquent, but may be placed on non-accrual status earlier if the timely collection of
principal and/or income is doubtful. When loans are placed on non-accrual status, unpaid accrued
interest is fully reserved, and additional income is recognized in the period collected unless the
ultimate collection of principal is considered doubtful. If our effort to cure the delinquency
fails and a repayment plan is not in place, the file is referred to counsel for commencement of
foreclosure or other collection efforts. We also own loans serviced by other entities and we
monitor delinquencies on such loans using reports the servicers send to us. When we receive these
past due reports, we review the data and contact the servicer to discuss the specific loans and the
status of the collection process. We add the information from the servicers delinquent loan
reports to our own delinquent reports and provide a full summary report monthly to our Board of
Directors.
Our collection procedure for non mortgage related consumer and other loans includes sending
periodic late notices to a borrower once a loan is past due. We attempt to make direct contact with
the borrower once a loan becomes 30 days past due. The Collection Manager reviews loans 60 days or
more delinquent on a regular basis. If collection activity is unsuccessful after 90 days, we may
refer
10
the matter to our legal counsel for further collection efforts or we may charge-off the loan.
Non real estate related consumer loans that are considered uncollectible are proposed for
charge-off by the Collection Manager on a monthly basis.
Delinquent Loans. The following table sets forth our loan delinquencies by type and by amount
at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Delinquent For |
|
|
|
|
|
|
60-89 Days |
|
|
90 Days and Over |
|
|
Total |
|
|
|
Number |
|
|
Amount |
|
|
Number |
|
|
Amount |
|
|
Number |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
At December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family |
|
|
33 |
|
|
$ |
11,664 |
|
|
|
220 |
|
|
$ |
70,389 |
|
|
|
253 |
|
|
$ |
82,053 |
|
FHA |
|
|
2 |
|
|
|
226 |
|
|
|
23 |
|
|
|
3,261 |
|
|
|
25 |
|
|
|
3,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage loans |
|
|
35 |
|
|
|
11,890 |
|
|
|
243 |
|
|
|
73,650 |
|
|
|
278 |
|
|
|
85,540 |
|
Multi-family |
|
|
3 |
|
|
|
12,898 |
|
|
|
3 |
|
|
|
2,748 |
|
|
|
6 |
|
|
|
15,646 |
|
Commercial |
|
|
1 |
|
|
|
502 |
|
|
|
8 |
|
|
|
3,899 |
|
|
|
9 |
|
|
|
4,401 |
|
Construction loans |
|
|
1 |
|
|
|
7,850 |
|
|
|
26 |
|
|
|
82,735 |
|
|
|
27 |
|
|
|
90,585 |
|
Commercial and industrial |
|
|
2 |
|
|
|
640 |
|
|
|
5 |
|
|
|
1,829 |
|
|
|
7 |
|
|
|
2,469 |
|
Consumer and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
|
3 |
|
|
|
8 |
|
|
|
11 |
|
|
|
507 |
|
|
|
14 |
|
|
|
515 |
|
Home equity credit lines |
|
|
1 |
|
|
|
188 |
|
|
|
3 |
|
|
|
518 |
|
|
|
4 |
|
|
|
706 |
|
Other |
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
8 |
|
|
|
6 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer and other loans |
|
|
4 |
|
|
|
196 |
|
|
|
20 |
|
|
|
1,033 |
|
|
|
24 |
|
|
|
1,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
46 |
|
|
$ |
33,976 |
|
|
|
305 |
|
|
$ |
165,894 |
|
|
|
351 |
|
|
$ |
199,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family |
|
|
47 |
|
|
$ |
13,273 |
|
|
|
143 |
|
|
$ |
47,582 |
|
|
|
190 |
|
|
$ |
60,855 |
|
FHA |
|
|
4 |
|
|
|
384 |
|
|
|
19 |
|
|
|
2,507 |
|
|
|
23 |
|
|
|
2,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage loans |
|
|
51 |
|
|
|
13,657 |
|
|
|
162 |
|
|
|
50,089 |
|
|
|
213 |
|
|
|
63,746 |
|
Multi-family |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
553 |
|
|
|
4 |
|
|
|
553 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
3,417 |
|
|
|
10 |
|
|
|
3,417 |
|
Construction loans |
|
|
3 |
|
|
|
19,056 |
|
|
|
21 |
|
|
|
53,468 |
|
|
|
24 |
|
|
|
72,524 |
|
Commercial and industrial |
|
|
3 |
|
|
|
734 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
734 |
|
Consumer and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
81 |
|
|
|
4 |
|
|
|
81 |
|
Home equity credit lines |
|
|
5 |
|
|
|
191 |
|
|
|
11 |
|
|
|
1,074 |
|
|
|
16 |
|
|
|
1,265 |
|
Other |
|
|
7 |
|
|
|
7 |
|
|
|
8 |
|
|
|
11 |
|
|
|
15 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer and other loans |
|
|
12 |
|
|
|
198 |
|
|
|
23 |
|
|
|
1,166 |
|
|
|
35 |
|
|
|
1,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
69 |
|
|
$ |
33,645 |
|
|
|
220 |
|
|
$ |
108,693 |
|
|
|
289 |
|
|
$ |
142,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family |
|
|
30 |
|
|
$ |
8,165 |
|
|
|
82 |
|
|
$ |
27,837 |
|
|
|
112 |
|
|
$ |
36,002 |
|
FHA |
|
|
6 |
|
|
|
721 |
|
|
|
15 |
|
|
|
1,904 |
|
|
|
21 |
|
|
|
2,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage loans |
|
|
36 |
|
|
|
8,886 |
|
|
|
97 |
|
|
|
29,741 |
|
|
|
133 |
|
|
|
38,627 |
|
Multi-family |
|
|
1 |
|
|
|
181 |
|
|
|
6 |
|
|
|
20,074 |
|
|
|
7 |
|
|
|
20,255 |
|
Commercial |
|
|
3 |
|
|
|
784 |
|
|
|
6 |
|
|
|
2,820 |
|
|
|
9 |
|
|
|
3,604 |
|
Construction loans |
|
|
3 |
|
|
|
11,263 |
|
|
|
17 |
|
|
|
58,550 |
|
|
|
20 |
|
|
|
69,813 |
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
|
1 |
|
|
|
2 |
|
|
|
2 |
|
|
|
60 |
|
|
|
3 |
|
|
|
62 |
|
Home equity credit lines |
|
|
4 |
|
|
|
659 |
|
|
|
3 |
|
|
|
150 |
|
|
|
7 |
|
|
|
809 |
|
Other |
|
|
4 |
|
|
|
4 |
|
|
|
10 |
|
|
|
15 |
|
|
|
14 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer and other loans |
|
|
9 |
|
|
|
665 |
|
|
|
15 |
|
|
|
225 |
|
|
|
24 |
|
|
|
890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
52 |
|
|
$ |
21,779 |
|
|
|
141 |
|
|
$ |
111,410 |
|
|
|
193 |
|
|
$ |
133,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family |
|
|
8 |
|
|
$ |
1,608 |
|
|
|
18 |
|
|
$ |
5,060 |
|
|
|
26 |
|
|
$ |
6,668 |
|
FHA |
|
|
1 |
|
|
|
66 |
|
|
|
15 |
|
|
|
1,631 |
|
|
|
16 |
|
|
|
1,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage loans |
|
|
9 |
|
|
|
1,674 |
|
|
|
33 |
|
|
|
6,691 |
|
|
|
42 |
|
|
|
8,365 |
|
Multi-family and commercial |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
1,600 |
|
|
|
4 |
|
|
|
1,600 |
|
Construction loans |
|
|
1 |
|
|
|
10,960 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
10,960 |
|
Consumer and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
88 |
|
|
|
3 |
|
|
|
88 |
|
Home equity credit lines |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
30 |
|
|
|
1 |
|
|
|
30 |
|
Other |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer and other loans |
|
|
2 |
|
|
|
2 |
|
|
|
6 |
|
|
|
120 |
|
|
|
8 |
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
12 |
|
|
$ |
12,636 |
|
|
|
43 |
|
|
$ |
8,411 |
|
|
|
55 |
|
|
$ |
21,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Non-Performing Assets. Non-performing assets include non-accrual loans, mortgage loans
delinquent 90 days or more and still accruing interest and real estate owned, or REO. We did not
have any mortgage loans delinquent 90 days or more and still accruing interest at December 31,
2010. At December 31, 2010, we had REO of $976,000 consisting of two properties. Non-performing
loans increased $45.7 million to $165.9 million at December 31, 2010, from $120.2 million at
December 31, 2009. Although we have resolved a number of non-performing loans, the continued
deterioration of the housing and real estate markets, as well as the overall weakness in the
economy, continue to impact our non-performing loans. As a geographically concentrated residential
lender, we have been affected by negative consequences arising from the ongoing economic recession
and, in particular, the sharp downturn in the housing industry, as well as economic and housing
industry weaknesses in the New Jersey/New York metropolitan area. We are particularly vulnerable to
the impact of a severe job loss recession. We continue to closely monitor the local and regional
real estate markets and other factors related to risks inherent in our loan portfolio. The ratio of
non-performing loans to total loans increased to 2.08% at December 31, 2010, from 1.81% at December
31, 2009. Our ratio of non-performing assets to total assets increased to 1.74% at December 31,
2010, from 1.44% at December 31, 2009. The allowance for loan losses as a percentage of total
non-performing loans increased to 54.81% at December 31, 2010, from 45.80% at December 31, 2009.
For further discussion of our non-performing assets and non-performing loans and the allowance for
loan losses, see Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations.
The table below sets forth the amounts and categories of our non-performing assets at the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009(1) |
|
|
2009(2) |
|
|
2008(3) |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Non-accrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family |
|
$ |
70,389 |
|
|
$ |
47,582 |
|
|
$ |
27,837 |
|
|
$ |
5,060 |
|
|
$ |
2,220 |
|
|
$ |
1,346 |
|
FHA |
|
|
3,261 |
|
|
|
2,507 |
|
|
|
1,904 |
|
|
|
1,631 |
|
|
|
1,300 |
|
|
|
1,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage loans |
|
|
73,650 |
|
|
|
50,089 |
|
|
|
29,741 |
|
|
|
6,691 |
|
|
|
3,520 |
|
|
|
2,786 |
|
Multi-family and commercial |
|
|
6,647 |
|
|
|
3,970 |
|
|
|
22,894 |
|
|
|
1,600 |
|
|
|
452 |
|
|
|
477 |
|
Construction loans |
|
|
82,735 |
|
|
|
64,968 |
|
|
|
68,826 |
|
|
|
10,960 |
|
|
|
1,146 |
|
|
|
|
|
Commercial and industrial |
|
|
1,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
|
507 |
|
|
|
81 |
|
|
|
60 |
|
|
|
88 |
|
|
|
28 |
|
|
|
6 |
|
Home equity credit lines |
|
|
518 |
|
|
|
1,074 |
|
|
|
150 |
|
|
|
30 |
|
|
|
|
|
|
|
30 |
|
Other |
|
|
8 |
|
|
|
11 |
|
|
|
15 |
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer and other loans |
|
|
1,033 |
|
|
|
1,166 |
|
|
|
225 |
|
|
|
120 |
|
|
|
31 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
165,894 |
|
|
|
120,193 |
|
|
|
121,686 |
|
|
|
19,371 |
|
|
|
5,149 |
|
|
|
3,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
|
165,894 |
|
|
|
120,193 |
|
|
|
121,686 |
|
|
|
19,371 |
|
|
|
5,149 |
|
|
|
3,299 |
|
Real estate owned |
|
|
976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
166,870 |
|
|
$ |
120,193 |
|
|
$ |
121,686 |
|
|
$ |
19,371 |
|
|
$ |
5,149 |
|
|
$ |
3,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans to total loans |
|
|
2.08 |
% |
|
|
1.81 |
% |
|
|
1.97 |
% |
|
|
0.42 |
% |
|
|
0.14 |
% |
|
|
0.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans to total assets |
|
|
1.73 |
% |
|
|
1.44 |
% |
|
|
1.50 |
% |
|
|
0.30 |
% |
|
|
0.09 |
% |
|
|
0.06 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets to total assets |
|
|
1.74 |
% |
|
|
1.44 |
% |
|
|
1.50 |
% |
|
|
0.30 |
% |
|
|
0.09 |
% |
|
|
0.06 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
An $11.5 million construction loan that was 60-89 days delinquent at December 31, 2009 was classified as
non-performing. |
|
(2) |
|
Two construction loans totaling $10.3 million were 60-89 days delinquent at June 30, 2009 were classified as
non-performing. |
|
(3) |
|
An $11.0 million construction loan that is 60-89 days delinquent at June 30, 2008 is classified as non-performing. |
At December 31, 2010, we had $4.8 million of residential mortgage loans identified as
trouble debt restructurings, which were performing in accordance with restructured terms.
12
For the year ended December 31, 2010, interest income that would have been recorded had
our non-accruing loans been current in accordance with their original terms amounted to $8.1
million. We recognized interest income of $1.9 million on such loans for the year ended December 31, 2010.
Real Estate Owned. Real estate we acquire as a result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned until sold. When property is acquired it is recorded
at fair market value at the date of foreclosure, establishing a new cost basis. Holding costs and
declines in fair value result in charges to expense after acquisition. At December 31, 2010, we had
REO of $976,000 consisting of two properties. At December 31, 2009, June 30, 2009, 2008, 2007 and
2006, we held no real estate owned.
Classified Assets. Federal regulations provide that loans and other assets of lesser quality
should be classified as substandard, doubtful or loss assets. An asset is considered
substandard if it is inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. Substandard assets include those characterized by
the distinct possibility we will sustain some loss if the deficiencies are not corrected.
Assets classified as doubtful have all of the weaknesses inherent in those classified
substandard, with the added characteristic the weaknesses present make collection or liquidation
in full, on the basis of currently existing facts, conditions, and values, highly questionable
and improbable. Assets classified as loss are those considered un-collectible and of such
little value their continuance as assets without the establishment of a specific loss reserve is
not warranted. We classify an asset as special mention if the asset has a potential weakness that
warrants managements close attention. While such assets are not impaired, management has concluded
that if the potential weakness in the asset is not addressed, the value of the asset may
deteriorate, adversely affecting the repayment of the asset.
We are required to establish an allowance for loan losses in an amount that management
considers prudent for loans classified substandard or doubtful, as well as for other problem loans.
General allowances represent loss allowances which have been established to recognize the inherent
losses associated with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When we classify problem assets as loss, we are required
either to establish a specific allowance for losses equal to 100% of the amount of the asset so
classified or to charge off such amount. Our determination as to the classification of our assets
and the amount of our valuation allowances is subject to review by the New Jersey Department of
Banking and Insurance and the Federal Deposit Insurance Corporation, which can require that we
establish additional general or specific loss allowances.
We review the loan portfolio on a quarterly basis to determine whether any loans require
classification in accordance with applicable regulations. Not all classified assets constitute
non-performing assets.
Impaired Loans. The Company defines an impaired loan as a loan for which it is probable,
based on current information, that the lender will not collect all amounts due under the
contractual terms of the loan agreement. Loans we individually classify as impaired include
commercial real estate, multi-family or construction loans with an outstanding balance greater than
$3.0 million and on non-accrual status. Impaired loans are individually assessed to determine that
the loans carrying value is not in excess of the fair value of the collateral or the present value
of the expected future cash flows. A valuation allowance is established when it is determined there
is a shortfall. At December 31, 2010, loans meeting the Companys definition of an impaired loan
totaled $69.3 million. The allowance for loan losses related to loans classified as impaired at
December 31, 2010, amounted to $5.0 million. Interest income received during the year ended
December 31, 2010 on loans classified as impaired was $206,000. For further detail on our impaired
loans, see Note 1 and Note 5 of Notes to Consolidated Financial Statements in Item 8, Financial
Statements and Supplementary Data.
Allowance for Loan Losses
Our allowance for loan losses is maintained at a level necessary to absorb loan losses that
are both probable and reasonably estimable. In determining the allowance for loan losses,
management considers the losses inherent in our loan portfolio and changes in the nature and volume
of loan activities, along with the general economic and real estate market conditions. A
description of our methodology in establishing our allowance for loan losses is set forth in the
section Managements Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies Allowance for Loan Losses. The allowance for loan losses as of
December 31, 2010 is maintained at a level that represents managements best estimate of losses
inherent in the loan portfolio. However, this analysis process is subjective, as it requires us to
make estimates that are susceptible to revisions as more information becomes available. Although we
believe we have established the allowance at levels to absorb probable and estimable losses, future
additions may be necessary if economic or other conditions in the future differ from the current
environment.
Furthermore, as an integral part of their examination processes, the New Jersey Department of
Banking and Insurance and the Federal Deposit Insurance Corporation will periodically review our
allowance for loan losses. Such agencies may require us to recognize additions to the allowance
based on their judgments of information available to them at the time of their examination.
13
Allowance for Loan Losses. The following table sets forth activity in our allowance for loan
losses for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Allowance balance (beginning of period) |
|
$ |
55,052 |
|
|
$ |
46,608 |
|
|
$ |
13,565 |
|
|
$ |
6,951 |
|
|
$ |
6,369 |
|
|
$ |
5,723 |
|
Provision for loan losses |
|
|
66,500 |
|
|
|
23,425 |
|
|
|
29,025 |
|
|
|
6,646 |
|
|
|
729 |
|
|
|
600 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans One- to
four-family |
|
|
6,432 |
|
|
|
1,587 |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
FHA |
|
|
|
|
|
|
4 |
|
|
|
14 |
|
|
|
|
|
|
|
141 |
|
|
|
143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage loans |
|
|
6,432 |
|
|
|
1,591 |
|
|
|
14 |
|
|
|
18 |
|
|
|
141 |
|
|
|
143 |
|
Multi-family and commercial loans |
|
|
927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction loans |
|
|
23,160 |
|
|
|
13,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial loans |
|
|
269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other loans |
|
|
41 |
|
|
|
23 |
|
|
|
11 |
|
|
|
15 |
|
|
|
10 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
30,829 |
|
|
|
15,025 |
|
|
|
25 |
|
|
|
33 |
|
|
|
151 |
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family |
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHA |
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage loans |
|
|
124 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196 |
|
Multi-family and commercial loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction loans |
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other loans |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
208 |
|
|
|
44 |
|
|
|
|
|
|
|
1 |
|
|
|
4 |
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) recoveries |
|
|
(30,621 |
) |
|
|
(14,981 |
) |
|
|
(25 |
) |
|
|
(32 |
) |
|
|
(147 |
) |
|
|
46 |
|
Allowance acquired in acquisition |
|
|
|
|
|
|
|
|
|
|
4,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance balance (end of period) |
|
$ |
90,931 |
|
|
$ |
55,052 |
|
|
$ |
46,608 |
|
|
$ |
13,565 |
|
|
$ |
6,951 |
|
|
$ |
6,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans outstanding |
|
$ |
7,994,859 |
|
|
$ |
6,652,127 |
|
|
$ |
6,171,716 |
|
|
$ |
4,663,713 |
|
|
$ |
3,610,320 |
|
|
$ |
2,983,242 |
|
Average loans outstanding |
|
$ |
7,197,608 |
|
|
$ |
6,370,350 |
|
|
$ |
5,482,009 |
|
|
$ |
4,043,398 |
|
|
$ |
3,305,807 |
|
|
$ |
2,462,270 |
|
Allowance for loan losses as a percent
of total loans outstanding |
|
|
1.14 |
% |
|
|
0.83 |
% |
|
|
0.76 |
% |
|
|
0.29 |
% |
|
|
0.19 |
% |
|
|
0.21 |
% |
Net loans charged off as a percent of
average loans outstanding |
|
|
0.43 |
% |
|
|
0.24 |
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
Allowance for loan losses to
non-performing loans |
|
|
54.81 |
% |
|
|
45.80 |
% |
|
|
38.30 |
% |
|
|
70.03 |
% |
|
|
135.00 |
% |
|
|
193.06 |
% |
Allocation of Allowance for Loan Losses. The following table sets forth the allowance
for loan losses allocated by loan category and the percent of loans in each category to total loans
at the dates indicated. The allowance for loan losses allocated to each category is not necessarily
indicative of future losses in any particular category and does not restrict the use of the
allowance to absorb losses in other categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
|
Loans in |
|
|
|
|
|
|
Loans in |
|
|
|
|
|
|
Loans in |
|
|
|
|
|
|
Loans in |
|
|
|
Allowance |
|
|
Each |
|
|
Allowance |
|
|
Each |
|
|
Allowance |
|
|
Each |
|
|
Allowance |
|
|
Each |
|
|
|
for Loan |
|
|
Category to |
|
|
for Loan |
|
|
Category to |
|
|
for Loan |
|
|
Category to |
|
|
for Loan |
|
|
Category to |
|
|
|
Losses |
|
|
Total Loans |
|
|
Losses |
|
|
Total Loans |
|
|
Losses |
|
|
Total Loans |
|
|
Losses |
|
|
Total Loans |
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
End of period
allocated to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans |
|
$ |
20,489 |
|
|
|
61.78 |
% |
|
$ |
13,741 |
|
|
|
71.76 |
% |
|
$ |
10,841 |
|
|
|
76.30 |
% |
|
$ |
4,585 |
|
|
|
85.97 |
% |
Multi-family |
|
|
10,454 |
|
|
|
14.53 |
% |
|
|
3,227 |
|
|
|
9.21 |
% |
|
|
1,518 |
|
|
|
7.82 |
% |
|
|
223 |
|
|
|
1.77 |
% |
Commercial |
|
|
16,432 |
|
|
|
15.33 |
% |
|
|
10,208 |
|
|
|
10.97 |
% |
|
|
6,223 |
|
|
|
7.02 |
% |
|
|
1,454 |
|
|
|
3.06 |
% |
Construction loans |
|
|
34,669 |
|
|
|
4.35 |
% |
|
|
25,194 |
|
|
|
5.03 |
% |
|
|
23,437 |
|
|
|
5.62 |
% |
|
|
4,836 |
|
|
|
5.58 |
% |
Commercial and industrial |
|
|
2,189 |
|
|
|
0.76 |
% |
|
|
558 |
|
|
|
0.35 |
% |
|
|
351 |
|
|
|
0.25 |
% |
|
|
|
|
|
|
|
% |
Consumer and other loans |
|
|
866 |
|
|
|
3.25 |
% |
|
|
510 |
|
|
|
2.68 |
% |
|
|
459 |
|
|
|
2.99 |
% |
|
|
254 |
|
|
|
3.62 |
% |
Unallocated |
|
|
5,832 |
|
|
|
|
|
|
|
1,614 |
|
|
|
|
|
|
|
3,779 |
|
|
|
|
|
|
|
2,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance |
|
$ |
90,931 |
|
|
|
100.00 |
% |
|
$ |
55,052 |
|
|
|
100.00 |
% |
|
$ |
46,608 |
|
|
|
100.00 |
% |
|
$ |
13,565 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
|
Loans in |
|
|
|
|
|
|
Loans in |
|
|
|
Allowance |
|
|
Each |
|
|
Allowance |
|
|
Each |
|
|
|
for Loan |
|
|
Category to |
|
|
for Loan |
|
|
Category to |
|
|
|
Losses |
|
|
Total Loans |
|
|
Losses |
|
|
Total Loans |
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
End of period allocated to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans |
|
$ |
3,444 |
|
|
|
88.14 |
% |
|
$ |
2,910 |
|
|
|
90.33 |
% |
Multi-family and commercial |
|
|
956 |
|
|
|
3.03 |
% |
|
|
1,591 |
|
|
|
2.65 |
% |
Construction loans |
|
|
1,896 |
|
|
|
4.25 |
% |
|
|
820 |
|
|
|
2.22 |
% |
Consumer and other loans |
|
|
247 |
|
|
|
4.58 |
% |
|
|
354 |
|
|
|
4.80 |
% |
Unallocated |
|
|
408 |
|
|
|
|
|
|
|
694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance |
|
$ |
6,951 |
|
|
|
100.00 |
% |
|
$ |
6,369 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Investments
The Board of Directors has adopted our Investment Policy. This policy determines the types of
securities in which we may invest. The Investment Policy is reviewed annually by management and
changes to the policy are recommended to and subject to approval by the Board of Directors. The
Board of Directors delegates operational responsibility for the implementation of the Investment
Policy to the Interest Rate Risk Committee, which is comprised of senior officers. While general
investment strategies are developed by the Interest Rate Risk Committee, the execution of specific
actions rests primarily with our Chief Financial Officer. He is responsible for ensuring the
guidelines and requirements included in the Investment Policy are followed and all securities are
considered prudent for investment. He or his designee is authorized to execute transactions that
fall within the scope of the established Investment Policy. Investment transactions are reviewed
and ratified by the Board of Directors at their regularly scheduled meetings.
Our Investment Policy requires that investment transactions conform to Federal and New Jersey
State investment regulations. Our investments include U.S. Treasury obligations, securities issued
by various Federal Agencies, mortgage-backed securities, certain certificates of deposit of insured
financial institutions, overnight and short-term loans to other banks, investment grade corporate
debt instruments, and Fannie Mae and Freddie Mac equity securities. In addition, Investors Bancorp
may invest in equity securities subject to certain limitations.
The Investment Policy requires that securities transactions be conducted in a safe and sound
manner. Purchase and sale decisions are based upon a thorough analysis of each security to
determine it conforms to our overall asset/liability management objectives. The analysis must
consider its effect on our risk-based capital measurement, prospects for yield and/or appreciation
and other risk factors.
At December 31, 2010, our securities portfolio totaled $1.08 billion representing 11.3% of our
total assets. Securities are classified as held-to-maturity or available-for-sale when purchased.
At December 31, 2010, $478.5 million of our securities were classified as held-to-maturity and
reported at amortized cost and $602.7 million were classified as available-for-sale and reported at
fair value.
Mortgage-Backed Securities. We purchase mortgage-backed pass through and collateralized
mortgage obligation (CMO) securities insured or guaranteed by Fannie Mae, Freddie Mac
(government-sponsored enterprises) and Ginnie Mae (government agency), and to a lesser extent, a
variety of federal and state housing authorities (collectively referred to below as agency-issued
mortgage-backed securities). At December 31, 2010, agency-issued mortgage-backed securities
including CMOs, totaled $949.1 million, or 87.8%, of our total securities portfolio.
Mortgage-backed pass through securities are created by pooling mortgages and issuing a
security with an interest rate less than the interest rate on the underlying mortgages.
Mortgage-backed pass through securities represent a participation interest in a pool of
single-family or multi-family mortgages. As loan payments are made by the borrowers, the principal
and interest portion of the payment is passed through to the investor as received. CMOs are also
backed by mortgages; however, they differ from mortgage-backed pass through securities because the
principal and interest payments of the underlying mortgages are financially engineered to be paid
to the security holders of pre-determined classes or tranches of these securities at a faster or
slower pace. The receipt of these principal and interest payments which depends on the proposed
average life for each class is contingent on a prepayment speed assumption assigned to the
underlying mortgages. Variances between the assumed payment speed and actual payments can
significantly alter the average lives of such securities. To quantify and mitigate this risk, we
undertake a payment analysis before purchasing these securities. We invest in CMO classes or
tranches in which the payments on the underlying mortgages are passed along at a pace fast enough
to provide an average life of two to four years with no change in market interest rates. The
issuers of such securities, as noted above, pool and sell participation interests in security form
to investors such as Investors Savings Bank and guarantee the payment of principal and interest.
Mortgage-backed securities and CMOs generally yield less than the loans that
15
underlie such securities because of the cost of payment guarantees and credit enhancements.
However, mortgage-backed securities are usually more liquid than individual mortgage loans and may
be used to collateralize borrowings and other liabilities.
Mortgage-backed securities present a risk that actual prepayments may differ from estimated
prepayments over the life of the security, which may require adjustments to the amortization of any
premium or accretion of any discount relating to such instruments that can change the net yield on
such securities. There is also reinvestment risk associated with the cash flows from such
securities or if such securities are redeemed by the issuer. In addition, the market value of such
securities may be adversely affected by changes in interest rates.
Our mortgage-backed securities portfolio had a weighted average yield of 4.1% at December 31,
2010. The estimated fair value of our mortgage-backed securities at December 31, 2010 was $1.04
billion, which is $19.3 million greater than the amortized cost of $1.02 billion.
We also invest in securities issued by non-agency or private mortgage originators, provided
those securities are rated AAA by nationally recognized rating agencies at the time of purchase.
Our non-agency mortgage-backed securities are not guaranteed by GSE entities and complied with the
investment and credit standards set forth in the investment policy of the Company at the time of
purchase. At December 31, 2010, the significant portion of the portfolio was comprised of 23
non-agency mortgage-backed securities with an amortized cost of $78.1 million and an estimated fair
value of $77.7 million. These securities were originated in the period 2002-2004 and substantially
all are performing in accordance with contractual terms. For securities with larger decreases in
fair values, management estimates the loss projections for each security by stressing the
individual loans collateralizing the security with a range of expected default rates, loss
severities, and prepayment speeds, in conjunction with the underlying credit enhancement (if
applicable) for each security. Based on those specific assumptions, a range of possible cash flows
were identified to determine whether other-than-temporary impairment existed as of December 31,
2010. Under certain stress scenarios estimated future losses may arise. Management determined that
no additional other-than-temporary impairment existed as of December 31, 2010.
Corporate and Other Debt Securities. Our corporate and other debt securities portfolio
consists of collateralized debt obligations (CDOs) backed by pooled trust preferred securities
(TruPS), principally issued by banks (80.6%) and to a lesser extent insurance companies (17.5%) and
real estate investment trusts (1.9%). The interest rates on these securities reset quarterly in
relation to the 3 month Libor rate. These securities have been classified in the held to maturity
portfolio since their purchase and the Company has the ability and intent to hold these securities
until maturity.
At December 31, 2010, the portfolio consisted of 33 securities with an amortized cost of $23.6
million and a fair value of $41.3 million. Only two of the 33 securities maintain an investment
grade (BAA and higher). For December 31, 2010, we engaged an independent valuation firm to value
our TruPS portfolio and prepare our OTTI analysis. The valuation firm assisted us in evaluating the
credit and performance for each remaining issuer to derive probabilities and assumptions for
default, recovery and prepayment/amortization for the expected cashflows for each security. At
December 31, 2010, management deemed that there was no deterioration in projected discounted
cashflows since the prior period for each of its TruPS and did not recognize an OTTI charge for the
year ended December 31, 2010. The Company has no intent to sell, nor is it more likely than not
that the Company will be required to sell, the debt securities before the recovery of their
amortized cost basis or maturity.
At December 31, 2008, we recorded a pre-tax $156.7 million other-than-temporary impairment, or
OTTI, charge to reduce the carrying amount of our investment bank pooled trust preferred securities
to the securities market values totaling $20.7 million. The decision to recognize the OTTI charge
was based on the severity of the decline in the market values of these securities at that time and
the unlikelihood of any near-term market value recovery. The significant decline in the market
value occurred primarily as a result of deteriorating national economic conditions, rapidly
increasing amounts of non-accrual and delinquent loans at some of the underlying issuing banks, and
credit rating downgrades by Moodys.
The Company adopted ASC 320, Recognition and Presentation of Other-Than-Temporary
Impairments, which was incorporated into ASC 320, Investments Debt and Equity Securities, on
April 1, 2009. Under this guidance, the difference between the present value of the cash flows
expected to be collected and the amortized cost basis is deemed to be the credit loss. The present
value of the expected cash flows is calculated based on the contractual terms of each security, and
is discounted at a rate equal to the effective interest rate implicit in the security at the date
of acquisition. The guidance also required management to determine the amount of any previously
recorded OTTI charges on the TruPS that were related to credit and all other non-credit factors. In
accordance with ASC 320, management considered the deteriorating financial condition of the U.S.
banking sector, the credit rating downgrades, the accelerating pace of banks deferring or
defaulting on their trust preferred debt, and the increasing amounts of non-accrual and delinquent
loans at the underlying issuing banks. The aforementioned analysis was incorporated into the
present value of the cash flows expected to be collected for each of these securities and
management determined that $35.6 million of the previously recorded pre-tax OTTI charge was due to
other non-credit factors and, in accordance with ASC 320, the Company recognized a cumulative
effect of initially applying ASC 320 as a $21.1 million after-tax adjustment to retained earnings
with a corresponding adjustment to AOCI. At June 30, 2009, the Company recorded an additional $1.3
million pre-tax credit related OTTI charge on these securities.
16
We continue to closely monitor the performance of the securities we own as well as the events
surrounding this segment of the market. The Company will continue to evaluate for
other-than-temporary impairment, which could result in a future non-cash charge to earnings.
Government Sponsored Enterprises. At December 31, 2010, bonds issued by Government Sponsored
Enterprises held in our security portfolio totaled $15.2 million representing 1.4% of our total
securities portfolio. While these securities may generally provide lower yields than other
securities in our securities portfolio, we hold for liquidity purposes, as collateral for certain
borrowings, to achieve positive interest rate spreads with minimal administrative expense, and to
lower our credit risk as a result of the guarantees provided by these issuers.
Marketable Equity Securities. At December 31, 2010, we had $2.2 million in equity securities
representing 0.2% of our total securities portfolio. Equity securities are not insured or
guaranteed investments and are affected by market interest rates and stock market fluctuations.
Such investments (when held) are carried at their fair value and fluctuations in the fair value of
such investments, including temporary declines in value, directly affect our net capital position.
Securities Portfolios. The following table sets forth the composition of our investment
securities portfolios at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
At June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
Amortized |
|
|
Estimated |
|
|
Amortized |
|
|
Estimated |
|
|
Amortized |
|
|
Estimated |
|
|
Amortized |
|
|
Estimated |
|
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
2,025 |
|
|
$ |
2,232 |
|
|
$ |
1,832 |
|
|
$ |
2,053 |
|
|
$ |
1,583 |
|
|
$ |
1,598 |
|
|
$ |
6,655 |
|
|
$ |
6,514 |
|
GSE debt securities |
|
|
|
|
|
|
|
|
|
|
25,013 |
|
|
|
25,039 |
|
|
|
30,051 |
|
|
|
30,079 |
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage
Corporation |
|
|
248,403 |
|
|
|
248,335 |
|
|
|
206,877 |
|
|
|
209,522 |
|
|
|
151,450 |
|
|
|
152,718 |
|
|
|
51,256 |
|
|
|
51,197 |
|
Federal National Mortgage
Association |
|
|
306,745 |
|
|
|
308,957 |
|
|
|
158,678 |
|
|
|
160,427 |
|
|
|
94,967 |
|
|
|
96,617 |
|
|
|
49,393 |
|
|
|
49,364 |
|
Government National
Mortgage Association |
|
|
9,202 |
|
|
|
9,445 |
|
|
|
10,504 |
|
|
|
10,450 |
|
|
|
275 |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
Non-agency securities |
|
|
34,640 |
|
|
|
33,764 |
|
|
|
67,290 |
|
|
|
63,752 |
|
|
|
80,523 |
|
|
|
73,704 |
|
|
|
101,555 |
|
|
|
95,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed
securities available for
sale |
|
|
598,990 |
|
|
|
600,501 |
|
|
|
443,349 |
|
|
|
444,151 |
|
|
|
327,215 |
|
|
|
323,339 |
|
|
|
202,204 |
|
|
|
196,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
available-for-sale |
|
$ |
601,015 |
|
|
$ |
602,733 |
|
|
$ |
470,194 |
|
|
$ |
471,243 |
|
|
$ |
358,849 |
|
|
$ |
355,016 |
|
|
$ |
208,859 |
|
|
$ |
203,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Sponsored
Enterprises |
|
$ |
15,200 |
|
|
$ |
15,446 |
|
|
$ |
15,226 |
|
|
$ |
15,956 |
|
|
$ |
18,238 |
|
|
$ |
19,161 |
|
|
$ |
46,703 |
|
|
$ |
47,052 |
|
Municipal bonds |
|
|
13,951 |
|
|
|
13,907 |
|
|
|
10,259 |
|
|
|
10,451 |
|
|
|
10,420 |
|
|
|
10,624 |
|
|
|
10,574 |
|
|
|
10,773 |
|
Corporate and other debt
securities |
|
|
23,552 |
|
|
|
41,289 |
|
|
|
21,411 |
|
|
|
37,809 |
|
|
|
20,727 |
|
|
|
20,129 |
|
|
|
178,669 |
|
|
|
135,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,703 |
|
|
|
70,642 |
|
|
|
46,896 |
|
|
|
64,216 |
|
|
|
49,385 |
|
|
|
49,914 |
|
|
|
235,946 |
|
|
|
193,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage
Corporation |
|
|
210,544 |
|
|
|
218,230 |
|
|
|
358,998 |
|
|
|
369,404 |
|
|
|
429,969 |
|
|
|
440,088 |
|
|
|
551,708 |
|
|
|
544,834 |
|
Government National
Mortgage Association |
|
|
3,243 |
|
|
|
3,530 |
|
|
|
3,880 |
|
|
|
4,157 |
|
|
|
4,269 |
|
|
|
4,617 |
|
|
|
5,052 |
|
|
|
5,322 |
|
Federal National Mortgage
Association |
|
|
166,251 |
|
|
|
175,456 |
|
|
|
236,109 |
|
|
|
245,353 |
|
|
|
278,272 |
|
|
|
286,820 |
|
|
|
354,493 |
|
|
|
351,003 |
|
Federal housing authorities |
|
|
2,324 |
|
|
|
2,476 |
|
|
|
2,549 |
|
|
|
2,780 |
|
|
|
2,654 |
|
|
|
2,908 |
|
|
|
2,849 |
|
|
|
3,077 |
|
Non-agency securities |
|
|
43,471 |
|
|
|
43,889 |
|
|
|
69,009 |
|
|
|
67,495 |
|
|
|
81,494 |
|
|
|
76,955 |
|
|
|
105,006 |
|
|
|
100,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed
securities
held-to-maturity |
|
|
425,833 |
|
|
|
443,581 |
|
|
|
670,545 |
|
|
|
689,189 |
|
|
|
796,658 |
|
|
|
811,388 |
|
|
|
1,019,108 |
|
|
|
1,004,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
held-to-maturity |
|
$ |
478,536 |
|
|
$ |
514,233 |
|
|
$ |
717,441 |
|
|
$ |
753,405 |
|
|
$ |
846,043 |
|
|
$ |
861,302 |
|
|
$ |
1,255,054 |
|
|
$ |
1,198,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
1,079,551 |
|
|
$ |
1,116,956 |
|
|
$ |
1,187,635 |
|
|
$ |
1,224,648 |
|
|
$ |
1,204,892 |
|
|
$ |
1,216,318 |
|
|
$ |
1,463,913 |
|
|
$ |
1,401,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, we had no investment in the securities of any issuer that had an aggregate book value in excess of 10%
of our equity.
17
Portfolio Maturities and Yields. The composition and maturities of the securities portfolio
at December 31, 2010 are summarized in the following table. Maturities are based on the final
contractual payment dates, and do not reflect the impact of prepayments or early redemptions that
may occur. State and municipal securities yields have not been adjusted to a tax-equivalent basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than One Year |
|
|
More than Five Years |
|
|
|
|
|
|
|
|
|
One Year or Less |
|
|
through Five Years |
|
|
through Ten Years |
|
|
More than Ten Years |
|
|
Total Securities |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Amortized |
|
|
Average |
|
|
Amortized |
|
|
Average |
|
|
Amortized |
|
|
Average |
|
|
Amortized |
|
|
Average |
|
|
Amortized |
|
|
|
|
|
|
Average |
|
|
|
Cost |
|
|
Yield |
|
|
Cost |
|
|
Yield |
|
|
Cost |
|
|
Yield |
|
|
Cost |
|
|
Yield |
|
|
Cost |
|
|
Fair Value |
|
|
Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
2,025 |
|
|
|
|
% |
|
$ |
2,025 |
|
|
$ |
2,232 |
|
|
|
|
% |
GSE debt securities |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
% |
Mortgage-backed
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan
Mortgage Corporation |
|
|
|
|
|
|
|
% |
|
|
2,556 |
|
|
|
4.00 |
% |
|
|
62,831 |
|
|
|
3.68 |
% |
|
|
183,016 |
|
|
|
4.10 |
% |
|
|
248,403 |
|
|
|
248,335 |
|
|
|
3.99 |
% |
Government National
Mortgage Association |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
9,202 |
|
|
|
4.00 |
% |
|
|
9,202 |
|
|
|
9,445 |
|
|
|
4.00 |
% |
Federal National
Mortgage Association |
|
|
|
|
|
|
|
% |
|
|
8,914 |
|
|
|
4.05 |
% |
|
|
238,262 |
|
|
|
3.54 |
% |
|
|
59,569 |
|
|
|
4.05 |
% |
|
|
306,745 |
|
|
|
308,957 |
|
|
|
3.65 |
% |
Non-agency securities |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
21,006 |
|
|
|
4.55 |
% |
|
|
13,634 |
|
|
|
3.74 |
% |
|
|
34,640 |
|
|
|
33,764 |
|
|
|
4.23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed
securities |
|
$ |
|
|
|
|
|
% |
|
|
11,470 |
|
|
|
4.04 |
% |
|
|
322,099 |
|
|
|
3.64 |
% |
|
|
265,421 |
|
|
|
3.93 |
% |
|
|
598,990 |
|
|
|
600,501 |
|
|
|
3.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
available-for- sale |
|
$ |
|
|
|
|
|
% |
|
$ |
11,470 |
|
|
|
4.04 |
% |
|
$ |
322,099 |
|
|
|
3.64 |
% |
|
$ |
267,446 |
|
|
|
3.90 |
% |
|
$ |
601,015 |
|
|
$ |
602,733 |
|
|
|
3.82 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored
enterprises |
|
$ |
15,000 |
|
|
|
4.50 |
% |
|
$ |
|
|
|
|
|
% |
|
$ |
200 |
|
|
|
1.25 |
% |
|
$ |
|
|
|
|
|
% |
|
$ |
15,200 |
|
|
$ |
15,446 |
|
|
|
4.46 |
% |
Municipal bonds |
|
|
5,049 |
|
|
|
2.13 |
% |
|
|
3,752 |
|
|
|
6.88 |
% |
|
|
20 |
|
|
|
7.17 |
% |
|
|
5,130 |
|
|
|
9.08 |
% |
|
|
13,951 |
|
|
|
13,907 |
|
|
|
5.97 |
% |
Corporate and other
debt securities |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
23,552 |
|
|
|
1.83 |
|
|
|
23,552 |
|
|
|
41,289 |
|
|
|
1.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,049 |
|
|
|
3.90 |
% |
|
|
3,752 |
|
|
|
6.88 |
% |
|
|
220 |
|
|
|
1.79 |
% |
|
|
28,682 |
|
|
|
3.13 |
% |
|
|
52,703 |
|
|
|
70,642 |
|
|
|
3.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan
Mortgage Corporation |
|
|
|
|
|
|
|
% |
|
|
6,252 |
|
|
|
4.00 |
% |
|
|
115,543 |
|
|
|
4.24 |
% |
|
|
88,749 |
|
|
|
4.08 |
% |
|
|
210,544 |
|
|
|
218,230 |
|
|
|
4.16 |
% |
Government National
Mortgage Association |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
3 |
|
|
|
9.50 |
% |
|
|
3,240 |
|
|
|
7.24 |
% |
|
|
3,243 |
|
|
|
3,530 |
|
|
|
7.24 |
% |
Federal National
Mortgage Association |
|
|
|
|
|
|
|
% |
|
|
80 |
|
|
|
7.50 |
% |
|
|
82,317 |
|
|
|
4.66 |
% |
|
|
83,854 |
|
|
|
4.64 |
% |
|
|
166,251 |
|
|
|
175,456 |
|
|
|
4.65 |
% |
Federal and state
housing authorities |
|
|
|
|
|
|
|
% |
|
|
1,478 |
|
|
|
8.88 |
% |
|
|
846 |
|
|
|
8.90 |
% |
|
|
|
|
|
|
|
% |
|
|
2,324 |
|
|
|
2,476 |
|
|
|
8.88 |
% |
Non-agency securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,362 |
|
|
|
4.88 |
% |
|
|
3,109 |
|
|
|
2.70 |
% |
|
|
43,471 |
|
|
|
43,889 |
|
|
|
4.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed
securities |
|
|
|
|
|
|
|
% |
|
|
7,810 |
|
|
|
4.96 |
% |
|
|
239,071 |
|
|
|
4.51 |
% |
|
|
178,952 |
|
|
|
4.37 |
% |
|
|
425,833 |
|
|
|
443,581 |
|
|
|
4.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
held-to-maturity |
|
$ |
20,049 |
|
|
|
3.90 |
% |
|
$ |
11,562 |
|
|
|
5.59 |
% |
|
$ |
239,291 |
|
|
|
4.51 |
% |
|
$ |
207,634 |
|
|
|
4.20 |
% |
|
$ |
478,536 |
|
|
$ |
514,223 |
|
|
|
4.35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Funds
General. Deposits, primarily certificates of deposit, had traditionally been the primary
source of funds used for our lending and investment activities. Our strategy is to increase core
deposit growth to fund these activities. In addition, we use a significant amount of borrowings,
primarily advances from the Federal Home Loan Bank (FHLB); to supplement cash flow needs, to
lengthen the maturities of liabilities for interest rate risk management and to manage our cost of
funds. Additional sources of funds include principal and interest payments from loans and
securities, loan and security prepayments and maturities, brokered certificates of deposit, income
on other earning assets and retained earnings. While cash flows from loans and securities payments
can be relatively stable sources of funds, deposit inflows and outflows can vary widely and are
influenced by prevailing interest rates, market conditions and levels of competition.
Deposits. At December 31, 2010, we held $6.77 billion in total deposits, representing 77.9%
of our total liabilities. Historically we have emphasized a more wholesale strategy for generating
funds, in particular, by offering high cost certificates of deposit. At December 31, 2010, $3.44
billion, or 50.8%, of our total deposit balances were certificates of deposit which included $8.0 million
in brokered deposits. In recent years, we have focused on changing the mix of our deposits from one
focused on attracting certificates of deposit to one focused on core deposits. The impact of these
efforts has been a continuing shift in deposit mix to lower cost core
18
products. We remain committed to our plan of attracting more core deposits because core
deposits represent a more stable source of low cost funds and are less sensitive to changes in
market interest rates. At December 31, 2010, we held $3.33 billion in core deposits, representing
49.2% of total deposits. This is an increase of $787.2 million, or 30.9%, when compared to December
31, 2009, when our core deposits were $2.55 billion. We intend to continue to invest in branch
staff training and to aggressively market and advertise our core deposit products and will attempt
to generate our deposits from a diverse client group within our primary market area. We remain
focused on attracting deposits from municipalities and C&I businesses which operate in our
marketplace.
We have a suite of commercial deposit products, designed to appeal to small business owners
and non-profit organizations. The interest rates we pay, our maturity terms, service fees and
withdrawal penalties are all reviewed on a periodic basis. Deposit rates and terms are based
primarily on our current operating strategies, market rates, liquidity requirements, rates paid by
competitors and growth goals. We also rely on personalized customer service, long-standing
relationships with customers and an active marketing program to attract and retain deposits.
The flow of deposits is influenced significantly by general economic conditions, changes in
money market and other prevailing interest rates and competition. The variety of deposit accounts
we offer allows us to respond to changes in consumer demands and to be competitive in obtaining
deposit funds. Our ability to attract and maintain deposits and the rates we pay on deposits will
continue to be significantly affected by market conditions.
The following table sets forth the distribution of total deposit accounts, by account type, at
the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Percent of |
|
|
Weighted |
|
|
|
|
|
|
Percent of |
|
|
Weighted |
|
|
|
|
|
|
|
Total |
|
|
Average |
|
|
|
|
|
|
Total |
|
|
Average |
|
|
|
Balance |
|
|
Deposits |
|
|
Rate |
|
|
Balance |
|
|
Deposits |
|
|
Rate |
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Savings |
|
$ |
1,135,091 |
|
|
|
16.75 |
% |
|
|
0.93 |
% |
|
$ |
877,421 |
|
|
|
15.02 |
% |
|
|
1.64 |
% |
Checking accounts |
|
|
1,367,282 |
|
|
|
20.18 |
|
|
|
0.37 |
|
|
|
927,675 |
|
|
|
15.88 |
|
|
|
0.81 |
|
Money market deposits |
|
|
832,514 |
|
|
|
12.29 |
|
|
|
0.81 |
|
|
|
742,618 |
|
|
|
12.72 |
|
|
|
1.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transaction accounts |
|
|
3,334,887 |
|
|
|
49.22 |
|
|
|
0.65 |
|
|
|
2,547,714 |
|
|
|
43.62 |
|
|
|
1.21 |
|
Certificates of deposit |
|
|
3,440,043 |
|
|
|
50.78 |
|
|
|
1.78 |
|
|
|
3,292,929 |
|
|
|
56.38 |
|
|
|
2.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
6,774,930 |
|
|
|
100.00 |
% |
|
|
1.22 |
% |
|
$ |
5,840,643 |
|
|
|
100.00 |
% |
|
|
1.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Percent of |
|
|
Weighted |
|
|
|
|
|
|
Percent of |
|
|
Weighted |
|
|
|
|
|
|
|
Total |
|
|
Average |
|
|
|
|
|
|
Total |
|
|
Average |
|
|
|
Balance |
|
|
Deposits |
|
|
Rate |
|
|
Balance |
|
|
Deposits |
|
|
Rate |
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Savings |
|
$ |
779,678 |
|
|
|
14.16 |
% |
|
|
1.99 |
% |
|
$ |
417,196 |
|
|
|
10.51 |
% |
|
|
1.96 |
% |
Checking |
|
|
898,816 |
|
|
|
16.33 |
|
|
|
0.84 |
|
|
|
401,100 |
|
|
|
10.10 |
|
|
|
1.28 |
|
Money market deposits |
|
|
521,425 |
|
|
|
9.47 |
|
|
|
1.76 |
|
|
|
229,018 |
|
|
|
5.77 |
|
|
|
2.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transaction accounts |
|
|
2,199,919 |
|
|
|
39.96 |
|
|
|
1.46 |
|
|
|
1,047,314 |
|
|
|
26.38 |
|
|
|
1.72 |
|
Certificates of deposit |
|
|
3,305,828 |
|
|
|
60.04 |
|
|
|
2.80 |
|
|
|
2,922,961 |
|
|
|
73.62 |
|
|
|
3.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
5,505,747 |
|
|
|
100.00 |
% |
|
|
2.27 |
% |
|
$ |
3,970,275 |
|
|
|
100.00 |
% |
|
|
3.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth, by rate category, the amount of certificates of deposit
outstanding as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
At June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Certificates of Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1% or less |
|
$ |
853,183 |
|
|
|
276,876 |
|
|
|
2,102 |
|
|
|
279 |
|
1.01% 2.00% |
|
|
1,447,556 |
|
|
|
1,595,292 |
|
|
|
596,657 |
|
|
|
45,005 |
|
2.01% 3.00% |
|
|
761,101 |
|
|
|
850,129 |
|
|
|
1,501,821 |
|
|
|
566,007 |
|
3.01% 4.00% |
|
|
95,106 |
|
|
|
267,519 |
|
|
|
866,050 |
|
|
|
1,188,461 |
|
4.01% 5.00% |
|
|
244,912 |
|
|
|
268,460 |
|
|
|
311,509 |
|
|
|
769,010 |
|
Over 5.00% |
|
|
38,185 |
|
|
|
34,653 |
|
|
|
27,689 |
|
|
|
354,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,440,043 |
|
|
|
3,292,929 |
|
|
|
3,305,828 |
|
|
|
2,922,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
The following table sets forth, by rate category, the remaining period to maturity of
certificates of deposit outstanding at December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within |
|
|
Over |
|
|
Over |
|
|
Over |
|
|
Over |
|
|
Over |
|
|
|
|
|
|
Three |
|
|
Three to |
|
|
Six Months to |
|
|
One Year to |
|
|
Two Years to |
|
|
Three |
|
|
|
|
|
|
Months |
|
|
Six Months |
|
|
One Year |
|
|
Two Years |
|
|
Three Years |
|
|
Years |
|
|
Total |
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Certificates of Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1% or less |
|
$ |
389,145 |
|
|
|
186,798 |
|
|
|
221,779 |
|
|
|
55,461 |
|
|
|
|
|
|
|
|
|
|
|
853,183 |
|
1.01% 2.00% |
|
|
297,520 |
|
|
|
271,096 |
|
|
|
415,962 |
|
|
|
436,808 |
|
|
|
23,860 |
|
|
|
2,310 |
|
|
|
1,447,556 |
|
2.01% 3.00% |
|
|
40,518 |
|
|
|
74,789 |
|
|
|
196,888 |
|
|
|
322,002 |
|
|
|
39,115 |
|
|
|
87,789 |
|
|
|
761,101 |
|
3.01% 4.00% |
|
|
10,860 |
|
|
|
2,310 |
|
|
|
10,955 |
|
|
|
23,700 |
|
|
|
7,050 |
|
|
|
40,231 |
|
|
|
95,106 |
|
4.01% 5.00% |
|
|
1,657 |
|
|
|
1,704 |
|
|
|
68,618 |
|
|
|
137,984 |
|
|
|
15,956 |
|
|
|
18,993 |
|
|
|
244,912 |
|
Over 5.00% |
|
|
2,170 |
|
|
|
3,455 |
|
|
|
9,087 |
|
|
|
13,837 |
|
|
|
903 |
|
|
|
8,733 |
|
|
|
38,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
741,870 |
|
|
|
540,152 |
|
|
|
923,289 |
|
|
|
989,792 |
|
|
|
86,884 |
|
|
|
158,056 |
|
|
|
3,440,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the aggregate amount of outstanding certificates of deposit in
amounts greater than or equal to $100,000 and the respective maturity of those certificates as of
December 31, 2010.
|
|
|
|
|
|
|
At |
|
|
|
December 31, 2010 |
|
|
|
(In thousands) |
|
Three months or less |
|
$ |
269,821 |
|
Over three months through six months |
|
|
174,873 |
|
Over six months through one year |
|
|
312,766 |
|
Over one year |
|
|
492,684 |
|
|
|
|
|
Total |
|
$ |
1,250,145 |
|
|
|
|
|
Borrowings. We borrow directly from the FHLB and various financial institutions. Our FHLB
borrowings, frequently referred to as advances, are collateralized by a blanket lien against our
residential mortgage portfolio. The following table sets forth information concerning balances and
interest rates on our advances from the FHLB and other financial institutions at the dates and for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Six |
|
|
|
|
|
|
At or for the Year Ended |
|
|
Months Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
At or for the Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
1,326,514 |
|
|
$ |
850,542 |
|
|
$ |
850,542 |
|
|
$ |
870,555 |
|
|
$ |
563,583 |
|
|
$ |
333,710 |
|
Average balance during period |
|
|
1,168,808 |
|
|
|
861,388 |
|
|
|
819,585 |
|
|
|
989,855 |
|
|
|
208,866 |
|
|
|
196,417 |
|
Maximum outstanding at any month end |
|
|
1,326,514 |
|
|
|
903,060 |
|
|
|
870,553 |
|
|
|
1,348,574 |
|
|
|
563,583 |
|
|
|
333,710 |
|
Weighted average interest rate at end of period |
|
|
3.09 |
% |
|
|
3.79 |
% |
|
|
3.79 |
% |
|
|
3.66 |
% |
|
|
3.50 |
% |
|
|
5.42 |
% |
Average interest rate during period |
|
|
3.53 |
% |
|
|
3.69 |
% |
|
|
3.82 |
% |
|
|
3.34 |
% |
|
|
4.41 |
% |
|
|
5.46 |
% |
We also borrow funds under repurchase agreements with the FHLB and various brokers. These
agreements are recorded as financing transactions as we maintain effective control over the
transferred or pledged securities. The dollar amount of the securities underlying the agreements
continues to be carried in our securities portfolio while the obligations to repurchase the
securities are reported as liabilities. The securities underlying the agreements are delivered to
the party with whom each transaction is executed. Those parties agree to resell to us the identical
securities we delivered to them at the maturity or call period of the agreement. The following
table sets forth information concerning balances and interest rate on our securities sold under
agreements to repurchase at the dates and for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Six |
|
|
|
|
|
|
At or for the Year Ended |
|
|
Months Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
At or for the Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Balance at end of period |
|
$ |
500,000 |
|
|
$ |
750,000 |
|
|
$ |
750,000 |
|
|
$ |
910,000 |
|
|
$ |
860,000 |
|
Average balance during period |
|
|
611,397 |
|
|
|
857,017 |
|
|
|
823,620 |
|
|
|
894,348 |
|
|
|
902,326 |
|
Maximum outstanding at any month end |
|
|
675,000 |
|
|
|
910,000 |
|
|
|
860,000 |
|
|
|
1,085,000 |
|
|
|
960,000 |
|
Weighted average interest rate at end of period |
|
|
4.45 |
% |
|
|
4.36 |
% |
|
|
4.36 |
% |
|
|
4.31 |
% |
|
|
4.32 |
% |
Average interest rate during period |
|
|
4.46 |
% |
|
|
4.36 |
% |
|
|
4.43 |
% |
|
|
4.43 |
% |
|
|
4.38 |
% |
20
Subsidiary Activities
Investors Bancorp, Inc. has two direct subsidiaries: ASB Investment Corp and Investors Savings
Bank.
ASB Investment Corp. ASB Investment Corp. is a New Jersey corporation, which was organized in
June 2003 for the purpose of selling insurance and investment products, including annuities, to
customers and the general public through a third party networking arrangement. This subsidiary was
obtained in the acquisition of American Bancorp in May 2009. There has been very little activity at
this subsidiary and sales are currently limited to the sale of fixed rate annuities.
Investors Savings Bank has the following subsidiaries.
ISB Mortgage Company LLC. ISB Mortgage Company LLC is a New Jersey limited liability company
that was formed in 2001 for the purpose of originating loans for sale to both Investors Savings
Bank and third parties. In recent years, as Investors Savings Bank has increased its emphasis on
the origination of loans, ISB Mortgage Company LLC has served as Investors Savings Banks retail
lending production arm throughout the branch network. ISB Mortgage Company LLC sells all loans that
it originates either to Investors Savings Bank or third parties.
American Savings Investment Corp. American Savings Investment Corp. is a New Jersey
corporation that was formed in 2004 as an investment company subsidiary. The purpose of this
subsidiary is to invest in stocks, bonds, notes and all types of equity, mortgages, debentures and
other investment securities. This subsidiary was obtained in the acquisition of American Bancorp in
May 2009.
Investors Commercial, Inc. Investors Commercial, Inc. is a New Jersey corporation that was
formed in 2010 as an operating subsidiary of Investors Saving Bank. The purpose of this subsidiary is to
originate and purchase residential mortgage loans, commercial real estate and multi family mortgage
loans.
Investors Savings Bank has four additional subsidiaries which are inactive.
Personnel
As of December 31, 2010, we had 844 full-time employees and 48 part-time employees. The
employees are not represented by a collective bargaining unit and we consider our relationship with
our employees to be good.
SUPERVISION AND REGULATION
General
Investors Savings Bank is a New Jersey-chartered savings bank, and its deposit accounts are
insured up to applicable limits by the Federal Deposit Insurance Corporation (FDIC) under the
Deposit Insurance Fund (DIF). Investors Savings Bank is subject to extensive regulation,
examination and supervision by the Commissioner of the New Jersey Department of Banking and
Insurance (the Commissioner) as the issuer of its charter, and, as a non-member state chartered
savings bank, by the FDIC as the deposit insurer and its primary federal regulator. Investors
Savings Bank must file reports with the Commissioner and the FDIC concerning its activities and
financial condition, and it must obtain regulatory approval prior to entering into certain
transactions, such as mergers with, or acquisitions of, other depository institutions and opening
or acquiring branch offices. The Commissioner and the FDIC each conduct periodic examinations to
assess Investors Savings Banks compliance with various regulatory requirements. This regulation
and supervision establishes a comprehensive framework of activities in which a savings bank may
engage and is intended primarily for the protection of the DIF and its depositors.
The regulatory structure also gives the regulatory authorities extensive discretion in connection
with their supervisory and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan loss reserves for
regulatory purposes.
Investors Bancorp, Inc. and Investors Bancorp MHC, as bank holding companies controlling Investors Savings Bank, are
subject to the Bank Holding Company Act of 1956, as amended (BHCA), and the rules and regulations
of the Federal Reserve Board under the BHCA and to the provisions of the New Jersey Banking Act of
1948 (the New Jersey Banking Act) and the regulations of the Commissioner under the New Jersey
Banking Act applicable to bank holding companies. Investors Savings Bank and Investors Bancorp,
Inc. are required to file reports with, and otherwise comply with the rules and regulations of, the
Federal Reserve Board, the Commissioner and the FDIC. The Federal Reserve Board and the
Commissioner conduct periodic examinations to assess the Companys compliance with various
regulatory requirements. Investors Bancorp, Inc. files certain reports with, and otherwise complies
with, the rules and regulations of the Securities and Exchange Commission under the federal
securities laws and the listing requirements of NASDAQ.
21
Any change in such laws and regulations, whether by the Commissioner, the FDIC, the Federal
Reserve Board or through legislation, could have a material adverse impact on Investors Savings
Bank and Investors Bancorp, Inc. and their operations and stockholders.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act)
made extensive changes in the regulation of depository institutions and their holding companies.
Certain provisions of the Dodd-Frank Act are expected to have a near term impact on Investors
Savings Bank and Investors Bancorp, Inc. For example, the Dodd-Frank Act creates a new Consumer
Financial Protection Bureau as an independent bureau of the Federal Reserve Board. The Consumer
Financial Protection Bureau will assume responsibility for the implementation of the federal
financial consumer protection and fair lending laws and regulations, a function currently assigned
to prudential regulators, and will have authority to impose new requirements. However,
institutions of less than $10 billion in assets, such as Investors Savings Bank, will continue to
be examined for compliance with consumer protection and fair lending laws and regulations by, and
be subject to the enforcement authority of, their prudential regulator, although the Consumer
Financial Protection Bureau will have back-up authority to examine and enforce consumer protection
laws against all institutions, including institutions with less than $10 billion in assets.
In addition to creating the Consumer Financial Protection Bureau, the Dodd-Frank Act, among
other things, directs changes in the way that institutions are assessed for deposit insurance,
mandates the imposition of tougher consolidated capital requirements on holding companies, requires
originators of securitized loans to retain a percentage of the risk for the transferred loans,
imposes regulatory rate-setting for certain debit card interchange fees, repeals restrictions on
the payment of interest on commercial demand deposits and contains a number of reforms related to
mortgage originations. Many of the provisions of the Dodd-Frank Act are subject to delayed
effective dates and/or require the issuance of implementing regulations. Their impact on
operations can not yet be fully assessed. However, there is significant possibility that the
Dodd-Frank Act will, at a minimum, result in increased regulatory burden, compliance costs and
interest expense for Investors Savings Bank and Investors Bancorp, Inc.
Some of the laws and regulations applicable to Investors Savings Bank and Investors Bancorp,
Inc. including some of the changes made by the Dodd-Frank Act, are summarized below or elsewhere in this Form 10-K. These summaries do not purport to be
complete and are qualified in their entirety by reference to such the actual laws and regulations.
New Jersey Banking Regulation
Activity Powers. Investors Savings Bank derives its lending, investment and other powers
primarily from the applicable provisions of the New Jersey Banking Act and its related regulations.
Under these laws and regulations, savings banks, including Investors Savings Bank, generally may
invest in:
|
|
|
real estate mortgages; |
|
|
|
|
consumer and commercial loans; |
|
|
|
|
specific types of debt securities, including certain corporate debt securities and
obligations of federal, state and local governments and agencies; |
|
|
|
|
certain types of corporate equity securities; and |
|
|
|
|
certain other assets. |
A savings bank may also invest pursuant to a leeway power that permits investments not
otherwise permitted by the New Jersey Banking Act, subject to certain restrictions imposed by the
FDIC. Leeway investments must comply with a number of limitations on the individual and aggregate
amounts of leeway investments. A savings bank may also exercise trust powers upon approval of the
Commissioner. New Jersey savings banks may exercise those powers, rights, benefits or privileges
authorized for national banks or out-of-state banks or for federal or out-of-state savings banks or
savings associations, provided that before exercising any such power, right, benefit or privilege,
prior approval by the Commissioner by regulation or by specific authorization is required. The
exercise of these lending, investment and activity powers are limited by federal law and the
related regulations. See Federal Banking Regulation Activity Restrictions on State-Chartered
Banks below.
Loans-to-One-Borrower Limitations. With certain specified exceptions, a New Jersey-chartered
savings bank may not make loans or extend credit to a single borrower or to entities related to the
borrower in an aggregate amount that would exceed 15% of the banks capital funds. A savings bank
may lend an additional 10% of the banks capital funds if secured by collateral meeting the
requirements of the New Jersey Banking Act and § 5200 of the Revised Statutes (the National Bank
Act). Investors Savings Bank currently complies with applicable loans-to-one-borrower limitations.
Dividends. Under the New Jersey Banking Act, a stock savings bank may declare and pay a
dividend on its capital stock only to the extent that the payment of the dividend would not impair
the capital stock of the savings bank. In addition, a stock savings bank may not pay a dividend
unless the savings bank would, after the payment of the dividend, have a surplus of not less than
50% of its capital stock, or alternatively, the payment of the dividend would not reduce the
surplus. Federal law may also limit the amount of dividends that may be paid by Investors Savings
Bank. See Federal Banking Regulation Prompt Corrective Action below.
Minimum Capital Requirements. Regulations of the Commissioner impose on New Jersey-chartered
depository institutions, including Investors Savings Bank, minimum capital requirements similar to
those imposed by the FDIC on insured state banks. See Federal Banking Regulation Capital
Requirements below.
Examination and Enforcement. The New Jersey Department of Banking and Insurance may examine
Investors Savings Bank whenever it deems an examination advisable. The Department examines
Investors Savings Bank at least every two years. The Commissioner may order any savings bank to
discontinue any violation of law or unsafe or unsound business practice, and may direct any
director, officer, attorney or employee of a savings bank engaged in an objectionable activity,
after the Commissioner has ordered the activity to be terminated, to show cause at a hearing before
the Commissioner why such person should not be removed. The commission may also seek the appointment of receiver or
conservator for a New Jersey saving bank under certain conditions.
22
Federal Banking Regulation
Capital Requirements. FDIC regulations require banks to maintain minimum levels of capital.
The FDIC regulations define two tiers, or classes, of capital.
Tier 1 capital is comprised of the sum of:
|
|
|
common stockholders equity, excluding the unrealized appreciation or depreciation, net
of tax, from available for sale securities; |
|
|
|
|
non-cumulative perpetual preferred stock, including any related retained earnings; and |
|
|
|
|
minority interests in consolidated subsidiaries minus all intangible assets, other than
qualifying servicing rights and any net unrealized loss on marketable equity securities. |
The components of Tier 2 capital currently include:
|
|
|
cumulative perpetual preferred stock; |
|
|
|
|
certain perpetual preferred stock for which the dividend rate may be reset
periodically; |
|
|
|
|
hybrid capital instruments, including mandatory convertible securities; |
|
|
|
|
term subordinated debt; |
|
|
|
|
intermediate term preferred stock; |
|
|
|
|
allowance for loan losses; and |
|
|
|
|
up to 45% of pretax net unrealized holding gains on available for sale equity
securities with readily determinable fair market values. |
The allowance for loan losses includible in Tier 2 capital is limited to a maximum of 1.25% of
risk-weighted assets (as discussed below). Overall, the amount of Tier 2 capital that may be
included in total capital cannot exceed 100% of Tier 1 capital. The FDIC regulations establish a
minimum leverage capital requirement for banks in the strongest financial and managerial condition,
with a rating of 1 (the highest examination rating of the FDIC for banks) under the Uniform
Financial Institutions Rating System, of not less than a ratio of 3.0% of Tier 1 capital to total
assets. For all other banks, the minimum leverage capital requirement is 4.0%, unless a higher
leverage capital ratio is warranted by the particular circumstances or risk profile of the
depository institution.
The FDIC regulations also require that banks meet a risk-based capital standard. The
risk-based capital standard requires the maintenance of a ratio of total capital, which is defined
as the sum of Tier 1 capital and Tier 2 capital, to risk-weighted assets of at least 8% and a ratio
of Tier 1 capital to risk-weighted assets of at least 4%. In determining the amount of
risk-weighted assets, all assets, plus certain off balance sheet items, are multiplied by a
risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset
or item.
The federal banking agencies, including the FDIC, have also adopted regulations to require an
assessment of an institutions exposure to declines in the economic value of a banks capital due
to changes in interest rates when assessing the banks capital adequacy. Under such a risk
assessment, examiners evaluate a banks capital for interest rate risk on a case-by-case basis,
with consideration of both quantitative and qualitative factors. Institutions with significant
interest rate risk may be required to hold additional capital. According to the agencies,
applicable considerations include:
|
|
|
the quality of the banks interest rate risk management process; |
|
|
|
|
the overall financial condition of the bank; and |
|
|
|
|
the level of other risks at the bank for which capital is needed. |
23
The following table shows Investors Savings Banks Total capital, Tier 1 risk-based capital,
and Total risk-based capital ratios as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 20010 |
|
|
|
|
|
|
|
Percent |
|
|
|
Capital |
|
|
of Assets(1) |
|
|
|
(Dollars in thousands) |
|
Total capital |
|
$ |
881,413 |
|
|
|
13.8 |
% |
Tier 1 risk-based capital |
|
$ |
801,171 |
|
|
|
12.5 |
% |
Total risk-based capital |
|
$ |
801,171 |
|
|
|
8.6 |
% |
|
|
|
(1) |
|
For purposes of calculating Total capital, assets are based on
adjusted total average assets. In calculating Tier 1 risk-based
capital and Total risk-based capital, assets are based on total
risk-weighted assets. |
As of December 31, 2010, Investors Savings Bank was considered well capitalized under FDIC
guidelines.
Activity Restrictions on State-Chartered Banks. Federal law and FDIC regulations generally
limit the activities and investments of state-chartered FDIC insured banks and their subsidiaries
to those permissible for national banks and their subsidiaries, unless such activities and
investments are specifically exempted by law or consented to by the FDIC.
Before making a new investment or engaging in a new activity that is not permissible for a
national bank or otherwise permissible under federal law or FDIC regulations, an insured bank must
seek approval from the FDIC to make such investment or engage in such activity. The FDIC will not
approve the activity unless the bank meets its minimum capital requirements and the FDIC determines
that the activity does not present a significant risk to the FDIC insurance funds. Certain
activities of subsidiaries that are engaged in activities permitted for national banks only through
a financial subsidiary are subject to additional restrictions.
Federal law permits a state-chartered savings bank to engage, through financial subsidiaries,
in any activity in which a national bank may engage through a financial subsidiary and on
substantially the same terms and conditions. In general, the law permits a national bank that is
well-capitalized and well-managed to conduct, through a financial subsidiary, any activity
permitted for a financial holding company other than insurance underwriting, insurance investments
or development or merchant banking. The total assets of all such financial
subsidiaries may not exceed the lesser of 45% of the banks total assets or $50 billion. The bank
must have policies and procedures to assess the financial subsidiarys risk and protect the bank from
such risk and potential liability, must not consolidate the financial subsidiarys assets with the
banks and must exclude from its own assets and equity all equity investments, including retained
earnings, in the financial subsidiary. State-chartered savings banks may retain subsidiaries in
existence as of March 11, 2000 and may engage in activities that are not authorized under federal
law. Although Investors Savings Bank meets all conditions necessary to establish and engage in
permitted activities through financial subsidiaries, it has not chosen to engage in such activities.
The Dodd-Frank Act removed the federal prohibition on the payment of interest on commercial demand deposit accounts, effective July 21, 2011.
Federal Home Loan Bank System. Investors Savings Bank is a member of the Federal Home Loan
Bank system, which consists of twelve regional Federal Home Loan Banks, each subject to supervision
and regulation by the Federal Housing Finance Agency (FHFA). The Federal Home Loan Banks provide
a central credit facility primarily for member thrift institutions as well as other entities
involved in home mortgage lending. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the Federal Home Loan Banks. The Federal Home Loan Banks make loans to
members (i.e., advances) in accordance with policies and procedures, including collateral
requirements, established by the respective Boards of Directors of the Federal Home Loan Banks.
These policies and procedures are subject to the regulation and oversight of the FHFA. All
long-term advances are required to provide funds for residential home financing. The FHFA has also
established standards of community or investment service that members must meet to maintain access
to such long-term advances.
Investors Savings Bank,
as a member of the FHLB of New York is currently required to acquire and hold
shares of FHLB Class B stock. The Class B stock has a par value of $100 per share and is redeemable
upon five years notice, subject to certain conditions. The Class B stock has two subclasses, one
for membership stock purchase requirements and the other for activity-based stock purchase
requirements. The minimum stock investment requirement in the FHLB Class B stock is the sum of the
membership stock purchase requirement, determined on an annual basis at the end of each calendar
year, and the activity-based stock purchase requirement, determined on a daily basis. For Investors
Savings Bank, the membership stock purchase requirement is 0.2% of the Mortgage-Related Assets, as
defined by the FHLB, which consists principally of residential mortgage loans and mortgage-backed
securities, including CMOs, held by Investors Savings Bank. The activity-based stock purchase
requirement for Investors Savings Bank is equal to the sum of: (1) 4.5% of outstanding borrowing
from the FHLB; (2) 4.5% of the outstanding principal balance of Acquired Member Assets, as defined
by the FHLB, and delivery commitments for Acquired Member Assets; (3) a specified dollar amount
related to certain off-balance sheet items, for which Investors Savings Bank is zero; and (4) a
specified percentage ranging from 0 to 5% of the carrying value on the FHLB balance sheet of
derivative contracts between the FHLB and its members, which for Investors Savings Bank is also
zero. The FHLB can adjust the specified percentages and dollar amount from time to time within the
ranges established by the FHLB capital plan. At December 31, 2010, the amount of FHLB stock held by
us satisfies these requirements.
24
Safety and Soundness Standards. Pursuant to the requirements of FDICIA, as amended by the
Riegle Community Development and Regulatory Improvement Act of 1994, each federal banking agency,
including the FDIC, has adopted guidelines establishing general standards relating to matters such as internal
controls, information and internal audit systems, loan documentation, credit underwriting, interest
rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In
general, the guidelines require, among other things, appropriate systems and practices to identify
and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by an executive
officer, employee, director, or principal stockholder.
In addition, the FDIC adopted regulations to require a savings bank that is given notice by
the FDIC that it is not satisfying any of such safety and soundness standards to submit a
compliance plan to the FDIC. If, after being so notified, a savings bank fails to submit an
acceptable compliance plan or fails in any material respect to implement an accepted compliance
plan, the FDIC may issue an order directing corrective and other actions of the types to which a
significantly undercapitalized institution is subject under the prompt corrective action
provisions of FDICIA. If a savings bank fails to comply with such an order, the FDIC may seek to
enforce such an order in judicial proceedings and to impose civil monetary penalties.
Enforcement. The FDIC has extensive enforcement authority over insured savings banks,
including Investors Savings Bank. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease and desist orders and to remove directors
and officers. In general, these enforcement actions may be initiated in response to violations of
laws and regulations and to unsafe or unsound practices.
Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act also
established a system of prompt corrective action to resolve the problems of undercapitalized
institutions. The FDIC, as well as the other federal banking regulators, adopted regulations
governing the supervisory actions that may be taken against undercapitalized institutions. The
regulations establish five categories, consisting of well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically undercapitalized. The FDICs
regulations define the five capital categories as follows:
An institution will be treated as well capitalized if:
|
|
|
its ratio of total capital to risk-weighted assets is at least 10%; |
|
|
|
|
its ratio of Tier 1 capital to risk-weighted assets is at least 6%; and |
|
|
|
|
its ratio of Tier 1 capital to total assets is at least 5%, and it is not subject to
any order or directive by the FDIC to meet a specific capital level. |
An institution will be treated as adequately capitalized if:
|
|
|
its ratio of total capital to risk-weighted assets is at least 8%; or |
|
|
|
|
its ratio of Tier 1 capital to risk-weighted assets is at least 4%; and |
|
|
|
|
its ratio of Tier 1 capital to total assets is at least 4% (3% if the bank receives the
highest rating under the Uniform Financial Institutions Rating System) and it is not a
well-capitalized institution. |
An institution will be treated as undercapitalized if:
|
|
|
its total risk-based capital is less than 8%; or |
|
|
|
|
its Tier 1 risk-based-capital is less than 4%; and |
|
|
|
|
its leverage ratio is less than 4%. |
An institution will be treated as significantly undercapitalized if:
|
|
|
its total risk-based capital is less than 6%; |
25
|
|
|
its Tier 1 capital is less than 3%; or |
|
|
|
|
its leverage ratio is less than 3%. |
An institution that has a tangible capital to total assets ratio equal to or less than 2%
would be deemed to be critically undercapitalized.
The FDIC is required, with some exceptions, to appoint a receiver or conservator for an
insured state bank if that bank is critically undercapitalized. For this purpose, critically
undercapitalized means having a ratio of tangible capital to total assets of less than 2%. The
FDIC may also appoint a conservator or receiver for a state bank on the basis of the institutions
financial condition or upon the occurrence of certain events, including:
|
|
|
insolvency, or when a assets of the bank are less than its liabilities to depositors
and others; |
|
|
|
|
substantial dissipation of assets or earnings through violations of law or unsafe or
unsound practices; |
|
|
|
|
existence of an unsafe or unsound condition to transact business; |
|
|
|
|
likelihood that the bank will be unable to meet the demands of its depositors or to pay
its obligations in the normal course of business; and |
|
|
|
|
insufficient capital, or the incurring or likely incurring of losses that will deplete
substantially all of the institutions capital with no reasonable prospect of replenishment
of capital without federal assistance. |
Investors Savings Bank is in compliance with the Prompt Corrective Action rules.
Liquidity. Investors Savings Bank maintains sufficient liquidity to ensure its safe and sound
operation, in accordance with FDIC regulations.
Deposit Insurance. Investors Savings Bank is a member of the Deposit Insurance Fund, which is administered
by the FDIC. Deposit accounts in the Bank are insured by the FDIC, previously up to a maximum of
$100,000 for each separately insured depositor and up to a maximum of $250,000 for self-directed
retirement accounts. However, in view of the recent economic crisis, the FDIC temporarily increased
the deposit insurance available on all deposit accounts to $250,000 .The Dodd-Frank Act made that
level of coverage permanent. In addition, certain non-interest-bearing transaction accounts
maintained with depository institutions are fully insured regardless of the dollar amount until
December 31, 2012.
The FDIC imposes an assessment for deposit insurance against all insured depository
institutions. That assessment is based on the risk category of the institution and, prior to 2009,
ranged from five to 43 basis points of the institutions deposits. On December 22, 2008, the FDIC
issued a final rule that raised the deposit insurance assessment rates uniformly for all
institutions by seven basis points (to a range from 12 to 50 basis points) effective for the first
quarter of 2009. On February 27, 2009, the FDIC issued a final rule that altered the way it
calculated federal deposit insurance assessment rates beginning in the second quarter of 2009 and
thereafter.
Under the rule, the FDIC first establishes an institutions initial base assessment rate. That
initial base assessment rate ranges, depending on the risk category of the institution, from 12 to
45 basis points. The FDIC then adjusts the initial base assessment (higher or lower) to obtain the
total base assessment rate. The adjustments to the initial base assessment rate are based upon an
institutions levels of unsecured debt, secured liabilities and brokered deposits. The total base
assessment rate ranges, including adjustments, from 7 to 77.5 basis points of the institutions
assessable deposits.
On May 22, 2009, the FDIC issued a final rule that imposed a special five basis point
assessment on each FDIC-insured depository institutions assets, minus its Tier 1 capital on June
30, 2009, which was collected on September 30, 2009. That special assessment was deemed necessary
in view of the stress on the Deposit Insurance Fund. The special assessment was capped at 10 basis
points of an institutions domestic deposits.
In lieu of further special assessments, the FDIC adopted a rule pursuant to which all insured
depository institutions were required to prepay their estimated assessments for the fourth quarter
of 2009, and for all of 2010, 2011 and 2012. Each institutions base assessment rate for each
period was calculated using its third quarter assessment base, adjusted quarterly for an estimated
5% annual growth rate in the assessment base through the end of 2012. The pre-payment has been
recorded as a prepaid expense at December 31. 2009 and will be amortized to expense over three
years.
Most recently, the Dodd-Frank Act required the FDIC to revise its assessment procedures to
base it on average total assets less tangible capital, rather than deposits. The FDIC has issued a
final rule that will implement that directive effective April 1, 2011.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations
or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do
not currently know of any practice, condition or violation that may lead to termination of our
deposit insurance.
In addition to the FDIC assessments, the Financing Corporation (FICO) is authorized to
impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance
costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former
Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in
2017 through 2019. For the quarter ended December 31, 2010, the annualized FICO assessment was
equal to 1.04 basis points for each $100 in domestic deposits maintained at an institution.
26
Transactions with Affiliates of Investors Savings Bank.
Transactions between an insured bank,
such as Investors Savings Bank, and any of its affiliates are governed by Sections 23A and 23B of
the Federal Reserve Act and implementing regulations. An affiliate of a bank is any company or
entity that controls, is controlled by or is under common control with the bank. Generally, a
subsidiary of a bank that is not also a depository institution or financial subsidiary is not
treated as an affiliate of the bank for purposes of Sections 23A and 23B.
Section 23A:
|
|
|
limits the extent to which a bank or its subsidiaries may engage in covered
transactions with any one affiliate to an amount equal to 10% of such banks capital stock
and retained earnings, and limits all such transactions with all affiliates to an amount
equal to 20% of such capital stock and retained earnings; and |
|
|
|
|
requires that all such transactions be on terms that are consistent with safe and sound
banking practices. |
The term covered transaction includes the making of loans, purchase of assets, issuance of
guarantees and other similar types of transactions. Further, most loans by a bank to any of its
affiliates must be secured by collateral in amounts ranging from 100% to 130% of the loan amounts.
In addition, any covered transaction by a bank with an affiliate and any purchase of assets or
services by a bank from an affiliate must be on terms that are substantially the same, or at least
as favorable to the bank, as those that would be provided to a non-affiliate.
Prohibitions Against Tying Arrangements. Banks are subject to the prohibitions of 12 U.S.C.
Section 1972 on certain tying arrangements. A depository institution is prohibited, subject to some
exceptions, from extending credit to or offering any other service, or fixing or varying the
consideration for such extension of credit or service, on the condition that the customer obtain
some additional service from the institution or its affiliates or not obtain services of a
competitor of the institution.
Privacy Standards. FDIC regulations require Investors Savings Bank to disclose their privacy
policy, including identifying with whom they share non-public personal information, to customers
at the time of establishing the customer relationship and annually thereafter.
Investors Savings Bank is also required to provide its customers with the ability to opt-out
of having Investors Savings Bank share their non-public personal information with unaffiliated
third parties before they can disclose such information, subject to certain exceptions.
In addition, in accordance with the Fair Credit Reporting Act, Investors must provide its
customers with the ability to opt-out of having Investors share their non-public personal
information for marketing purposes with an affiliate or subsidiary before they can disclose such
information.
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The FDIC and other federal banking agencies adopted guidelines establishing standards for
safeguarding customer information. The guidelines describe the agencies expectations for the
creation, implementation and maintenance of an information security program, which would include
administrative, technical and physical safeguards appropriate to the size and complexity of the
institution and the nature and scope of its activities. The standards set forth in the guidelines
are intended to insure the security and confidentiality of customer records and information,
protect against any anticipated threats or hazards to the security or integrity of such records and
protect against unauthorized access to or use of such records or information that could result in
substantial harm or inconvenience to any customer.
Community Reinvestment Act and Fair Lending Laws. All FDIC insured institutions have a
responsibility under the Community Reinvestment Act (CRA) and related regulations to help meet the
credit needs of their communities, including low- and moderate-income individuals and
neighborhoods. In connection with its examination of a state chartered savings bank, the FDIC is
required to assess the institutions record of compliance with the CRA. Among other things, the
current CRA regulations rates an institution based on its actual performance in meeting community
needs. In particular, the current evaluation system focuses on three tests:
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a lending test, to evaluate the institutions record of making loans in its service
areas; |
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an investment test, to evaluate the institutions record of investing in community
development projects, affordable housing, and programs benefiting low or moderate income
individuals and/or census tracts and businesses; and |
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a service test, to evaluate the institutions delivery of services through its
branches, ATMs and other offices. |
An institutions failure to comply with the provisions of the CRA could, at a minimum, result
in regulatory restrictions on its activities. Investors Savings Bank received an outstanding CRA
rating in our most recently completed federal examination, which was conducted by the FDIC in June
2008.
In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from
discriminating in their lending practices on the basis of characteristics specified in those
statutes. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act
could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and
the Department of Justice.
Loans to a Banks Insiders
Federal Regulation. A banks loans to its insiders executive officers, directors,
principal shareholders (any owner of 10% or more of its stock) and any of certain entities
affiliated with any such persons (an insiders related interest) are subject to the conditions and
limitations imposed by Section 22(h) of the Federal Reserve Act and its implementing regulations.
Under these restrictions, the aggregate amount of the loans to any insider and the insiders
related interests may not exceed the loans-to-one-borrower limit applicable to national banks,
which is comparable to the loans-to-one-borrower limit applicable to Investors Savings Bank. See
New Jersey Banking Regulation Loans-to-One Borrower Limitations. All loans by a bank to all
insiders and insiders related interests in the aggregate may not exceed the banks unimpaired
capital and unimpaired surplus. With certain exceptions, loans to an executive officer, other than
loans for the education of the officers children and certain loans secured by the officers
residence, may not exceed the lesser of (1) $100,000 or (2) the greater of $25,000 or 2.5% of the
banks unimpaired capital and surplus. Federal regulation also requires that any proposed loan to
an insider or a related interest of that insider be approved in advance by a majority of the board
of directors of the bank, with any interested directors not participating in the voting, if such
loan, when aggregated with any existing loans to that insider and the insiders related interests,
would exceed either (1) $500,000 or (2) the greater of $25,000 or 5% of the banks unimpaired
capital and surplus.
Generally, loans to insiders must be made on substantially the same terms as, and follow
credit underwriting procedures that are not less stringent than, those that are prevailing at the
time for comparable transactions with other persons. An exception is made for extensions of credit
made pursuant to a benefit or compensation plan of a bank that is widely available to employees of
the bank and that does not give any preference to insiders of the bank over other employees of the
bank.
In addition, federal law prohibits extensions of credit to a banks insiders and their related
interests by any other institution that has a correspondent banking relationship with the bank,
unless such extension of credit is on substantially the same terms as those
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prevailing at the time for comparable transactions with other persons and does not involve
more than the normal risk of repayment or present other unfavorable features.
New Jersey Regulation. Provisions of the New Jersey Banking Act impose conditions and
limitations on the liabilities to a savings bank of its directors and executive officers and of
corporations and partnerships controlled by such persons that are comparable in many respects to
the conditions and limitations imposed on the loans and extensions of credit to insiders and their
related interests under federal law, as discussed above. The New Jersey Banking Act also provides
that a savings bank that is in compliance with federal law is deemed to be in compliance with such
provisions of the New Jersey Banking Act.
Federal Reserve System
The Federal Reserve Board regulations require all depository institutions to maintain reserves
at specified levels against their transaction accounts (primarily NOW and regular checking
accounts). At December 31, 2010, Investors Savings Bank was in compliance with the Federal Reserve
Boards reserve requirements. Savings banks, such as Investors Savings Bank, are authorized to
borrow from the Federal Reserve Bank discount window. Investors Savings Bank is deemed by the
Federal Reserve Board to be generally sound and thus is eligible to obtain primary credit from its
Federal Reserve Bank. Generally, primary credit is extended on a very short-term basis to meet the
liquidity needs of an institution. Loans must be secured by acceptable collateral and carry a rate
of interest of 100 basis points above the Federal Open Market Committees federal funds target
rate.
Interagency Guidance on Nontraditional Mortgage Product Risks. On October 4, 2006, the FDIC
and other federal bank regulatory authorities published the Interagency Guidance on Nontraditional
Mortgage Product Risks, or the Guidance. The Guidance describes sound practices for managing risk,
as well as marketing, originating and servicing nontraditional mortgage products, which include,
among other things, interest only loans. The Guidance sets forth supervisory expectations with
respect to loan terms and underwriting standards, portfolio and risk management practices and
consumer protection. For example, the Guidance indicates that originating interest only loans with
reduced documentation is considered a layering of risk and that institutions are expected to
demonstrate mitigating factors to support their underwriting decision and the borrowers repayment
capacity. Specifically, the Guidance indicates that a lender may accept a borrowers statement as
to the borrowers income without obtaining verification only if there are mitigating factors that
clearly minimize the need for direct verification of repayment capacity and that, for many
borrowers, institutions should be able to readily document income.
On June 29, 2007, the FDIC and other federal bank regulatory agencies issued a final Statement
on Subprime Mortgage Lending (the Statement) to address the growing concerns facing the sub-prime
mortgage market, particularly with respect to rapidly rising sub-prime default rates that may
indicate borrowers do not have the ability to repay adjustable-rate sub-prime loans originated by
financial institutions. In particular, the agencies express concern in the Statement that current
underwriting practices do not take into account that many subprime borrowers are not prepared for
payment shock and that the current subprime lending practices compound risk for financial
institutions. The Statement describes the prudent safety and soundness and consumer protection
standards that financial institutions should follow to ensure borrowers obtain loans that they can
afford to repay. These standards include a fully indexed, fully amortized qualification for
borrowers and cautions on risk-layering features, including an expectation that stated income and
reduced documentation should be accepted only if there are documented mitigating factors that
clearly minimize the need for verification of a borrowers repayment capacity. Consumer protection
standards include clear and balanced product disclosures to customers and limits on prepayment
penalties that allow for a reasonable period of time, typically at least 60 days, for borrowers to
refinance prior to the expiration of the initial fixed interest rate period without penalty. The
Statement also reinforces the April 17, 2007 Interagency Statement on Working with Mortgage
Borrowers, in which the federal bank regulatory agencies encouraged institutions to work
constructively with residential borrowers who are financially unable or reasonably expected to be
unable to meet their contractual payment obligations on their home loans.
We originate and purchase interest only loans. We do not originate or purchase sub-prime
loans, negative amortization loans or option ARM loans. At December 31, 2010, our residential
mortgage loan portfolio included approximately $529.1 million of interest only loans.
Anti-Money Laundering and Customer Identification
Investors Savings Bank is subject to FDIC regulations implementing the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Act of 2001, or the USA PATRIOT Act. The USA PATRIOT Act gives the federal government powers to
address terrorist threats through enhanced domestic security measures, expanded surveillance
powers, increased information sharing, and broadened anti-money laundering requirements. By way of
amendments to the Bank
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Secrecy Act, Title III of the USA PATRIOT Act takes measures intended to encourage information
sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of
Title III impose affirmative obligations on a broad range of financial institutions, including
banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under
the Commodity Exchange Act.
Title III of the USA PATRIOT Act and the related FDIC regulations impose the following
requirements with respect to financial institutions:
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Establishment of anti-money laundering programs. |
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Establishment of a program specifying procedures for obtaining identifying information
from customers seeking to open new accounts, including verifying the identity of customers
within a reasonable period of time. |
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Establishment of enhanced due diligence policies, procedures and controls designed to
detect and report money-laundering. |
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Prohibitions on correspondent accounts for foreign shell banks and compliance with
record keeping obligations with respect to correspondent accounts of foreign banks. |
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Bank regulators are directed to consider a holding companys effectiveness in combating
money laundering when ruling on Federal Reserve Act and Bank Merger Act applications. |
The bank regulatory agencies have increased the regulatory scrutiny of the Bank Secrecy Act
and anti-money laundering programs maintained by financial institutions. Significant penalties and
fines, as well as other supervisory orders may be imposed on a financial institution for
non-compliance with these requirements. In addition, the federal bank regulatory agencies must
consider the effectiveness of financial institutions engaging in a merger transaction in combating
money laundering activities. The Bank has adopted policies and procedures to comply with these
requirements.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 was enacted to address, among other issues, corporate
governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of
corporate information. Under Section 302(a) of the Sarbanes-Oxley Act, our Chief Executive Officer
and Chief Financial Officer are required to certify that our quarterly and annual reports filed
with the Securities and Exchange Commission do not contain any untrue statement of a material fact.
Rules promulgated under the Sarbanes-Oxley Act require that these officers certify that: they are
responsible for establishing, maintaining and regularly evaluating the effectiveness of our
internal controls; they have made certain disclosures to our auditors and the audit committee of
the Board of Directors about our internal controls; and they have included information in our
quarterly and annual reports about their evaluation and whether there have been significant changes
in our internal controls or in other factors that could significantly affect internal controls.
Investors Bancorp, Inc. was required to report under Section 404 of the Sarbanes-Oxley Act
beginning with the fiscal year ending June 30, 2008. Investors Bancorp, Inc. has existing policies,
procedures and systems designed to comply with these regulations, and is further enhancing and
documenting such policies, procedures and systems to ensure continued compliance with these
regulations.
Holding Company Regulation
Federal Regulation.
Bank holding companies, like Investors Bancorp, Inc. and Investors Bancorp, MHC, are subject to
examination, regulation and periodic reporting under the Bank Holding Company Act, as administered
by the Federal Reserve Board. The Federal Reserve Board has adopted capital adequacy guidelines for
bank holding companies on a consolidated basis substantially similar to those of the FDIC for
Investors Savings Bank. As of December 31, 2010, Investors Bancorp, Inc.s total capital and Tier 1
capital ratios exceeded these minimum capital requirements. See Regulatory Capital Compliance.
The Dodd-Frank Act requires the Federal Reserve Board to promulgate consolidated capital
requirements for depository institution holding companies that are no less stringent, both
quantitatively and in terms of components of capital, than those applicable to institutions
themselves. That will eliminate the inclusion of certain instruments from tier 1 capital, such as
trust preferred securities, that are currently includable for bank holding companies. Any
instruments issued by mutual holding companies by May 19, 2012, are grandfathered.
Regulations of the Federal Reserve Board provide that a bank holding company must serve as a
source of strength to any of its subsidiary banks and must not conduct its activities in an unsafe
or unsound manner. The Dodd-Frank Act codified the source of strength policy and requires the issuance of implementing regulations. Under the prompt corrective action provisions of the Federal Deposit Insurance
Act, a bank holding company parent of an undercapitalized subsidiary bank would be directed to
guarantee, within limitations, the capital restoration plan that is required of an undercapitalized
bank. See Federal Banking Regulation Prompt Corrective Action. If an undercapitalized bank
fails to file an acceptable capital restoration plan or fails to
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implement an accepted plan, the Federal Reserve Board may prohibit the bank holding company
parent of the undercapitalized bank from paying any dividend or making any other form of capital
distribution without the prior approval of the Federal Reserve Board.
As a bank holding company, Investors Bancorp, Inc. is required to obtain the prior approval of
the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank
holding company. In addition, Federal Reserve Board policy is that a bank holding company should pay cash dividends only
to the extent that the companys net income for the past year is consistent with the companys capital needs, asset quality and overall financial condition.
Prior Federal Reserve Board approval will be required for Investors Bancorp, Inc.
to acquire direct or indirect ownership or control of any voting securities of any bank or bank
holding company if, after giving effect to such acquisition, it would, directly or indirectly, own
or control more than 5% of any class of voting shares of such bank or bank holding company.
A bank holding company is required to give the Federal Reserve Board prior written notice of
any purchase or redemption of its outstanding equity securities if the gross consideration for the
purchase or redemption, when combined with the net consideration paid for all such purchases or
redemptions during the preceding 12 months, will be equal to 10% or more of the companys
consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if
it determines that the proposal would constitute an unsafe and unsound practice, or would violate
any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or
written agreement with, the Federal Reserve Board. Such notice and approval is not required for a
bank holding company that would be treated as well capitalized under applicable regulations of
the Federal Reserve Board, that has received a composite 1 or 2 rating, as well as a
satisfactory rating for management, at its most recent bank holding company examination by the
Federal Reserve Board, and that is not the subject of any unresolved supervisory issues.
In addition, a bank holding company that does not elect to be a financial holding company
under federal regulations, is generally prohibited from engaging in, or acquiring direct or
indirect control of any company engaged in non-banking activities. One of the principal exceptions
to this prohibition is for activities found by the Federal Reserve Board to be so closely related
to banking or managing or controlling banks. Some of the principal activities that the Federal
Reserve Board has determined by regulation to be closely related to banking are:
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making or servicing loans; |
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performing certain data processing services; |
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providing discount brokerage services; or acting as fiduciary, investment or financial
advisor; |
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leasing personal or real property; |
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making investments in corporations or projects designed primarily to promote community
welfare; and |
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acquiring a savings and loan association. |
A bank holding company that elects to be a financial holding company may engage in activities
that are financial in nature or incident to activities which are financial in nature. Investors
Bancorp, Inc. has not elected to be a financial holding company, although it may seek to do so in
the future. A bank holding company may elect to become a financial holding company if:
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each of its depository institution subsidiaries is well capitalized; |
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each of its depository institution subsidiaries is well managed; |
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each of its depository institution subsidiaries has at least a satisfactory Community
Reinvestment Act rating at its most recent examination; and |
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the bank holding company has filed a certification with the Federal Reserve Board
stating that it elects to become a financial holding company. |
Under federal law, depository institutions are liable to the FDIC for losses suffered or
anticipated by the FDIC in connection with the default of a commonly controlled depository
institution, or for any assistance provided by the FDIC to such an institution in danger of
default. This law would potentially be applicable to Investors Bancorp, Inc. if it ever acquired as
a separate subsidiary a depository institution in addition to
Investors Savings Bank.
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It has been the policy of many mutual holding companies to waive the receipt of dividends
declared by their savings bank subsidiaries. In connection with its approval of the 1997
reorganization, however, the Federal Reserve Board imposed certain conditions on the waiver by
Investors Bancorp, MHC of dividends paid on the common stock of Investors Bancorp, Inc. In
particular, Investors Bancorp, MHC will be required to obtain prior Federal Reserve Board approval
before it may waive any dividends. Federal Reserve Board policy generally prohibits mutual holding
companies from waiving the receipt of dividends. Accordingly, management does not expect that
Investors Bancorp, MHC will be permitted to waive the receipt of dividends so long as Investors
Bancorp, MHC is regulated by the Federal Reserve Board as a bank holding company.
In connection with the 2005 stock offering, the Federal Reserve Board required Investors
Bancorp, Inc. to agree to comply with certain regulations issued by the Office of Thrift
Supervision that would apply if Investors Bancorp, Inc., Investors Bancorp, MHC and Investors
Savings Bank were Office of Thrift Supervision chartered entities, including regulations governing
post-stock offering stock benefit plans and stock repurchases.
Conversion of Investors Bancorp, MHC to Stock Form. Investors Bancorp, MHC is permitted to
convert from the mutual form of organization to the capital stock form of organization (a
Conversion Transaction). There can be no assurance when, if ever, a Conversion Transaction will
occur, and the Board of Directors has no current intention or plan to undertake a Conversion
Transaction. In a Conversion Transaction a new stock holding company would be formed as the
successor to Investors Bancorp, Inc. (the New Holding Company), Investors Bancorp, MHCs
corporate existence would end, and certain depositors of Investors Savings Bank would receive the
right to subscribe for additional shares of the New Holding Company. In a Conversion Transaction,
each share of common stock held by stockholders other than Investors Bancorp, MHC (Minority
Stockholders) would be automatically converted into a number of shares of common stock of the New
Holding Company determined pursuant to an exchange ratio that ensures that Minority Stockholders
own the same percentage of common stock in the New Holding Company as they owned in Investors
Bancorp, Inc. immediately before the Conversion Transaction, subject to any adjustment required by
regulation or regulatory policy. The FDICs approval of Investors Savings Banks initial mutual
holding company reorganization in 1997 requires that any dividends waived by Investors Bancorp, MHC
be taken into account in establishing the exchange ratio in any Conversion Transaction. The total
number of shares held by Minority Stockholders after a Conversion Transaction also would be
increased by any purchases by Minority Stockholders in the offering conducted as part of the
Conversion Transaction.
In connection with our June 2008 merger of Summit Federal Savings Bank, we issued 1,744,592
shares of our common stock to Investors Bancorp, MHC, which represents the pro forma market value
of Summit Federal Savings Bank, thereby increasing Investors Bancorp, MHCs ownership interest in
Investors Bancorp, Inc. As a result, in the event of a Conversion Transaction of Investors Bancorp,
MHC, there will be additional shares of New Holding Company available to depositors of Investors
Savings Bank, including former depositors of Summit Federal Savings Bank who remain depositors of
Investors Savings Bank at the time of the conversion.
Any Conversion Transaction would require the approval of a majority of the outstanding shares
of Investors Bancorp, Inc. common stock held by Minority Stockholders and approval of a majority of
the votes held by depositors of Investors Savings Bank.
New Jersey Regulation. Under the New Jersey Banking Act, a company owning or controlling a
savings bank is regulated as a bank holding company. The New Jersey Banking Act defines the terms
company and bank holding company as such terms are defined under the BHCA. Each bank holding
company controlling a New Jersey-chartered bank or savings bank must file certain reports with the
Commissioner and is subject to examination by the Commissioner.
Acquisition of Investors Bancorp, Inc. Under federal law and under the New Jersey Banking
Act, no person may acquire control of Investors Bancorp, Inc. or Investors Savings Bank without
first obtaining approval of such acquisition of control by the Federal Reserve Board and the
Commissioner. See Restrictions on the Acquisition of Investors Bancorp, Inc. and Investors Savings
Bank.
Federal Securities Laws. Investors Bancorp, Inc.s common stock is registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Investors
Bancorp, Inc. is subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Securities Exchange Act of 1934.
Investors Bancorp, Inc. common stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of Investors Bancorp, Inc. may not be resold without
registration or unless sold in accordance with certain resale restrictions. If Investors Bancorp,
Inc. meets specified current public information requirements, each affiliate of Investors Bancorp,
Inc. is able to sell in the public market, without registration, a limited number of shares in any
three-month period.
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TAXATION
Federal Taxation
General. Investors Bancorp, Inc. and Investors Savings Bank are subject to federal income
taxation in the same general manner as other corporations, with some exceptions discussed below.
Neither Investors Bancorp, Inc.s nor Investors Savings Banks federal tax returns are currently
under audit, and neither entity has been audited during the past five years. The following
discussion of federal taxation is intended only to summarize certain pertinent federal income tax
matters and is not a comprehensive description of the tax rules applicable to Investors Bancorp,
Inc. or Investors Savings Bank.
Method of Accounting. For federal income tax purposes, Investors Bancorp, Inc. currently
reports its income and expenses on the accrual method of accounting and uses a tax year ending
December 31 for filing its federal and state income tax returns.
Bad Debt Reserves. Historically, Investors Savings Bank was subject to special provisions in
the tax law regarding allowable tax bad debt deductions and related reserves. Tax law changes were
enacted in 1996 pursuant to the Small Business Protection Act of 1996 (the 1996 Act), which
eliminated the use of the percentage of taxable income method for tax years after 1995 and required
recapture into taxable income over a six year period all bad debt reserves accumulated after 1987.
Investors Savings Bank has fully recaptured its post-1987 reserve balance.
Currently, the Investors Savings Bank consolidated group uses the specific charge off method
to account for bad debt deductions for income tax purposes.
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior
to January 1, 1988 (pre-base year reserves) were subject to recapture into taxable income if
Investors Savings Bank failed to meet certain thrift asset and definitional tests.
As a result of the 1996 Act, bad debt reserves accumulated after 1987 are required to be
recaptured into income over a six-year period. However, all pre-base year reserves are subject to
recapture if Investors Savings Bank makes certain non-dividend distributions, repurchases any of
its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank
charter. At December 31, 2010, our total federal pre-base year reserve was approximately $40.7
million.
Alternative Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax (AMT)
at a rate of 20% on a base of regular taxable income plus certain tax preferences (alternative
minimum taxable income or AMTI). The AMT is payable to the extent such AMTI is in excess of an
exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no
more than 90% of AMTI. Certain payments of AMT may be used as credits against regular tax
liabilities in future years. Investors Bancorp, Inc. and Investors Savings Bank have not been
subject to the AMT and have no such amounts available as credits for carryover.
Net Operating Loss Carryforwards and Charitable Contribution Carryforward. A financial
institution may carry back net operating losses to the preceding five taxable years and forward to
the succeeding 20 taxable years. As of December 31, 2010, the Company had a $4.6 million carryback
claim and a federal net operating loss carryforward of approximately $360,000.
At December 31, 2010, the Company had utilized all of its charitable contribution
carryforwards.
Corporate Dividends-Received Deduction. Investors Bancorp, Inc. may exclude from its federal
taxable income 100% of dividends received from Investors Savings Bank as a wholly owned subsidiary.
The corporate dividends-received deduction is 80% when the dividend is received from a corporation
having at least 20% of its stock owned by the recipient corporation. A 70% dividends-received
deduction is available for dividends received from a corporation having less than 20% of its stock
owned by the recipient corporation.
State Taxation
New Jersey State Taxation. Investors Savings Bank files New Jersey Corporate Business income
tax returns. Generally, the income of savings institutions in New Jersey, which is calculated based
on federal taxable income, subject to certain adjustments, is subject to New Jersey tax. Investors
Savings Bank is not currently under audit with respect to its New Jersey income tax returns and
Investors Savings Banks state tax returns have not been audited for the past five years.
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For tax years beginning after June 30, 2006, New Jersey savings banks, including Investors
Savings Bank, are subject to a 9% corporate business tax (CBT). For tax years beginning before
June 30, 2006, New Jersey savings banks, including Investors Savings Bank, paid the greater of a 9%
CBT or an Alternative Minimum Assessment (AMA) tax. As of July 1, 2007, there is no longer a New
Jersey AMA tax. The AMA tax paid in prior years is creditable against the CBT in future years
limited to an amount such that the tax is not reduced by more than 50% of the tax otherwise due and
other statutory minimums.
Investors Bancorp, Inc is required to file a New Jersey income tax return and will generally
be subject to a state income tax at a 9% rate. However, if Investors Bancorp, Inc. meets certain
requirements, it may be eligible to elect to be taxed as a New Jersey Investment Company, which
would allow it to be taxed at a rate of 3.6%.
New Jersey tax law does not and has not allowed for a taxpayer to file a tax return on a
combined or consolidated basis with another member of the affiliated group where there is common
ownership. However, under recent tax legislation, if the taxpayer cannot demonstrate by clear and
convincing evidence that the tax filing discloses the true earnings of the taxpayer on its business
carried on in the State of New Jersey, the New Jersey Director of the Division of Taxation may, at
the directors discretion, require the taxpayer to file a consolidated return for the entire
operations of the affiliated group or controlled group, including its own operations and income.
At December 31, 2009, the Company had state net operating loss carryforwards of approximately
$44.2 million which was fully utilized as of December 31, 2010. Based upon projections of future
taxable income for the periods in which the temporary differences are expected to be deductible,
management believes it is more likely than not the Company will realize the deferred tax asset.
New York State Taxation. New York State imposes an annual franchise tax on banking
corporations, based on net income allocable to New York State at a rate of 7.1%. If, however, the
application of an alternative minimum tax (based on taxable assets allocated to New York,
alternative net income, or a flat minimum fee) results in a greater tax, an alternative minimum
tax will be imposed. In addition, New York State imposes a tax surcharge of 17% of the New York
State Franchise Tax, calculating using an annual franchise tax of 9.00% (which represents the 2000
annual franchise rate), allocable to business activities carried on in the Metropolitan Commuter
Transportation District. These taxes apply to Investors Savings Bank.
New York City Taxation. Investors Savings Bank is also subject to the New York City Financial
Corporation Tax calculated, subject to a New York City income and expense allocation, on a similar
basis as the New York State Franchise Tax. A significant portion of Investors Savings Banks entire
net income is derived from outside of the New York City jurisdiction which has the effect of
significantly reducing the New York City taxable income of Investors Savings Bank.
Delaware State Taxation. As a Delaware holding company not earning income in Delaware,
Investors Bancorp, Inc. is exempted from Delaware corporate income tax but is required to file
annual returns and pay annual fees and a franchise tax to the State of Delaware.
ITEM 1A. RISK FACTORS
The risks set forth below, in addition to the other risks described in this Annual Report on
Form 10-K, may adversely affect our business, financial condition and operating results. In
addition to the risks set forth below and the other risks described in this annual report, there
may also be additional risks and uncertainties that are not currently known to us or that we
currently deem to be immaterial that could materially and adversely affect our business, financial
condition or operating results. As a result, past financial performance may not be a reliable
indicator of future performance, and historical trends should not be used to anticipate results or
trends in future periods. Further, to the extent that any of the information contained in this
Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below
also are cautionary statements identifying important factors that could cause our actual results to
differ materially from those expressed in any forward-looking statements made by or on behalf of
us.
Financial reform legislation recently enacted will, among other things, create a new Consumer
Financial Protection Bureau, tighten capital standards and result in new laws and regulations that
are expected to increase our costs of operations.
On July 21, 2010 the President signed the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Dodd-Frank Act). This new law will significantly change the current bank
regulatory structure and affect the lending, deposit, investment, trading and operating activities
of financial institutions and their holding companies. The Dodd-Frank Act requires various federal
agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous
studies and reports for Congress. The federal agencies are given significant discretion in drafting
the implementing rules and regulations, and consequently, many of the details and much of the
impacts of the Dodd-Frank Act may not be known for many months or years.
34
The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to
supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad
rule-making authority for a wide range of consumer protection laws that apply to all banks and
savings institutions, including the authority to prohibit unfair, deceptive or abusive acts and
practices. The Consumer Financial Protection Bureau has examination and enforcement authority over
all banks with more than $10 billion in assets. Banks with $10 billion or less in assets will
continue to be examined for compliance with the consumer laws by their primary bank regulators. The
Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national
banks and federal savings associations, and gives state attorneys general the ability to enforce
federal consumer protection laws.
The Dodd-Frank Act requires minimum leverage (Tier 1) and risk based capital requirements for
bank and savings and loan holding companies that are no less than those applicable to banks, which
will exclude certain instruments that previously have been eligible for inclusion by bank holding
companies as Tier 1 capital, such as trust preferred securities.
The new law provides that the Office of Thrift Supervision will cease to exist one year from
the date of the new laws enactment. The Office of the Comptroller of the Currency, which is
currently the primary federal regulator for national banks, will become the primary federal
regulator for federal thrifts. The Board of Governors of the Federal Reserve System will supervise
and regulate all savings and loan holding companies that were formerly regulated by the Office of
Thrift Supervision.
Effective one year after the date of enactment is a provision of the Dodd-Frank Act that
eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses
to have interest bearing checking accounts. Depending on competitive responses, this significant
change to existing law could have an adverse impact on our interest expense.
The Dodd-Frank Act also broadens the base for Federal Deposit Insurance Corporation deposit
insurance assessments. Assessments will now be based on the average consolidated total assets less
tangible equity capital of a financial institution, rather than deposits. The Dodd-Frank Act also
permanently increases the maximum amount of deposit insurance for banks, savings institutions and
credit unions to $250,000 per depositor, retroactive to January 1, 2009, and non-interest bearing
transaction accounts have unlimited deposit insurance through December 31, 2012. The legislation
also increases the required minimum reserve ratio for the Deposit Insurance Fund, from 1.15% to
1.35% of insured deposits, and directs the FDIC to offset the effects of increased assessments on
depository institutions with less than $10 billion in assets.
The Dodd-Frank Act will require publicly traded companies to give stockholders a non-binding
vote on executive compensation and so-called golden parachute payments, and authorizes the
Securities and Exchange Commission to promulgate rules that allow stockholders to nominate their
own candidates using a companys proxy materials. It also provides that the listing standards of
the national securities exchanges shall require listed companies to implement and disclose
clawback policies mandating the recovery of incentive compensation paid to executive officers in
connection with accounting restatements. The legislation also directs the Federal Reserve Board to
promulgate rules prohibiting excessive compensation paid to bank holding company executives.
It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to
be written implementing rules and regulations will have on community banks. However, it is expected
that at a minimum they will increase our operating and compliance costs and could increase our
interest expense.
Our Liabilities Reprice Faster Than Our Assets and Future Increases in Interest Rates Will Reduce
Our Profits.
Our ability to make a profit largely depends on our net interest income, which could be
negatively affected by changes in interest rates. Net interest income is the difference between:
|
|
|
the interest income we earn on our interest-earning assets, such as loans and
securities; and |
|
|
|
|
the interest expense we pay on our interest-bearing liabilities, such as deposits and
borrowings. |
The interest income we earn on our assets and the interest expense we pay on our liabilities
are generally fixed for a contractual period of time. Our liabilities generally have shorter
contractual maturities than our assets. This imbalance can create significant earnings volatility,
because market interest rates change over time. In a period of rising interest rates, the interest
income earned on our assets may not increase as rapidly as the interest paid on our liabilities.
See Managements Discussion and Analysis of Financial Condition and Results of Operations
Management of Market Risk.
In addition, changes in interest rates can affect the average life of loans and
mortgage-backed and related securities. A reduction in interest rates causes increased prepayments
of loans and mortgage-backed and related securities as borrowers refinance their debt to
35
reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to
reinvest the funds from faster prepayments at rates that are comparable to the rates we earned on the prepaid loans or
securities. Conversely, an increase in interest rates generally reduces prepayments. Additionally,
increases in interest rates may decrease loan demand and/or make it more difficult for borrowers to
repay adjustable-rate loans.
Changes in interest rates also affect the current market value of our interest-earning
securities portfolio. Generally, the value of securities moves inversely with changes in interest
rates. At December 31, 2010, the fair value of our total securities portfolio was $1.12 billion.
Unrealized net losses on securities-available-for-sale are reported as a separate component of
equity. To the extent interest rates increase and the value of our available-for-sale portfolio
decreases, our stockholders equity will be adversely affected.
We evaluate interest rate sensitivity using models that estimate the change in our net
portfolio value over a range of interest rate scenarios. Net portfolio value is the discounted
present value of expected cash flows from assets, liabilities and off-balance sheet contracts. At
December 31, 2010, in the event of a 200 basis point increase in interest rates, whereby rates ramp
up evenly over a twelve-month period, and assuming management took no action to mitigate the effect
of such change, the model projects that we would experience an 5.6% or $17.7 million decrease in
net interest income.
Because We Intend to Continue to Increase Our Commercial Originations, Our Lending Risk Will
Increase.
At December 31, 2010, our portfolio of commercial real estate, multi-family, construction and
C&I loans totaled $3.06 billion, or 38.22% of our total loans. We intend to increase our
originations of commercial real estate, multi-family construction and C&I loans, which generally
have more risk than one- to four-family residential mortgage loans. As the repayment of commercial
real estate loans depends on the successful management and operation of the borrowers properties
or related businesses, repayment of such loans can be affected by adverse conditions in the real
estate market or the local economy. We anticipate that several of our borrowers will have more than
one commercial real estate loan outstanding with us. Consequently, an adverse development with
respect to one loan or one credit relationship can expose us to significantly greater risk of loss
compared to an adverse development with respect to a one- to four-family residential mortgage loan.
Finally, if we foreclose on a commercial real estate loan, our holding period for the collateral,
if any, typically is longer than for one- to four-family residential mortgage loans because there
are fewer potential purchasers of the collateral. Because we plan to continue to increase our
originations of these loans, it may be necessary to increase the level of our allowance for loan
losses because of the increased risk characteristics associated with these types of loans. Any such
increase to our allowance for loan losses would adversely affect our earnings.
The U.S. Economy Is Experiencing An Economic Downturn. A Continuation or Further Deterioration Will
Have An Adverse Effect On Our Operations.
Both nationally and in the State of New Jersey we are experiencing an economic downturn that
is having a significant impact on the prices of real estate and related assets. The residential and
commercial real estate sectors have been adversely affected by weakening economic conditions and
may negatively impact our loan portfolio. Total non-performing assets increased from $120.2 million
at December 31, 2009 to $165.9 million at December 31, 2010, and total non-performing loans as a
percentage of total assets increased to 1.73% at December 31, 2010 as compared to 1.44% at December
31, 2009. If loans that are currently non-performing further deteriorate or loans that are
currently performing become non-performing loans, we may need to increase our allowance for loan
losses, which would have an adverse impact on our financial condition and results of operations.
In addition, the impact of the continued economic downturn could negatively impact the
carrying values of our securities portfolio. At December 31, 2010, our securities portfolio
contains approximately $77.2 million in non-agency mortgage backed securities. Continued economic
weakness could result additional other-than-temporary impairment which would have an adverse impact
on our financial condition and results of operations.
Any Future FDIC Insurance Premiums Will Adversely Impact Our Earnings.
On May 22, 2009, the Federal Deposit Insurance Corporation adopted a final rule levying a five
basis point special assessment on each insured depository institutions assets minus Tier 1 capital
as of June 30, 2009. We recorded an expense of $3.6 million during the quarter ended June 30, 2009,
to reflect the special assessment. Any further special assessments that the Federal Deposit
Insurance Corporation levies will be recorded as an expense during the appropriate period. In
addition, the Federal Deposit Insurance Corporation increased the general assessment rate and,
therefore, our Federal Deposit Insurance Corporation general insurance premium expense will
increase compared to prior periods.
The Federal Deposit Insurance Corporation also issued a final rule pursuant to which all
insured depository institutions were required to prepay on December 30, 2009 their estimated
assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. The assessment rate
for the fourth quarter of 2009 and for 2010 was based on each institutions total base assessment
rate for the third quarter of 2009, modified to assume that the assessment rate in effect on
September 30, 2009 had been in effect for the entire
36
third quarter, and the assessment rate for 2011 and 2012 would be equal to the modified third quarter assessment rate plus an
additional three basis points. In addition, each institutions base assessment rate for each
period was calculated using its third quarter assessment base, adjusted quarterly for an estimated
5% annual growth rate in the assessment base through the end of 2012. We made a payment of $35.9
million to the Federal Deposit Insurance Corporation on December 30, 2009, and recorded the payment
as a prepaid expense. At December 31, 2010, we had a remaining $24.4 million of prepaid expense.
If Our Allowance for Loan Losses is Not Sufficient to Cover Actual Loan Losses, Our Earnings Could
Decrease.
We make various assumptions and judgments about the collectability of our loan portfolio,
including the creditworthiness of our borrowers and the value of the real estate and other assets
serving as collateral for the repayment of many of our loans. In determining the amount of the
allowance for loan losses, we review our loans and our loss and delinquency experience, and we
evaluate economic conditions. If our assumptions are incorrect, our allowance for loan losses may
not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our
allowance. Material additions to our allowance would materially decrease our net income. Our
allowance for loan losses of $90.9 million was 1.14% of total loans and 54.81% of non-performing
loans at December 31, 2010.
In addition, bank regulators periodically review our allowance for loan losses and may require
us to increase our provision for loan losses or recognize further loan charge-offs. A material
increase in our allowance for loan losses or loan charge-offs as required by these regulatory
authorities would have a material adverse effect on our financial condition and results of
operations.
Our Inability to Achieve Profitability on New Branches May Negatively Affect Our Earnings.
We have expanded our presence throughout our market area and we intend to pursue further
expansion through de novo branching or the purchase of branches from other financial institutions.
The profitability of our expansion strategy will depend on whether the income that we generate from
the new branches will offset the increased expenses resulting from operating these branches. We
expect that it may take a period of time before these branches can become profitable, especially in
areas in which we do not have an established presence. During this period, the expense of operating
these branches may negatively affect our net income.
Growing By Acquisition Entails Integration and Certain Other Risks
In October 2010, we completed our fourth acquisition in a 28 month period by purchasing the
deposit franchise of Millennium bcpbank. This acquisition consisted of 17 branch locations,
approximately $600 million in deposits and approximately $200 million in loans. The success of our
acquisitions may depend on, among other things, our ability to realize anticipated cost savings and
to integrate the businesses of the acquired company with our businesses in a manner that does not
result in disrupting existing customer relationships of the acquired companies or diverting
managements attention from core operations. If we are not able to achieve these objectives, the
anticipated benefits of an acquisition may not be realized fully or may take longer to realize than
planned.
Strong Competition Within Our Market Area May Limit Our Growth and Profitability.
Competition in the banking and financial services industry is intense. In our market area, we
compete with numerous commercial banks, savings institutions, mortgage brokerage firms, credit
unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking
firms operating locally and elsewhere. Some of our competitors have substantially greater resources
and lending limits than we have, have greater name recognition and market presence that benefit
them in attracting business, and offer certain services that we do not or cannot provide. In
addition, larger competitors may be able to price loans and deposits more aggressively than we do.
Our profitability depends upon our continued ability to successfully compete in our market area.
The greater resources and deposit and loan products offered by some of our competitors may limit
our ability to increase our interest-earning assets. For additional information see Business of
Investors Savings Bank Competition.
If We Declare Dividends on Our Common Stock, Investors Bancorp, MHC Will be Prohibited From Waiving
the Receipt of Dividends by Current Federal Reserve Board Policy, Which May Result in Lower
Dividends for All Other Stockholders.
The Board of Directors of Investors Bancorp, Inc. has the authority to declare dividends on
its common stock, subject to statutory and regulatory requirements. So long as Investors Bancorp,
MHC is regulated by the Federal Reserve Board, if Investors Bancorp, Inc. pays dividends to its
stockholders, it also will be required to pay dividends to Investors Bancorp, MHC, unless Investors
Bancorp, MHC is permitted by the Federal Reserve Board to waive the receipt of dividends. The
Federal Reserve Boards current policy does not permit a mutual holding company to waive dividends
declared by its subsidiary. Accordingly, because dividends will be required to be paid to Investors
Bancorp, MHC along with all other stockholders, the amount of dividends available for all other
stockholders will be less than if Investors Bancorp, MHC were permitted to waive the receipt of
dividends.
37
Investors Bancorp, MHC Exercises Voting Control Over Investors Bancorp; Public Stockholders Own a
Minority Interest
Investors Bancorp, MHC owns a majority of Investors Bancorp, Inc.s common stock and, through
its Board of Directors, exercises voting control over the outcome of all matters put to a vote of
stockholders (including the election of directors), except for matters that require a vote greater
than a majority. Public stockholders own a minority of the outstanding shares of Investors Bancorp,
Inc.s common stock. The same directors and officers who manage Investors Bancorp, Inc. and
Investors Savings Bank also manage Investors Bancorp, MHC. In addition, regulatory restrictions
applicable to Investors Bancorp, MHC prohibit the sale of Investors Bancorp, Inc. to another
publicly traded company unless the mutual holding company first undertakes a second-step
conversion.
We Operate in a Highly Regulated Industry, Which Limits the Manner and Scope of Our Business
Activities.
We are subject to extensive supervision, regulation and examination by the New Jersey
Department of Banking and by the FDIC. As a result, we are limited in the manner in which we
conduct our business, undertake new investments and activities and obtain financing. This
regulatory structure is designed primarily for the protection of the DIF and our depositors, and
not to benefit our stockholders. This regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to capital levels, the timing and amount of
dividend payments, the classification of assets and the establishment of adequate loan loss
reserves for regulatory purposes. In addition, we must comply with significant anti-money
laundering and anti-terrorism laws. Government agencies have substantial discretion to impose
significant monetary penalties on institutions which fail to comply with these laws.
Future Acquisition Activity Could Dilute Book Value
Both nationally and in New Jersey, the banking industry is undergoing consolidation marked by
numerous mergers and acquisitions. From time to time we may be presented with opportunities to
acquire institutions and/or bank branches and we may engage in discussions and negotiations.
Acquisitions typically involve the payment of a premium over book and trading values, and
therefore, may result in the dilution of Investors Bancorps book value per share.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
At December 31, 2010, the Company and the Bank conducted business from its corporate
headquarters in Short Hills, New Jersey, and 82 full-service branch offices located in Essex,
Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Union and Warren Counties, New
Jersey; Nassau and Queens, New York and Massachusetts.
ITEM 3. 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 4. [REMOVED AND RESERVED]
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our shares of common stock are traded on the NASDAQ Global Select Market under the symbol
ISBC. The approximate number of holders of record of Investors Bancorp, Inc.s common stock as of
February 22, 2011 was 12,000. Certain shares of Investors Bancorp, Inc. are held in nominee or
street name and accordingly, the number of beneficial owners of such shares is not known or
included in the foregoing number. The following table presents quarterly market information for
Investors Bancorp, Inc.s common stock for the periods indicated. The following information was
provided by the NASDAQ Global Select Market.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
First Quarter |
|
$ |
13.90 |
|
|
$ |
10.99 |
|
|
$ |
13.29 |
|
|
$ |
6.86 |
|
Second Quarter |
|
|
14.37 |
|
|
|
12.62 |
|
|
|
9.71 |
|
|
|
8.14 |
|
Third Quarter |
|
|
13.53 |
|
|
|
10.59 |
|
|
|
10.94 |
|
|
|
8.72 |
|
Fourth Quarter |
|
|
13.50 |
|
|
|
11.65 |
|
|
|
11.15 |
|
|
|
10.25 |
|
Investors Bancorp, Inc. did not pay a dividend during the year ended December 31, 2010 or
December 31, 2009.
So long as Investors Bancorp, MHC is regulated by the Federal Reserve Board, if Investors
Bancorp, Inc. pays dividends to its stockholders, it also will be required to pay dividends to
Investors Bancorp, MHC, unless Investors Bancorp, MHC is permitted by the Federal Reserve Board to
waive the receipt of dividends. The Federal Reserve Boards current position is to not permit a
bank holding company to waive dividends declared by its subsidiary.
In the future, dividends from Investors Bancorp, Inc. may depend, in part, upon the receipt of
dividends from Investors Savings Bank, because Investors Bancorp, Inc. has no source of income
other than earnings from the investment of net proceeds retained from the sale of shares of common
stock and interest earned on Investors Bancorp, Inc.s loan to the employee stock ownership plan.
Under New Jersey law, Investors Savings Bank may not pay a cash dividend unless, after the payment
of such dividend, its capital stock will not be impaired and either it will have a statutory
surplus of not less than 50% of its capital stock, or the payment of such dividend will not reduce
its statutory surplus.
Stock Performance Graph
Set forth below is a stock performance graph comparing (a) the cumulative total return on the
Companys Common Stock for the period beginning October 12, 2005, the date that Investors Bancorp Inc.
began trading as a public company as reported by the NASDAQ Global Select Market through December
31, 2010, (b) the cumulative total return of publicly traded thrifts over such period, and, (c) the
cumulative total return of all publicly traded banks and thrifts over such period. Cumulative
return assumes the reinvestment of dividends, and is expressed in dollars based on an assumed
investment of $100.
39
INVESTORS BANCORP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending |
|
|
|
|
|
|
|
|
|
|
|
|
Index |
|
10/12/05 |
|
|
12/31/05 |
|
|
12/31/06 |
|
|
12/31/07 |
|
|
12/31/08 |
|
|
12/31/09 |
|
|
12/31/10 |
Investors Bancorp, Inc. |
|
|
100.00 |
|
|
|
110.08 |
|
|
|
156.99 |
|
|
|
141.12 |
|
|
|
134.03 |
|
|
|
109.18 |
|
|
|
130.94 |
|
SNL Bank and Thrift Index |
|
|
100.00 |
|
|
|
110.59 |
|
|
|
129.22 |
|
|
|
98.54 |
|
|
|
56.67 |
|
|
|
55.91 |
|
|
|
62.42 |
|
SNL Thrift Index |
|
|
100.00 |
|
|
|
112.84 |
|
|
|
131.54 |
|
|
|
78.91 |
|
|
|
50.22 |
|
|
|
46.83 |
|
|
|
48.94 |
|
|
|
|
* |
|
Source : SNL Financial LC, Charlottesville, VA |
The following table reports information regarding repurchases of our common stock during the
quarter ended December 31, 2010 and the stock repurchase plans approved by our Board of Directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Average |
|
As part of Publicly |
|
Yet Be Purchased |
|
|
Shares |
|
Price paid |
|
Announced Plans |
|
Under the Plans or |
Period |
|
Purchased(1) |
|
|
Per Share |
|
|
or Programs |
|
|
Programs |
|
October 1, 2010 through October 31, 2010 |
|
|
303,500 |
|
|
$ |
12.11 |
|
|
|
303,500 |
|
|
|
1,346,482 |
|
November 1, 2010 through November 30, 2010 |
|
|
545,638 |
|
|
|
12.19 |
|
|
|
545,638 |
|
|
|
800,844 |
|
December 1, 2010 through December 31, 2010 |
|
|
15,000 |
|
|
|
12.45 |
|
|
|
15,000 |
|
|
|
785,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
864,138 |
|
|
|
|
|
|
|
864,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On January 22, 2008, the Company announced its third Share Repurchase
Program, which authorized the purchase of an additional 10% of its
publicly-held outstanding shares of common stock, or 4,307,248 shares.
This stock repurchase program commenced upon the completion of the
second program on May 7, 2008. This program has no expiration date and
has 785,844 shares yet to be purchased as of December 31, 2010. |
40
ITEM 6. SELECTED FINANCIAL DATA
The following information is derived in part from the consolidated financial statements of
Investors Bancorp, Inc. For additional information, reference is made to Managements Discussion
and Analysis of Financial Condition and Results of Operations and the Consolidated Financial
Statements of Investors Bancorp, Inc. and related notes included elsewhere in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
At June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Selected Financial Condition Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
9,602,131 |
|
|
$ |
8,357,816 |
|
|
$ |
8,136,432 |
|
|
$ |
6,419,142 |
|
|
$ |
5,722,026 |
|
|
$ |
5,631,809 |
|
Loans receivable, net |
|
|
7,917,705 |
|
|
|
6,615,459 |
|
|
|
6,143,169 |
|
|
|
4,670,150 |
|
|
|
3,624,998 |
|
|
|
2,995,435 |
|
Loans held-for-sale |
|
|
35,054 |
|
|
|
27,043 |
|
|
|
61,691 |
|
|
|
9,814 |
|
|
|
3,410 |
|
|
|
974 |
|
Securities held to maturity, net |
|
|
478,536 |
|
|
|
717,441 |
|
|
|
846,043 |
|
|
|
1,255,054 |
|
|
|
1,578,922 |
|
|
|
1,835,581 |
|
Securities available for sale, at
estimated fair value |
|
|
602,733 |
|
|
|
471,243 |
|
|
|
355,016 |
|
|
|
203,032 |
|
|
|
257,939 |
|
|
|
538,526 |
|
Bank owned life insurance |
|
|
117,039 |
|
|
|
114,542 |
|
|
|
113,191 |
|
|
|
96,170 |
|
|
|
92,198 |
|
|
|
82,603 |
|
Deposits |
|
|
6,774,390 |
|
|
|
5,840,643 |
|
|
|
5,505,747 |
|
|
|
3,970,275 |
|
|
|
3,768,188 |
|
|
|
3,419,361 |
|
Borrowed funds |
|
|
1,826,514 |
|
|
|
1,600,542 |
|
|
|
1,730,555 |
|
|
|
1,563,583 |
|
|
|
1,038,710 |
|
|
|
1,245,740 |
|
Stockholders equity |
|
|
901,279 |
|
|
|
850,213 |
|
|
|
819,283 |
|
|
|
828,538 |
|
|
|
858,859 |
|
|
|
916,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
Year Ended December 31, |
|
|
December 31, |
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009(1) |
|
|
2008 |
|
|
2007(2) |
|
|
2006(3) |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income |
|
$ |
428,703 |
|
|
$ |
384,385 |
|
|
$ |
198,272 |
|
|
$ |
368,060 |
|
|
$ |
312,807 |
|
|
$ |
285,223 |
|
|
$ |
252,050 |
|
Interest expense |
|
|
159,293 |
|
|
|
192,096 |
|
|
|
90,471 |
|
|
|
201,924 |
|
|
|
207,695 |
|
|
|
195,263 |
|
|
|
143,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
269,410 |
|
|
|
192,289 |
|
|
|
107,801 |
|
|
|
166,136 |
|
|
|
105,112 |
|
|
|
89,960 |
|
|
|
108,456 |
|
Provision for loan losses |
|
|
66,500 |
|
|
|
39,450 |
|
|
|
23,425 |
|
|
|
29,025 |
|
|
|
6,646 |
|
|
|
729 |
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for loan losses |
|
|
202,910 |
|
|
|
152,839 |
|
|
|
84,376 |
|
|
|
137,111 |
|
|
|
98,466 |
|
|
|
89,231 |
|
|
|
107,856 |
|
Non-interest income (loss) |
|
|
26,525 |
|
|
|
14,835 |
|
|
|
9,007 |
|
|
|
(148,430 |
) |
|
|
7,373 |
|
|
|
3,175 |
|
|
|
5,972 |
|
Non-interest expenses |
|
|
130,813 |
|
|
|
109,118 |
|
|
|
56,500 |
|
|
|
97,799 |
|
|
|
80,780 |
|
|
|
77,617 |
|
|
|
90,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
expense (benefit) |
|
|
98,622 |
|
|
|
58,556 |
|
|
|
36,883 |
|
|
|
(109,118 |
) |
|
|
25,059 |
|
|
|
14,789 |
|
|
|
22,951 |
|
Income tax expense (benefit) |
|
|
36,603 |
|
|
|
23,444 |
|
|
|
14,321 |
|
|
|
(44,200 |
) |
|
|
9,030 |
|
|
|
(7,477 |
) |
|
|
7,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
62,019 |
|
|
$ |
35,112 |
|
|
$ |
22,562 |
|
|
$ |
(64,918 |
) |
|
$ |
16,029 |
|
|
$ |
22,266 |
|
|
$ |
15,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic (4) |
|
$ |
0.57 |
|
|
$ |
0.33 |
|
|
$ |
0.21 |
|
|
$ |
(0.62 |
) |
|
$ |
0.15 |
|
|
$ |
0.20 |
|
|
$ |
0.07 |
|
Earnings (loss) per share diluted(4) |
|
$ |
0.56 |
|
|
$ |
0.33 |
|
|
$ |
0.21 |
|
|
$ |
(0.62 |
) |
|
$ |
0.15 |
|
|
$ |
0.20 |
|
|
$ |
0.07 |
|
|
|
|
(1) |
|
June 30, 2009 year end results reflect a $158.0 million pre-tax OTTI charge related to
investments in trust preferred securities. |
|
(2) |
|
June 30, 2007 year end results reflect a $9.9 million reversal of
previously established valuation allowances for deferred tax assets. |
|
(3) |
|
June 30, 2006 year end results reflect a pre-tax expense of $20.7
million for the charitable contribution made to Investors Savings Bank
Charitable Foundation as part of our initial public offering. |
|
(4) |
|
Basic and diluted earnings per share for the year ended June 30, 2006
include the results of operations from October 11, 2005, the date the
Company completed its initial public offering. |
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
At or for the Year |
|
|
Ended |
|
|
|
|
|
|
Ended December 31, |
|
|
December 31, |
|
|
At or for the Year Ended June, 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Selected Financial Ratios and Other
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return (loss) on assets (ratio of net income
or loss to average total assets) |
|
|
0.70 |
% |
|
|
0.45 |
% |
|
|
0.55 |
% |
|
|
(0.90 |
)% |
|
|
0.27 |
% |
|
|
0.39 |
% |
|
|
0.28 |
% |
Return (loss) on equity (ratio of net income
or loss to average equity) |
|
|
6.95 |
% |
|
|
4.40 |
% |
|
|
5.46 |
% |
|
|
(8.14 |
)% |
|
|
1.92 |
% |
|
|
2.47 |
% |
|
|
2.00 |
% |
Net interest rate spread(1) |
|
|
2.97 |
% |
|
|
2.28 |
% |
|
|
2.49 |
% |
|
|
2.06 |
% |
|
|
1.28 |
% |
|
|
1.02 |
% |
|
|
1.65 |
% |
Net interest margin(2) |
|
|
3.17 |
% |
|
|
2.53 |
% |
|
|
2.72 |
% |
|
|
2.38 |
% |
|
|
1.81 |
% |
|
|
1.65 |
% |
|
|
2.06 |
% |
Efficiency ratio(3) |
|
|
44.20 |
% |
|
|
52.68 |
% |
|
|
48.37 |
% |
|
|
552.35 |
% |
|
|
71.81 |
% |
|
|
83.34 |
% |
|
|
79.42 |
% |
Efficiency ratio (excluding OTTI and FDIC
special assessment)(4) |
|
|
44.20 |
% |
|
|
50.60 |
% |
|
|
48.33 |
% |
|
|
54.39 |
% |
|
|
71.55 |
% |
|
|
83.34 |
% |
|
|
79.42 |
% |
Non-interest expenses to average total assets |
|
|
1.47 |
% |
|
|
1.38 |
% |
|
|
1.37 |
% |
|
|
1.35 |
% |
|
|
1.35 |
% |
|
|
1.38 |
% |
|
|
1.68 |
% |
Average interest-earning assets to average
interest-bearing liabilities |
|
|
1.10x |
|
|
|
1.10x |
|
|
|
1.10x |
|
|
|
1.11x |
|
|
|
1.15x |
|
|
|
1.18x |
|
|
|
1.15x |
|
Asset Quality Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets to total assets |
|
|
1.74 |
% |
|
|
1.44 |
% |
|
|
1.44 |
% |
|
|
1.50 |
% |
|
|
0.30 |
% |
|
|
0.09 |
% |
|
|
0.06 |
% |
Non-performing loans to total loans |
|
|
2.08 |
% |
|
|
1.81 |
% |
|
|
1.81 |
% |
|
|
1.97 |
% |
|
|
0.42 |
% |
|
|
0.14 |
% |
|
|
0.11 |
% |
Allowance for loan losses to non-performing
loans |
|
|
54.81 |
% |
|
|
45.80 |
% |
|
|
45.80 |
% |
|
|
38.30 |
% |
|
|
70.03 |
% |
|
|
135.00 |
% |
|
|
193.06 |
% |
Allowance for loan losses to total loans |
|
|
1.14 |
% |
|
|
0.83 |
% |
|
|
0.83 |
% |
|
|
0.76 |
% |
|
|
0.29 |
% |
|
|
0.19 |
% |
|
|
0.21 |
% |
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital (to risk-weighted
assets)(5) |
|
|
13.75 |
% |
|
|
15.78 |
% |
|
|
15.78 |
% |
|
|
16.88 |
% |
|
|
21.77 |
% |
|
|
25.18 |
% |
|
|
26.63 |
% |
Tier I risk-based capital (to risk-weighted
assets)(5) |
|
|
12.50 |
% |
|
|
14.70 |
% |
|
|
14.70 |
% |
|
|
15.86 |
% |
|
|
21.37 |
% |
|
|
24.93 |
% |
|
|
26.38 |
% |
Total capital (to average assets)(5) |
|
|
8.56 |
% |
|
|
9.03 |
% |
|
|
9.03 |
% |
|
|
9.52 |
% |
|
|
11.93 |
% |
|
|
12.52 |
% |
|
|
12.25 |
% |
Equity to total assets |
|
|
9.39 |
% |
|
|
10.17 |
% |
|
|
10.17 |
% |
|
|
10.07 |
% |
|
|
12.91 |
% |
|
|
15.01 |
% |
|
|
16.27 |
% |
Average equity to average assets |
|
|
10.02 |
% |
|
|
10.11 |
% |
|
|
9.99 |
% |
|
|
11.05 |
% |
|
|
13.94 |
% |
|
|
15.97 |
% |
|
|
14.21 |
% |
Book value per common share |
|
$ |
8.23 |
|
|
$ |
7.67 |
|
|
$ |
7.67 |
|
|
$ |
7.38 |
|
|
$ |
7.87 |
|
|
$ |
7.86 |
|
|
$ |
8.04 |
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of full service offices |
|
|
82 |
|
|
|
65 |
|
|
|
65 |
|
|
|
58 |
|
|
|
52 |
|
|
|
51 |
|
|
|
51 |
|
Full time equivalent employees |
|
|
869 |
|
|
|
704 |
|
|
|
704 |
|
|
|
647 |
|
|
|
537 |
|
|
|
509 |
|
|
|
510 |
|
|
|
|
(1) |
|
The net interest rate spread represents the difference between the weighted-average yield on interest-earning assets
and the weighted- average cost of interest-bearing liabilities for the period. |
|
(2) |
|
The net interest margin represents net interest income as a percent of average interest-earning assets for the period. |
|
(3) |
|
The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income. |
|
(4) |
|
Excludes OTTI of $91,000 for the six months ended December 31, 2009 and $158.5 million and $409,000 for the years ended June
30, 2009 and 2008, respectively. Also excludes FDIC special assessment of $3.6 million at June 30, 2009. |
|
(5) |
|
Ratios are for Investors Savings Bank and do not include capital retained at the holding company level. |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Investors Bancorps fundamental business strategy is to be a well capitalized, full
service, community bank which provides 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 re-pricing of interest-earning
assets and interest-bearing liabilities on our balance sheet, and the prepayment rate on our
mortgage-related assets.
The Companys net interest spread and net interest margin were favorably impacted during the
year ended December 31, 2010 as interest rates remained at historically low levels and the interest
rate yield curve continued to be steep. Net interest margin expanded to 3.17% for the year ended
2010 compared to 2.53% for year ended 2009 while our net interest rate spread expanded to 2.97% for
the year ended 2010 compared to 2.28% for the year ended 2009.
42
The Companys results of operations are also significantly affected by general economic
conditions. The national and regional unemployment rates remain at elevated levels. This factor
coupled with the weakness in the housing and real estate markets have resulted in the Company
recognizing higher credit costs on the loan portfolio during the year ended December 31, 2010.
Despite this our overall level of non-performing loans remains low compared to our national and
regional peers and we attribute this to our conservative underwriting standards.
In October 2010, we completed the acquisition of the deposit franchise of Millennium bcpbank
consisting of 17 branch locations and approximately $600 million in deposits. We also purchased
approximately $200 million in performing loans and provide loan servicing for the remainder of
Millenniums loan portfolio. As a result of this acquisition, the Company has expanded its branch
network outside its home state of New Jersey with three branch locations in New York. As part of
the acquisition we also acquired four branches in Massachusetts which are scheduled to be sold to
another financial institution pending regulatory approval.
The branch expansion into New York complements our New York City loan production office which
opened in January 2010. This office, along with our New Jersey lending team continues to help
diversify our loan mix, and expand our market share for commercial and multi-family loans. Net
loans increased to $7.92 billion at December 31, 2010 from $6.62 billion at December 31, 2009, an
increase of 19.7%. This increase was primarily attributed to increases in the commercial real
estate and multi-family loan portfolios.
Increasing deposits, with particular emphasis on core deposits, remains one of our primary
objectives. During the year ended December 31, 2010, total deposits increased by $943.3 million, or
16.0% to $6.77 billion. Core deposits represented 84.3%, or $787.2 million, of this growth which
resulted in a core deposit to total deposit ratio to 49.2%.
During 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Reform
Act) was signed into law. The Reform Act is intended to address perceived weaknesses in the U.S.
financial regulatory system and prevent future economic and financial crises. It is not clear what
the full impact of the Reform Act will be. See Risk Factors.
Despite the challenges surrounding the financial services sector, we believe, with our strong
capital and liquidity positions we can continue to grow organically or through bank or branch
acquisitions.
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 because of the
high degree of judgment involved, the subjectivity of the assumptions used, 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
43
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 and all loans subject to a troubled debt
restructuring. 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, including those loans not meeting the Companys definition of an impaired loan, 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 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. 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. 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 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.
For commercial real estate, construction and multi-family loans, the Company obtains an
appraisal for all collateral dependent loans upon origination and an updated appraisal in the event
interest or principal payments are 90 days delinquent or when the timely collection of such income
is considered doubtful. This is done in order to determine the specific reserve needed upon initial
recognition of a collateral dependent loan as non-accrual and/or impaired. In subsequent reporting
periods, as part of the allowance for loan loss process, the Company reviews each collateral
dependent commercial real estate loan previously classified as non-accrual and/or impaired and
assesses whether there has been an adverse change in the collateral value supporting the loan. The
Company utilizes information from its commercial lending officers and its loan workout departments
knowledge of changes in real estate conditions in our lending area to identify if possible
deterioration of collateral value has occurred. Based on the severity of the changes in market
conditions, management determines if an updated appraisal is warranted or if downward adjustments
to the previous appraisal are warranted. If it is determined that the deterioration of the
collateral value is significant enough to warrant ordering a new appraisal, an estimate of the
downward adjustments to the existing appraised value is used in assessing if additional specific
reserves are necessary until the updated appraisal is received.
44
For homogeneous residential mortgage loans, the Companys policy is to obtain an appraisal
upon the origination of the loan and an updated appraisal in the event a loan becomes 90 days
delinquent. Thereafter, the appraisal is updated every two years if the loan remains in
non-performing status and the foreclosure process has not been completed. Management does not
typically make adjustments to the appraised value of residential loans other than to reduce the
value for estimated selling costs, if applicable.
In determining the allowance for loan losses, management believes the potential for outdated
appraisals has been mitigated for impaired loans and other non-performing loans. As described
above, the loans are individually assessed to determine that the loans carrying value is not in
excess of the fair value of the collateral. Loans are generally charged off after an analysis is
completed which indicates that collectability of the full principal balance is in doubt.
Based on the composition of our loan portfolio, we believe the primary risks are a decline in
the general economy, a decline in real estate market values in New Jersey and surrounding states
and increases in interest rates. 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 allowance for loan losses reflects probable losses considering, among other things, the
actual growth and change in composition of our loan portfolio, the level of our non-performing
loans and our charge-off experience. We believe the allowance for loan losses reflects the inherent
credit risk in our portfolio.
Although we believe we have established and maintained the allowance for loan losses at
adequate levels, additions may be necessary if the current operating environment continues or
deteriorates. Management uses the best information available; however, 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. The Company records income taxes in accordance with ASC 740, Income
Taxes, as amended, using the asset and liability method. Accordingly, deferred tax assets and
liabilities: (i) are recognized for the expected future tax consequences of events that have been
recognized in the financial statements or tax returns; (ii) are attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those
temporary differences are expected to be recovered or settled. Where applicable, deferred tax
assets are reduced by a valuation allowance for any portions determined not likely to be realized.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
tax expense in the period of enactment. The valuation allowance is adjusted, by a charge or credit
to income tax expense, as changes in facts and circumstances warrant.
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
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. While the Company does not intend to sell these securities, and it is more
likely than not that we will not be required to sell these securities before their anticipated
recovery of the remaining amortized cost basis, the Company has the ability to sell the securities.
Our held-to-maturity portfolio, consisting primarily of mortgage backed securities and other 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.
Management utilizes various inputs to determine the fair value of the portfolio. To the
extent they exist, unadjusted quoted market prices in active markets (level 1) or quoted prices on
similar assets (level 2) are utilized to determine the fair value of each investment in the
portfolio. In the absence of quoted prices and in an illiquid market, valuation techniques, which
require inputs that are both significant to the fair value measurement and unobservable (level 3),
are used to determine fair value of the investment. Valuation techniques are based on various
assumptions, including, but not limited to cash flows, discount rates, rate of return,
45
adjustments for nonperformance and liquidity, and liquidation values. Management is required
to use a significant degree of judgment when the valuation of investments includes inputs. The use
of different assumptions could have a positive or negative effect on our consolidated financial
condition or results of operations.
The market values of our securities are also 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.
If a determination is made that a debt security is other-than-temporarily impaired, the
Company will estimate the amount of the unrealized loss that is attributable to credit and all
other non-credit related factors. The credit related component will be recognized as an
other-than-temporary impairment charge in non-interest income as a component of gain (loss) on
securities, net. The non-credit related component will be recorded as an adjustment to accumulated
other comprehensive income, net of tax.
Goodwill Impairment. Goodwill is presumed to have an indefinite useful life and is tested, at
least annually, for impairment at the reporting unit level. Impairment exists when the carrying
amount of goodwill exceeds its implied fair value. For purposes of our goodwill impairment testing,
we have identified a single reporting unit. We consider the quoted market price of our common stock
on our impairment testing date as an initial indicator of estimating the fair value of our
reporting unit. In addition, we consider our average stock price, both before and after our
impairment test date, as well as market-based control premiums in determining the estimated fair
value of our reporting unit. If the estimated fair value of our reporting unit exceeds its carrying
amount, further evaluation is not necessary. However, if the fair value of our reporting unit is
less than its carrying amount, further evaluation is required to compare the implied fair value of
the reporting units goodwill to its carrying amount to determine if a write-down of goodwill is
required.
At December 31, 2010,
the carrying amount of our goodwill totaled $21.6 million. On November 1,
2010, we performed our annual goodwill impairment test and determined the estimated fair value of
our reporting unit to be in excess of its carrying amount. Accordingly, as of our annual impairment
test date, there was no indication of goodwill impairment. We would test our goodwill for
impairment between annual tests if an event occurs or circumstances change that would more likely
than not reduce the fair value of our reporting until below its carrying amount. No events that
have occurred and no circumstances have changed since our annual impairment test date that would
more likely than not reduce the fair value of our reporting until below its carrying amount. The
identification of additional reporting units or the use of other valuation techniques could result
in materially difference evaluations of impairment.
Valuation of Mortgage Servicing Rights (MSR). The initial asset recognized for originated MSR
is measured at fair value. The fair value of MSR is estimated by reference to current market values
of similar loans sold servicing released. MSR are amortized in proportion to and over the period of
estimated net servicing income. We apply the amortization method for measurements of our MSR. MSR
are assessed for impairment based on fair value quarterly. MSR impairment, if any, is recognized in
a valuation allowance through charges to earnings. Increases in the fair value of impaired MSR are
recognized only up to the amount of the previously recognized valuation allowance.
We assess impairment of our MSR based on the estimated fair value of those rights with any
impairment recognized through a valuation allowance. The estimated fair value of the MSR is
obtained through independent third party valuations through an analysis of future cash flows,
incorporating estimates of assumptions market participants would use in determining fair value
including market discount rates, prepayment speeds, servicing income, servicing costs, default
rates and other market driven data, including the markets perception of future interest rate
movements. The allowance is then adjusted in subsequent periods to reflect changes in the
measurement of impairment. All assumptions are reviewed for reasonableness on a quarterly basis to
ensure they reflect current and anticipated market conditions.
The fair value of MSR is highly sensitive to changes in assumptions. Changes in prepayment
speed assumptions generally have the most significant impact on the fair value of our MSR.
Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased
refinance activity, which results in a decrease in the fair value of MSR. As interest rates rise,
mortgage loan prepayments slow down, which results in an increase in the fair value of MSR. Thus,
any measurement of the fair value of our MSR is limited by the conditions existing and the
assumptions utilized as of a particular point in time, and those assumptions may not be appropriate
if they are applied at a different point in time.
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
ASC 718, Compensation- Stock Compensation.
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
46
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.
Comparison of Financial Condition at December 31, 2010 and December 31, 2009
Total Assets. Total assets increased by $1.24 billion, or 14.9%, to $9.60 billion at December
31, 2010 from $8.36 billion at December 31, 2009. This increase was largely the result of a $1.31
billion increase in our net loans, including loans held for sale, to $7.95 billion at December 31,
2010 from $6.64 billion at December 31, 2009. This was partially offset by a $107.4 million, or
9.0%, decrease in securities to $1.08 billion at December 31, 2010 from $1.19 billion at December
31, 2009.
Net Loans. Net loans, including loans held for sale, increased by $1.31 billion, or 19.7%, to
$7.95 billion at December 31, 2010 from $6.64 billion at December 31, 2009. This increase in loans
reflects our continued focus on loan originations and purchases, which was partially offset by
paydowns and payoffs of loans. The loans we originate and purchase, which are collateralized by real estate, are on properties in New Jersey
and states in close proximity to New Jersey. 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 through our mortgage subsidiary, ISB Mortgage Co.
During the year ended December 31, 2010, ISB Mortgage Co. originated $1.50 billion in residential
mortgage loans of which $696.0 million were originated for sale to third party investors and $800.5
million remained in our portfolio. We also 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 year ended
December 31, 2010, we purchased loans totaling $814.9 million from these entities. We also
purchase, on a bulk purchase basis, pools of mortgage loans that meet our underwriting criteria
from several well-established financial institutions in the secondary market. During the year ended
December 31, 2010, we purchased $47.4 million of residential mortgage loans on a bulk purchase
basis.
Additionally, during 2010, we originated $487.9
million in multi-family loans, $412.6 million in commercial real estate loans, $214.4 million in
construction loans, $87.8 million in consumer and other loans, and $59.6 million in commercial and
industrial loans. We also purchased approximately $200 million in performing commercial real estate
and home equity loans from Millennium bcpbank.
The allowance for loan losses increased by $35.9 million to $90.9 million at December 31, 2010
from $55.1 million at December 31, 2009. The increase in the allowance is primarily attributable to
the higher current period loan loss provision which reflects the overall growth in the loan
portfolio, particularly residential, multi family and commercial real estate loans; the increased
inherent credit risk in our overall portfolio, particularly the credit risk associated with
commercial real estate lending; and internal downgrades of the risk ratings on certain construction
loans; our increased level of non-performing loans; and the adverse economic environment, offset partially by
net charge offs of $30.6 million. These charge offs were primarily in the construction loan
portfolio.
The triggering events or other circumstances that led to the significant credit deterioration
resulting in our construction loan charge-offs were caused by a variety of economic factors
including, but not limited to: continued deterioration of the housing and real estate markets in
which we lend, significant and continuing declines in the value of real estate which collateralize
our construction loans, the overall weakness of the economy in the New York/New Jersey metropolitan area,
and unemployment in
our lending area which increased during 2010.
The Companys historical loan charge-off history was immaterial prior to September 30,
2009. We have aggressively attempted to collect our delinquent loans while establishing specific
loan loss reserves to properly value these loans. We record a charge-off when the likelihood of
collecting the amounts specifically reserved becomes less likely, due to a variety of reasons that
are specific to each loan. For example, some of the reasons that were determining factors in
recording charge-offs were as follows: declining liquidity of the borrower/guarantors, prospects of
selling finished inventory outside of prime selling season in real estate markets with limited
activity (prime selling season of real estate is in the spring/summer months), no additional
collateral that could be posted by borrowers that could be utilized to satisfy the borrowers
obligations, and decisions to move forward with note sales on a select basis in order to reduce
levels of non-performing loans.
47
Non-performing loans increased $45.7 million to $165.9 million at December 31, 2010, from
$120.2 million at December 31, 2009. Although we have resolved a number of non-performing loans,
the continued deterioration of the housing and real estate markets, as well as the overall weakness
in the economy, continue to impact our non-performing loans. As a geographically concentrated
residential lender, we have been affected by negative consequences arising from the ongoing
economic recession and, in particular, the sharp downturn in the housing industry, as well as
economic and housing industry weaknesses in the New Jersey/New York metropolitan area. We are
particularly vulnerable to the impact of a severe job loss recession. We continue to closely
monitor the local and regional real estate markets and other factors related to risks inherent in
our loan portfolio.
The comparative table below details non-performing loans and allowance for loan loss coverage
ratios over the last four quarters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
September 30, 2010 |
|
|
June 30, 2010 |
|
|
March 31, 2010 |
|
|
|
# of Loans |
|
|
Amount |
|
|
# of Loans |
|
|
Amount |
|
|
# of Loans |
|
|
Amount |
|
|
# of Loans |
|
|
Amount |
|
|
|
(Dollars in millions) |
|
Residential and consumer |
|
|
263 |
|
|
$ |
74.7 |
|
|
|
239 |
|
|
$ |
68.7 |
|
|
|
210 |
|
|
$ |
60.4 |
|
|
|
199 |
|
|
$ |
57.1 |
|
Construction |
|
|
26 |
|
|
|
82.8 |
|
|
|
21 |
|
|
|
67.1 |
|
|
|
21 |
|
|
|
67.6 |
|
|
|
22 |
|
|
|
61.6 |
|
Multi-family |
|
|
3 |
|
|
|
2.7 |
|
|
|
6 |
|
|
|
3.5 |
|
|
|
3 |
|
|
|
2.7 |
|
|
|
2 |
|
|
|
2.5 |
|
Commercial |
|
|
8 |
|
|
|
3.9 |
|
|
|
8 |
|
|
|
4.6 |
|
|
|
8 |
|
|
|
4.6 |
|
|
|
9 |
|
|
|
3.5 |
|
Commercial and industrial |
|
|
5 |
|
|
|
1.8 |
|
|
|
2 |
|
|
|
1.0 |
|
|
|
2 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
|
305 |
|
|
$ |
165.9 |
|
|
|
276 |
|
|
$ |
144.9 |
|
|
|
244 |
|
|
$ |
135.9 |
|
|
|
232 |
|
|
$ |
124.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans |
|
|
|
|
|
|
2.08 |
% |
|
|
|
|
|
|
1.94 |
% |
|
|
|
|
|
|
1.88 |
% |
|
|
|
|
|
|
1.82 |
% |
Allowance for loan loss as a
percent of non-performing loans |
|
|
|
|
|
|
54.81 |
% |
|
|
|
|
|
|
58.39 |
% |
|
|
|
|
|
|
52.23 |
% |
|
|
|
|
|
|
50.47 |
% |
Allowance for loan loss as a
percent of total loans |
|
|
|
|
|
|
1.14 |
% |
|
|
|
|
|
|
1.13 |
% |
|
|
|
|
|
|
1.00 |
% |
|
|
|
|
|
|
0.92 |
% |
In addition to non-performing loans we continue to monitor our portfolio for potential problem
loans. Potential problem loans are defined as loans about which we have concerns as to the ability
of the borrower to comply with the present loan repayment terms and which may cause the loan to be
placed on non-accrual status. As of December 31, 2010, the Company has 20 loans totaling $35.1 million
that it deems potential problem loans. Management is actively monitoring these loans.
Future increases in the allowance for loan losses may be necessary based on the growth of the
loan portfolio, the change in composition of the loan portfolio, possible future increases in
non-performing loans and charge-offs, and the impact the deterioration of the real estate and
economic environments in our lending area. 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.
Securities. Securities, in the aggregate, decreased by $107.4 million, or 9.0%, to $1.08
billion at December 31, 2010, from $1.19 billion at December 31, 2009. The decrease in the
portfolio was due to paydowns, calls or maturities and was partially offset by the purchase of
$346.8 million of agency issued mortgage backed securities during the year ended December 31, 2010.
The securities portfolio includes non-agency, private label mortgage backed securities with an
amortized cost of $77.7 million and a fair value of $78.1 million. These securities were originated
in the period 2002-2004 and are performing in accordance with contractual terms. Management will
continue to monitor these securities for possible OTTI.
Other Assets, Stock in the Federal Home Loan Bank, Bank Owned Life Insurance, and Intangible
Assets. Other assets decreased $8.3 million to $28.8 million at December 31, 2010 from $37.1
million at December 31, 2009 which is primarily attributed to prepaid FDIC insurance premiums
amortizing $9.8 million during the period. The amount of FHLB stock we own increased by $14.2
million from $66.2 million at December 31, 2009 to $80.4 million at December 31, 2009 as a result
of a increase in our level of borrowings since December 31, 2009. Bank owned life insurance
increased by $2.5 million from $114.5 million at December 31, 2009 to $117.0 million at December
31, 2010, primarily due to the increase in the cash surrender value of the underlying policies.
Intangible assets increased $7.3 million from $31.7 million at December 31, 2009 to $39.0 million
at December 31, 2010 primarily due to the core deposit intangible asset recorded related to our
Millennium branch acquisition, as well as an increase in our mortgage servicing rights.
Deposits. Deposits increased by $934.3 million, or 16.0%, to $6.77 billion at December 31,
2010 from $5.84 billion at December 31, 2009. This increase reflects the acquisition of Millennium
deposit franchise of approximately $600 million and the continued growth in our markets. Core
deposits represented $787.2 million or 84.3% of the growth while certificates of deposit
represented $147.1 million, or 15.7% of the growth.
48
Borrowed Funds. Borrowed funds increased $226.0 million, or 14.1%, to $1.83 billion at
December 31, 2010 from $1.60 billion at December 31, 2009 as new loan originations have outpaced
the deposit growth and principal run-off from the securities portfolio.
Stockholders Equity. Stockholders equity increased $51.0 million to $901.3 million at
December 31, 2010 from $850.2 million at December 31, 2009. The increase is primarily attributed to
the $62.0 million net income for year ended December 31, 2010, $9.5 million of compensation cost
related to equity incentive plans, partially offset by $24.5 million in purchases of treasury
stock.
Analysis of Net Interest Income
Net interest income represents the difference between income we earn on our interest-earning
assets and the expense we pay on interest-bearing liabilities. Net interest income depends on the
volume of interest-earning assets and interest-bearing liabilities and the interest rates earned on
such assets and paid on such liabilities.
Average Balances and Yields. The following tables set forth average balance sheets, average
yields and costs, and certain other information for the periods indicated. No tax-equivalent yield
adjustments were made, as the effect thereof was not material. All average balances are daily
average balances. Non-accrual loans were included in the computation of average balances, but have
been reflected in the table as loans carrying a zero yield. The yields set forth below include the
effect of deferred fees, discounts and premiums that are amortized or accreted to interest income
or expense.
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
|
Outstanding |
|
|
Earned/ |
|
|
Yield/ |
|
|
Outstanding |
|
|
Earned/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Paid |
|
|
Rate |
|
|
Balance |
|
|
Paid |
|
|
Rate |
|
|
|
(In thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
$ |
132,365 |
|
|
$ |
238 |
|
|
|
0.18 |
% |
|
$ |
301,293 |
|
|
$ |
700 |
|
|
|
0.23 |
% |
Securities available-for-sale(1) |
|
|
497,094 |
|
|
|
12,430 |
|
|
|
2.50 |
|
|
|
303,507 |
|
|
|
10,404 |
|
|
|
3.43 |
|
Securities held-to-maturity |
|
|
604,238 |
|
|
|
28,600 |
|
|
|
4.73 |
|
|
|
861,627 |
|
|
|
41,097 |
|
|
|
4.77 |
|
Net loans |
|
|
7,197,608 |
|
|
|
383,531 |
|
|
|
5.33 |
|
|
|
6,049,981 |
|
|
|
328,481 |
|
|
|
5.43 |
|
Stock in FHLB |
|
|
76,368 |
|
|
|
3,904 |
|
|
|
5.11 |
|
|
|
70,263 |
|
|
|
3,701 |
|
|
|
5.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
8,507,673 |
|
|
|
428,703 |
|
|
|
5.04 |
|
|
|
7,586,671 |
|
|
|
384,383 |
|
|
|
5.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets |
|
|
397,436 |
|
|
|
|
|
|
|
|
|
|
|
303,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,905,109 |
|
|
|
|
|
|
|
|
|
|
$ |
7,890,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits |
|
$ |
944,894 |
|
|
|
13,958 |
|
|
|
1.48 |
% |
|
$ |
728,182 |
|
|
|
14,533 |
|
|
|
2.00 |
% |
Interest-bearing checking |
|
|
908,567 |
|
|
|
6,406 |
|
|
|
0.71 |
|
|
|
780,309 |
|
|
|
13,252 |
|
|
|
1.70 |
|
Money market accounts |
|
|
748,707 |
|
|
|
7,299 |
|
|
|
0.97 |
|
|
|
483,565 |
|
|
|
7,834 |
|
|
|
1.62 |
|
Certificates of deposit |
|
|
3,321,671 |
|
|
|
63,148 |
|
|
|
1.90 |
|
|
|
3,194,240 |
|
|
|
87,383 |
|
|
|
2.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
5,923,839 |
|
|
|
90,811 |
|
|
|
1.53 |
|
|
|
5,186,296 |
|
|
|
123,002 |
|
|
|
2.37 |
|
Borrowed funds |
|
|
1,780,205 |
|
|
|
68,482 |
|
|
|
3.85 |
|
|
|
1,718,405 |
|
|
|
69,094 |
|
|
|
4.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
7,704,044 |
|
|
|
159,293 |
|
|
|
2.07 |
|
|
|
6,904,701 |
|
|
|
192,096 |
|
|
|
2.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities |
|
|
308,785 |
|
|
|
|
|
|
|
|
|
|
|
187,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
8,012,829 |
|
|
|
|
|
|
|
|
|
|
|
7,092,656 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
892,280 |
|
|
|
|
|
|
|
|
|
|
|
787,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
8,905,109 |
|
|
|
|
|
|
|
|
|
|
$ |
7,890,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
269,410 |
|
|
|
|
|
|
|
|
|
|
$ |
192,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread(2) |
|
|
|
|
|
|
|
|
|
|
2.97 |
% |
|
|
|
|
|
|
|
|
|
|
2.28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets(3) |
|
$ |
803,629 |
|
|
|
|
|
|
|
|
|
|
$ |
681,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(4) |
|
|
|
|
|
|
|
|
|
|
3.17 |
% |
|
|
|
|
|
|
|
|
|
|
2.53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of interest-earning assets to total
interest-bearing liabilities |
|
|
1.10 |
x |
|
|
|
|
|
|
|
|
|
|
1.10 |
x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Securities available-for-sale are stated at amortized cost, adjusted for unamortized purchased 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. |
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Six Months Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
|
Outstanding |
|
|
Earned/ |
|
|
Yield/ |
|
|
Outstanding |
|
|
Earned/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Paid |
|
|
Rate |
|
|
Balance |
|
|
Paid |
|
|
Rate |
|
|
|
(In thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
$ |
304,293 |
|
|
$ |
346 |
|
|
|
0.23 |
% |
|
$ |
19,221 |
|
|
$ |
39 |
|
|
|
0.41 |
% |
Securities available-for-sale(1) |
|
|
406,462 |
|
|
|
5,926 |
|
|
|
2.92 |
|
|
|
196,848 |
|
|
|
4,491 |
|
|
|
4.56 |
|
Securities held-to-maturity |
|
|
779,405 |
|
|
|
17,404 |
|
|
|
4.47 |
|
|
|
1,203,268 |
|
|
|
27,222 |
|
|
|
4.52 |
|
Net loans |
|
|
6,370,350 |
|
|
|
172,575 |
|
|
|
5.42 |
|
|
|
5,241,754 |
|
|
|
148,771 |
|
|
|
5.68 |
|
Stock in FHLB |
|
|
68,122 |
|
|
|
2,021 |
|
|
|
5.93 |
|
|
|
79,496 |
|
|
|
1,424 |
|
|
|
3.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
7,928,632 |
|
|
|
198,272 |
|
|
|
5.00 |
|
|
|
6,740,587 |
|
|
|
181,947 |
|
|
|
5.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets |
|
|
335,411 |
|
|
|
|
|
|
|
|
|
|
|
191,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,264,043 |
|
|
|
|
|
|
|
|
|
|
$ |
6,931,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits |
|
$ |
835,109 |
|
|
|
7,615 |
|
|
|
1.82 |
% |
|
$ |
395,448 |
|
|
|
3,650 |
|
|
|
1.85 |
% |
Interest-bearing checking |
|
|
802,474 |
|
|
|
4,426 |
|
|
|
1.10 |
|
|
|
371,200 |
|
|
|
2,842 |
|
|
|
1.53 |
|
Money market accounts |
|
|
608,710 |
|
|
|
4,392 |
|
|
|
1.44 |
|
|
|
265,074 |
|
|
|
3,024 |
|
|
|
2.28 |
|
Certificates of deposit |
|
|
3,321,607 |
|
|
|
40,144 |
|
|
|
2.42 |
|
|
|
2,968,288 |
|
|
|
53,421 |
|
|
|
3.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
5,567,900 |
|
|
|
56,577 |
|
|
|
2.03 |
|
|
|
4,000,010 |
|
|
|
62,937 |
|
|
|
3.15 |
|
Borrowed funds |
|
|
1,643,205 |
|
|
|
33,894 |
|
|
|
4.13 |
|
|
|
1,990,807 |
|
|
|
37,362 |
|
|
|
3.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
7,211,105 |
|
|
|
90,471 |
|
|
|
2.51 |
|
|
|
5,990,817 |
|
|
|
100,299 |
|
|
|
3.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities |
|
|
226,956 |
|
|
|
|
|
|
|
|
|
|
|
114,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
7,438,061 |
|
|
|
|
|
|
|
|
|
|
|
6,105,226 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
825,982 |
|
|
|
|
|
|
|
|
|
|
|
826,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
8,264,043 |
|
|
|
|
|
|
|
|
|
|
$ |
6,931,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
107,801 |
|
|
|
|
|
|
|
|
|
|
$ |
81,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread(2) |
|
|
|
|
|
|
|
|
|
|
2.49 |
% |
|
|
|
|
|
|
|
|
|
|
2.05 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets(3) |
|
$ |
717,527 |
|
|
|
|
|
|
|
|
|
|
$ |
749,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(4) |
|
|
|
|
|
|
|
|
|
|
2.72 |
% |
|
|
|
|
|
|
|
|
|
|
2.42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of interest-earning assets to total
interest-bearing liabilities |
|
|
1.10 |
x |
|
|
|
|
|
|
|
|
|
|
1.13 |
x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Securities available-for-sale are stated at amortized cost, adjusted for unamortized purchased 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. |
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
|
Outstanding |
|
|
Earned/ |
|
|
Yield/ |
|
|
Outstanding |
|
|
Earned/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Paid |
|
|
Rate |
|
|
Balance |
|
|
Paid |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
$ |
158,743 |
|
|
$ |
393 |
|
|
|
0.25 |
% |
|
$ |
32,948 |
|
|
$ |
974 |
|
|
|
2.96 |
% |
Repurchase agreements and federal funds sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,798 |
|
|
|
162 |
|
|
|
2.79 |
|
Securities available-for-sale(1) |
|
|
197,824 |
|
|
|
8,968 |
|
|
|
4.53 |
|
|
|
235,385 |
|
|
|
10,826 |
|
|
|
4.60 |
|
Securities held-to-maturity |
|
|
1,074,279 |
|
|
|
50,917 |
|
|
|
4.74 |
|
|
|
1,438,804 |
|
|
|
67,977 |
|
|
|
4.72 |
|
Net loans |
|
|
5,482,009 |
|
|
|
304,678 |
|
|
|
5.56 |
|
|
|
4,043,398 |
|
|
|
229,634 |
|
|
|
5.68 |
|
Stock in FHLB |
|
|
75,938 |
|
|
|
3,104 |
|
|
|
4.09 |
|
|
|
44,939 |
|
|
|
3,234 |
|
|
|
7.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
6,988,793 |
|
|
|
368,060 |
|
|
|
5.27 |
|
|
|
5,801,272 |
|
|
|
312,807 |
|
|
|
5.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets |
|
|
231,122 |
|
|
|
|
|
|
|
|
|
|
|
185,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
7,219,915 |
|
|
|
|
|
|
|
|
|
|
$ |
5,986,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits |
|
$ |
507,132 |
|
|
|
10,568 |
|
|
|
2.08 |
% |
|
$ |
372,846 |
|
|
|
7,718 |
|
|
|
2.07 |
% |
Interest-bearing checking |
|
|
565,278 |
|
|
|
11,668 |
|
|
|
2.06 |
|
|
|
353,564 |
|
|
|
7,329 |
|
|
|
2.07 |
|
Money market accounts |
|
|
310,656 |
|
|
|
6,466 |
|
|
|
2.08 |
|
|
|
204,952 |
|
|
|
5,005 |
|
|
|
2.44 |
|
Certificates of deposit |
|
|
3,015,955 |
|
|
|
100,660 |
|
|
|
3.34 |
|
|
|
2,909,550 |
|
|
|
132,693 |
|
|
|
4.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
4,399,021 |
|
|
|
129,362 |
|
|
|
2.94 |
|
|
|
3,840,912 |
|
|
|
152,745 |
|
|
|
3.98 |
|
Borrowed funds |
|
|
1,892,181 |
|
|
|
72,562 |
|
|
|
3.83 |
|
|
|
1,208,529 |
|
|
|
54,950 |
|
|
|
4.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
6,291,202 |
|
|
|
201,924 |
|
|
|
3.21 |
|
|
|
5,049,441 |
|
|
|
207,695 |
|
|
|
4.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities |
|
|
131,219 |
|
|
|
|
|
|
|
|
|
|
|
102,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
6,422,421 |
|
|
|
|
|
|
|
|
|
|
|
5,152,269 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
797,494 |
|
|
|
|
|
|
|
|
|
|
|
834,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
7,219,915 |
|
|
|
|
|
|
|
|
|
|
$ |
5,986,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
166,136 |
|
|
|
|
|
|
|
|
|
|
$ |
105,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread(2) |
|
|
|
|
|
|
|
|
|
|
2.06 |
% |
|
|
|
|
|
|
|
|
|
|
1.28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets(3) |
|
$ |
697,591 |
|
|
|
|
|
|
|
|
|
|
$ |
751,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(4) |
|
|
|
|
|
|
|
|
|
|
2.38 |
% |
|
|
|
|
|
|
|
|
|
|
1.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of interest-earning assets to total interest-bearing liabilities |
|
|
1.11 |
x |
|
|
|
|
|
|
|
|
|
|
1.15 |
x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Securities available-for-sale are stated at amortized cost, adjusted for unamortized purchased 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. |
52
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest
income for the periods indicated. The rate column shows the effects attributable to changes in rate
(changes in rate multiplied by prior volume). The volume column shows the effects attributable to
changes in volume (changes in volume multiplied by prior rate). The net column represents the sum
of the prior columns. For purposes of this table, changes attributable to both rate and volume,
which cannot be segregated, have been allocated proportionately, based on the changes due to rate
and the changes due to volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
Six Months Ended December 31, |
|
|
Years Ended June 30, |
|
|
|
2010 vs. 2009 |
|
|
2009 vs. 2008 |
|
|
2009 vs. 2008 |
|
|
|
Increase (Decrease) |
|
|
Net |
|
|
Increase (Decrease) |
|
|
Net |
|
|
Increase (Decrease) |
|
|
Net |
|
|
|
Due to |
|
|
Increase |
|
|
Due to |
|
|
Increase |
|
|
Due to |
|
|
Increase |
|
|
|
Volume |
|
|
Rate |
|
|
(Decrease) |
|
|
Volume |
|
|
Rate |
|
|
(Decrease) |
|
|
Volume |
|
|
Rate |
|
|
(Decrease) |
|
|
|
(In thousands) |
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
$ |
(329 |
) |
|
$ |
(133 |
) |
|
$ |
(462 |
) |
|
$ |
365 |
|
|
$ |
(58 |
) |
|
$ |
307 |
|
|
$ |
971 |
|
|
$ |
(1,552 |
) |
|
$ |
(581 |
) |
Repurchase agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(162 |
) |
|
|
|
|
|
|
(162 |
) |
Securities available-for-sale |
|
|
4,413 |
|
|
|
(2,387 |
) |
|
|
2,026 |
|
|
|
3,799 |
|
|
|
(2,364 |
) |
|
|
1,435 |
|
|
|
(1,818 |
) |
|
|
(40 |
) |
|
|
(1,858 |
) |
Securities held-to-maturity |
|
|
(10,491 |
) |
|
|
(2,006 |
) |
|
|
(12,497 |
) |
|
|
(15,169 |
) |
|
|
5,351 |
|
|
|
(9,818 |
) |
|
|
(17,644 |
) |
|
|
584 |
|
|
|
(17,060 |
) |
Net loans |
|
|
68,386 |
|
|
|
(13,336 |
) |
|
|
55,050 |
|
|
|
44,655 |
|
|
|
(20,851 |
) |
|
|
23,804 |
|
|
|
82,755 |
|
|
|
(7,711 |
) |
|
|
75,044 |
|
Stock in FHLB |
|
|
314 |
|
|
|
(111 |
) |
|
|
203 |
|
|
|
(562 |
) |
|
|
1,159 |
|
|
|
597 |
|
|
|
1,638 |
|
|
|
(1,768 |
) |
|
|
(130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
62,293 |
|
|
|
(17,973 |
) |
|
|
44,320 |
|
|
|
33,088 |
|
|
|
(16,763 |
) |
|
|
16,325 |
|
|
|
65,740 |
|
|
|
(10,487 |
) |
|
|
55,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits |
|
|
3,725 |
|
|
|
(4,300 |
) |
|
|
(575 |
) |
|
|
4,097 |
|
|
|
(132 |
) |
|
|
3,965 |
|
|
|
2,798 |
|
|
|
52 |
|
|
|
2,850 |
|
Interest-bearing checking |
|
|
1,899 |
|
|
|
(8,745 |
) |
|
|
(6,846 |
) |
|
|
3,839 |
|
|
|
(2,255 |
) |
|
|
1,584 |
|
|
|
4,370 |
|
|
|
(31 |
) |
|
|
4,339 |
|
Money market accounts |
|
|
3,305 |
|
|
|
(3,840 |
) |
|
|
(535 |
) |
|
|
4,530 |
|
|
|
(3,162 |
) |
|
|
1,368 |
|
|
|
2,285 |
|
|
|
(824 |
) |
|
|
1,461 |
|
Certificates of deposit |
|
|
3,363 |
|
|
|
(27,598 |
) |
|
|
(24,235 |
) |
|
|
15,138 |
|
|
|
(28,415 |
) |
|
|
(13,277 |
) |
|
|
4,697 |
|
|
|
(36,730 |
) |
|
|
(32,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
12,292 |
|
|
|
(44,483 |
) |
|
|
(32,191 |
) |
|
|
27,604 |
|
|
|
(33,964 |
) |
|
|
(6,360 |
) |
|
|
14,150 |
|
|
|
(37,533 |
) |
|
|
(23,383 |
) |
Borrowed funds |
|
|
(38 |
) |
|
|
(574 |
) |
|
|
(612 |
) |
|
|
(10,322 |
) |
|
|
6,854 |
|
|
|
(3,468 |
) |
|
|
22,283 |
|
|
|
(4,671 |
) |
|
|
17,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
12,254 |
|
|
|
(45,057 |
) |
|
|
(32,803 |
) |
|
|
17,282 |
|
|
|
(27,110 |
) |
|
|
(9,828 |
) |
|
|
36,433 |
|
|
|
(42,204 |
) |
|
|
(5,771 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in net interest income |
|
$ |
50,039 |
|
|
$ |
27,084 |
|
|
$ |
77,123 |
|
|
$ |
15,806 |
|
|
$ |
10,347 |
|
|
$ |
26,153 |
|
|
$ |
29,307 |
|
|
$ |
31,717 |
|
|
$ |
61,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Operating Results for the Twelve Months Ended December 31, 2010 and 2009
Net Income. The net income for the year ended December 31, 2010 was $62.0 million compared to
$35.1 million for the year ended December 31, 2009.
Net Interest Income. Net interest income increased by $77.1 million, or 40.1%, to $269.4
million for the year ended December 31, 2010 from $192.3 million for the year ended December 31,
2009. The increase was primarily due to a 71 basis point decrease in our cost of interest-bearing
liabilities to 2.07% for the year ended December 31, 2010 from 2.78% for the year ended December
31, 2009. This was partially offset by the yield on our interest-earning assets decreasing 3 basis
points to 5.04% for the year ended December 31, 2010 from 5.07% for the year ended December 31,
2009. Short term interest rates remaining at historically low levels resulted in many of our
deposits repricing downward. This had a positive impact on our net interest margin which improved
by 64 basis points from 2.53% for the year ended December 31, 2009 to 3.17% for the year ended
December 31, 2010.
Interest and Dividend Income. Total interest and dividend income increased by $44.3 million,
or 11.5%, to $428.7 million for the year ended December 31, 2010 from $384.4 million for the year
ended December 31, 2009. This increase is attributed to the average balance of interest-earning
assets increasing $921.0 million, or 12.1%, to $8.51 billion for the year ended December 31, 2010
from $7.59 billion for the year ended December 31, 2009. This was partially offset by a 3 basis
point decrease in the weighted average yield on interest-earning assets to 5.04% for the year ended
December 31, 2010 compared to 5.07% for the year ended December 31, 2009.
Interest income on loans increased by $55.1 million, or 16.8%, to $383.5 million for the year
ended December 31, 2010 from $328.5 million for the year ended December 31, 2009, reflecting a
$1.15 billion, or 19.0%, increase in the average balance of net loans to $7.20 billion for the year
ended December 31, 2010 from $6.05 billion for the year ended December 31, 2009. The increase is
primarily attributed to the average balance of commercial real estate loans and multi-family loans
increasing by $497.4 million and $378.8 million, respectively, consistent with our strategy to diversify our loan portfolio by adding more commercial real estate and multi-family
loans. In addition, the yield was favorably impacted by commercial real estate prepayment penalties
totaling $1.1 million. These increases were partially offset by a 10 basis point decrease in the
average yield on loans to 5.33% for the year ended December 31, 2010 from 5.43% for the year ended
December 31, 2009.
Interest income on all other interest-earning assets, excluding loans, decreased by $10.7
million, or 19.2%, to $45.2 million for the year ended December 31, 2010 from $55.9 million for the
year ended December 31, 2009. This decrease reflected a $226.6
53
million decrease in the average balance of all other interest-earning assets, excluding loans
to $1.31 billion for the year ended December 31, 2010 from $1.54 billion for the year ended
December 31, 2009. In addition, the weighted average yield on interest-earning assets, excluding
loans, decreased 19 basis point to 3.45% for the year ended December 31, 2010 from 3.64% for the
year ended December 31, 2009. The decrease in yield is primarily attributed to the purchase of
additional securities at lower yields and the repricing of our adjustable rate securities.
Interest Expense. Total interest expense decreased by $32.8 million, or 17.1%, to $159.3
million for the year ended December 31, 2010 from $192.1 million for the year ended December 31,
2009. This decrease is attributed to the weighted average cost of total interest-bearing
liabilities decreasing 71 basis points to 2.07% for the year ended December 31, 2010 compared to
2.78% for the year ended December 31, 2009. This was partially offset by the average balance of
total interest-bearing liabilities increasing by $799.3 million, or 11.6%, to $7.70 billion for the
year ended December 31, 2010 from $6.90 billion for the year ended December 31, 2009.
Interest expense on interest-bearing deposits decreased $32.2 million, or 26.2% to $90.8
million for the year ended December 31, 2010 from $123.0 million for the year ended December 31,
2009. This decrease is attributed to an 84 basis point decrease in the average cost of
interest-bearing deposits to 1.53% for the year ended December 31, 2010 from 2.37% for the year
ended December 31, 2009 as deposit rates decreased to reflect the current interest rate
environment. This was partially offset by the average balance of total interest-bearing deposits
increasing $737.5 million, or 14.2% to $5.92 billion for the year ended December 31, 2010 from
$5.19 billion for the year ended December 31, 2009. Core deposit growth represented 82.7%, or
$610.1 million of the increase in the average balance of total interest-bearing deposits.
Interest expense on borrowed funds decreased by $612,000, or 0.9%, to $68.5 million for the
year ended December 31, 2010 from $69.1 million for the year ended December 31, 2009. This decrease
is attributed to the average cost of borrowed funds decreasing 17 basis points to 3.85% for the
year ended December 31, 2010 from 4.02% for the year ended December 31, 2009 due to the lower
interest rate environment. This was partially offset by the average balance of borrowed funds
increasing by $61.8 million or 3.6%, to $1.78 billion for the year ended December 31, 2010 from
$1.72 billion for the year ended December 31, 2009.
Provision for Loan Losses. Our provision for loan losses for year ended December 31, 2010 was
$66.5 million compared to $39.5 million for the year ended December 31, 2009. Net charge-offs
totaled $30.6 million for the year ended December 31, 2010 compared to net charge-offs of $14.9
million for the year ended December 31, 2009. The increase in our provision is due to continued
growth in the loan portfolio; the increased inherent credit risk in our overall portfolio,
particularly the credit risk associated with commercial real estate lending; an increase in
non-performing loans and loan delinquency; and the adverse economic conditions in our lending area.
Non-Interest Income. Total non-interest income was $26.5 million for the year ended December
31, 2010 compared to $14.8 million for the year ended December 31, 2009. The increase of $11.7
million is primarily attributed to a $4.1 million increase in fees and service charges, $4.1
million increase in gain on loan sales and a $1.8 million gain on bargain purchase in connection
with the Millenium deposit acquisition. The year ended December 31, 2009 included a $1.8 million
gain from the sale of our largest non-performing loan and a $1.3 million pre-tax
other-than-temporary impairment (OTTI) non-cash charge on certain pooled trust preferred
securities (TruPS).
Non-Interest Expenses. Total non-interest expenses increased by $21.7 million, or 19.9%, to
$130.8 million for the year ended December 31, 2010 from $109.1 million for the year ended December
31, 2009. Compensation and fringe benefits increased $9.9 million as a result of staff additions in
our retail banking areas due to acquisitions and de novo growth, staff additions in our mortgage
company and commercial real estate lending department, as well as normal merit increases.
Occupancy expense increased $5.7 million as a result of the costs associated with expanding our
branch network including the one time charge of $700,000 for the consolidation and closing of two
Millennium branches. Professional fees increased $2.0 million for initiatives supporting the
Companys growth. Advertising increased $1.8 million due to marketing efforts relative to our
business expansion and data processing increased $1.2 million primarily due to increased volume of
accounts. These increases were partially offset by a reduction of $1.4 million in FDIC insurance
premiums as the year ended December 31, 2009 included a $3.7 million special assessment on insured
financial institutions to rebuild the Deposit Insurance Fund.
Income Tax Expense. Income tax expense was $36.6 million for the year ended December 31, 2010,
representing a 37.11% effective tax rate. For the year ended December 31, 2009, there was an income
tax expense of $23.4 million representing a 40.04% effective tax rate. The decrease in the
effective tax rate is due to the gain on bargain purchase which is not taxable and more revenue
generated in states other than New Jersey.
54
Comparison of Operating Results for the Six Month Period Ended December 31, 2009 and 2008
Net Income. The net income for the six months ended December 31, 2009 was $22.6 million
compared to a net loss of $77.5 million for the six months ended December 31, 2008. The net loss in
the prior period included the recognition of non-cash other-than-temporary impairment charges
related to our portfolio of pooled bank trust preferred collateralized debt obligations of $156.7
million pre-tax for the six month period.
Net Interest Income. Net interest income increased by $26.2 million, or 32.0%, to $107.8
million for the six months ended December 31, 2009 from $81.6 million for the six months ended
December 31, 2008. The increase was caused primarily by a 84 basis point decrease in our cost of
interest-bearing liabilities to 2.51% for the six months ended December 31, 2009 from 3.35% for the
six months ended December 31, 2008. This was partially offset by a 40 basis point decrease in our
yield on interest-earning assets to 5.00% for the six months ended December 31, 2009 from 5.40% for
the six months ended December 31, 2008. Our net interest margin improved by 30 basis points from
2.42% for the six months ended December 31, 2008 to 2.72% for the six months ended December 31,
2009. Our net interest margin for the six months ended December 31, 2009 has been positively
impacted by a steeper yield curve which allowed us to reduce deposit rates while keeping mortgage
rates relatively stable.
Interest and Dividend Income. Total interest and dividend income increased by $16.3 million,
or 9.0%, to $198.3 million for the six months ended December 31, 2009 from $181.9 million for the
six months ended December 31, 2008. This increase is due to the average balance of interest-earning
assets increasing $1.19 billion, or 17.6%, to $7.93 billion for the six months ended December 31,
2009 from $6.74 billion for the six months ended December 31, 2008. This was partially offset by a
40 basis point decrease in the weighted average yield on interest-earning assets to 5.00% for the
six months ended December 31, 2009 compared to 5.40% for the six months ended December 31, 2008.
Interest income on loans increased by $23.8 million, or 16.0%, to $172.6 million for the six
months ended December 31, 2009 from $148.8 million for the six months ended December 31, 2008,
reflecting a $1.13 billion, or 21.5%, increase in the average balance of net loans to $6.37 billion
for the six months ended December 31, 2009 from $5.24 billion for the six months ended December 31,
2008. This was partially offset by the average yield on loans decreasing 26 basis points to 5.42%
for the six months ended December 31, 2009 from 5.68% for the six months ended December 31, 2008.
This is attributed to higher loan refinancing activity as customers took advantage of lower rates
primarily on residential mortgage loans and to a lesser extent, the repricing of adjustable rate
loans.
Interest income on all other interest-earning assets, excluding loans, decreased by $7.5
million, or 22.5%, to $25.7 million for the six months ended December 31, 2009 from $33.2 million
for the six months ended December 31, 2008. This decrease reflected a 113 basis point decrease in
the average yield on all other interest-earning assets, excluding loans, to 3.30% for the six
months ended December 31, 2009 from 4.43% for the six months ended December 31, 2008. The decrease
in yield is primarily attributed to the repricing of our adjustable rate securities and an increase
in the average balance of interest bearing deposits which had a yield of 0.23%.
Interest Expense. Total interest expense decreased by $9.8 million, or 9.8%, to $90.5 million
for the six months ended December 31, 2009 from $100.3 million for the six months ended December
31, 2008. This decrease was due to the weighted average cost of total interest-bearing liabilities
decreasing 84 basis points to 2.51% for the six months ended December 31, 2009 compared to 3.35%
for the six months ended December 31, 2008. This was partially offset by the average balance of
total interest-bearing liabilities increasing by $1.22 billion, or 20.4%, to $7.21 billion for the
six months ended December 31, 2009 from $5.99 billion for the six months ended December 31, 2008.
Interest expense on interest-bearing deposits decreased $6.4 million, or 10.1% to $56.6
million for the six months ended December 31, 2009 from $62.9 million for the six months ended
December 31, 2008. This decrease was due to a 112 basis point decrease in the average cost of
interest-bearing deposits to 2.03% for the six months ended December 31, 2009 from 3.15% for the
six months ended December 31, 2008. This was partially offset by the average balance of
interest-bearing deposits increasing $1.57 billion, or 39.2% to $5.57 billion for the six months
ended December 31, 2009 from $4.00 billion for the six months ended December 31, 2008.
Interest expense on borrowed funds decreased by $3.5 million, or 9.3%, to $33.9 million for
the six months ended December 31, 2009 from $37.4 million for the six months ended December 31,
2008. This decrease is attributed to the average balance of borrowed funds decreasing by $347.6
million or 17.5%, to $1.64 billion for the six months ended December 31, 2009 from $1.99 billion
for the six months ended December 31, 2008. This was partially offset by the average cost of
borrowed funds increasing 38 basis points to 4.13% for the six months ended December 31, 2009 from
3.75% for the six months ended December 31, 2008.
55
Provision for Loan Losses. Our provision for loan losses for the six month period ended
December 31, 2009 was $23.4 million compared to $13.0 million for the six month period ended
December 31, 2008. Net charge-offs totaled $15.0 million for the six months ended December 31,
2009, compared to net charge-offs of sixteen thousand for the six months ended December 31, 2008.
The charges offs during the six months ended December 31, 2009 included 12 construction loans for a
total of $13.4 million. All charge-offs were fully reserved for in prior periods. The increase in
the allowance is primarily attributable to the higher current period loan loss provision which
reflects the overall growth in the loan portfolio, particularly residential multi family and
commercial real estate loans; the increased inherent credit risk in our overall portfolio,
particularly the credit risk associated with commercial real estate lending; and internal
downgrades of the risk ratings on certain construction loans; the level of non-performing loans;
and the adverse economic environment.
Non-Interest Income. Total non-interest income was $9.0 million for the six months ended
December 31, 2009 compared to a loss of $154.3 million for the six months ended December 31, 2008.
This difference was largely the result of a $158.0 million loss on securities transactions in the
six months ended December 31, 2008 primarily attributed to a $156.7 million OTTI charge mentioned
above. Gain on loan sales increased by $4.4 million to $4.5 million for the six months ended
December 31, 2009 as management decided to sell lower yielding refinanced residential mortgage
loans in the secondary market. In addition we recognized a $1.8 million gain from the sale of a
$19.4 million non-performing loan. Fees and service charges also increased $1.5 million to $2.9
million for the six months ended December 31, 2009.
Non-Interest Expenses. Total non-interest expenses increased by $11.3 million, or 25.1%, to
$56.5 million for the six months ended December 31, 2009 from $45.2 million for the six months
ended December 31, 2008. Compensation and fringe benefits increased during the six months ended
December 31, 2009 as a result of staff additions in our commercial real estate, retail banking
areas and our mortgage company as well as the accelerated vesting of our Chairmans stock awards
upon his death in December 2009. FDIC insurance premiums increased as a result of an increase in
our deposits and an increase in the FDIC premium rate. Occupancy expense increased as a result of
the costs associated with expanding our branch network.
Income Taxes. Income tax expense was $14.3 million for the six months ended December 31, 2009
representing a 38.8% effective tax rate for the period. For the six months ended December 31, 2008
there was an income tax benefit of $53.3 million which was primarily the result of the OTTI charge
taken on our pooled trust preferred securities.
Comparison of Operating Results for the Years Ended June 30, 2009 and 2008
Net Income. The net loss for the year ended June 30, 2009 was $64.9 million compared to net
income of $16.0 million for the year ended June 30, 2008. Excluding the FDIC special assessment and
the OTTI charges taken during the fiscal year earnings were $31.5 million compared to earnings of
$16.3 for the year ended June 30, 2008.
Net Interest Income. Net interest income increased by $61.0 million, or 58.1%, to $166.1
million for the year ended June 30, 2009 from $105.1 million for the year ended June 30, 2008. Our
net interest margin also increased by 57 basis points from 1.81% for the year ended June 30, 2008
to 2.38% for the year ended June 30, 2009.
Interest and Dividend Income. Total interest and dividend income increased by $55.3 million,
or 17.7%, to $368.1 million for the year ended June 30, 2009 from $312.8 million for the year ended
June 30, 2008. This increase was primarily due to a $1.19 billion, or 20.4%, increase in the
average balance of interest-earning assets to $6.99 billion for the year ended June 30, 2009 from
$5.80 billion for the year ended June 30, 2008. We took advantage of several opportunities to grow
assets by purchasing high quality mortgage loans and continued our focus on growing our multifamily
loan portfolio. This increase was partially offset by a 12 basis point decrease in the weighted
average yield on interest-earning assets to 5.27% for the year ended June 30, 2009 compared to
5.39% for the year ended June 30, 2008.
Interest income on loans increased by $75.0 million, or 32.7%, to $304.7 million for the year
ended June 30, 2009 from $229.6 million for the year ended June 30, 2008, reflecting a $1.44
billion, or 35.6%, increase in the average balance of net loans to $5.48 billion for the year ended
June 30, 2009 from $4.04 billion for the year ended June 30, 2008. This increase was partially
offset by a 12 basis point decrease in the average yield on loans to 5.56% for the year ended June
30, 2009 from 5.68% for the year ended June 30, 2008.
Interest income on all other interest-earning assets, excluding loans, decreased by $19.8
million, or 23.8%, to $63.4 million for the year ended June 30, 2009 from $83.2 million for the
year ended June 30, 2008. This decrease reflected a $251.1 million decrease in the average balance
of securities and other interest-earning assets, which 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. In addition, the average yield on securities and other interest-earning
assets decreased 52 basis points to 4.21% for the year ended June 30, 2009 from 4.73% for the year
ended June 30, 2008.
56
Interest Expense. Total interest expense decreased by $5.8 million, or 2.8%, to $201.9
million for the year ended June 30, 2009 from $207.7 million for the year ended June 30, 2008. This
decrease was primarily due to a 90 basis point decrease in the weighted average cost of total
interest-bearing liabilities to 3.21% for the year ended June 30, 2009 compared to 4.11% for the
year ended June 30, 2008 partially offset by a $1.24 billion, or 24.6%, increase in the average
balance of total interest-bearing liabilities to $6.29 billion for the year ended June 30, 2009
from $5.05 billion for the year ended June 30, 2008.
Interest expense on interest-bearing deposits decreased $23.3 million, or 15.3%, to $129.4
million for the year ended June 30, 2009 from $152.7 million for the year ended June 30, 2008. This
decrease was due to a 104 basis point decrease in the average cost of interest-bearing deposits to
2.94% at June 30, 2009 partially offset by a $558.1 million increase in the average balance of
interest-bearing deposits.
Interest expense on borrowed funds increased by $17.6 million, or 32.0%, to $72.6 million for
the year ended June 30, 2009 from $55.0 million for the year ended June 30, 2008. This increase was
primarily due to a $683.7 million, or 56.6%, increase in the average balance of borrowed funds to
$1.89 billion for the year ended June 30, 2009 from $1.21 billion for the year ended June 30, 2008.
This was partially offset by a 72 basis point decrease in the average cost of borrowed funds to
3.83% for the year ended June 30, 2009 from 4.55% for the year ended June 30, 2009 as lower short
term interest rates allowed us to obtain funding at lower interest rates.
Provision for Loan Losses. The provision for loan losses was $29.0 million for the year ended
June 30, 2009 compared to $6.6 million for the year ended June 30, 2008. There were net charge-offs
of $25,000 for the year ended June 30, 2009 compared to net charge-offs of $31,000 for the year
ended June 30, 2008.
Non-Interest Income. Total non-interest income decreased by $155.8 million to a loss of
$148.4 million for the year ended June 30, 2009 from income of $7.4 million for the year ended June
30, 2008. This decrease was largely the result of a $159.3 million loss on securities transactions
in the year ended June 30, 2009 primarily attributed to a $158.5 million OTTI charge mentioned
above. Gain on loan sales increased by $3.7 million to $4.3 million for the year ended June 30,
2009 as management decided to sell lower yielding refinanced residential mortgage loans in the
secondary market. Additionally, income associated with our bank owned life insurance decreased $1.1
million resulting from lower market interest rates.
Non-Interest Expenses. Total non-interest expenses increased by $17.0 million, or 21.1%, to
$97.8 million for the year ended June 30, 2009 from $80.8 million for the year ended June 30, 2008.
This increase was primarily the result of FDIC insurance premiums increasing $8.1 million to $8.6
million for the year ended June 30, 2009. In addition, compensation and fringe benefits increased
by $6.2 million, or 11.5%, to $60.1 million for the year ended June 30, 2009. This increase was due
to the accelerated vesting of two participants in the equity incentive plan; additional equity
incentive plan expense for grants made during 2008; staff additions in our commercial real estate,
retail banking areas and our mortgage company. The year ended June 30, 2008 included a $2.3 million
gain related to the curtailment and settlement of our postretirement benefit obligation and a $1.1
million compensation expense reduction for employee benefit plans and a $1.5 million non-recurring
compensation expense recorded as a result of the merger of Summit Federal for a retirement plan
payout and employee retention bonuses.
Income Taxes. Income tax benefit was $44.2 million for the year ended June 30, 2009
representing a 40.51% effective tax benefit rate for the period. The benefit is primarily the
result of the OTTI charge taken on our pooled trust preferred securities. For the year ended June
30, 2008 there was an income tax expense of $9.0 million representing an effective tax expense rate
of 36.03% for the period.
Management of Market Risk
Qualitative Analysis. We believe one 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.
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 senior management,
evaluates the interest rate risk inherent in certain assets and liabilities, our operating
environment and capital and liquidity requirements and
57
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. At December 31, 2010, approximately 41.2% of our residential
portfolio was in variable rate products, while 58.8% was in fixed rate products. Our variable-rate
mortgage related assets have helped to reduce our exposure to interest rate fluctuations and is
expected to benefit our long-term profitability, as the rate earned in the mortgage loans will
increase as prevailing market rates increase. However, the current interest rate environment, and
the preferences of our customers, has resulted in more of a demand for fixed-rate products. This
may adversely impact our net interest income, particularly in a rising rate environment. To help
manage our interest rate risk, we have increased our focus on the origination of commercial real
estate mortgage loans, particularly multi-family loans, as these loan types reduce our interest
rate risk due to their shorter term compared to residential mortgage loans. In addition, we
primarily invest 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 an independent, nationally recognized consulting firm who specializes in asset and
liability management to complete our quarterly interest rate risk reports. We also retain a second
nationally recognized consulting firm to prepare independently comparable interest rate risk
reports for the purpose of validation. Both firms 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 an 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 asset and liability repricing analysis
based on changes in prepayment rates resulting from the parallel yield curve shifts.
Our 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
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 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 December 31, 2010, the estimated
changes in our NPV and our net interest income that would result from the designated changes in
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 of greater
than 100 basis points or increase of greater than 200 basis points.
58
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Net Interest Income |
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|
|
Net Portfolio Value(2) |
|
|
|
|
|
|
Increase (Decrease) in |
|
Change in |
|
|
|
|
|
Estimated Increase |
|
|
Estimated Net |
|
|
Estimated Net Interest |
|
Interest Rates |
|
Estimated |
|
|
(Decrease) |
|
|
Interest |
|
|
Income |
|
(basis points)(1) |
|
NPV |
|
|
Amount |
|
|
Percent |
|
|
Income(3) |
|
|
Amount |
|
|
Percent |
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|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
+ 200bp |
|
$ |
873,375 |
|
|
$ |
(324,755 |
) |
|
|
(27.1 |
)% |
|
$ |
299,708 |
|
|
$ |
(17,726 |
) |
|
|
(5.6 |
)% |
0bp |
|
$ |
1,198,130 |
|
|
|
|
|
|
|
|
|
|
$ |
317,434 |
|
|
|
|
|
|
|
|
|
- 100bp |
|
$ |
1,250,393 |
|
|
$ |
52,263 |
|
|
|
4.4 |
% |
|
$ |
324,118 |
|
|
$ |
6,684 |
|
|
|
2.1 |
% |
|
|
|
(1) |
|
Assumes an instantaneous and parallel shift in interest rates at all maturities. |
|
(2) |
|
NPV is the discounted present value of expected cash flows from assets, liabilities
and off-balance sheet contracts. |
|
(3) |
|
Assumes a gradual change in interest rates over a one year period at all maturities. |
The table set forth above indicates at December 31, 2010, in the event of a 200 basis points
increase in interest rates, we would be expected to experience a 27.1% decrease in NPV and a $17.7
million, or 5.6%, decrease in net interest income. In the event of a 100 basis points decrease in
interest rates, we would be expected to experience a 4.4% increase in NPV and a $6.7 million, or
2.1%, increase in 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.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term
nature. Our primary sources of liquidity consist of deposit inflows, loan repayments and maturities
and borrowings from the FHLB and others. While maturities and scheduled amortization of loans and
securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition. From time to time we may
evaluate the sale of securities as a possible liquidity source. Our Interest Rate Risk Committee is
responsible for establishing and monitoring our liquidity targets and strategies to ensure that
sufficient liquidity exists for meeting the borrowing needs of our customers as well as
unanticipated contingencies.
We regularly adjust our investments in liquid assets based upon our assessment of (1) expected
loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and
securities, and (4) the objectives of our asset/liability management program. Excess liquid assets
are invested generally in interest-earning deposits and short- and intermediate-term securities.
Our primary source of funds is cash provided by principal and interest payments on loans and
securities. Principal repayments on loans for the year ended December 31, 2010 and 2009, the six
month period ended December 31, 2009 and the fiscal years ended June 30, 2009 and 2008 were $1.79
billion, $1.74 billion, $882.2 million, $1.19 billion, and $599.5 million, respectively. Principal
repayments on securities for the year ended December 31, 2010 and 2009, the six month period ended
December 31, 2009 and the fiscal years ended June 30, 2009 and 2008 were $443.4 million, $356.2
million, $194.5 million, $408.6 million, and $402.1 million, respectively. There were sales of
securities during year ended December 31, 2010 of $12.0 million and no sales for the year and six
month periods ended December 31, 2009 and year ended June 30, 2009. During the year ended June 30,
2008 we received proceeds from the sale of securities of $250,000.
In addition to cash provided by principal and interest payments on loans and securities, our
other sources of funds include cash provided by operating activities, deposits and borrowings. Net
cash provided by operating activities for the year ended December 31, 2010 and 2009, six month
period ended December 31, 2009 and for fiscal years ended June 30, 2009 and 2008 totaled $163.5
million, $51.5 million, $40.9 million, $39.1 million, and $23.7 million, respectively. Excluding
deposits from the acquisition of Millennium
59
bcpbank, total deposits had net increases of $301.2 million for the year ended December 31,
2010 and 2009, deposits increased $862.3 million excluding deposits from the Banco Popular and
American Bancorp acquisition, for the six month period ended December 31, 2009, a net increase of
$107.4 million excluding Banco Popular. Excluding deposits from the acquisition of American
Bancorp, total deposits had net increases of $1.02 billion for the fiscal year ended June 30, 2009
and $202.1 million for fiscal year ended June 30, 2008. Deposit flows are affected by the overall
level of market interest rates, the interest rates and products offered by us and our local
competitors, and other factors.
Our net borrowings at December 31, 2010, December 31, 2009, and at June 30, 2009, 2008
increased/(decreased) $226.0 million, $(533) million (twelve month change), $(130) million (six
month change), $570.0 million and $524.9 million, respectively. The increase in borrowings was
largely due new loan originations outpacing the deposit growth and principal run-off from the
securities portfolio.
Our primary use of funds is for the origination and purchase of loans and the purchase of
securities. During the year ended December 31, 2010 and 2009, for the six month period ended
December 31, 2009 and for the fiscal years ended June 30, 2009 and 2008, we originated loans of
$2.06 billion, $1.41 billion, $914.3 million, $963.2 million, and $657.5 million, respectively.
During the year ended December 31, 2010 and 2009, for the six month period ended December 31, 2009
and for the fiscal years ended June 30, 2009 and 2008, we purchased loans of $1.07 billion, $895.0
million, $452.3 million, $1.26 billion, and $996.3 million, respectively. During the year ended
December 31, 2010 and 2009, for the six month period ended December 31, 2009 and for the fiscal
years ended June 30, 2009 and 2008, we purchased securities of $350.8 million, $284.2 million,
$180.0 million, $214.3 million, and $24.5 million, respectively. In addition, we utilized $24.5
million, $5.8 million, $2.4 million, $4.5 million, and $60.1 million, during the year ended
December 31, 2010 and 2009, for the six month period ended December 31, 2009 and for the fiscal
years ended June 30, 2009 and 2008, respectively, to repurchase shares of our common stock under
our stock repurchase plans.
At December 31, 2010, we had $423.7 million in loan commitments outstanding. In addition to
commitments to originate and purchase loans, we had $496.4 million in unused home equity, overdraft
lines of credit, and undisbursed business and construction loans. Certificates of deposit due
within one year of December 31, 2010 totaled $2.21 billion, or 32.6% of total deposits. If these
deposits do not remain with us, we will be required to seek other sources of funds, including other
certificates of deposit and FHLB advances. Depending on market conditions, we may be required to
pay higher rates on such deposits or other borrowings than we currently pay on the certificates of
deposit due on or before December 31, 2011. We believe, however, based on past experience that a
significant portion of our certificates of deposit will remain with us. We have the ability to
attract and retain deposits by adjusting the interest rates offered.
Liquidity management is both a daily and long-term function of business management. Our most
liquid assets are cash and cash equivalents. The levels of these assets depend upon our operating,
financing, lending and investing activities during any given period. At December 31, 2010, cash and
cash equivalents totaled $76.2 million. Securities classified as available-for-sale, which provide
additional sources of liquidity, totaled $602.7 million at December 31, 2010. If we require funds
beyond our ability to generate them internally, borrowing agreements exist with the FHLB and other
financial institutions, which provide an additional source of funds At December 31, 2010, the
Company participated in the FHLBs Overnight Advance program. This program allows members to borrow
overnight up to their maximum borrowing capacity at the FHLB. At December 31, 2010 our borrowing
capacity at the FHLB was $2.77 billion, of which $1.44 billion was outstanding. The overnight
advances are priced at the federal funds rate plus a spread (generally between 20 and 40 basis
points) and re-price daily. In addition, the Bank had a 12-month commitment for overnight
borrowings with other institutions totaling $50 million, of which no balance was outstanding at
December 31, 2010.
Investors Savings Bank is subject to various regulatory capital requirements, including a
risk-based capital measure. The risk-based capital guidelines include both a definition of capital
and a framework for calculating risk-weighted assets by assigning balance sheet assets and
off-balance sheet items to broad risk categories. At December 31, 2010, Investors Savings Bank
exceeded all regulatory capital requirements. Investors Savings Bank is considered well
capitalized under regulatory guidelines. See Item 1 Business Supervision and Regulation
Federal Banking Regulation Capital Requirements.
60
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Off-Balance Sheet Arrangements. As a financial services provider, we routinely are a party to
various financial instruments with off-balance-sheet risks, such as commitments to extend credit
and unused lines of credit. While these contractual obligations represent our future cash
requirements, a significant portion of our commitments to extend credit may expire without being
drawn upon. Such commitments are subject to the same credit policies and approval processes that we
use for loans that we originate.
Contractual Obligations. In the ordinary course of our operations, we enter into certain
contractual obligations. Such obligations include operating leases for premises and equipment.
The following table summarizes our significant fixed and determinable contractual obligations
and other funding needs by payment date at December 31, 2010. The payment amounts represent those
amounts due to the recipient and do not include any unamortized premiums or discounts or other
similar carrying amount adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
Less than |
|
|
One to |
|
|
Three to |
|
|
More than |
|
|
|
|
Contractual Obligations |
|
One Year |
|
|
Three Years |
|
|
Five Years |
|
|
Five Years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Other borrowed funds |
|
$ |
501,000 |
|
|
|
370,514 |
|
|
|
405,000 |
|
|
|
50,000 |
|
|
|
1,326,514 |
|
Repurchase agreements |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
500,000 |
|
Operating leases |
|
|
7,961 |
|
|
|
13,958 |
|
|
|
13,140 |
|
|
|
41,196 |
|
|
|
76,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
758,961 |
|
|
|
634,472 |
|
|
|
418,140 |
|
|
|
91,196 |
|
|
|
1,902,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
In July 2010, the FASB issued Accounting Standards Update (ASU) 2010-20 to provide financial
statement users with greater transparency about an entitys allowance for credit losses and the
credit quality of its financing receivables. The objective of the ASU is to provide disclosures
that assist financial statement users in their evaluation of (1) the nature of an entitys credit
risk associated with its financing receivables, (2) how the entity analyzes and assesses that risk
in arriving at the allowance for credit losses and (3) the changes in the allowance for credit
losses and the reasons for those changes. Disclosures provided to meet the objective above should
be provided on a disaggregated basis. The disclosures as of the end of a reporting period are
effective for interim and annual reporting periods ending on or after December 15, 2010. The
disclosures about activity that occurs during a reporting period are effective for interim and
annual reporting periods beginning on or after December 15, 2010. In January 2011, the FASB issued
ASU No. 2011-01 Receivables (Topic 310): Deferral of the Effective Date of Disclosures about
Troubled Debt Restructurings in Update No. 2010-20 which defers the effective date of the loan
modification disclosures. The adoption of this pronouncement did not have a material impact on the
Companys financial condition or results of operations. The disclosures required by this
pronouncement can be found in Note 5 of the Notes to Consolidated Financial Statements.
In April 2010, the FASB issued ASU 2010-18, which states that modifications of loans that are
accounted for within a pool under ASC 310-30 do not result in the removal of those loans from the
pool even if the modification of those loans would otherwise be considered a troubled debt
restructuring. An entity will continue to be required to consider whether the pool of assets in
which the loan is included is impaired if expected cash flows for the pool change. The amendments
do not affect the accounting for loans under the scope of ASC 310-30 that are not accounted for
within pools. Loans accounted for individually under ASC 310-30 continue to be subject to the
troubled debt restructuring accounting provisions within ASC 310-40, ReceivablesTroubled Debt
Restructurings by Creditors. The amendments are effective for modifications of loans accounted for
within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or
after July 15, 2010. The adoption of this pronouncement did not have a material impact on the
Companys financial condition, results of operations or financial statement disclosures.
In February 2010, the FASB issued ASU 2010-09, which amended the subsequent events
pronouncement issued in May 2009. The amendment removed the requirement to disclose the date
through which subsequent events have been evaluated. This pronouncement became effective
immediately upon issuance and is to be applied prospectively. The adoption of this pronouncement
did not have a material impact on the Companys financial condition, results of operations or
financial statement disclosures.
In January 2010, the FASB issued ASU 2010-06 to improve disclosures about fair value
measurements. This guidance requires new disclosures on transfers into and out of Level 1 and 2
measurements of the fair value hierarchy and requires separate disclosures about purchases, sales,
issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value
disclosures relating to the level of disaggregation and inputs and valuation techniques used to
measure fair value. It was effective for the first reporting period (including interim periods)
beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of
purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal
years beginning after
61
December 15, 2010. The adoption of this pronouncement did not have a material impact on the
Companys financial condition, results of operations or financial statement disclosures.
In June 2009, the FASB Codification (the Codification) was issued. The Codification is the
source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the
FASB to be applied by non-governmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.
The Codification supersedes all existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification became
non-authoritative. This Statement was effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The implementation of this standard did not have an
impact on the Companys consolidated financial condition and results of operations.
In June 2009, the FASB issued ASC 860, an amendment to the accounting and disclosure
requirements for transfers of financial assets. The guidance defines the term participating
interest to establish specific conditions for reporting a transfer of a portion of a financial
asset as a sale. If the transfer does not meet those conditions, a transferor should account for
the transfer as a sale only if it transfers an entire financial asset or a group of entire
financial assets and surrenders control over the entire transferred asset(s). The guidance requires
that a transferor recognize and initially measure at fair value all assets obtained (including a
transferors beneficial interest) and liabilities incurred as a result of a transfer of financial
assets accounted for as a sale. This Statement is effective as of the beginning of each reporting
entitys first annual reporting period that begins after November 15, 2009, for interim periods
within that first annual reporting period, and for interim and annual reporting periods thereafter.
The Company is evaluating the impact the adoption of ASC 860 will have on its financial condition,
results of operations or financial statement disclosures.
In June 2008, the FASB ratified ASC 840-10, Accounting by Lessees for Nonrefundable
Maintenance Deposits. ASC 840-10 requires that all nonrefundable maintenance deposits be accounted
for as a deposit with the deposit expensed or capitalized in accordance with the lessees
maintenance accounting policy when the underlying maintenance is performed. Once it is determined
that an amount on deposit is not probable of being used to fund future maintenance expense, it is
to be recognized as additional expense at the time such determination is made. ASC 840-10 is
effective for fiscal years beginning after July 1, 2009. The adoption of ASC 840-10 did not have a
material impact on the Companys financial condition, results of operations or financial statement
disclosures.
In June 2008, ASC 260-10 was issued which addresses whether instruments granted in share-based
payment transactions are participating securities prior to vesting and, therefore, need to be
included in the earnings allocation in computing earnings per share. The Statement is effective for
financial statements issued for fiscal years beginning after December 15, 2009. The adoption of ASC
260-10 on July 1, 2009 did not have a material impact on the Companys consolidated financial
statements.
In February 2008, ASC 820-10, Effective Date of ASC 820, was issued. ASC 820-10 delayed the
application of ASC 820 Fair Value Measurements and Disclosures for non-financial assets and
non-financial liabilities until July 1, 2009. The adoption of ASC 820-10 did not have a material
impact on the Companys consolidated financial statements.
In December 2007, the FASB issued ASC 805, Business Combinations. ASC 805 requires most
identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business
combination to be recorded at full fair value. ASC 805 applies to all business combinations,
including combinations among mutual entities and combinations by contract alone. Under ASC 805, all
business combinations will be accounted for by applying the acquisition method. The adoption of ASC
805 on July 1, 2009 did not have a material impact on the Companys consolidated financial
statements.
62
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of Investors Bancorp, Inc. have been
prepared in accordance with U.S. generally accepted accounting principles. GAAP generally requires
the measurement of financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to inflation. The
impact of inflation is reflected in the increased cost of our operations. Unlike industrial
companies, our assets and liabilities are primarily monetary in nature. As a result, changes in
market interest rates have a greater impact on performance than the effects of inflation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For information regarding market
risk see Item 7- Managements Discussion and Analysis of
Financial Condition and Results of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are
included in Part IV, Item 15 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
With the participation of management, the Principal Executive Officer and Principal Financial
Officer have evaluated the effectiveness of the design and operation of the Companys disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of
December 31, 2010. Based upon that evaluation, the Principal Executive Officer and Principal
Financial Officer concluded that, as of that date, the Companys disclosure controls and procedures
are 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.
(b) Changes in internal controls.
There were no changes in our internal control over financial reporting that occurred during
the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting and we identified no material
weaknesses requiring corrective action with respect to those controls.
(c) Management report on internal control over financial reporting.
The management of Investors Bancorp Inc.
is responsible for establishing and maintaining adequate
internal control over financial reporting. Investors Bancorps internal control system is a process
designed to provide reasonable assurance to the Companys management and board of directors
regarding the preparation and fair presentation of published financial statements.
Our internal control over financial reporting includes policies and procedures that pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions
and dispositions of assets; provide reasonable assurances that transactions are recorded as
necessary to permit preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures are being made only in accordance with
authorizations of management and the directors of Investors Bancorp; and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of Investors Bancorps assets that could have a material effect on our financial statements.
63
All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Investors Bancorps management assessed the effectiveness of the Companys internal control
over financial reporting as of December 31, 2010. In making this assessment, we used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control-Integrated Framework. Based on our assessment we believe that, as of December 31, 2010, the
Companys internal control over financial reporting is effective based on those criteria.
Investors Bancorps independent registered public accounting firm that audited the
consolidated financial statements has issued an audit report on the effectiveness of the Companys
internal control over financial reporting as of December 31, 2010. This report appears on page 66.
The Sarbanes-Oxley Act Section 302 Certifications have been filed with the SEC as exhibit 31.1
and exhibit 31.2 to this Annual Report on Form 10-K.
ITEM 9B. OTHER INFORMATION
Not Applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding directors, executive officers and corporate governance of the Company is
incorporated herein by reference in the Companys definitive Proxy Statement to be filed with
respect to the 2011 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by reference in the
Companys definitive Proxy Statement to be filed with respect to the 2011 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information regarding security ownership of certain beneficial owners and management is
incorporated herein by reference in the Companys definitive Proxy Statement to be filed with
respect to the 2010 Annual Meeting of Stockholders. Information regarding equity compensation plans
is incorporated here in by reference in the Companys definitive Proxy Statement to be filed with
respect to the 2011 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information regarding certain relationships and related transactions, and director
independence is incorporated herein by reference in the Companys definitive Proxy Statement to be
filed with respect to the 2011 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accounting fees and services is incorporated herein by
reference in Investors Bancorps definitive Proxy Statement to be filed with respect to the 2011
Annual Meeting of Stockholders.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
64
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Investors Bancorp, Inc.
Short Hills, New Jersey:
We have audited the accompanying consolidated balance sheets of Investors Bancorp, Inc. and
subsidiaries (the Company) as of December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders equity, and cash flows for the year ended December 31,
2010, the six-month period ended December 31, 2009, and for each of the years in the two-year
period ended June 30, 2009. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Investors Bancorp, Inc. and subsidiaries as of
December 31, 2010 and 2009, and the results of their operations and their cash flows for the year
ended December 31, 2010, the six-month period ended December 31, 2009, and for each of the years in
the two-year period ended June 30, 2009, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 4 to the consolidated financial statements, the Company changed its method of
evaluating other-than-temporary impairments of debt securities due to the adoption of new
accounting requirements issued by the FASB, as of April 1, 2009.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of December 31,
2010, based on criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March
1, 2011 expressed an unqualified opinion on the effectiveness of the Companys internal control
over financial reporting.
/s/ KPMG LLP
Short Hills, New Jersey
March 1, 2011
65
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Investors Bancorp, Inc.
Short Hills, New Jersey:
We have audited the internal control over financial reporting of Investors Bancorp, Inc. and
subsidiaries (the Company) as of December 31, 2010, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Investors Bancorp, Inc. and subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2010, based on criteria
established in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Investors Bancorp, Inc. and subsidiaries
as of December 31, 2010 and 2009, and the related consolidated statements of operations,
stockholders equity, and cash flows for the year ended December 31, 2010, the six-month period
ended December 31, 2009 and for each of the years in the two-year period ended June 30, 2009, and
our report dated March 1, 2011 expressed an unqualified opinion on those consolidated financial
statements.
|
|
|
|
|
|
|
|
|
/s/ KPMG LLP
|
|
|
Short Hills, New Jersey |
|
|
March 1, 2011 |
|
66
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
76,224 |
|
|
|
73,606 |
|
Securities available-for-sale, at estimated fair value (notes 4 and 9) |
|
|
602,733 |
|
|
|
471,243 |
|
Securities held-to-maturity, net (estimated fair value of $514,223 and
$753,405 at December 31, 2010 and December 31, 2009, respectively) (notes
4 and 9) |
|
|
478,536 |
|
|
|
717,441 |
|
Loans receivable, net (note 5) |
|
|
7,917,705 |
|
|
|
6,615,459 |
|
Loans held-for-sale |
|
|
35,054 |
|
|
|
27,043 |
|
Stock in the Federal Home Loan Bank |
|
|
80,369 |
|
|
|
66,202 |
|
Accrued interest receivable (note 6) |
|
|
40,541 |
|
|
|
36,942 |
|
Other Real Estate Owned |
|
|
976 |
|
|
|
|
|
Office properties and equipment, net (note 7) |
|
|
56,927 |
|
|
|
49,384 |
|
Net deferred tax asset (note 10) |
|
|
128,210 |
|
|
|
117,143 |
|
Bank owned life insurance (note 1) |
|
|
117,039 |
|
|
|
114,542 |
|
Intangible assets |
|
|
39,004 |
|
|
|
31,668 |
|
Other assets |
|
|
28,813 |
|
|
|
37,143 |
|
|
|
|
|
|
|
|
|
|
$ |
9,602,131 |
|
|
|
8,357,816 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Deposits (note 8) |
|
$ |
6,774,930 |
|
|
|
5,840,643 |
|
Borrowed funds (note 9) |
|
|
1,826,514 |
|
|
|
1,600,542 |
|
Advance payments by borrowers for taxes and insurance |
|
|
34,977 |
|
|
|
29,675 |
|
Other liabilities |
|
|
64,431 |
|
|
|
36,743 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
8,700,852 |
|
|
|
7,507,603 |
|
|
|
|
|
|
|
|
Commitments and contingencies (note 12) |
|
|
|
|
|
|
|
|
Stockholders equity (notes 3 and 15): |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 50,000,000 authorized shares; none issued |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 200,000,000 shares authorized; 118,020,280
issued; 112,851,127 and 114,448,888 outstanding at December 31, 2010 and
December 31, 2009, respectively |
|
|
532 |
|
|
|
532 |
|
Additional paid-in capital |
|
|
533,720 |
|
|
|
530,133 |
|
Retained earnings |
|
|
483,269 |
|
|
|
422,211 |
|
Treasury stock, at cost; 5,169,153 and 3,571,392 shares at December 31,
2010 and December 31, 2009, respectively |
|
|
(62,033 |
) |
|
|
(44,810 |
) |
Unallocated common stock held by the employee stock ownership plan |
|
|
(34,033 |
) |
|
|
(35,451 |
) |
Accumulated other comprehensive loss |
|
|
(20,176 |
) |
|
|
(22,402 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
901,279 |
|
|
|
850,213 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
9,602,131 |
|
|
|
8,357,816 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
67
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
Year Ended December 31, |
|
|
December 31, |
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
Interest and dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable and loans held-for-sale |
|
$ |
383,531 |
|
|
|
328,482 |
|
|
|
172,575 |
|
|
|
304,678 |
|
|
|
229,634 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprise obligations |
|
|
710 |
|
|
|
1,049 |
|
|
|
453 |
|
|
|
1,587 |
|
|
|
4,662 |
|
Mortgage-backed securities |
|
|
35,857 |
|
|
|
44,690 |
|
|
|
21,431 |
|
|
|
49,531 |
|
|
|
62,919 |
|
Equity securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
287 |
|
Municipal bonds and other debt |
|
|
4,463 |
|
|
|
5,763 |
|
|
|
1,446 |
|
|
|
8,703 |
|
|
|
10,935 |
|
Interest-bearing deposits |
|
|
238 |
|
|
|
700 |
|
|
|
346 |
|
|
|
393 |
|
|
|
974 |
|
Repurchase agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162 |
|
Federal Home Loan Bank stock |
|
|
3,904 |
|
|
|
3,701 |
|
|
|
2,021 |
|
|
|
3,104 |
|
|
|
3,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income |
|
|
428,703 |
|
|
|
384,385 |
|
|
|
198,272 |
|
|
|
368,060 |
|
|
|
312,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits (note 8) |
|
|
90,811 |
|
|
|
123,002 |
|
|
|
56,577 |
|
|
|
129,362 |
|
|
|
152,745 |
|
Borrowed funds |
|
|
68,482 |
|
|
|
69,094 |
|
|
|
33,894 |
|
|
|
72,562 |
|
|
|
54,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
159,293 |
|
|
|
192,096 |
|
|
|
90,471 |
|
|
|
201,924 |
|
|
|
207,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
269,410 |
|
|
|
192,289 |
|
|
|
107,801 |
|
|
|
166,136 |
|
|
|
105,112 |
|
Provision for loan losses (note 5) |
|
|
66,500 |
|
|
|
39,450 |
|
|
|
23,425 |
|
|
|
29,025 |
|
|
|
6,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
202,910 |
|
|
|
152,839 |
|
|
|
84,376 |
|
|
|
137,111 |
|
|
|
98,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees and service charges |
|
|
8,757 |
|
|
|
4,660 |
|
|
|
2,938 |
|
|
|
3,174 |
|
|
|
3,022 |
|
Income on bank owned life insurance (note 1) |
|
|
2,497 |
|
|
|
2,227 |
|
|
|
1,301 |
|
|
|
2,910 |
|
|
|
3,972 |
|
Gain on sales of mortgage loans, net |
|
|
12,785 |
|
|
|
8,731 |
|
|
|
4,454 |
|
|
|
4,343 |
|
|
|
605 |
|
Gain (loss) on securities, net (note 4)(a) |
|
|
35 |
|
|
|
(1,407 |
) |
|
|
(112 |
) |
|
|
(159,266 |
) |
|
|
(682 |
) |
Other income |
|
|
2,451 |
|
|
|
624 |
|
|
|
426 |
|
|
|
409 |
|
|
|
456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss) |
|
|
26,525 |
|
|
|
14,835 |
|
|
|
9,007 |
|
|
|
(148,430 |
) |
|
|
7,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits (note 11) |
|
|
72,953 |
|
|
|
63,055 |
|
|
|
32,713 |
|
|
|
60,085 |
|
|
|
53,886 |
|
Advertising and promotional expense |
|
|
5,572 |
|
|
|
3,735 |
|
|
|
1,860 |
|
|
|
3,635 |
|
|
|
2,736 |
|
Office occupancy and equipment expense (notes 7 and
12) |
|
|
19,632 |
|
|
|
13,900 |
|
|
|
7,778 |
|
|
|
11,664 |
|
|
|
10,888 |
|
Federal deposit insurance premiums |
|
|
10,650 |
|
|
|
12,015 |
|
|
|
4,815 |
|
|
|
8,557 |
|
|
|
445 |
|
Stationery, printing, supplies and telephone |
|
|
2,899 |
|
|
|
2,422 |
|
|
|
1,369 |
|
|
|
2,088 |
|
|
|
1,869 |
|
Professional fees |
|
|
4,970 |
|
|
|
2,990 |
|
|
|
1,861 |
|
|
|
2,319 |
|
|
|
2,008 |
|
Data processing service fees |
|
|
6,276 |
|
|
|
5,082 |
|
|
|
2,729 |
|
|
|
4,588 |
|
|
|
4,730 |
|
Other operating expenses |
|
|
7,861 |
|
|
|
5,919 |
|
|
|
3,375 |
|
|
|
4,863 |
|
|
|
4,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
|
130,813 |
|
|
|
109,118 |
|
|
|
56,500 |
|
|
|
97,799 |
|
|
|
80,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit) |
|
|
98,622 |
|
|
|
58,556 |
|
|
|
36,883 |
|
|
|
(109,118 |
) |
|
|
25,059 |
|
Income tax expense (benefit) (note 10) |
|
|
36,603 |
|
|
|
23,444 |
|
|
|
14,321 |
|
|
|
(44,200 |
) |
|
|
9,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
62,019 |
|
|
|
35,112 |
|
|
|
22,562 |
|
|
|
(64,918 |
) |
|
|
16,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
0.57 |
|
|
|
0.33 |
|
|
|
0.21 |
|
|
|
(0.62 |
) |
|
|
0.15 |
|
Diluted earnings (loss) per share |
|
$ |
0.56 |
|
|
|
0.33 |
|
|
|
0.21 |
|
|
|
(0.62 |
) |
|
|
0.15 |
|
Weighted average shares outstanding (note 18) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
109,713,516 |
|
|
|
107,550,061 |
|
|
|
109,862,617 |
|
|
|
104,530,402 |
|
|
|
105,447,910 |
|
Diluted |
|
|
109,878,252 |
|
|
|
107,618,226 |
|
|
|
109,989,048 |
|
|
|
104,530,402 |
|
|
|
105,601,764 |
|
|
|
|
(a) |
|
Loss on securities of $35.7 million in fiscal year ended June 30, 2009
was determined to be a non-credit related other than temporary
impairment charge upon the adoption of ASC 320. For the six-month
period ended December 31, 2009, a $1.1 million non-credit related loss
is reflected in accumulated other comprehensive income. |
See accompanying notes to consolidated financial statements.
68
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
Year Ended December 31, 2010, Six-Months Ended December 31, 2009 and
Years ended June 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Other |
|
|
Total |
|
|
|
Common |
|
|
Paid-in |
|
|
Retained |
|
|
Treasury |
|
|
Held by |
|
|
Comprehensive |
|
|
Stockholders |
|
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Stock |
|
|
ESOP |
|
|
Loss |
|
|
Equity |
|
|
|
(In thousands) |
|
Balance at June 30, 2007 |
|
$ |
532 |
|
|
|
506,026 |
|
|
|
470,205 |
|
|
|
(70,973 |
) |
|
|
(38,996 |
) |
|
|
(7,935 |
) |
|
|
858,859 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
16,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,029 |
|
Change in funded status of postretirement plan due to plan
curtailment and settlement, net of tax expense of $891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,337 |
|
|
|
1,337 |
|
Change in funded status of retirement obligations, net of
tax benefit of $107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(169 |
) |
|
|
(169 |
) |
Unrealized loss on securities available-for-sale, net of tax
expense of $260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(208 |
) |
|
|
(208 |
) |
Reclassification adjustment for losses included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
679 |
|
|
|
679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect adjustment upon adoption of FIN 48 |
|
|
|
|
|
|
|
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300 |
|
Purchase of treasury stock (4,339,530 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,124 |
) |
|
|
|
|
|
|
|
|
|
|
(60,124 |
) |
Treasury stock allocated to restricted stock plan |
|
|
|
|
|
|
(1,830 |
) |
|
|
(290 |
) |
|
|
2,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost for stock options and restricted stock |
|
|
|
|
|
|
9,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,814 |
|
ESOP shares allocated or committed to be released |
|
|
|
|
|
|
603 |
|
|
|
|
|
|
|
|
|
|
|
1,418 |
|
|
|
|
|
|
|
2,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008 |
|
$ |
532 |
|
|
|
514,613 |
|
|
|
486,244 |
|
|
|
(128,977 |
) |
|
|
(37,578 |
) |
|
|
(6,296 |
) |
|
|
828,538 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(64,918 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,918 |
) |
Change in funded status of retirement obligations, net of
tax benefit of $431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(638 |
) |
|
|
(638 |
) |
Unrealized gain on securities available-for-sale, net of tax
expense of $728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
808 |
|
|
|
808 |
|
Reclassification adjustment for losses included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
457 |
|
|
|
457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of initial application of ASC 320 on
other- than-temporary-impairment net of tax benefit of
$14,577 |
|
|
|
|
|
|
|
|
|
|
21,108 |
|
|
|
|
|
|
|
|
|
|
|
(21,108 |
) |
|
|
|
|
Common stock issued out of treasury stock to finance
acquisition (6,503,897 shares) |
|
|
|
|
|
|
|
|
|
|
(42,520 |
) |
|
|
93,250 |
|
|
|
|
|
|
|
|
|
|
|
50,730 |
|
Purchase of treasury stock (947,633 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,673 |
) |
|
|
|
|
|
|
|
|
|
|
(8,673 |
) |
Treasury stock allocated to restricted stock plan |
|
|
|
|
|
|
(1,711 |
) |
|
|
(242 |
) |
|
|
1,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost for stock options and restricted stock |
|
|
|
|
|
|
11,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,330 |
|
ESOP shares allocated or committed to be released |
|
|
|
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
1,418 |
|
|
|
|
|
|
|
1,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
532 |
|
|
|
524,463 |
|
|
|
399,672 |
|
|
|
(42,447 |
) |
|
|
(36,160 |
) |
|
|
(26,777 |
) |
|
|
819,283 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
22,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,562 |
|
Change in funded status of retirement obligations, net of
tax expense of $645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
969 |
|
|
|
969 |
|
Unrealized gain on securities available-for-sale, net of tax
expense of $1,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,917 |
|
|
|
2,917 |
|
Reclassification adjustment for losses included in net
income, net of tax expense of $37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54 |
|
|
|
54 |
|
Other-than-temporary impairment accretion on debt
securities, net of tax expense of $300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435 |
|
|
|
435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock (248,132 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,436 |
) |
|
|
|
|
|
|
|
|
|
|
(2,436 |
) |
Treasury stock allocated to restricted stock plan |
|
|
|
|
|
|
(50 |
) |
|
|
(23 |
) |
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost for stock options and restricted stock |
|
|
|
|
|
|
5,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,708 |
|
ESOP shares allocated or committed to be released |
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
709 |
|
|
|
|
|
|
|
721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
532 |
|
|
|
530,133 |
|
|
|
422,211 |
|
|
|
(44,810 |
) |
|
|
(35,451 |
) |
|
|
(22,402 |
) |
|
|
850,213 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
62,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,019 |
|
Change in funded status of retirement obligations, net of
tax expense of $573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
857 |
|
|
|
857 |
|
Unrealized gain on securities available-for-sale, net of tax
expense of $254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
419 |
|
|
|
419 |
|
Reclassification adjustment for gains included in net
income, net of tax expense of $11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
(15 |
) |
Other-than-temporary impairment accretion on debt
securities, net of tax expense of $666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
965 |
|
|
|
965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock (2,092,960 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,458 |
) |
|
|
|
|
|
|
|
|
|
|
(24,458 |
) |
Treasury stock allocated to restricted stock plan |
|
|
|
|
|
|
(6,272 |
) |
|
|
(961 |
) |
|
|
7,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost for stock options and restricted stock |
|
|
|
|
|
|
9,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,489 |
|
ESOP shares allocated or committed to be released |
|
|
|
|
|
|
370 |
|
|
|
|
|
|
|
2 |
|
|
|
1,418 |
|
|
|
|
|
|
|
1,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
532 |
|
|
|
533,720 |
|
|
|
483,269 |
|
|
|
(62,033 |
) |
|
|
(34,033 |
) |
|
|
(20,176 |
) |
|
|
901,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
69
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period |
|
|
|
|
|
|
Year Ended December 31, |
|
|
Ended December 31, |
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
62,019 |
|
|
|
35,112 |
|
|
|
22,562 |
|
|
|
(64,918 |
) |
|
|
16,029 |
|
Adjustments to reconcile net income to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP and stock-based compensation expense |
|
|
11,279 |
|
|
|
13,144 |
|
|
|
6,429 |
|
|
|
12,979 |
|
|
|
11,835 |
|
Accretion of discounts and amortization of premiums on securities, net |
|
|
5,009 |
|
|
|
2,464 |
|
|
|
3,242 |
|
|
|
(520 |
) |
|
|
993 |
|
Amortization of premiums and accretion of fees and costs on loans, net |
|
|
8,366 |
|
|
|
8,914 |
|
|
|
3,564 |
|
|
|
6,599 |
|
|
|
2,389 |
|
Amortization of intangible assets |
|
|
979 |
|
|
|
436 |
|
|
|
366 |
|
|
|
70 |
|
|
|
|
|
Provision for loan losses |
|
|
66,500 |
|
|
|
39,450 |
|
|
|
23,425 |
|
|
|
29,025 |
|
|
|
6,646 |
|
Depreciation and amortization of office properties and equipment |
|
|
4,732 |
|
|
|
3,700 |
|
|
|
1,980 |
|
|
|
2,725 |
|
|
|
2,760 |
|
(Gain)/loss on securities, net |
|
|
(35 |
) |
|
|
1,407 |
|
|
|
112 |
|
|
|
159,266 |
|
|
|
682 |
|
Mortgage loans originated for sale |
|
|
(695,968 |
) |
|
|
(838,183 |
) |
|
|
(288,647 |
) |
|
|
(753,264 |
) |
|
|
(139,487 |
) |
Proceeds from mortgage loan sales |
|
|
698,253 |
|
|
|
841,550 |
|
|
|
325,928 |
|
|
|
712,295 |
|
|
|
133,688 |
|
Gain on sales of mortgage loans, net |
|
|
(10,296 |
) |
|
|
(6,910 |
) |
|
|
(2,633 |
) |
|
|
(4,343 |
) |
|
|
(605 |
) |
Gain on sale of REO |
|
|
|
|
|
|
(38 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
|
|
Gain on bargain purchase |
|
|
(1,846 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income on bank owned life insurance |
|
|
(2,497 |
) |
|
|
(2,227 |
) |
|
|
(1,301 |
) |
|
|
(2,910 |
) |
|
|
(3,972 |
) |
(Increase) decrease in accrued interest receivable |
|
|
(2,913 |
) |
|
|
(1,559 |
) |
|
|
349 |
|
|
|
(7,123 |
) |
|
|
(2,898 |
) |
Deferred tax benefit |
|
|
(14,441 |
) |
|
|
2,523 |
|
|
|
1,595 |
|
|
|
(65,275 |
) |
|
|
(1,602 |
) |
Decrease (increase) in other assets |
|
|
5,886 |
|
|
|
(36,613 |
) |
|
|
(36,604 |
) |
|
|
242 |
|
|
|
(1,742 |
) |
Increase (decrease) in other liabilities |
|
|
28,445 |
|
|
|
(11,647 |
) |
|
|
(19,394 |
) |
|
|
14,232 |
|
|
|
(1,038 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
101,453 |
|
|
|
16,411 |
|
|
|
18,373 |
|
|
|
103,998 |
|
|
|
7,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
163,472 |
|
|
|
51,523 |
|
|
|
40,935 |
|
|
|
39,080 |
|
|
|
23,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of loans receivable |
|
|
(1,070,203 |
) |
|
|
(894,989 |
) |
|
|
(452,295 |
) |
|
|
(1,264,804 |
) |
|
|
(996,320 |
) |
Net (originations) repayments of loans receivable |
|
|
(308,379 |
) |
|
|
300,768 |
|
|
|
(66,342 |
) |
|
|
226,936 |
|
|
|
(58,005 |
) |
Net proceeds from sale of foreclosed real estate |
|
|
|
|
|
|
106 |
|
|
|
106 |
|
|
|
|
|
|
|
138 |
|
Proceeds from sale of non performing loan |
|
|
2,984 |
|
|
|
21,178 |
|
|
|
21,178 |
|
|
|
|
|
|
|
|
|
Gain on disposition of loans held for investment |
|
|
(2,489 |
) |
|
|
(1,820 |
) |
|
|
(1,820 |
) |
|
|
|
|
|
|
|
|
Mortgage-backed securities available-for-sale received in like-kind
exchange |
|
|
|
|
|
|
3,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of mortgage-backed securities held-to-maturity |
|
|
(3,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of debt securities held-to-maturity |
|
|
(3,884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,118 |
) |
Purchases of mortgage-backed securities available for sale |
|
|
(343,073 |
) |
|
|
(283,942 |
) |
|
|
(179,756 |
) |
|
|
(104,186 |
) |
|
|
|
|
Purchases of other investments available-for-sale |
|
|
(150 |
) |
|
|
(250 |
) |
|
|
(250 |
) |
|
|
(100 |
) |
|
|
(1,400 |
) |
Proceeds from paydowns/maturities on mortgage-backed securities
held-to-maturity |
|
|
247,896 |
|
|
|
251,965 |
|
|
|
125,721 |
|
|
|
221,680 |
|
|
|
247,018 |
|
Proceeds from calls/maturities on debt securities held-to-maturity |
|
|
2,415 |
|
|
|
2,601 |
|
|
|
2,660 |
|
|
|
19,553 |
|
|
|
98,876 |
|
Proceeds from paydowns/maturities on mortgage-backed securities
available-for-sale |
|
|
168,052 |
|
|
|
96,658 |
|
|
|
61,110 |
|
|
|
56,345 |
|
|
|
56,205 |
|
Proceeds from sales of mortgage-backed securities held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of mortgage-backed securities available-for-sale |
|
|
12,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of US Government and Agency Obligations
available-for-sale |
|
|
25,000 |
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
Purchase of US Government and Agency Obligations held to maturity |
|
|
|
|
|
|
(109,997 |
) |
|
|
|
|
|
|
(109,997 |
) |
|
|
|
|
Proceeds from maturities of US Government and Agency Obligations held
to maturity |
|
|
170 |
|
|
|
120,275 |
|
|
|
155 |
|
|
|
120,120 |
|
|
|
|
|
Redemption of equity securities available-for-sale |
|
|
|
|
|
|
(3,911 |
) |
|
|
|
|
|
|
863 |
|
|
|
|
|
Proceeds from sales of equity securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250 |
|
Proceeds from call of equity securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from redemptions of Federal Home Loan Bank stock |
|
|
42,323 |
|
|
|
33,527 |
|
|
|
10,756 |
|
|
|
53,349 |
|
|
|
35,208 |
|
Purchases of Federal Home Loan Bank stock |
|
|
(56,490 |
) |
|
|
(10,627 |
) |
|
|
(4,905 |
) |
|
|
(61,950 |
) |
|
|
(62,074 |
) |
Purchases of office properties and equipment |
|
|
(10,393 |
) |
|
|
(9,372 |
) |
|
|
(5,122 |
) |
|
|
(9,055 |
) |
|
|
(3,818 |
) |
Purchase of bank owned life insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash consideration paid for acquisitions, net of cash received |
|
|
629,081 |
|
|
|
216,719 |
|
|
|
220,944 |
|
|
|
(4,225 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(668,826 |
) |
|
|
(262,200 |
) |
|
|
(262,860 |
) |
|
|
(855,471 |
) |
|
|
(707,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
301,156 |
|
|
|
862,280 |
|
|
|
107,387 |
|
|
|
1,017,256 |
|
|
|
202,087 |
|
Net (decrease) increase in funds borrowed under short-term repurchase
agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,000 |
) |
|
|
(135,000 |
) |
Proceeds from funds borrowed under other repurchase agreements |
|
|
|
|
|
|
35,000 |
|
|
|
|
|
|
|
90,000 |
|
|
|
640,000 |
|
Repayments of funds borrowed under other repurchase agreements |
|
|
(250,000 |
) |
|
|
(195,000 |
) |
|
|
(110,000 |
) |
|
|
(205,000 |
) |
|
|
(210,000 |
) |
Net (decrease) increase in other borrowings |
|
|
475,972 |
|
|
|
(444,750 |
) |
|
|
(20,013 |
) |
|
|
235,249 |
|
|
|
229,873 |
|
Net increase in advance payments by borrowers for taxes and insurance |
|
|
5,302 |
|
|
|
5,879 |
|
|
|
2,836 |
|
|
|
3,299 |
|
|
|
3,767 |
|
Purchase of treasury stock |
|
|
(24,458 |
) |
|
|
(5,818 |
) |
|
|
(2,436 |
) |
|
|
(4,479 |
) |
|
|
(60,124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
507,972 |
|
|
|
257,591 |
|
|
|
(22,226 |
) |
|
|
1,111,325 |
|
|
|
670,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
2,618 |
|
|
|
46,914 |
|
|
|
(244,151 |
) |
|
|
294,934 |
|
|
|
(12,759 |
) |
Cash and cash equivalents at beginning of year |
|
|
73,606 |
|
|
|
26,692 |
|
|
|
317,757 |
|
|
|
22,823 |
|
|
|
35,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
76,224 |
|
|
|
73,606 |
|
|
|
73,606 |
|
|
|
317,757 |
|
|
|
22,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired through foreclosure |
|
$ |
976 |
|
|
|
68 |
|
|
|
68 |
|
|
|
|
|
|
|
138 |
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
160,024 |
|
|
|
194,010 |
|
|
|
91,055 |
|
|
|
201,081 |
|
|
|
205,660 |
|
Income taxes |
|
$ |
53,670 |
|
|
|
28,748 |
|
|
|
14,574 |
|
|
|
22,989 |
|
|
|
9,217 |
|
Fair value of assets acquired |
|
$ |
2,742 |
|
|
|
631,077 |
|
|
|
2,230 |
|
|
|
628,847 |
|
|
|
|
|
Goodwill and core deposit intangible |
|
$ |
1,981 |
|
|
|
26,399 |
|
|
|
4,850 |
|
|
|
21,549 |
|
|
|
|
|
Liabilities assumed |
|
$ |
633,804 |
|
|
|
823,464 |
|
|
|
228,024 |
|
|
|
595,440 |
|
|
|
|
|
Common stock issued for American Bancorp of NJ acquisition |
|
$ |
|
|
|
|
50,730 |
|
|
|
|
|
|
|
50,730 |
|
|
|
|
|
See accompanying notes to consolidated financial statements.
70
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
(1) |
|
Summary of Significant Accounting Policies |
|
|
|
The following significant accounting and reporting policies of Investors Bancorp, Inc. and
subsidiary (collectively, the Company) conform to U.S. generally accepted accounting principles,
or GAAP, and are used in preparing and presenting these consolidated financial statements: |
|
(a) |
|
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). All significant intercompany
accounts and transactions have been eliminated in consolidation. |
|
|
|
|
In January 1997, the Bank completed a Plan of Mutual Holding Company Reorganization,
utilizing the multi-tier mutual holding company structure. In a series of steps, the Bank
formed a Delaware-chartered stock corporation (Investors Bancorp, Inc.) which owned 100% of
the common stock of the Bank and formed a New Jersey-chartered mutual holding company
(Investors Bancorp, MHC) which initially owned all of the common stock of Investors Bancorp,
Inc. On October 11, 2005, Investors Bancorp, Inc. completed an initial public stock offering.
See Note 3. |
|
|
|
|
Effective December 31, 2009, the Company changed its fiscal year end from June 30 to December
31. The six month period ended December 31, 2009 was the Companys transitional period for
its change in fiscal year end. |
|
|
|
|
The preparation of financial statements in conformity with GAAP requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. The estimate of our allowance
for loan losses, the valuation of mortgage servicing rights (MSR), impairment judgments
regarding goodwill, and fair value and impairment of securities are particularly critical
because they involve a higher degree of complexity and subjectivity and require estimates and
assumptions about highly uncertain matters. Actual results may differ from our estimates and
assumptions. |
|
|
|
|
Business |
|
|
|
|
Investors Bancorp, Inc.s primary business is holding the common stock of the Bank and a loan
to the Investors Savings Bank Employee Stock Ownership Plan. |
|
|
|
|
The Bank provides banking services to customers primarily through branch offices in New
Jersey. The Bank is subject to competition from other financial institutions and is subject
to the regulations of certain federal and state regulatory authorities and undergoes periodic
examinations by those regulatory authorities. |
|
|
(b) |
|
Cash Equivalents |
|
|
|
|
Cash equivalents consist of cash on hand, amounts due from banks and interest-bearing
deposits in other financial institutions. The Company is required by the Federal Reserve
System to maintain cash reserves equal to a percentage of certain deposits. The reserve
requirement totaled $5.2 million at December 31, 2010 and $2.0 million at December 31, 2009.
Prior to October 2008, we did not receive interest on our cash reserves at the Federal
Reserve Bank. |
|
|
(c) |
|
Securities |
|
|
|
|
Securities include securities held-to-maturity and securities available-for-sale. Management
determines the appropriate classification of securities at the time of purchase. If
management has the positive intent not to sell and the Company would not be required to sell
prior to maturity, they are classified as held-to-maturity securities. Such securities are
stated at amortized cost, adjusted for unamortized purchase premiums and discounts.
Securities in the available-for-sale category are debt and mortgage-backed securities which
the Company may sell prior to maturity, and all marketable equity securities.
Available-for-sale securities are reported at fair value with any unrealized appreciation or
depreciation, net of tax effects, reported as accumulated other comprehensive income/loss in
stockholders equity. Discounts and premiums on securities are accreted or amortized using
the level-yield method over the estimated lives of the securities, including the effect of
prepayments. Realized gains and losses are recognized when securities are sold or called
using the specific identification method. |
71
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
|
The Company periodically evaluates the security portfolio to determine if a decline in the
fair value of any security below its cost basis is other-than-temporary. Our evaluation of
other-than-temporary impairment considers the duration and severity of the impairment, our
intent and ability to hold the securities and our assessments of the reason for the decline
in value and the likelihood of a near-term recovery. If a determination is made that a debt
security is other-than-temporarily impaired, the Company will estimate the amount of the
unrealized loss that is attributable to credit and all other non-credit related factors. The
credit related component will be recognized as an other-than-temporary impairment charge in
non-interest income as a component of gain (loss) on securities, net. The non-credit related component will be
recorded as an adjustment to accumulated other comprehensive income, net of tax. |
|
(d) |
|
Loans Receivable, Net |
|
|
|
Loans receivable, other than loans held-for-sale, are stated at unpaid principal balance,
adjusted by unamortized premiums and unearned discounts, net deferred origination fees and
costs, and the allowance for loan losses. Interest income on loans is accrued and credited to
income as earned. Premiums and discounts on purchased loans and net loan origination fees and
costs are deferred and amortized to interest income over the estimated life of the loan as an
adjustment to yield. |
|
|
|
The allowance for loan losses is increased by the provision for loan losses charged to
earnings and is decreased by charge-offs, net of recoveries. The provision for loan losses is
based on managements evaluation of the adequacy of the allowance which considers, among
other things, the Companys past loan loss experience, known and inherent risks in the
portfolio, existing adverse situations that may affect the borrowers ability to repay,
estimated value of any underlying collateral and current economic conditions. While
management uses available information to recognize estimated losses on loans, future
additions may be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process, periodically review
the Companys allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance based upon their judgments and information available to them at
the time of their examinations. |
|
|
|
A loan is considered delinquent when we have not received a payment within 30 days of its
contractual due date. The accrual of income on loans is generally discontinued when interest
or principal payments are 90 days in arrears or when the timely collection of such income is
doubtful. Loans on which the accrual of income has been discontinued are designated as
non-accrual loans and outstanding interest previously credited is reversed. Interest income
on non-accrual loans and impaired loans is recognized in the period collected unless the
ultimate collection of principal is considered doubtful. A loan is returned to accrual status
when all amounts due have been received and the remaining principal is deemed collectible.
Loans are generally charged off after an analysis is completed which indicates that
collectability of the full principal balance is in doubt. |
|
|
|
The Company defines an impaired loan as a loan for which it is probable, based on current
information, that the lender will not collect all amounts due under the contractual terms of
the loan agreement. The Company considers the population of loans in its impairment analysis
to include commercial real estate, multi-family and construction loans with an outstanding
balance greater than $3.0 million and on non-accrual status. Impaired loans are individually
assessed to determine that the loans carrying value is not in excess of the fair value of
the collateral or the present value of the expected future cash flows. Smaller balance
homogeneous loans are evaluated for impairment collectively unless they are modified in a
trouble debt restructure. Such loans include residential mortgage loans, installment loans,
and loans not meeting the Companys definition of impaired, and are specifically excluded
from impaired loans. |
|
|
|
Loans held-for-sale are carried at the lower of cost or estimated fair value, as determined
on an aggregate basis. Net unrealized losses, if any, are recognized in a valuation allowance
through charges to earnings. Premiums and discounts and origination fees and costs on loans
held-for-sale are deferred and recognized as a component of the gain or loss on sale. Gains
and losses on sales of loans held-for-sale are recognized on settlement dates and are
determined by the difference between the sale proceeds and the carrying value of the loans.
These transactions are accounted for as sales based on our satisfaction of the criteria for
such accounting which provide that, as transferor, we have surrendered control over the
loans. |
72
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
(f) |
|
Federal Home Loan Bank Stock |
|
|
|
The Bank, as a member of the Federal Home Loan Bank (FHLB), is required to hold shares of
capital stock of the FHLB based on our activities, primarily our outstanding borrowings, with
the FHLB. The stock is carried at cost, less any impairment. |
|
(g) |
|
Office Properties and Equipment, Net |
|
|
|
|
Land is carried at cost. Office buildings, leasehold improvements and furniture, fixtures and
equipment are carried at cost, less accumulated depreciation and amortization. Office
buildings and furniture, fixtures and equipment are depreciated using an accelerated basis
over the estimated useful lives of the respective assets. Leasehold improvements are
amortized using the straight-line method over the terms of the respective leases or the lives
of the assets, whichever is shorter. |
|
|
(h) |
|
Bank Owned Life Insurance |
|
|
|
|
Bank owned life insurance is carried at the amount that could be realized under the Companys
life insurance contracts as of the date of the consolidated balance sheets and is classified
as a non-interest earning asset. Increases in the carrying value are recorded as non-interest
income in the consolidated statements of income and insurance proceeds received are generally
recorded as a reduction of the carrying value. The carrying value consists of cash surrender
value of $108.6 million at December 31, 2010 and $106.7 million at December 31, 2009, claims
stabilization reserve of $8.1 million at December 31, 2010 and $7.2 million at December 31,
2009, and deferred acquisition costs of $342,000 at December 31, 2010 and $685,000 at
December 31, 2009. Repayment of the claims stabilization reserve (funds transferred from the
cash surrender value to provide for future death benefit payments) and the deferred
acquisition costs (costs incurred by the insurance carrier for the policy issuance) is
guaranteed by the insurance carrier provided that certain conditions are met at the date of a
contract is surrendered. The Company satisfied these conditions at December 31, 2010 and
2009. |
|
|
(i) |
|
Intangible Assets |
|
|
|
|
Goodwill. Goodwill is presumed to have an indefinite useful life and is tested, at
least annually, for impairment at the reporting unit level. For purposes of our goodwill
impairment testing, we have identified a single reporting unit. We consider the quoted market
price of our common stock on our impairment testing date as an initial indicator of
estimating the fair value of our reporting unit. In addition, we consider our average stock
price, both before and after our impairment test date, as well as market-based control
premiums in determining the estimated fair value of our reporting unit. If the estimated fair
value of our reporting unit exceeds its carrying amount, further evaluation is not necessary.
However, if the fair value of our reporting unit is less than its carrying amount, further
evaluation is required to compare the implied fair value of the reporting units goodwill to
its carrying amount to determine if a write-down of goodwill is required. |
|
|
|
|
At December 31, 2010, the carrying amount of our goodwill totaled $21.6 million. On November 1,
2010, we performed our annual goodwill impairment test and determined the estimated fair
value of our reporting unit to be in excess of its carrying amount. Accordingly, as of our
annual impairment test date, there was no indication of goodwill impairment. We would test
our goodwill for impairment between annual tests if an event occurs or circumstances change
that would more likely than not reduce the fair value of our reporting until below its
carrying amount. No events that have occurred and no circumstances have changed since our
annual impairment test date that would more likely than not reduce the fair value of our
reporting until below its carrying amount. |
|
|
|
|
Mortgage Servicing Rights. The Company recognizes as separate assets the rights to
service mortgage loans. The right to service loans for others is generally obtained through
the sale of loans with servicing retained. The initial asset recognized for originated
mortgage servicing rights (MSR) is measured at fair value. The fair value of MSR is estimated
by reference to current market values of similar loans sold servicing released. MSR are
amortized in proportion to and over the period of estimated net servicing income. We apply
the amortization method for measurements of our MSR. MSR are assessed for impairment based on
fair value at each reporting date. MSR impairment, if any, is recognized in a valuation
allowance through charges to earnings. Increases in the fair value of impaired MSR are
recognized only up |
73
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
|
to the amount of the previously recognized valuation allowance. Fees
earned for servicing loans are reported as income when the related mortgage loan payments are
collected. |
|
|
|
|
Core Deposit Premiums. Core deposit premiums represent the intangible value of
depositor relationships assumed in purchase acquisitions and are amortized on an accelerated
basis over 10 years. |
|
(j) |
|
Real Estate Owned |
|
|
|
|
Real estate owned (REO) consists of properties acquired through foreclosure or deed in lieu
of foreclosure. Such assets are carried at the lower of cost or fair value, less estimated
selling costs, based on independent appraisals. Write-downs required at the time of
acquisition are charged to the allowance for loan losses. Thereafter, decreases in the
properties estimated fair value which are charged to income along with any additional
property maintenance and protection expenses incurred in owning the property. |
|
|
(k) |
|
Borrowed Funds |
|
|
|
|
The Bank obtains advances from the FHLB, which are secured primarily by stock in the FHLB,
and mortgage loans and mortgage-backed securities under a blanket collateral pledge
agreement. |
|
|
|
|
The Bank also enters into sales of securities under agreements to repurchase with selected
brokers and the FHLB. The securities underlying the agreements are delivered to the
counterparty who agrees to resell to the Bank the identical securities at the maturity or
call of the agreement. These agreements are recorded as financing transactions, as the Bank
maintains effective control over the transferred securities, and no gain or loss is
recognized. The dollar amount of the securities underlying the agreements continues to be
carried in the Banks securities portfolio. The obligations to repurchase the securities are
reported as a liability in the consolidated balance sheets. |
|
|
(l) |
|
Income Taxes |
|
|
|
|
The Company records income taxes in accordance with Accounting Standard Codification (ASC)
740 Income Taxes, as amended, using the asset and liability method. Accordingly, deferred
tax assets and liabilities: (i) are recognized for the expected future tax consequences of
events that have been recognized in the financial statements or tax returns; (ii) are
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases; and (iii) are measured using enacted
tax rates expected to apply in the years when those temporary differences are expected to be
recovered or settled. Where applicable, deferred tax assets are reduced by a valuation
allowance for any portions determined not likely to be realized. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income tax expense in the
period of enactment. The valuation allowance is adjusted, by a charge or credit to income tax
expense, as changes in facts and circumstances warrant. The Company recognizes accrued
interest and penalties related to unrecognized tax benefits, where applicable, in income tax
expense. |
|
|
(m) |
|
Employee Benefits |
|
|
|
|
The Company has a defined benefit pension plan which covers all employees who satisfy the
eligibility requirements. The Company participates in a multiemployer plan. Costs of the
pension plan are based on the contributions required to be made to the program. |
|
|
|
|
The Company has a Supplemental Employee Retirement Plan (SERP). The SERP is a nonqualified,
defined benefit plan which provides benefits to certain 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. |
|
|
|
|
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. During the year ended June 30, 2008, 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. |
74
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
|
The Company has a 401(k) plan covering substantially all employees. The Company matches 50%
of the first 6% contributed by participants and recognizes expense as its contributions are
made. |
|
|
|
The employee stock ownership plan (ESOP) is accounted for in accordance with the provisions
of Statement ASC 718-40, Employers Accounting for Employee Stock Ownership Plans. The
funds borrowed by the ESOP from the Company to purchase the Companys common stock are being
repaid from the Banks contributions over a period of up to 30 years. The Companys common
stock not yet allocated to participants is recorded as a reduction of stockholders equity at
cost. Compensation expense for the ESOP is based on the market price of the Companys stock
and is recognized as shares are committed to be released to participants. |
|
|
|
The Company recognizes the grant-date fair value of stock based awards issued to employees as
compensation cost in the statement of operations. Compensation cost related to stock based
awards is recognized on a straight-line basis over the requisite service periods. The fair
value of stock based awards is based on the closing price market value as reported on the
NASDAQ Stock Market on the grant date. |
|
(n) |
|
Earnings Per Share |
|
|
|
|
Basic earnings per common share, or EPS, are computed by dividing net income by the
weighted-average common shares outstanding during the year. The weighted-average common
shares outstanding includes the weighted-average number of shares of common stock outstanding
less the weighted average number of unvested shares of restricted stock and unallocated
shares held by the Employee Stock Ownership Plan, or ESOP. For EPS calculations, ESOP shares
that have been committed to be released are considered outstanding. ESOP shares that have not
been committed to be released are excluded from outstanding shares on a weighted average
basis for EPS calculations. |
|
|
|
|
Diluted EPS is computed using the same method as basic EPS, but includes the effect of all
potentially dilutive common shares that were outstanding during the period, such as
unexercised stock options and unvested shares of restricted stock, calculated using the
treasury stock method. When applying the treasury stock method, we add: (1) the assumed
proceeds from option exercises; (2) the tax benefit that would have been credited to
additional paid-in capital assuming exercise of non-qualified stock options and vesting of
shares of restricted stock; and (3) the average unamortized compensation costs related to
unvested shares of restricted stock and stock options. We then divide this sum by our average
stock price to calculate shares repurchased. The excess of the number of shares issuable over
the number of shares assumed to be repurchased is added to basic weighted average common
shares to calculate diluted EPS. |
(2) |
|
Business Combinations |
|
|
On October 15, 2010, the Company completed the acquisition of Millennium bcpbank (Millennium) deposit franchise.
In this transaction the Company acquired approximately $600 million of deposits and seventeen
branch offices in New Jersey, New York and Massachusetts for a deposit premium of 0.11%. The
acquisition was accounted for under the acquisition method of accounting as prescribed by ASC
805, Business Combinations, as amended. The transaction resulted in a bargain purchase gain of
$1.8 million, net of tax. In a separate transaction the Company purchased a portion of
Millenniums performing loan portfolio and entered into a Loan Servicing Agreement to service
those loans it did not purchase. Upon acquisition, the Company entered into a definitive
agreement with a third party to sell the Massachusetts branch offices. The four branches, with
deposits of approximately $85 million, will be sold for a premium of 0.11%. This transaction is
subject to regulatory approval. |
|
|
|
On October 16, 2009, the Company completed the acquisition of six New Jersey bank branches and
approximately $227.0 million of deposits from Banco Popular North America. The acquisition was
accounted for under the acquisition method of accounting as prescribed by ASC 805, Business
Combinations, as amended. The Company did not purchase any loans as part of the transaction.
The transaction generated approximately $4.9 million in goodwill. |
|
|
|
On May 31, 2009, the Company completed the acquisition of American Bancorp of New Jersey, Inc.
(American), the holding company of American Bank of New Jersey, a federal savings bank with
approximately $670 million in assets and five full-service branches in northern New Jersey. The
acquisition was accounted for under the purchase method of accounting as prescribed by ASC 805,
Business Combinations, as amended. Accordingly, Americans results of operations have been
included in the Companys results of operations since the date of acquisition. Under this method
of accounting, the purchase |
75
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
price is allocated to the respective assets acquired and liabilities
assumed based on their estimated fair values, net of applicable income tax effects. The excess
cost over fair value of net assets acquired is recorded as goodwill. The purchase price of $98.2
million was paid through a combination of the Companys common stock (6,503,897 shares) and cash
of $47.5 million. The transaction generated approximately $17.6 million in goodwill and $3.9
million in core deposit intangibles subject to amortization beginning June 1, 2009. American
Bank was merged into the Bank as of the acquisition date. |
|
|
|
On June 6, 2008, Investors Bancorp, MHC, the Companys New Jersey chartered mutual holding
Company, completed its merger of Summit Federal Bankshares, MHC, a federally chartered mutual
holding company. The merger was a combination of mutual enterprises and therefore was accounted
for using the pooling-of-interests method. All financial information prior to the merger date
has been restated to include amounts for Summit Federal for all periods presented. At the merger
date, Summit Federal had assets of $110.1 million. The effect of the merger on the Companys
consolidated financial condition and results of operations was immaterial. In connection with
the merger, the Company, as required by the Office of Thrift Supervision (OTS), issued 1,744,592
additional shares of its common stock to Investors Bancorp, MHC. |
(3) |
|
Stock Transactions |
|
|
|
Stock Offering |
|
|
|
The Company completed its initial public stock offering on October 11, 2005 selling 51,627,094
shares, or 44.40% of its outstanding common stock, to subscribers in the offering, including
4,254,072 shares purchased by Investors Savings Bank Employee Stock Ownership Plan. Upon
completion of the initial public offering, Investors Bancorp, MHC, a New Jersey chartered mutual
holding company held 64,844,373 shares, or 54.94% of the Companys outstanding common stock
(shares restated to include the shares issued in the Summit Federal merger). Additionally, the
Company contributed $5.2 million in cash and issued 1,548,813 shares of common stock, or 1.33%
of its outstanding shares, to Investors Savings Bank Charitable Foundation resulting in a
pre-tax expense charge of $20.7 million. Net proceeds from the initial offering were $509.7
million. The Company contributed $255.0 million of the net proceeds to the Bank. Stock
subscription proceeds of $557.9 million were returned to subscribers. |
|
|
|
Stock Repurchase Programs |
|
|
|
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. Under the stock repurchase programs, shares of the Companys
common stock may be purchased in the open market and through privately negotiated transactions,
from time to time, depending on market conditions. During the year ended December 31, 2010, the
Company purchased 2,092,960 shares at a cost of $24.5 million, or approximately $11.69 per
share. Of the shares purchased through December 31, 2010, 2,428,701 shares were allocated to
fund the restricted stock portion of the Companys 2006 Equity Incentive Plan. The remaining
shares are held for general corporate use. At December 31, 2010, there are 785,844 shares yet to
be purchased under the current plan. |
(4) |
|
Securities |
|
|
|
The amortized cost, gross unrealized gains and losses and estimated fair value of securities are
as follows: |
76
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
2,025 |
|
|
|
207 |
|
|
|
|
|
|
|
2,232 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation |
|
|
248,403 |
|
|
|
3,485 |
|
|
|
3,553 |
|
|
|
248,335 |
|
Federal National Mortgage Association |
|
|
306,745 |
|
|
|
4,297 |
|
|
|
2,085 |
|
|
|
308,957 |
|
Government National Mortgage Association |
|
|
9,202 |
|
|
|
243 |
|
|
|
|
|
|
|
9,445 |
|
Non-agency securities |
|
|
34,640 |
|
|
|
532 |
|
|
|
1,408 |
|
|
|
33,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities available for sale |
|
|
598,990 |
|
|
|
8,557 |
|
|
|
7,046 |
|
|
|
600,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale |
|
$ |
601,015 |
|
|
|
8,764 |
|
|
|
7,046 |
|
|
|
602,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Sponsored Enterprises |
|
$ |
15,200 |
|
|
|
246 |
|
|
|
|
|
|
|
15,446 |
|
Municipal bonds |
|
|
13,951 |
|
|
|
46 |
|
|
|
90 |
|
|
|
13,907 |
|
Corporate and other debt securities |
|
|
23,552 |
|
|
|
19,330 |
|
|
|
1,593 |
|
|
|
41,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,703 |
|
|
|
19,622 |
|
|
|
1,683 |
|
|
|
70,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation |
|
|
210,544 |
|
|
|
7,964 |
|
|
|
278 |
|
|
|
218,230 |
|
Federal National Mortgage Association |
|
|
166,251 |
|
|
|
9,218 |
|
|
|
13 |
|
|
|
175,456 |
|
Government National Mortgage Association |
|
|
3,243 |
|
|
|
287 |
|
|
|
|
|
|
|
3,530 |
|
Federal housing authorities |
|
|
2,324 |
|
|
|
152 |
|
|
|
|
|
|
|
2,476 |
|
Non-agency securities |
|
|
43,471 |
|
|
|
573 |
|
|
|
155 |
|
|
|
43,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities held-to-maturity |
|
|
425,833 |
|
|
|
18,194 |
|
|
|
446 |
|
|
|
443,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held-to-maturity |
|
$ |
478,536 |
|
|
|
37,816 |
|
|
|
2,129 |
|
|
|
514,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
1,079,551 |
|
|
|
46,580 |
|
|
|
9,175 |
|
|
|
1,116,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
1,832 |
|
|
|
221 |
|
|
|
|
|
|
|
2,053 |
|
GSE debt securities |
|
|
25,013 |
|
|
|
26 |
|
|
|
|
|
|
|
25,039 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation |
|
|
206,877 |
|
|
|
2,725 |
|
|
|
80 |
|
|
|
209,522 |
|
Federal National Mortgage Association |
|
|
158,678 |
|
|
|
2,197 |
|
|
|
448 |
|
|
|
160,427 |
|
Government National Mortgage Association |
|
|
10,504 |
|
|
|
25 |
|
|
|
79 |
|
|
|
10,450 |
|
Non-agency securities |
|
|
67,290 |
|
|
|
284 |
|
|
|
3,822 |
|
|
|
63,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities available for sale |
|
|
443,349 |
|
|
|
5,231 |
|
|
|
4,429 |
|
|
|
444,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale |
|
$ |
470,194 |
|
|
|
5,478 |
|
|
|
4,429 |
|
|
|
471,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Sponsored Enterprises |
|
$ |
15,226 |
|
|
|
731 |
|
|
|
1 |
|
|
|
15,956 |
|
Municipal bonds |
|
|
10,259 |
|
|
|
196 |
|
|
|
4 |
|
|
|
10,451 |
|
Corporate and other debt securities |
|
|
21,411 |
|
|
|
18,015 |
|
|
|
1,617 |
|
|
|
37,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,896 |
|
|
|
18,942 |
|
|
|
1,622 |
|
|
|
64,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation |
|
|
358,998 |
|
|
|
10,565 |
|
|
|
159 |
|
|
|
369,404 |
|
Government National Mortgage Association |
|
|
3,880 |
|
|
|
277 |
|
|
|
|
|
|
|
4,157 |
|
Federal National Mortgage Association |
|
|
236,109 |
|
|
|
9,268 |
|
|
|
24 |
|
|
|
245,353 |
|
Federal housing authorities |
|
|
2,549 |
|
|
|
231 |
|
|
|
|
|
|
|
2,780 |
|
Non-agency securities |
|
|
69,009 |
|
|
|
47 |
|
|
|
1,561 |
|
|
|
67,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities held-to-maturity |
|
|
670,545 |
|
|
|
20,388 |
|
|
|
1,744 |
|
|
|
689,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held-to-maturity |
|
$ |
717,441 |
|
|
|
39,330 |
|
|
|
3,366 |
|
|
|
753,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
1,187,635 |
|
|
|
44,808 |
|
|
|
7,795 |
|
|
|
1,224,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
Our investment portfolio is comprised primarily of fixed rate mortgage-backed securities
guaranteed by a Government Sponsored Enterprise (GSE) as issuer. Substantially all of our
non-GSE issuance securities have a AAA credit rating and they have performed similarly to our
GSE issuance securities. The current mortgage market conditions reflecting credit quality
concerns have not had a significant impact on our non-GSE securities. Current market conditions
have not significantly impacted the pricing of our portfolio or our ability to obtain reliable
prices.
Gross unrealized losses on securities and the estimated fair value of the related securities,
aggregated by investment category and length of time that individual securities have been in a
continuous unrealized loss position at December 31, 2010 and 2009, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
|
(In thousands) |
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation |
|
$ |
99,704 |
|
|
|
3,553 |
|
|
|
|
|
|
|
|
|
|
|
99,704 |
|
|
|
3,553 |
|
Federal National Mortgage Association |
|
|
134,853 |
|
|
|
2,085 |
|
|
|
|
|
|
|
|
|
|
|
134,853 |
|
|
|
2,085 |
|
Non-agency securities |
|
|
|
|
|
|
|
|
|
|
12,226 |
|
|
|
1,408 |
|
|
|
12,226 |
|
|
|
1,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for sale |
|
|
234,557 |
|
|
|
5,638 |
|
|
|
12,226 |
|
|
|
1,408 |
|
|
|
246,783 |
|
|
|
7,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
7,699 |
|
|
|
90 |
|
|
|
7,699 |
|
|
|
90 |
|
Corporate and other debt securities |
|
|
185 |
|
|
|
806 |
|
|
|
825 |
|
|
|
787 |
|
|
|
1,010 |
|
|
|
1,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185 |
|
|
|
806 |
|
|
|
8,524 |
|
|
|
877 |
|
|
|
8,709 |
|
|
|
1,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation |
|
|
2,034 |
|
|
|
8 |
|
|
|
20,413 |
|
|
|
270 |
|
|
|
22,447 |
|
|
|
278 |
|
Federal National Mortgage Association |
|
|
|
|
|
|
|
|
|
|
2,067 |
|
|
|
13 |
|
|
|
2,067 |
|
|
|
13 |
|
Non-agency securities |
|
|
2,960 |
|
|
|
149 |
|
|
|
4,558 |
|
|
|
6 |
|
|
|
7,518 |
|
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,994 |
|
|
|
157 |
|
|
|
27,038 |
|
|
|
289 |
|
|
|
32,032 |
|
|
|
446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held-to-maturity |
|
|
5,179 |
|
|
|
963 |
|
|
|
35,562 |
|
|
|
1,166 |
|
|
|
40,741 |
|
|
|
2,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
239,736 |
|
|
|
6,601 |
|
|
|
47,788 |
|
|
|
2,574 |
|
|
|
287,524 |
|
|
|
9,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
|
(In thousands) |
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation |
|
$ |
33,595 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
33,595 |
|
|
|
80 |
|
Federal National Mortgage Association |
|
|
63,527 |
|
|
|
446 |
|
|
|
16 |
|
|
|
2 |
|
|
|
63,543 |
|
|
|
448 |
|
Government National Mortgage Association |
|
|
10,168 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
10,168 |
|
|
|
79 |
|
Non-agency securities |
|
|
4,563 |
|
|
|
370 |
|
|
|
26,736 |
|
|
|
3,452 |
|
|
|
31,299 |
|
|
|
3,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for sale |
|
|
111,853 |
|
|
|
975 |
|
|
|
26,752 |
|
|
|
3,454 |
|
|
|
138,605 |
|
|
|
4,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
225 |
|
|
|
1 |
|
|
|
225 |
|
|
|
1 |
|
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
1,035 |
|
|
|
4 |
|
|
|
1,035 |
|
|
|
4 |
|
Corporate and other debt securities |
|
|
1,024 |
|
|
|
1,617 |
|
|
|
|
|
|
|
|
|
|
|
1,024 |
|
|
|
1,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,024 |
|
|
|
1,617 |
|
|
|
1,260 |
|
|
|
5 |
|
|
|
2,284 |
|
|
|
1,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation |
|
|
5,860 |
|
|
|
159 |
|
|
|
|
|
|
|
|
|
|
|
5,860 |
|
|
|
159 |
|
Federal National Mortgage Association |
|
|
2,699 |
|
|
|
5 |
|
|
|
5,392 |
|
|
|
19 |
|
|
|
8,091 |
|
|
|
24 |
|
Non-agency securities |
|
|
16,352 |
|
|
|
257 |
|
|
|
42,308 |
|
|
|
1,304 |
|
|
|
58,660 |
|
|
|
1,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,911 |
|
|
|
421 |
|
|
|
47,700 |
|
|
|
1,323 |
|
|
|
72,611 |
|
|
|
1,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held-to-maturity |
|
|
25,935 |
|
|
|
2,038 |
|
|
|
48,960 |
|
|
|
1,328 |
|
|
|
74,895 |
|
|
|
3,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
137,788 |
|
|
|
3,013 |
|
|
|
75,712 |
|
|
|
4,782 |
|
|
|
213,500 |
|
|
|
7,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
For our debt securities that have an estimated fair value less than the amortized cost basis,
the gross unrealized losses were primarily in our available-for-sale mortgage-backed securities,
which accounted for 76.8% of the gross unrealized losses at December 31, 2010. The total
estimated fair value of our available-for-sale mortgage-backed securities represented 53.8% of
our total investment portfolio at December 31, 2010. The estimated fair value of our non-agency
mortgage-backed and our corporate and other debt securities portfolios have been adversely
impacted by the current economic environment, current market rates, wider credit spreads and
credit deterioration subsequent to the purchase of these securities. |
|
|
|
Our non-agency mortgage-backed securities are not guaranteed by GSE entities and complied with
the investment and credit standards set forth in the investment policy of the Company at the
time of purchase. At December 31, 2010, the significant portion of the portfolio was comprised
of 23 non-agency mortgage-backed securities with an amortized cost of $78.1 million and an
estimated fair value of $77.7 million. These securities were originated in the period 2002-2004
and substantially all are performing in accordance with contractual terms. For securities with
larger decreases in fair values, management estimates the loss projections for each security by
stressing the individual loans collateralizing the security with a range of expected default
rates, loss severities, and prepayment speeds, in conjunction with the underlying credit
enhancement (if applicable) for each security. Based on those specific assumptions, a range of
possible cash flows were identified to determine whether other-than-temporary impairment existed
as of December 31, 2010. Under certain stress scenarios estimated future losses may arise.
Management determined that no additional other-than-temporary impairment existed as of December
31, 2010. |
|
|
|
Our corporate and other debt securities portfolio consists of 33 pooled trust preferred
securities, (TruPS) principally issued by banks, of which 3 securities were rated AAA and 30
securities were rated A at the date of purchase and through June 30, 2008. Subsequently, due to
adverse economic conditions, the majority of these securities have been downgraded below
investment grade. At December 31, 2010, the amortized cost and estimated fair values of the
trust preferred portfolio was $23.6 million and $41.3 million, respectively. Through the use of
a valuation specialist, we evaluated the credit and performance of each underlying issuer by
deriving probabilities and assumptions for default, recovery and prepayment/ amortization for
the expected cashflows for each security. At December 31, 2010, management deemed that the
present value of projected cashflows for each security was greater than the book value and did
not recognize any OTTI charges for the year ended December 31, 2010. The Company has no intent
to sell, nor is it more likely than not that the Company will be required to sell, the debt
securities before the recovery of their amortized cost basis or maturity. |
79
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
The following table summarizes the Companys pooled trust preferred securities which are at least
one rating below investment grade as of December 31, 2010. In addition, at December 31, 2010 the
Company held 2 pooled trust preferred securities with a book value of $4.0 million and a
fair value of $6.4 million which are investment grade. The Company does not own any
single-issuer trust preferred securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Deferrals |
|
|
Expected Deferrals |
|
|
Excess |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Issuers |
|
|
and Defaults as a |
|
|
and Defaults as % |
|
|
Subordination as a |
|
|
|
|
(Dollars in 000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains |
|
|
Currently |
|
|
% of Total |
|
|
of Remaining |
|
|
% of Performing |
|
|
Moodys/ Fitch |
|
Description |
|
Class |
|
|
Book Value |
|
|
Fair Value |
|
|
(Losses) |
|
|
Performing |
|
|
Collateral (1) |
|
|
Collateral (2) |
|
|
Collateral (3) |
|
|
Credit Ratings |
|
|
Alesco PF II |
|
|
B1 |
|
|
$ |
182.8 |
|
|
$ |
312.7 |
|
|
$ |
129.9 |
|
|
|
33 |
|
|
|
20.3 |
% |
|
|
17.8 |
% |
|
|
0.0 |
% |
|
Ca / C |
Alesco PF III |
|
|
B1 |
|
|
|
378.2 |
|
|
|
699.5 |
|
|
|
321.3 |
|
|
|
37 |
|
|
|
25.6 |
% |
|
|
17.6 |
% |
|
|
0.0 |
% |
|
Ca / C |
Alesco PF III |
|
|
B2 |
|
|
|
151.4 |
|
|
|
279.8 |
|
|
|
128.4 |
|
|
|
37 |
|
|
|
25.6 |
% |
|
|
17.6 |
% |
|
|
0.0 |
% |
|
Ca / C |
Alesco PF IV |
|
|
B1 |
|
|
|
251.4 |
|
|
|
229.4 |
|
|
|
(22.0 |
) |
|
|
44 |
|
|
|
25.4 |
% |
|
|
20.8 |
% |
|
|
0.0 |
% |
|
C / C |
Alesco PF VI |
|
|
C2 |
|
|
|
334.8 |
|
|
|
851.5 |
|
|
|
516.7 |
|
|
|
44 |
|
|
|
27.7 |
% |
|
|
22.3 |
% |
|
|
0.0 |
% |
|
Ca / C |
MM Comm III |
|
|
B |
|
|
|
1,056.3 |
|
|
|
3,633.6 |
|
|
|
2,577.3 |
|
|
|
7 |
|
|
|
41.2 |
% |
|
|
12.9 |
% |
|
|
12.8 |
% |
|
Ba1 / CC |
MM Comm IX |
|
|
B1 |
|
|
|
53.2 |
|
|
|
25.3 |
|
|
|
(27.9 |
) |
|
|
19 |
|
|
|
26.5 |
% |
|
|
29.0 |
% |
|
|
0.0 |
% |
|
Caa3 / C |
MMCaps XVII |
|
|
C1 |
|
|
|
801.5 |
|
|
|
1,906.8 |
|
|
|
1,105.3 |
|
|
|
42 |
|
|
|
7.5 |
% |
|
|
18.5 |
% |
|
|
0.0 |
% |
|
Ca / C |
MMCaps XIX |
|
|
C |
|
|
|
410.7 |
|
|
|
4.5 |
|
|
|
(406.2 |
) |
|
|
29 |
|
|
|
28.4 |
% |
|
|
26.6 |
% |
|
|
0.0 |
% |
|
C / C |
Tpref I |
|
|
B |
|
|
|
1,087.0 |
|
|
|
2,185.7 |
|
|
|
1,098.7 |
|
|
|
14 |
|
|
|
37.4 |
% |
|
|
19.8 |
% |
|
|
0.0 |
% |
|
Ca / D |
Tpref II |
|
|
B |
|
|
|
2,450.9 |
|
|
|
4,531.2 |
|
|
|
2,080.3 |
|
|
|
19 |
|
|
|
26.9 |
% |
|
|
26.3 |
% |
|
|
0.0 |
% |
|
Caa3 / C |
US Cap I |
|
|
B2 |
|
|
|
549.0 |
|
|
|
1,269.3 |
|
|
|
720.3 |
|
|
|
36 |
|
|
|
8.3 |
% |
|
|
14.9 |
% |
|
|
0.0 |
% |
|
Caa1 / C |
US Cap I |
|
|
B1 |
|
|
|
1,625.5 |
|
|
|
3,807.9 |
|
|
|
2,182.4 |
|
|
|
36 |
|
|
|
8.3 |
% |
|
|
14.9 |
% |
|
|
0.0 |
% |
|
Caa1 / C |
US Cap II |
|
|
B1 |
|
|
|
796.5 |
|
|
|
2,309.0 |
|
|
|
1,512.5 |
|
|
|
47 |
|
|
|
11.8 |
% |
|
|
15.9 |
% |
|
|
0.0 |
% |
|
Ca / C |
US Cap III |
|
|
B1 |
|
|
|
976.4 |
|
|
|
2,001.8 |
|
|
|
1,025.4 |
|
|
|
35 |
|
|
|
20.4 |
% |
|
|
14.1 |
% |
|
|
0.0 |
% |
|
Ca / C |
US Cap IV |
|
|
B1 |
|
|
|
779.1 |
|
|
|
126.0 |
|
|
|
(653.1 |
) |
|
|
47 |
|
|
|
30.6 |
% |
|
|
26.9 |
% |
|
|
0.0 |
% |
|
C / D |
Trapeza XII |
|
|
C1 |
|
|
|
815.1 |
|
|
|
909.6 |
|
|
|
94.5 |
|
|
|
35 |
|
|
|
18.9 |
% |
|
|
23.2 |
% |
|
|
0.0 |
% |
|
C / C |
Trapeza XIII |
|
|
C1 |
|
|
|
771.3 |
|
|
|
1,266.0 |
|
|
|
494.7 |
|
|
|
43 |
|
|
|
14.8 |
% |
|
|
26.9 |
% |
|
|
0.0 |
% |
|
Ca / C |
Pretsl IV |
|
|
Mezzanine |
|
|
|
113.6 |
|
|
|
127.8 |
|
|
|
14.2 |
|
|
|
5 |
|
|
|
27.1 |
% |
|
|
16.0 |
% |
|
|
19.0 |
% |
|
Ca / CCC |
Pretsl V |
|
|
Mezzanine |
|
|
|
6.1 |
|
|
|
14.4 |
|
|
|
8.3 |
|
|
|
0 |
|
|
|
65.5 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
Caa3 / D |
Pretsl VII |
|
|
Mezzanine |
|
|
|
1,035.2 |
|
|
|
1,602.0 |
|
|
|
566.8 |
|
|
|
6 |
|
|
|
37.4 |
% |
|
|
72.6 |
% |
|
|
0.0 |
% |
|
Ca / C |
Pretsl XV |
|
|
B1 |
|
|
|
623.3 |
|
|
|
970.2 |
|
|
|
346.9 |
|
|
|
55 |
|
|
|
23.2 |
% |
|
|
20.8 |
% |
|
|
0.0 |
% |
|
C / C |
Pretsl XVII |
|
|
C |
|
|
|
364.9 |
|
|
|
311.0 |
|
|
|
(53.9 |
) |
|
|
37 |
|
|
|
19.0 |
% |
|
|
27.1 |
% |
|
|
0.0 |
% |
|
Ca / C |
Pretsl XVIII |
|
|
C |
|
|
|
773.5 |
|
|
|
1,612.9 |
|
|
|
839.4 |
|
|
|
60 |
|
|
|
17.4 |
% |
|
|
15.0 |
% |
|
|
0.0 |
% |
|
Ca / C |
Pretsl XIX |
|
|
C |
|
|
|
296.2 |
|
|
|
462.3 |
|
|
|
166.1 |
|
|
|
55 |
|
|
|
18.6 |
% |
|
|
17.1 |
% |
|
|
0.0 |
% |
|
C / C |
Pretsl XX |
|
|
C |
|
|
|
170.9 |
|
|
|
76.9 |
|
|
|
(94.0 |
) |
|
|
48 |
|
|
|
22.8 |
% |
|
|
18.0 |
% |
|
|
0.0 |
% |
|
C / C |
Pretsl XXI |
|
|
C1 |
|
|
|
248.2 |
|
|
|
320.2 |
|
|
|
72.0 |
|
|
|
54 |
|
|
|
23.5 |
% |
|
|
22.5 |
% |
|
|
0.0 |
% |
|
C / C |
Pretsl XXIII |
|
|
A-FP |
|
|
|
1,692.4 |
|
|
|
2,519.1 |
|
|
|
826.7 |
|
|
|
98 |
|
|
|
19.1 |
% |
|
|
18.9 |
% |
|
|
18.3 |
% |
|
B1 / B |
Pretsl XXIV |
|
|
C1 |
|
|
|
409.5 |
|
|
|
103.5 |
|
|
|
(306.0 |
) |
|
|
65 |
|
|
|
24.3 |
% |
|
|
24.5 |
% |
|
|
0.0 |
% |
|
Ca / C |
Pretsl XXV |
|
|
C1 |
|
|
|
163.0 |
|
|
|
133.3 |
|
|
|
(29.7 |
) |
|
|
54 |
|
|
|
22.3 |
% |
|
|
23.1 |
% |
|
|
0.0 |
% |
|
C / C |
Pretsl XXVI |
|
|
C1 |
|
|
|
148.0 |
|
|
|
240.9 |
|
|
|
92.9 |
|
|
|
56 |
|
|
|
24.2 |
% |
|
|
19.0 |
% |
|
|
0.0 |
% |
|
C / C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,515.9 |
|
|
$ |
34,844.1 |
|
|
$ |
15,328.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At December 31, 2010, assumed recoveries for current deferrals and defaulted issuers
ranged from 0.0% to 9.5%. |
|
(2) |
|
At December 31, 2010, assumed recoveries for expected deferrals and defaulted issuers ranged
from 6.2% to 12.4%. |
|
(3) |
|
Excess subordination represents the amount of remaining performing collateral that is in excess
of the amount needed to payoff a specified class of bonds and all classes senior to the specified
class. Excess subordination reduces an investors potential risk of loss on their investment as
excess subordination absorbs principal and interest shortfalls in the event underlying issuers are
not able to make their contractual payments. |
80
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
The following table presents the changes in the credit loss component of the amortized cost of
debt securities that the Company has written down for such loss as an other-than-temporary
impairment recognized in earnings.
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
(In thousands) |
|
Balance of credit-related OTTI, beginning of period |
|
$ |
122,410 |
|
|
|
121,110 |
|
Additions: |
|
|
|
|
|
|
|
|
Initial credit impairments |
|
|
|
|
|
|
|
|
Subsequent credit impairments |
|
|
|
|
|
|
1,300 |
|
Reductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
122,410 |
|
|
|
122,410 |
|
|
|
|
|
|
|
|
The credit loss component of the amortized cost represents the difference between the present
value of expected future cash flows and the amortized cost basis of the security prior to
considering credit losses. The beginning balance represents the credit loss component for debt
securities for which other-than-temporary impairment occurred prior to the period presented. If
other-than-temporary impairment is recognized in earnings for credit impaired debt securities,
they would be presented as additions in two components based upon whether the current period is
the first time the debt security was credit impaired (initial credit impairment) or is not the
first time the debt security was credit impaired (subsequent credit impairments). The credit
loss component is reduced if the Company sells, intends to sell or believes it will be required
to sell previously credit impaired debt securities. Additionally, the credit loss component is
reduced if (i) the Company receives the cash flows in excess of what it expected to receive over
the remaining life of the credit impaired debt security, (ii) the security matures or (iii) the
security is fully written down.
At December 31, 2010, noncredit-related OTTI was $33.3 million ($19.7 million after-tax) on
securities not expected to be sold and for which it is not more likely than not that we will be
required to sell the securities before recovery of their amortized cost basis. As of April 1,
2009, we reclassified $21.1 million after-tax as a cumulative effect adjustment for the
noncredit-related portion of OTTI losses previously recognized in earnings. During the year
ended December 31, 2009, the Company recorded $1.3 million pre-tax credit related OTTI charge on
TruPs.
There were no sales from the held-to-maturity portfolio during the years ended December 31, 2010
and 2009, the six month period ended December 31, 2009 and for the years ended June 30, 2009 and
2008; however, the Company realized a $3,000 loss and an $18,000 gain on the call of debt
securities for the years ended December 31, 2010 and June 30, 2008, respectively.
For year ended December 31, 2010, proceeds from sales of securities from the available-for-sale
portfolio were $12.0 million, which resulted in gross realized gains and gross realized losses
of $284,000 and $258,000, respectively. In addition, the Company realized a $30,000 loss on
paydowns of securities previously written down through OTTI and gross realized gains and gross
realized losses of $56,000 and $14,000, respectively, on capital funds. There were no sales from
the available-for-sale portfolio during the six month period ended December 31, 2009 and for the
year ended June 30, 2009. For the year ended June 30, 2008, proceeds from sales of securities
from the available-for-sale portfolio was $250,000, which resulted in gross realized losses of
$27,000.
The contractual maturities of mortgage-backed securities generally exceed 20 years; however, the
effective lives are expected to be shorter due to anticipated prepayments. The amortized cost
and estimated fair value of all other debt securities at December 31, 2010, by contractual
maturity, are shown below. Expected maturities may differ from contractual maturities due to
prepayment or early call privileges of the issuer.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Amortized |
|
|
Estimated |
|
|
|
Cost |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Due in one year or less |
|
$ |
20,049 |
|
|
|
20,290 |
|
Due after one year through five years |
|
|
3,752 |
|
|
|
3,792 |
|
Due after five years through ten years |
|
|
220 |
|
|
|
221 |
|
Due after ten years |
|
|
28,682 |
|
|
|
46,339 |
|
|
|
|
|
|
|
|
Total |
|
$ |
52,703 |
|
|
|
70,642 |
|
|
|
|
|
|
|
|
A portion of the Companys securities are pledged to secure borrowings. See Note 9 for
additional information.
81
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
(5) Loans Receivable, Net
Loans receivable, net are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Residential mortgage loans: |
|
|
|
|
|
|
|
|
One- to four-family |
|
$ |
4,922,901 |
|
|
|
4,756,042 |
|
FHA |
|
|
16,343 |
|
|
|
17,514 |
|
Multi-family loans |
|
|
1,161,874 |
|
|
|
612,743 |
|
Commercial real estate loans |
|
|
1,225,256 |
|
|
|
730,012 |
|
Construction loans |
|
|
347,825 |
|
|
|
334,480 |
|
Commercial & industrial loans |
|
|
60,903 |
|
|
|
23,159 |
|
Consumer and other loans |
|
|
259,757 |
|
|
|
178,177 |
|
|
|
|
|
|
|
|
Total loans |
|
|
7,994,859 |
|
|
|
6,652,127 |
|
|
|
|
|
|
|
|
Premiums on purchased loans, net |
|
|
22,021 |
|
|
|
22,958 |
|
Deferred loan fees, net |
|
|
(8,244 |
) |
|
|
(4,574 |
) |
Allowance for loan losses |
|
|
(90,931 |
) |
|
|
(55,052 |
) |
|
|
|
|
|
|
|
|
|
$ |
7,917,705 |
|
|
|
6,615,459 |
|
|
|
|
|
|
|
|
A substantial portion of the Companys loans are secured by real estate located in New Jersey
and surrounding states. Accordingly, as with most financial institutions in the market area, the
ultimate collectability of a substantial portion of the Companys loan portfolio is susceptible
to changes in market conditions in this area. See Note 12 for further discussion of
concentration of credit risk.
An analysis of the allowance for loan losses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Month |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended |
|
|
|
|
|
|
Year Ended December 31, |
|
|
December 31, |
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Balance at beginning of year |
|
$ |
55,052 |
|
|
|
26,549 |
|
|
|
46,608 |
|
|
|
13,565 |
|
|
|
6,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged off |
|
|
(30,829 |
) |
|
|
(15,034 |
) |
|
|
(15,025 |
) |
|
|
(25 |
) |
|
|
(33 |
) |
Recoveries |
|
|
208 |
|
|
|
44 |
|
|
|
44 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
(30,621 |
) |
|
|
(14,990 |
) |
|
|
(14,981 |
) |
|
|
(25 |
) |
|
|
(32 |
) |
Allowance from acquisition |
|
|
|
|
|
|
4,043 |
|
|
|
|
|
|
|
4,043 |
|
|
|
|
|
Provision for loan losses |
|
|
66,500 |
|
|
|
39,450 |
|
|
|
23,425 |
|
|
|
29,025 |
|
|
|
6,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
90,931 |
|
|
|
55,052 |
|
|
|
55,052 |
|
|
|
46,608 |
|
|
|
13,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 because of the high degree
of judgment involved, the subjectivity of the assumptions used, 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
82
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
balance greater than $3.0 million and on non-accrual status and all loans subject to a troubled
debt restructuring. 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, including those loans not meeting the Companys definition of an impaired
loan, 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 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. 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. 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
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.
For commercial real estate, construction and multi-family loans, the Company obtains an
appraisal for all collateral dependent loans upon origination and an updated appraisal in the
event interest or principal payments are 90 days delinquent or when the timely collection of
such income is considered doubtful. This is done in order to determine the specific reserve
needed upon initial recognition of a collateral dependent loan as non-accrual and/or impaired.
In subsequent reporting periods, as part of the allowance for loan loss process, the Company
reviews each collateral dependent commercial real estate loan previously classified as
non-accrual and/or impaired and assesses whether there has been an adverse change in the
collateral value supporting the loan. The Company utilizes information from its commercial
lending officers and its loan workout departments knowledge of changes in real estate
conditions in our lending area to identify if possible deterioration of collateral value has
occurred. Based on the severity of the changes in market conditions, management determines if
an updated appraisal is warranted or if downward adjustments to the previous appraisal are
warranted. If it is determined that the deterioration of the collateral value is significant
enough to warrant ordering a new appraisal, an estimate of the downward adjustments to the
existing appraised value is used in assessing if additional specific reserves are necessary
until the updated appraisal is received.
For homogeneous residential mortgage loans, the Companys policy is to obtain an appraisal upon
the origination of the loan and an updated appraisal in the event a loan becomes 90 days
delinquent. Thereafter, the appraisal is updated every two years if the
83
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
loan remains in non-performing status and the foreclosure process has not been completed.
Management does not typically make adjustments to the appraised value of residential loans
other than to reduce the value for estimated selling costs, if applicable.
In determining the allowance for loan losses, management believes the potential for outdated
appraisals has been mitigated for impaired loans and other non-performing loans. As described
above, the loans are individually assessed to determine that the loans carrying value is not
in excess of the fair value of the collateral. Loans are generally charged off after an
analysis is completed which indicates that collectability of the full principal balance is in
doubt.
Based on the composition of our loan portfolio, we believe the primary risks are a decline in
the general economy, a decline in real estate market values in New Jersey and surrounding
states and increases in interest rates. 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 allowance for loan losses reflects probable losses considering, among other things, the
actual growth and change in composition of our loan portfolio, the level of our non-performing
loans and our charge-off experience. We believe the allowance for loan losses reflects the
inherent credit risk in our portfolio.
Although we believe we have established and maintained the allowance for loan losses at
adequate levels, additions may be necessary if the current operating environment continues or
deteriorates. Management uses the best information available; however, 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.
The following table presents the balance in the allowance for loan losses and the recorded
investment in loans by portfolio segment and based on impairment method as of December 31, 2010.
84
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
Multi- |
|
|
|
|
|
|
Construction |
|
|
Commercial and |
|
|
Consumer and Other |
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
Family |
|
|
Commercial |
|
|
Loans |
|
|
Industrial Loans |
|
|
Loans |
|
|
Unallocated |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
13,741 |
|
|
|
3,227 |
|
|
|
10,208 |
|
|
|
25,194 |
|
|
|
558 |
|
|
|
510 |
|
|
|
1,614 |
|
|
|
55,052 |
|
Charge-offs |
|
|
(6,432 |
) |
|
|
(829 |
) |
|
|
(98 |
) |
|
|
(23,160 |
) |
|
|
(269 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
(30,829 |
) |
Recoveries |
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
83 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
208 |
|
Provision |
|
|
13,056 |
|
|
|
8,056 |
|
|
|
6,322 |
|
|
|
32,552 |
|
|
|
1,899 |
|
|
|
397 |
|
|
|
4,218 |
|
|
|
66,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
20,489 |
|
|
|
10,454 |
|
|
|
16,432 |
|
|
|
34,669 |
|
|
|
2,189 |
|
|
|
866 |
|
|
|
5,832 |
|
|
|
90,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
1,214 |
|
|
|
|
|
|
|
|
|
|
|
3,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,989 |
|
Collectively evaluated for impairment |
|
|
19,275 |
|
|
|
10,454 |
|
|
|
16,432 |
|
|
|
30,894 |
|
|
|
2,189 |
|
|
|
866 |
|
|
|
5,832 |
|
|
|
85,942 |
|
Loans acquired with deteriorated
credit quality |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,489 |
|
|
|
10,454 |
|
|
|
16,432 |
|
|
|
34,669 |
|
|
|
2,189 |
|
|
|
866 |
|
|
|
5,832 |
|
|
|
90,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
4,822 |
|
|
|
|
|
|
|
|
|
|
|
64,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,275 |
|
Collectively evaluated for impairment |
|
|
4,933,813 |
|
|
|
1,161,874 |
|
|
|
1,223,479 |
|
|
|
276,306 |
|
|
|
60,798 |
|
|
|
259,548 |
|
|
|
|
|
|
|
7,915,818 |
|
Loans acquired with deteriorated
credit quality |
|
|
609 |
|
|
|
|
|
|
|
1,777 |
|
|
|
7,066 |
|
|
|
105 |
|
|
|
209 |
|
|
|
|
|
|
|
9,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,939,244 |
|
|
|
1,161,874 |
|
|
|
1,225,256 |
|
|
|
347,825 |
|
|
|
60,903 |
|
|
|
259,757 |
|
|
|
|
|
|
|
7,994,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company categorizes loans into risk categories based on relevant information about the
ability of borrowers to service their debt such as: current financial information, historical
payment experience, credit documentation, public information and current economic trends, among
other factors. For non-homogeneous loans, such as commercial and commercial real estate loans
the Company analyzes the loans individually by classifying the loans as to credit risk and
assesses the probability of collection for each type of class. This analysis is performed on a
quarterly basis. The Company uses the following definitions for risk ratings:
Pass Pass assets are well protected by the current net worth and paying capacity of the
obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any
underlying collateral in a timely manner.
Special Mention A Special Mention asset has potential weaknesses that deserve managements
close attention. If left uncorrected, these potential weaknesses may result in deterioration
of the repayment prospects for the asset or in the institutions credit position at some
future date. Special Mention assets are not adversely classified and do not expose an
institution to sufficient risk to warrant adverse classification.
Substandard A substandard asset is inadequately protected by the current sound worth and
paying capacity of the obligor or by the collateral pledged, if any. Assets so classified
must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the
debt. They are characterized by the distinct possibility that the institution will sustain
some loss if the deficiencies are not corrected.
Doubtful An asset classified doubtful has all the weaknesses inherent in one classified
substandard with the added characteristic that the weaknesses make collection or liquidation
in full highly questionable and improbable on the basis of currently known facts,
conditions, and values.
Loss An asset or portion thereof, classified Loss is considered uncollectible and of such
little value that its continuance on the institutions books as an asset, without
establishment of a specific valuation allowance or charge-off, is not warranted. This
classification does not necessarily mean that an asset has no recovery or salvage value; but
rather, there is much doubt about whether, how much, or when the recovery will occur. As
such, it is not practical or desirable to defer the write-off.
As of December 31, 2010, and based on the most recent analysis performed, the risk category of
loans by class of loans is as follows:
85
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
Special Mention |
|
|
Substandard |
|
|
Doubtful |
|
|
Loss |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family |
|
$ |
1,122,102 |
|
|
|
2,202 |
|
|
|
37,570 |
|
|
|
|
|
|
|
|
|
|
|
1,161,874 |
|
Commercial |
|
|
1,183,831 |
|
|
|
16,616 |
|
|
|
24,809 |
|
|
|
|
|
|
|
|
|
|
|
1,225,256 |
|
Construction Loans |
|
|
143,669 |
|
|
|
32,185 |
|
|
|
162,255 |
|
|
|
9,716 |
|
|
|
|
|
|
|
347,825 |
|
Commercial and Industrial |
|
|
54,068 |
|
|
|
465 |
|
|
|
6,370 |
|
|
|
|
|
|
|
|
|
|
|
60,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,503,670 |
|
|
|
51,468 |
|
|
|
231,004 |
|
|
|
9,716 |
|
|
|
|
|
|
|
2,795,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential and consumer loans are managed on a pool basis due to their homogeneous nature.
Loans that are delinquent 90 days or more are considered non-accrual. A specific reserve is
established for residential loans meeting this criteria if the net realizable value is
determined to be less than the loan balance. The following table presents the recorded
investment in residential and consumer loans based on payment activity as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
|
Non-accrual |
|
|
Total |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Residential |
|
$ |
4,865,594 |
|
|
|
73,650 |
|
|
|
4,939,244 |
|
Consumer and other |
|
|
258,724 |
|
|
|
1,033 |
|
|
|
259,757 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,124,318 |
|
|
|
74,683 |
|
|
|
5,199,001 |
|
|
|
|
|
|
|
|
|
|
|
The following table presents the aging of the recorded investment in past due loans as of
December 31, 2010 by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Past |
|
|
|
|
|
|
Loans |
|
|
|
30-59 Days |
|
|
60-89 Days |
|
|
Greater than 90 Days |
|
|
Due |
|
|
Current |
|
|
Receivable |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Residential Mortgage |
|
$ |
16,510 |
|
|
|
11,890 |
|
|
|
73,650 |
|
|
|
102,050 |
|
|
|
4,837,194 |
|
|
|
4,939,244 |
|
Multi-Family |
|
|
4,678 |
|
|
|
12,898 |
|
|
|
2,748 |
|
|
|
20,324 |
|
|
|
1,141,550 |
|
|
|
1,161,874 |
|
Commercial |
|
|
709 |
|
|
|
502 |
|
|
|
3,899 |
|
|
|
5,110 |
|
|
|
1,220,146 |
|
|
|
1,225,256 |
|
Construction Loans |
|
|
|
|
|
|
7,850 |
|
|
|
82,735 |
|
|
|
90,585 |
|
|
|
257,240 |
|
|
|
347,825 |
|
Commercial and Industrial |
|
|
150 |
|
|
|
640 |
|
|
|
1,829 |
|
|
|
2,619 |
|
|
|
58,284 |
|
|
|
60,903 |
|
Consumer and Other |
|
|
1,260 |
|
|
|
196 |
|
|
|
1,033 |
|
|
|
2,489 |
|
|
|
257,268 |
|
|
|
259,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
23,307 |
|
|
|
33,976 |
|
|
|
165,894 |
|
|
|
223,177 |
|
|
|
7,771,682 |
|
|
|
7,994,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in loans receivable were non-accrual loans totaling $165.9 million at December 31, 2010
and $120.2 million at December 31, 2009. During the year ended December 31, 2010 and 2009, six
month period ended December 31, 2009 and the year ended June 30, 2009, the total amount of
interest income received on non-accrual loans outstanding totaled $1.9 million, $2.0 million
(unaudited), $1.0 million, and $1.1 million, respectively, and the additional interest income on
non-accrual loans that would have been recognized if interest on all such loans had been
recorded based upon the original contract terms totaled $8.1 million, $4.9 million (unaudited),
$2.3 million, and $7.5 million, respectively. During the years ended June 30, 2008, the total
amount of interest income received on non-accrual loans outstanding and the additional interest
income on non-accrual loans that would have been recognized if interest on all such loans had
been recorded based upon the original contract terms were immaterial. The Company has no loans
past due 90 days or more that are still accruing interest
86
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
At December 31, 2010 and 2009 loans meeting the Companys definition of an impaired loan were
primarily collateral dependent and totaled $69.3 million, and $48.4 million, respectively, with
allocations of the allowance for loan losses of $5.0 million, and $6.1 million, respectively.
During the year ended December 31, 2010 and 2009, six month period ended December 31, 2009 and
the year ended June 30, 2009, interest income received and recognized on these loans totaled
$206,000, $1.8 million (unaudited) $680,000 and $534,000, respectively. For the year ended June
30, 2008, the interest income received and recognized on these loans was immaterial. The average
balance of impaired loans was $54.8 million, $50.0 million (unaudited), $58.2 million, $48.2
million, and $2.2 million during the year ended December 31, 2010 and 2009, six month period
ended December 31, 2009 and years ended June 30, 2009, and 2008, respectively. At December 31,
2010 there are 13 residential loans totaling $4.8 million which are deemed troubled debt
restructurings. These loans are performing under the restructured terms.
87
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
The following table presents loans individually evaluated for impairment by class of loans
as of December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
Recorded |
|
|
Principal |
|
|
Related |
|
|
Recorded |
|
|
Income |
|
|
|
Investment |
|
|
Balance |
|
|
Allowance |
|
|
Investment |
|
|
Recognized |
|
|
|
(In thousands) |
|
With no related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage |
|
$ |
288 |
|
|
|
288 |
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
|
26,146 |
|
|
|
42,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage |
|
|
4,534 |
|
|
|
4,534 |
|
|
|
1,214 |
|
|
|
|
|
|
|
176 |
|
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
|
38,307 |
|
|
|
46,557 |
|
|
|
3,775 |
|
|
|
|
|
|
|
22 |
|
Commercial and Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage |
|
|
4,822 |
|
|
|
4,822 |
|
|
|
1,214 |
|
|
|
|
|
|
|
184 |
|
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 |
|
Construction Loans |
|
|
64,453 |
|
|
|
89,493 |
|
|
|
3,775 |
|
|
|
|
|
|
|
|
|
Commercial and Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
|
$ |
69,275 |
|
|
|
94,315 |
|
|
|
4,989 |
|
|
|
|
|
|
|
206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended June 30, 2008, the Company began selling loans on a servicing-retained
basis. Loans that were sold on this basis, amounted to $979.8 million, $620.4 million, $365.7
million and $62.6 million at December 31, 2010, December 31, 2009, June 30, 2009 and 2008,
respectively, all of which relate to residential mortgage loans. At December 31, 2010 and 2009,
the servicing asset, included in intangible assets, had an estimated fair value of $9.3 million
and $5.5 million, respectively. Fair value was based on expected future cash flows considering a
weighted average discount rate of 9.0%, a weighted average constant prepayment rate on mortgages
of 12.9% and a weighted average life of 5.9 years. |
(6) Accrued Interest Receivable
|
|
Accrued interest receivable is summarized as follows: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Securities |
|
$ |
4,221 |
|
|
|
4,543 |
|
Loans receivable |
|
|
36,320 |
|
|
|
32,399 |
|
|
|
|
|
|
|
|
|
|
$ |
40,541 |
|
|
|
36,942 |
|
|
|
|
|
|
|
|
88
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
(7) Office Properties and Equipment, Net
|
|
Office properties and equipment are summarized as follows: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Land |
|
$ |
9,339 |
|
|
|
9,339 |
|
Office buildings |
|
|
24,499 |
|
|
|
23,637 |
|
Leasehold improvements |
|
|
23,449 |
|
|
|
17,239 |
|
Furniture, fixtures and equipment |
|
|
22,253 |
|
|
|
17,131 |
|
Construction in process |
|
|
1,653 |
|
|
|
3,190 |
|
|
|
|
|
|
|
|
|
|
|
81,193 |
|
|
|
70,536 |
|
Less accumulated depreciation and amortization |
|
|
24,266 |
|
|
|
21,152 |
|
|
|
|
|
|
|
|
|
|
$ |
56,927 |
|
|
|
49,384 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the year ended December 31, 2010 and 2009, six month
period ended December 31, 2009 and years ended June 30, 2009 and 2008 was $4.7 million, $3.7
million (unaudited), $2.0 million, $2.7 million and $2.8 million, respectively. |
(8) Deposits
|
|
Deposits are summarized as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Weighted |
|
|
|
|
|
|
% |
|
|
Weighted |
|
|
|
|
|
|
% |
|
|
|
Average |
|
|
|
|
|
|
of |
|
|
Average |
|
|
|
|
|
|
of |
|
|
|
Rate |
|
|
Amount |
|
|
Total |
|
|
Rate |
|
|
Amount |
|
|
Total |
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Savings |
|
|
0.93 |
% |
|
$ |
1,135,091 |
|
|
|
16.75 |
% |
|
|
1.64 |
% |
|
$ |
877,421 |
|
|
|
15.02 |
% |
Checking accounts |
|
|
0.37 |
|
|
|
1,367,282 |
|
|
|
20.18 |
|
|
|
0.81 |
|
|
|
927,675 |
|
|
|
15.88 |
|
Money market deposits |
|
|
0.81 |
|
|
|
832,514 |
|
|
|
12.29 |
|
|
|
1.26 |
|
|
|
742,618 |
|
|
|
12.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transaction accounts |
|
|
0.65 |
|
|
|
3,334,887 |
|
|
|
49.22 |
|
|
|
1.21 |
|
|
|
2,547,714 |
|
|
|
43.62 |
|
Certificates of deposit |
|
|
1.78 |
|
|
|
3,440,043 |
|
|
|
50.78 |
|
|
|
2.18 |
|
|
|
3,292,929 |
|
|
|
56.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
1.22 |
% |
|
$ |
6,774,930 |
|
|
|
100.00 |
% |
|
|
1.77 |
% |
|
$ |
5,840,643 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled maturities of certificates of deposit are as follows: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Within one year |
|
$ |
2,205,311 |
|
|
|
2,373,901 |
|
One to two years |
|
|
989,792 |
|
|
|
610,301 |
|
Two to three years |
|
|
86,884 |
|
|
|
188,260 |
|
Three to four years |
|
|
80,851 |
|
|
|
29,516 |
|
After four years |
|
|
77,205 |
|
|
|
90,951 |
|
|
|
|
|
|
|
|
|
|
$ |
3,440,043 |
|
|
|
3,292,929 |
|
|
|
|
|
|
|
|
|
|
The aggregate amount of certificates of deposit in denominations of $100,000 or more totaled
approximately $1.25 billion and $1.10 billion at December 31, 2010 and December 31, 2009. |
89
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
Interest expense on deposits consists of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Month Period |
|
|
|
|
|
|
Year Ended December 31, |
|
|
Ended December 31, |
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Savings |
|
$ |
13,958 |
|
|
|
14,533 |
|
|
|
7,615 |
|
|
|
10,568 |
|
|
|
7,718 |
|
Checking accounts |
|
|
6,406 |
|
|
|
13,252 |
|
|
|
4,426 |
|
|
|
11,668 |
|
|
|
7,329 |
|
Money market deposits |
|
|
7,299 |
|
|
|
7,834 |
|
|
|
4,392 |
|
|
|
6,466 |
|
|
|
5,005 |
|
Certificates of deposit |
|
|
63,148 |
|
|
|
87,383 |
|
|
|
40,144 |
|
|
|
100,660 |
|
|
|
132,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
90,811 |
|
|
|
123,002 |
|
|
|
56,577 |
|
|
|
129,362 |
|
|
|
152,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowed funds are summarized as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Principal |
|
|
Rate |
|
|
Principal |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
Funds borrowed under repurchase agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB |
|
$ |
110,000 |
|
|
|
3.77 |
% |
|
$ |
310,000 |
|
|
|
3.94 |
% |
Other brokers |
|
|
390,000 |
|
|
|
4.64 |
|
|
|
440,000 |
|
|
|
4.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total funds borrowed under repurchase agreements |
|
|
500,000 |
|
|
|
4.45 |
|
|
|
750,000 |
|
|
|
4.36 |
|
Other borrowed funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances |
|
|
1,326,514 |
|
|
|
3.09 |
|
|
|
850,542 |
|
|
|
3.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds |
|
$ |
1,826,514 |
|
|
|
3.47 |
|
|
$ |
1,600,542 |
|
|
|
4.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowed funds had scheduled maturities as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Principal |
|
|
Rate |
|
|
Principal |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
Within one year |
|
$ |
751,000 |
|
|
|
3.11 |
% |
|
$ |
355,000 |
|
|
|
4.05 |
% |
One to two years |
|
|
380,514 |
|
|
|
3.92 |
|
|
|
520,000 |
|
|
|
4.32 |
|
Two to three years |
|
|
240,000 |
|
|
|
3.90 |
|
|
|
380,542 |
|
|
|
3.92 |
|
Three to four years |
|
|
105,000 |
|
|
|
3.08 |
|
|
|
240,000 |
|
|
|
3.90 |
|
Four to five years |
|
|
300,000 |
|
|
|
3.50 |
|
|
|
55,000 |
|
|
|
3.38 |
|
After five years |
|
|
50,000 |
|
|
|
3.86 |
|
|
|
50,000 |
|
|
|
3.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds |
|
$ |
1,826,514 |
|
|
|
3.47 |
|
|
$ |
1,600,542 |
|
|
|
4.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities have been sold, subject to repurchase agreements, to the FHLB and
various brokers. Mortgage-backed securities sold, subject to repurchase agreements, are held by
the FHLB for the benefit of the Company. Repurchase agreements require repurchase of the
identical securities. Whole mortgage loans have been pledged to the FHLB as collateral for
advances, but are held by the Company. |
90
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
The amortized cost and fair value of the underlying securities used as collateral for securities
sold under agreements to repurchase are as follows: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Amortized cost of collateral: |
|
|
|
|
|
|
|
|
Debt securities |
|
$ |
15,000 |
|
|
|
25,004 |
|
Mortgage-backed securities |
|
|
715,612 |
|
|
|
993,133 |
|
|
|
|
|
|
|
|
Total amortized cost of collateral |
|
$ |
730,612 |
|
|
|
1,018,137 |
|
|
|
|
|
|
|
|
Fair value of collateral: |
|
|
|
|
|
|
|
|
Debt securities |
|
$ |
15,245 |
|
|
|
25,752 |
|
Mortgage-backed securities |
|
|
736,302 |
|
|
|
1,014,226 |
|
|
|
|
|
|
|
|
Total fair value of collateral |
|
$ |
751,547 |
|
|
|
1,039,978 |
|
|
|
|
|
|
|
|
|
|
In addition to the above securities, the Company has also pledged mortgage loans as collateral
for these borrowings. |
|
|
|
During the years ended December 31, 2010 and 2009, six month period ended December 31, 2009 and
years ended June 30, 2009 and 2008, the maximum month-end balance of the repurchase agreements
was $675.0 million, $910.0 million (unaudited), $860.0 million, $960.0 million and $1.11
billion, respectively. The average amount of repurchase agreements outstanding during the years
ended December 31, 2010 and 2009, six month period ended December 31, 2009 and years ended June
30, 2009 and 2008, was $611.4 million, $857.0 million (unaudited), $823.6 million, $902.3
million and $999.7 million, respectively, and the average interest rate was 4.46%, 4.36%
(unaudited), 4.43%, 4.38% and 4.58%, respectively. |
|
|
|
At December 31, 2010, the Company participated in the FHLBs Overnight Advance program. This
program allows members to borrow overnight up to their maximum borrowing capacity at the FHLB.
At December 31, 2010 our borrowing capacity at the FHLB was $2.77 billion, of which $1.44
billion was outstanding. The overnight advances are priced at the federal funds rate plus a
spread (generally between 20 and 40 basis points) and re-price daily. In addition, the Bank had
a 12-month commitment for overnight with other institutions totaling $50 million, of which no
balance was outstanding at December 31, 2010. |
(10) Income Taxes
|
|
The components of income tax expense (benefit) are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Month Period |
|
|
|
|
|
|
Year Ended December 31, |
|
|
Ended December 31, |
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Current tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
48,622 |
|
|
|
26,027 |
|
|
|
15,850 |
|
|
|
22,925 |
|
|
|
10,020 |
|
State |
|
|
2,422 |
|
|
|
32 |
|
|
|
16 |
|
|
|
106 |
|
|
|
612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,044 |
|
|
|
26,059 |
|
|
|
15,866 |
|
|
|
23,031 |
|
|
|
10,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (benefit) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(15,757 |
) |
|
|
(8,001 |
) |
|
|
(4,935 |
) |
|
|
(57,386 |
) |
|
|
(1,335 |
) |
State |
|
|
1,316 |
|
|
|
5,386 |
|
|
|
3,390 |
|
|
|
(9,845 |
) |
|
|
(267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,441 |
) |
|
|
(2,615 |
) |
|
|
(1,545 |
) |
|
|
(67,231 |
) |
|
|
(1,602 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit) |
|
$ |
36,603 |
|
|
|
23,444 |
|
|
|
14,321 |
|
|
|
(44,200 |
) |
|
|
9,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a reconciliation between the actual income tax expense (benefit)
and the expected amount computed using the applicable statutory federal income tax rate of
35%: |
91
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
Six Month Period Ended December 31, |
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Expected federal income tax expense |
|
$ |
34,517 |
|
|
|
20,495 |
|
|
|
12,909 |
|
|
|
(38,191 |
) |
|
|
8,770 |
|
State tax, net |
|
|
2,430 |
|
|
|
3,522 |
|
|
|
2,214 |
|
|
|
(6,330 |
) |
|
|
224 |
|
Bank owned life insurance |
|
|
(874 |
) |
|
|
(766 |
) |
|
|
(455 |
) |
|
|
(1,005 |
) |
|
|
(1,391 |
) |
Gain on acquisition |
|
|
(646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration of loss carry forward |
|
|
1,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance for federal deferred tax assets |
|
|
(1,455 |
) |
|
|
(879 |
) |
|
|
(1,110 |
) |
|
|
407 |
|
|
|
281 |
|
ESOP fair market value adjustment |
|
|
129 |
|
|
|
(15 |
) |
|
|
4 |
|
|
|
81 |
|
|
|
211 |
|
Non-deductible compensation |
|
|
760 |
|
|
|
981 |
|
|
|
697 |
|
|
|
742 |
|
|
|
455 |
|
Other |
|
|
258 |
|
|
|
106 |
|
|
|
62 |
|
|
|
96 |
|
|
|
480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit) |
|
$ |
36,603 |
|
|
|
23,444 |
|
|
|
14,321 |
|
|
|
(44,200 |
) |
|
|
9,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The temporary differences and loss carryforwards which comprise the deferred tax asset and
liability are as follows: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Deferred tax asset: |
|
|
|
|
|
|
|
|
Employee benefits |
|
$ |
16,191 |
|
|
|
13,605 |
|
Deferred compensation |
|
|
1,187 |
|
|
|
1,016 |
|
State net operating loss (NOL) carryforwards |
|
|
|
|
|
|
2,585 |
|
Intangible assets |
|
|
|
|
|
|
16 |
|
Allowance for loan losses |
|
|
33,604 |
|
|
|
19,725 |
|
Net unrealized loss on securities |
|
|
13,029 |
|
|
|
13,960 |
|
Net other than temporary impairment loss on securities |
|
|
49,312 |
|
|
|
49,479 |
|
New Jersey alternative minimum assessment |
|
|
1,037 |
|
|
|
2,402 |
|
Capital losses on securities |
|
|
807 |
|
|
|
2,533 |
|
Contribution to charitable foundation |
|
|
|
|
|
|
1,418 |
|
ESOP |
|
|
1,380 |
|
|
|
1,517 |
|
Allowance for delinquent interest |
|
|
9,102 |
|
|
|
4,807 |
|
Federal NOL carryforwards |
|
|
126 |
|
|
|
4,391 |
|
Fair value adjustments related to acquisition |
|
|
1,824 |
|
|
|
2,539 |
|
Other |
|
|
3,071 |
|
|
|
592 |
|
|
|
|
|
|
|
|
Gross deferred tax asset |
|
|
130,670 |
|
|
|
120,585 |
|
Valuation allowance |
|
|
(807 |
) |
|
|
(3,642 |
) |
|
|
|
|
|
|
|
|
|
|
129,863 |
|
|
|
116,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability: |
|
|
|
|
|
|
|
|
Intangible assets |
|
|
1,196 |
|
|
|
|
|
Discount accretion |
|
|
255 |
|
|
|
(12 |
) |
Premises and equipment, differences in depreciation |
|
|
202 |
|
|
|
(188 |
) |
|
|
|
|
|
|
|
Gross deferred tax liability |
|
|
1,653 |
|
|
|
(200 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
128,210 |
|
|
|
117,143 |
|
|
|
|
|
|
|
|
|
|
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. The ultimate realization of the deferred tax asset is dependent upon the generation of
future taxable income during the periods in which those temporary differences and carryforwards
become deductible. |
|
|
|
As of December 31, 2010 the Company had utilized the State net operating loss carry forwards
balance of which was $44.2 million at December 31, 2009. |
|
|
|
At December 31, 2010, the Company had gross unrealized losses totaling $158.0 million pertaining
to our trust preferred securities which were recognized as OTTI charges during the year ended
June 30, 2009. Based upon projections of future taxable |
92
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
income and the ability to carry back
losses for two years, management believes it is more likely than not the Company will realize
the deferred tax asset. |
|
|
|
A valuation allowance is recorded for tax benefits which management has determined are not more
likely than not to be realized. At December 31, 2010 and 2009, the valuation allowance was
$807,000 and $3.6 million, respectively. During the year ended December 31, 2010, the Company
removed the deferred tax asset related to the $4.2 million FHLMC capital loss carryforward and
the related valuation reserve of $1.7 million as they expired on December 31, 2010. In addition,
the Company removed the $19.5 million state charitable deduction and the related valuation
allowance of $1.1 million, as they expired December 31, 2010. During the six months ended
December 31, 2009, the Company reversed a previously established federal valuation allowance
related to the contribution to the charitable foundation as management believes that is more
likely than not that the Company will realize the deferred tax asset based on the projection of
future taxable income. |
|
|
Retained earnings at December 31, 2010 included approximately $40.7 million for which deferred
income taxes of approximately $16.6 million have not been provided. The retained earnings amount
represents the base year allocation of income to bad debt deductions for tax purposes only. Base
year reserves are subject to recapture if the Bank makes certain non-dividend distributions,
repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to
maintain a bank charter. Under ASC 740, this amount is treated as a permanent difference and
deferred taxes are not recognized unless it appears that it will be reduced and result in
taxable income in the foreseeable future. Events that would result in taxation of these reserves
include failure to qualify as a bank for tax purposes or distributions in complete or partial
liquidation. |
|
|
The Company had no unrecognized tax benefits or related interest or penalties at December 31,
2010 and 2009. |
|
|
The Company files income tax returns in the United States federal jurisdiction and in the states
of New Jersey, New York and Massachusetts. With few exceptions, the Company is no longer subject
to federal and state income tax examinations by tax authorities for years prior to 2006.
Currently, the Company is not under examination by any taxing authority. |
(11) Benefit Plans
|
|
Defined Benefit Pension Plan |
|
|
The Company maintains a defined benefit pension plan. Since it is a multiemployer plan, costs of
the pension plan are based on contributions required to be made to the pension plan. The
Companys required contribution and pension cost was $1.2 million, $2.0 million (unaudited),
$941,000, $1.7 million and $2.0 million in the years ended December 31, 2010 and 2009, the six
month period ended December 31, 2009, and fiscal 2009 and 2008, respectively. The accrued
pension liability was $2.5 million and $1.2 million at December 31, 2010 and 2009, respectively. |
|
|
SERP, Directors Plan and Other Postretirement Benefits Plan |
|
|
The Company has a Supplemental Executive Retirement Wage Replacement Plan (SERP). The SERP is a
nonqualified, defined benefit plan which provides benefits to employees as designated by the
Compensation Committee of the Board of Directors 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 certain directors. The SERP and the directors
plan are unfunded and the costs of the plans are recognized over the period that services are
provided. |
|
|
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. During the year ended June 30, 2008, the Company curtailed
the benefits to current employees and settled its obligations to retired employees, recorded as
benefits paid, 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. |
93
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
The following table sets forth information regarding the SERP and the directors defined benefit
plan: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
16,060 |
|
|
|
17,307 |
|
Service cost |
|
|
721 |
|
|
|
293 |
|
Interest cost |
|
|
879 |
|
|
|
525 |
|
Actuarial (gain) loss |
|
|
(1,014 |
) |
|
|
(1,423 |
) |
Benefits paid |
|
|
(675 |
) |
|
|
(642 |
) |
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
$ |
15,971 |
|
|
|
16,060 |
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(15,971 |
) |
|
|
(16,060 |
) |
|
|
|
|
|
|
|
|
|
The underfunded pension benefits of $16.0 million and $16.1 million at December 31, 2010 and
2009, respectively, are included in other liabilities in the consolidated balance sheets. The
components of accumulated other comprehensive loss related to pension plans, on a pre-tax basis,
at December 31, 2010 and 2009, are summarized in the following table. |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Prior service cost |
|
$ |
439 |
|
|
$ |
537 |
|
Net actuarial loss |
|
|
976 |
|
|
|
2,044 |
|
|
|
|
|
|
|
|
Total amounts recognized in
accumulated other comprehensive income |
|
$ |
1,415 |
|
|
$ |
2,581 |
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for the SERP and directors defined benefit plan was $13.0
million and $14.3 million at December 31, 2010 and 2009, respectively. The measurement date for
our SERP, directors plan is December 31 for the years ended December 31, 2010 and 2009 and the
six month period ended December 31, 2009 and June 30 for fiscal years 2009 and 2008. |
|
|
The weighted-average actuarial assumptions used in the plan determinations at December 31, 2010
and 2009 were as follows: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Discount rate |
|
|
5.18 |
% |
|
|
5.61 |
% |
Rate of compensation increase |
|
|
3.63 |
|
|
|
3.58 |
|
|
|
The components of net periodic benefit cost are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Month |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
|
|
|
|
|
Year Ended |
|
|
Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Service cost |
|
$ |
721 |
|
|
|
564 |
|
|
|
293 |
|
|
|
543 |
|
|
|
456 |
|
Interest cost |
|
|
879 |
|
|
|
1,052 |
|
|
|
525 |
|
|
|
1,054 |
|
|
|
958 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
97 |
|
|
|
98 |
|
|
|
49 |
|
|
|
97 |
|
|
|
98 |
|
Net loss |
|
|
54 |
|
|
|
160 |
|
|
|
91 |
|
|
|
138 |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost |
|
$ |
1,751 |
|
|
|
1,874 |
|
|
|
958 |
|
|
|
1,832 |
|
|
|
1,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are the weighted average assumptions used to determine net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Month |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended |
|
|
|
|
|
|
Year Ended December 31, |
|
|
December 31, |
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.61 |
% |
|
|
6.46 |
% |
|
|
6.18 |
% |
|
|
6.75 |
% |
|
|
6.25 |
% |
Rate of compensation increase |
|
|
3.58 |
|
|
|
3.60 |
|
|
|
3.56 |
|
|
|
3.64 |
|
|
|
5.05 |
|
|
|
Estimated future benefit payments, which reflect expected future service, as appropriate for the
next ten calendar years are as follows: |
94
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
|
|
|
|
|
Amount |
|
|
|
(In thousands) |
|
2011 |
|
$ |
884 |
|
2012 |
|
|
926 |
|
2013 |
|
|
931 |
|
2014 |
|
|
918 |
|
2015 |
|
|
905 |
|
2016 through 2020 |
|
|
5,358 |
|
|
|
Summit Federal Benefit Plans |
|
|
|
Summit Federal, at the time of merger, had a funded non-contributory defined benefit pension
plan covering all eligible employees and an unfunded, non-qualified defined benefit SERP for the
benefit of certain key employees. At December 31, 2010 and 2009, the pension plan had an accrued
liability of $681,000 and $990,000, respectively. At December 31, 2010 and 2009, the charges
recognized in accumulated other comprehensive loss for the pension plan were $934,000 and $1.2
million, respectively. At December 31, 2010 and 2009, the SERP plan had an accrued liability of
$1.1 million and $911,000, respectively. At December 31, 2010 and 2009, the charges recognized
in accumulated other comprehensive loss for the SERP plan were $152,000 and $98,000,
respectively. For the years ended December 31, 2010 and 2009, the six month period ended
December 31, 2009 and the years ended June 30, 2009 and 2008, the expense related to these plans
was $340,000, $283,000 (unaudited), $131,000, $561,000 and $140,000, respectively. |
|
|
|
401(k) Plan |
|
|
|
The Company has a 401(k) plan covering substantially all employees providing they meet the
eligibility age requirement of age 21. The Company matches 50% of the first 6% contributed by
the participants. The Companys aggregate contributions to the 401(k) plan for the years ended
December 31, 2010 and 2009, the six month period ended December 31, 2009 and the years ended
June 30, 2009 and 2008 were $761,000, $628,000 (unaudited), $305,000, $572,000, and $477,000,
respectively. |
|
|
|
Employee Stock Ownership Plan |
|
|
|
The ESOP is a tax-qualified plan designed to invest primarily in the Companys common stock that
provides employees with the opportunity to receive a funded retirement benefit from the Bank,
based primarily on the value of the Companys common stock. The ESOP was authorized to purchase,
and did purchase, 4,254,072 shares of the Companys common stock at a price of $10.00 per share
with the proceeds of a loan from the Company to the ESOP. The outstanding loan principal balance
at December 31, 2010 was $36.7 million. Shares of the Companys common stock pledged as
collateral for the loan are released from the pledge for allocation to participants as loan
payments are made. |
|
|
|
At December 31, 2010, shares allocated to participants were 850,815 since the plan inception.
ESOP shares that were unallocated or not yet committed to be released totaled 3,403,257 at
December 31, 2010, and had a fair market value of $44.7 million. ESOP compensation expense for
the years ended December 2010 and 2009, the six month period ended December 31, 2009 and the
years ended June 30, 2009 and 2008 was $1.8 million, $1.4 million (unaudited), $722,000, $1.6
million, and $2.0 million, respectively, representing the fair market value of shares allocated
or committed to be released during the year. |
|
|
|
The Company also has established an Amended and Restated Supplemental ESOP and Retirement Plan,
which is a non-qualified plan that provides supplemental benefits to certain executives as
designated by the Compensation Committee of the Board of Directors who are prevented from
receiving the full benefits contemplated by the retirement plan and/or employee stock ownership
plans benefit formula. With regards to the Supplemental ESOP, the supplemental benefits consist
of payments representing shares that cannot be allocated to participants under the ESOP due to
the legal limitations imposed on tax-qualified plans. During the years ended December 31, 2010
and 2009, the six month period ended December 31, 2009 and the years ended June 30, 2009, and
2008 compensation expense (benefit) related to this plan amounted to $200,000, $(50,000)
(unaudited), $100,000, $0, and $225,000, respectively. |
|
|
|
Equity Incentive Plan |
|
|
|
At the annual meeting held on October 24, 2006, stockholders of the Company approved the
Investors Bancorp, Inc. 2006 Equity Incentive Plan. The Company adopted ASC 718, Compensation-
Stock Compensation, upon approval of the Plan, and began to expense the fair value of all
share-based compensation granted over the requisite service periods. |
|
|
|
During the year ended December 31, 2010, the Compensation and Benefits Committee approved the
issuance of an additional 495,000 restricted stock awards and 5,000 stock options to certain
officers. During the year ended December 31, 2009, the |
95
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
Compensation and Benefits Committee
approved the issuance of an additional 5,000 restricted stock awards and 10,000 stock options to
one officer. |
|
|
ASC 718 also requires the Company to report as a financing cash flow the benefits of realized
tax deductions in excess of the deferred tax benefits previously recognized for compensation
expense. There were no such excess tax benefits in the years ended December 31, 2010 and 2009,
the six month period ended December 31, 2009 and the years ended June 30, 2009 and 2008. In
accordance with ASC 718, the Company classified share-based compensation for employees and
outside directors within compensation and fringe benefits in the consolidated statements of
income to correspond with the same line item as the cash compensation paid. |
|
|
Stock options generally vest over a five-year service period. The Company recognizes
compensation expense for all option grants over the awards respective requisite service
periods. Management estimated the fair values of all option grants using the Black-Scholes
option-pricing model. Since there is limited historical information on the volatility of the
Companys stock, management also considered the average volatilities of similar entities for an
appropriate period in determining the assumed volatility rate used in the estimation of fair
value. Management estimated the expected life of the options using the simplified method allowed
under ASC 718. The 7-year Treasury yield in effect at the time of the grant provides the
risk-free rate for periods within the contractual life of the option, which is ten years. The
Company recognizes compensation expense for the fair values of these awards, which have graded
vesting, on a straight-line basis over the requisite service period of the awards. |
|
|
Restricted shares generally vest over a five-year service period or seven year performance based
period. The product of the number of shares granted and the grant date market price of the
Companys common stock determines the fair value of restricted shares under the Companys
restricted stock plan. The Company recognizes compensation expense for the fair value of
restricted shares on a straight-line basis over the requisite service period. |
|
|
During the years ended December 31, 2010 and 2009, the six month period ended December 31, 2009
and the years ended June 30, 2009 and 2008, the Company recorded $9.5 million, $11.8 million
(unaudited), $5.7 million, $11.3 million and $9.8 million, respectively, of share-based
compensation expense, comprised of stock option expense of $3.7 million, $4.9 million
(unaudited), $2.4 million, $4.7 million and $4.1 million, respectively, and restricted stock
expense of $5.8 million, $6.8 million (unaudited), $3.3 million, $6.6 million and $5.7 million,
respectively. |
|
|
The following is a summary of the status of the Companys restricted shares as of December 31,
2010 and changes therein during the year then ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Number of |
|
|
Average |
|
|
|
Shares |
|
|
Grant Date |
|
|
|
Awarded |
|
|
Fair Value |
|
Non-vested at December 31, 2009 |
|
|
759,415 |
|
|
$ |
14.82 |
|
Granted |
|
|
495,000 |
|
|
|
12.67 |
|
Vested |
|
|
(388,368 |
) |
|
|
14.93 |
|
Forfeited |
|
|
(5,000 |
) |
|
|
12.67 |
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2010 |
|
|
861,047 |
|
|
$ |
13.55 |
|
|
|
|
|
|
|
|
|
|
|
Expected future compensation expense relating to the non-vested restricted shares at December
31, 2010 is $10.3 million over a weighted average period of 3.8 years. |
|
|
The following is a summary of the Companys stock option activity and related information for
its option plan for the year ended December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
Number of |
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Stock |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
Life |
|
|
Value |
|
Outstanding at December 31, 2009 |
|
|
5,146,752 |
|
|
$ |
15.01 |
|
|
7.1 years |
|
$ |
|
|
Granted |
|
|
5,000 |
|
|
|
12.67 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(434,184 |
) |
|
|
14.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010 |
|
|
4,717,568 |
|
|
$ |
15.01 |
|
|
6.1 years |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010 |
|
|
3,491,455 |
|
|
$ |
15.08 |
|
|
6.0 years |
|
$ |
|
|
|
|
The fair value of the option grants was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: |
96
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Expected dividend yield |
|
|
0.63 |
% |
|
|
0.90 |
% |
Expected volatility |
|
|
32.48 |
% |
|
|
34.35 |
% |
Risk-free interest rate |
|
|
2.48 |
% |
|
|
2.71 |
% |
Expected option life |
|
6.5 years |
|
6.5 years |
|
|
The weighted average grant date fair value of options granted during the years ended December
31, 2010 and 2009 was $4.40, $3.55 per share, respectively. Expected future expense relating to
the non-vested options outstanding as of December 31, 2010 is $3.7 million over a weighted
average period of 1.8 years. Upon exercise of vested options, management expects to draw on
treasury stock as the source of the shares. |
(12) Commitments and Contingencies
|
|
The Company is a defendant in certain claims and legal actions arising in the ordinary course of
business. Management and the Companys legal counsel are of the opinion that the ultimate
disposition of these matters will not have a material adverse effect on the Companys financial
condition, results of operations or liquidity. |
|
|
At December 31, 2010, the Company was obligated under various non-cancelable operating leases on
buildings and land used for office space and banking purposes. These operating leases contain
escalation clauses which provide for increased rental expense, based primarily on increases in
real estate taxes and cost-of-living indices. Rental expense under these leases aggregated
approximately $7.2 million, $4.9 million (unaudited), $2.6 million, $4.4 million and $4.1
million for the year ended December 31, 2010 and 2009, six month period ended December 31, 2009
and fiscal years 2009 and 2008, respectively. The projected annual minimum rental commitments
are as follows: |
|
|
|
|
|
|
|
Amount |
|
|
|
(In thousands) |
|
2011 |
|
$ |
7,961 |
|
2012 |
|
|
7,269 |
|
2013 |
|
|
6,689 |
|
2014 |
|
|
6,596 |
|
2015 |
|
|
6,544 |
|
Thereafter |
|
|
41,196 |
|
|
|
|
|
|
|
$ |
76,255 |
|
|
|
|
|
|
|
Financial Transactions with Off-Balance-Sheet Risk and Concentrations of Credit Risk |
|
|
The Company is a party to transactions with off-balance-sheet risk in the normal course of
business in order to meet the financing needs of its customers. These transactions consist of
commitments to extend credit. These transactions involve, to varying degrees, elements of credit
and interest rate risk in excess of the amounts recognized in the accompanying consolidated
balance sheets. |
|
|
At December 31, 2010, the Company had commitments to originate fixed- and variable-rate loans of
approximately $258.5 million and $200.8 million, respectively; commitments to purchase fixed-
and variable-rate loans of $76.0 million and $54.4 million, respectively; and unused home equity
and overdraft lines of credit, and undisbursed business and construction loans, totaling
approximately $496.4 million. No commitments are included in the accompanying consolidated
financial statements. The Company has no exposure to credit loss if the customer does not
exercise its rights to borrow under the commitment. |
|
|
The Company uses the same credit policies and collateral requirements in making commitments and
conditional obligations as it does for on-balance-sheet loans. Commitments to extend credit are
agreements to lend to customers as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since the commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements. The Company
evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Company upon extension of credit is based on managements
credit evaluation of the borrower. Collateral held varies but primarily includes residential
properties. |
|
|
The Company principally grants residential mortgage loans, commercial real estate,
multi-family, construction, C&I and consumer loans to borrowers throughout New Jersey and states
in close proximity to New Jersey. Its borrowers abilities to repay |
97
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
their obligations are 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 believes its lending policies and procedures
adequately minimize the potential exposure to such risks, and adequate provisions for loan
losses are provided for all probable and estimable losses. Collateral and/or government or
private guarantees are required for virtually all loans.
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 contractually required
payments due to the required amortization of the principal amount after the interest-only
period. These payment increases could affect the borrowers ability to repay the loan. The
amount of interest-only one-to four-family mortgage loans at December 31, 2010 and December 31,
2009 was $529.1 million, and $560.7 million, respectively. The Company maintains stricter
underwriting criteria for these interest-only loans than it does for its amortizing loans. The
Company believes these criteria adequately control the potential exposure to such risks and that
adequate provisions for loan losses are provided for all known and inherent risks.
In the normal course of business the Company sells residential mortgage loans to third parties.
These loan sales are subject to customary representations and warranties. In the event that we
are found to be in breach of these representations and warranties, we may be obligated to
repurchase certain of these loans.
In connection with its mortgage banking activities, the Company has certain freestanding
derivative instruments. At December 31, 2010, the Company had commitments of approximately $49.7
million to fund loans which will be classified as held-for-sale with a like amount of
commitments to sell such loans which are considered derivative instruments under ASC 815,
Derivatives and Hedging. The Company also had commitments of $41.6 million to sell loans at
December 31, 2010. The fair values of these derivative instruments are immaterial to the
Companys financial condition and results of operations.
Standby letters of credit are conditional commitments issued by us to guarantee the performance
of a customer to a third party. The guarantees generally extend for a term of up to one year and
are fully collateralized. For each guarantee issued, if the customer defaults on a payment or
performance to the third party, we would have to perform under the guarantee. Outstanding
standby letters of credit totaled $10.3 million at December 31, 2010. The fair values of these
obligations were immaterial at December 31, 2010. In addition at December 31, 2010, we had
$203,000 in commercial letters of credit outstanding.
(13) Fair Value Measurements
We use fair value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. Our securities available-for-sale are
recorded at fair value on a recurring basis. Additionally, from time to time, we may be required
to record at fair value other assets or liabilities on a non-recurring basis, such as
held-to-maturity securities, MSR, loans receivable and REO. These non-recurring fair value
adjustments involve the application of lower-of-cost-or-market accounting or write-downs of
individual assets. Additionally, in connection with our mortgage banking activities we have
commitments to fund loans held for sale and commitments to sell loans, which are considered
free-standing derivative instruments, the fair values of which are not material to our financial
condition or results of operations.
In accordance with Financial Accounting Standards Board (FASB) ASC 820, Fair Value
Measurements and Disclosures, we group our assets and liabilities at fair value in three
levels, based on the markets in which the assets are traded and the reliability of the
assumptions used to determine fair value. These levels are:
|
|
|
Level 1 Valuation is based upon quoted prices for identical instruments traded in
active markets. |
|
|
|
|
Level 2 Valuation is based upon quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are not active
and model-based valuation techniques for which all significant assumptions are observable
in the market. |
|
|
|
|
Level 3 Valuation is generated from model-based techniques that use significant
assumptions not observable in the market. These unobservable assumptions reflect our own
estimates of assumptions that market participants would use in pricing the asset or
liability. Valuation techniques include the use of option pricing models, discounted cash
flow models and similar techniques. The results cannot be determined with precision and may
not be realized in an actual sale or immediate settlement of the asset or liability. |
98
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
We base our fair values on the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. ASC
820 requires us to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value.
The following is a description of valuation methodologies used for assets measured at fair value
on a recurring basis.
Securities available-for-sale
Our available-for-sale portfolio is carried at estimated fair value on a recurring basis, with
any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive
income/loss in stockholders equity. Approximately 99% of our securities available-for-sale
portfolio consists of mortgage-backed and government-sponsored enterprise securities. The fair
values of these securities are obtained from an independent nationally recognized pricing
service, which is then compared to a second independent pricing source for reasonableness. Our
independent pricing service provides us with prices which are categorized as Level 2, as quoted
prices in active markets for identical assets are generally not available for the majority of
securities in our portfolio. Various modeling techniques are used to determine pricing for our
mortgage-backed and government-sponsored enterprise securities, including option pricing and
discounted cash flow models. The inputs to these models include benchmark yields, reported
trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids,
offers and reference data. The remaining 1% of our securities available-for-sale portfolio is
comprised primarily of private fund investments for which the issuer provides us prices which
are categorized as Level 2, as quoted prices in active markets for identical assets are
generally not available.
The following table provides the level of valuation assumptions used to determine the carrying
value of our assets measured at fair value on a recurring basis at December 31, 2010 and
December 31, 2009, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at December 31, 2010 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
600,501 |
|
|
|
|
|
|
|
600,501 |
|
|
|
|
|
Equity securities |
|
|
2,232 |
|
|
|
|
|
|
|
2,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
602,733 |
|
|
|
|
|
|
|
602,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at December 31, 2009 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
444,151 |
|
|
|
|
|
|
|
444,151 |
|
|
|
|
|
GSE debt securities |
|
|
25,039 |
|
|
|
|
|
|
|
25,039 |
|
|
|
|
|
Equity securities |
|
|
2,053 |
|
|
|
|
|
|
|
2,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
471,243 |
|
|
|
|
|
|
|
471,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a description of valuation methodologies used for assets measured at fair value
on a non-recurring basis.
Securities held-to-maturity
Our held-to-maturity portfolio, consisting primarily of mortgage backed securities and other
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 held-to-maturity 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. Management utilizes various inputs to determine
the fair value of the portfolio. To the extent they exist, unadjusted quoted market prices in
active markets (level 1) or quoted prices on similar assets (level 2) are utilized to determine
the fair value of each investment in the portfolio. In the absence of quoted prices and in an
illiquid market, valuation techniques, which require inputs that are both significant to the
fair value measurement and unobservable (level 3), are used to determine fair value of the
investment. Valuation techniques are based on various assumptions, including, but not limited to
cash flows, discount rates, rate of return, adjustments for nonperformance and liquidity, and
liquidation values. If a determination is made that a debt security is other-than-temporarily
impaired, the Company will estimate the amount of the unrealized loss that is attributable to
credit and all other non-credit related factors. The credit related component will be recognized
as an other-than-temporary impairment charge in non-interest income as a component of gain
(loss) on securities, net. The non-credit related component will be recorded as an adjustment to
accumulated other comprehensive income, net of tax.
99
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
Mortgage Servicing Rights, net
Mortgage Servicing Rights are carried at the lower of cost or estimated fair value. The
estimated fair value of MSR is obtained through independent third party valuations through an
analysis of future cash flows, incorporating estimates of assumptions market participants would
use in determining fair value including market discount rates, prepayment speeds, servicing
income, servicing costs, default rates and other market driven data, including the markets
perception of future interest rate movements and, as such, are classified as Level 3.
Loans Receivable
Loans which meet certain criteria are evaluated individually for impairment. 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 and all loans subject to
a troubled debt restructuring. Our impaired loans are generally collateral dependent and, as
such, are carried at the estimated fair value of the collateral less estimated selling costs.
In order to estimate fair value, once interest or principal payments are 90 days delinquent or
when the timely collection of such income is considered doubtful an updated appraisal is
obtained. Thereafter, in the event the most recent appraisal does not reflect the current market
conditions due to the passage of time and other factors, management will obtain an updated
appraisal or make downward adjustments to the existing appraised value based on their knowledge
of the property, local real estate market conditions, recent real estate transactions, and for
estimated selling costs, if applicable. Therefore, these adjustments are generally classified
as Level 3.
Other Real Estate Owned
Other Real Estate Owned is recorded at estimated fair value, less estimated selling costs when
acquired, thus establishing a new cost basis. Fair value is generally based on independent
appraisals. These appraisals include adjustments to comparable assets based on the appraisers
market knowledge and experience, and are considered Level 3 inputs. When an asset is acquired,
the excess of the loan balance over fair value, less estimated selling costs, is charged to the
allowance for loan losses. If the estimated fair value of the asset declines, a writedown is
recorded through expense. The valuation of foreclosed assets is subjective in nature and may be
adjusted in the future because of changes in economic conditions. Operating costs after
acquisition are generally expensed.
The following table provides the level of valuation assumptions used to determine the carrying
value of our assets measured at fair value on a non-recurring basis at December 31, 2010 and
December 31, 2009, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at December 31, 2010 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
MSR, net |
|
$ |
9,262 |
|
|
|
|
|
|
|
|
|
|
|
9,262 |
|
Impaired loans |
|
|
53,920 |
|
|
|
|
|
|
|
|
|
|
|
53,920 |
|
Other real estate owned |
|
|
976 |
|
|
|
|
|
|
|
|
|
|
|
976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
64,158 |
|
|
|
|
|
|
|
|
|
|
|
64,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at December 31, 2009 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
MSR, net |
|
$ |
5,496 |
|
|
|
|
|
|
|
|
|
|
|
5,496 |
|
Impaired loans |
|
|
39,437 |
|
|
|
|
|
|
|
|
|
|
|
39,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,933 |
|
|
|
|
|
|
|
|
|
|
|
44,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14) Fair Value of Financial Instruments
Effective April 1, 2009, the Company adopted new accounting guidance by the FASB, which requires
disclosures about fair value of financial instruments for annual financial statements for
publicly traded companies. Fair value estimates, methods and assumptions are set forth below for
the Companys financial instruments.
Cash and Cash Equivalents
For cash and due from banks, the carrying amount approximates fair value.
100
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
Securities
The fair values of securities are estimated based on market values provided by an independent
pricing service, where prices are available. If a quoted market price was not available, the
fair value was estimated using quoted market values of similar instruments, adjusted for
differences between the quoted instruments and the instruments being valued.
FHLB Stock
The fair value of FHLB stock is its carrying value, since this is the amount for which it could
be redeemed. There is no active market for this stock and the Bank is required to hold a minimum
investment based upon the unpaid principal of home mortgage loans and/or FHLB advances
outstanding.
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans
are segregated by type such as residential mortgage and consumer. Each loan category is further
segmented into fixed and adjustable rate interest terms and by performing and nonperforming
categories.
The fair value of performing loans, except residential mortgage loans, is calculated by
discounting scheduled cash flows through the estimated maturity using estimated market discount
rates that reflect the credit and interest rate risk inherent in the loan. For performing
residential mortgage loans, fair value is estimated by discounting contractual cash flows
adjusted for prepayment estimates using discount rates based on secondary market sources
adjusted to reflect differences in servicing and credit costs, if applicable. Fair value for
significant nonperforming loans is based on recent external appraisals of collateral securing
such loans, adjusted for the timing of anticipated cash flows.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as savings, checking accounts and money
market accounts, is equal to the amount payable on demand. The fair value of certificates of
deposit is based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates which approximate currently offered for deposits of similar remaining
maturities.
Borrowings
The fair value of borrowings are based on securities dealers estimated market values, when
available, or estimated using discounted contractual cash flows using rates which approximate
the rates offered for borrowings of similar remaining maturities.
Commitments to Extend Credit
The fair value of commitments to extend credit is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For commitments to originate fixed rate loans,
fair value also considers the difference between current levels of interest rates and the
committed rates. Due to the short-term nature of our outstanding commitments, the fair values of
these commitments are immaterial to our financial condition.
The carrying amounts and estimated fair values of the Companys financial instruments are
presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
76,224 |
|
|
|
76,224 |
|
|
|
73,606 |
|
|
|
73,606 |
|
Securities available-for-sale |
|
|
602,733 |
|
|
|
602,733 |
|
|
|
471,243 |
|
|
|
471,243 |
|
Securities held-to-maturity |
|
|
478,536 |
|
|
|
514,223 |
|
|
|
717,441 |
|
|
|
753,405 |
|
Stock in FHLB |
|
|
80,369 |
|
|
|
80,369 |
|
|
|
66,202 |
|
|
|
66,202 |
|
Loans |
|
|
7,952,759 |
|
|
|
8,231,847 |
|
|
|
6,642,502 |
|
|
|
6,821,767 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
6,774,930 |
|
|
|
6,819,659 |
|
|
|
5,840,643 |
|
|
|
5,881,083 |
|
Borrowed funds |
|
|
1,826,514 |
|
|
|
1,887,471 |
|
|
|
1,600,542 |
|
|
|
1,666,513 |
|
101
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information
and information about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the Companys entire holdings of a
particular financial instrument. Because no market exists for a significant portion of the
Companys financial instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet financial instruments
without attempting to estimate the value of anticipated future business and the value of assets
and liabilities that are not considered financial instruments. Significant assets that are not
considered financial assets include deferred tax assets, premises and equipment and bank owned
life insurance. Liabilities for pension and other postretirement benefits are not considered
financial liabilities. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value estimates and have not
been considered in the estimates.
(15) Regulatory Capital
The Company and the Bank are subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Companys consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Company and
the Bank must meet specific capital guidelines that involve quantitative measures of assets,
liabilities and certain off-balance-sheet items as calculated under regulatory accounting
practices. Capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company
and the Bank to maintain minimum amounts and ratios of total and Tier I capital (as defined in
the regulations) to risk- weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 2010 and December 31, 2009,
that the Company and the Bank met all capital adequacy requirements to which they are subject.
As of December 31, 2010, the most recent notification from the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes have changed the Banks
category.
The following is a summary of the Banks actual capital amounts and ratios as of December 31,
2010 compared to the FDIC minimum capital adequacy requirements and the FDIC requirements for
classification as a well-capitalized institution.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Requirements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be Well |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Prompt |
|
|
|
|
|
|
|
|
|
|
|
For Capital |
|
|
Corrective |
|
|
|
Actual |
|
|
Adequacy Purposes |
|
|
Action Provisions |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
As of December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets) |
|
$ |
881,413 |
|
|
|
13.8 |
% |
|
$ |
512,691 |
|
|
|
8.0 |
% |
|
$ |
640,864 |
|
|
|
10.0 |
% |
Tier I capital (to risk-weighted assets) |
|
|
801,171 |
|
|
|
12.5 |
|
|
|
256,346 |
|
|
|
4.0 |
|
|
|
384,518 |
|
|
|
6.0 |
|
Tier I capital (to average assets) |
|
|
801,171 |
|
|
|
8.6 |
|
|
|
374,406 |
|
|
|
4.0 |
|
|
|
468,007 |
|
|
|
5.0 |
|
102
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Requirements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be Well |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Prompt |
|
|
|
|
|
|
|
|
|
|
|
For Capital |
|
|
Corrective |
|
|
|
Actual |
|
|
Adequacy Purposes |
|
|
Action Provisions |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
As of December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets) |
|
$ |
804,637 |
|
|
|
15.8 |
% |
|
$ |
407,909 |
|
|
|
8.0 |
% |
|
$ |
509,886 |
|
|
|
10.0 |
% |
Tier I capital (to risk-weighted assets) |
|
|
749,585 |
|
|
|
14.7 |
|
|
|
203,955 |
|
|
|
4.0 |
|
|
|
305,932 |
|
|
|
6.0 |
|
Tier I capital (to average assets) |
|
|
749,585 |
|
|
|
9.0 |
|
|
|
332,129 |
|
|
|
4.0 |
|
|
|
415,162 |
|
|
|
5.0 |
|
(16) Parent Company Only Financial Statements
The following condensed financial statements for Investors Bancorp, Inc. (parent company only)
reflect the investment in its wholly-owned subsidiary, Investors Savings Bank, using the equity
method of accounting.
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
Cash and due from bank |
|
$ |
5,911 |
|
|
|
14,640 |
|
Securities available-for-sale, at estimated fair value |
|
|
2,232 |
|
|
|
2,053 |
|
Investment in subsidiary |
|
|
818,818 |
|
|
|
758,079 |
|
ESOP loan receivable |
|
|
36,689 |
|
|
|
37,690 |
|
Other assets |
|
|
37,762 |
|
|
|
37,859 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
901,412 |
|
|
|
850,321 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
133 |
|
|
|
108 |
|
Total stockholders equity |
|
|
901,279 |
|
|
|
850,213 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
901,412 |
|
|
|
850,321 |
|
|
|
|
|
|
|
|
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Month Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
Year End December 31, |
|
|
December 31, |
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on ESOP loan receivable |
|
$ |
1,225 |
|
|
|
1,282 |
|
|
|
628 |
|
|
|
2,077 |
|
|
|
3,055 |
|
Dividend from subsidiary |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposit with subsidiary |
|
|
74 |
|
|
|
61 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
Income (loss) on securities transactions |
|
|
43 |
|
|
|
5 |
|
|
|
|
|
|
|
6 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,342 |
|
|
|
1,348 |
|
|
|
687 |
|
|
|
2,083 |
|
|
|
3,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses |
|
|
1,139 |
|
|
|
960 |
|
|
|
509 |
|
|
|
954 |
|
|
|
827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,139 |
|
|
|
960 |
|
|
|
509 |
|
|
|
954 |
|
|
|
827 |
|
Income before income tax expense |
|
|
10,203 |
|
|
|
388 |
|
|
|
178 |
|
|
|
1,129 |
|
|
|
2,207 |
|
Income tax (benefit) expense |
|
|
(88 |
) |
|
|
(1,068 |
) |
|
|
(1,142 |
) |
|
|
452 |
|
|
|
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before undistributed earnings of subsidiary |
|
|
10,115 |
|
|
|
1,456 |
|
|
|
1,320 |
|
|
|
677 |
|
|
|
1,314 |
|
Equity in undistributed earnings (losses) of subsidiary |
|
|
51,904 |
|
|
|
33,656 |
|
|
|
21,242 |
|
|
|
(65,595 |
) |
|
|
14,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
62,019 |
|
|
|
35,112 |
|
|
|
22,562 |
|
|
|
(64,918 |
) |
|
|
16,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Month Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
Year Ended December 31, |
|
|
December 31, |
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
62,019 |
|
|
|
35,112 |
|
|
|
22,562 |
|
|
|
(64,918 |
) |
|
|
16,029 |
|
Adjustments to reconcile net income to net cash provided
by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed (earnings) losses of subsidiary |
|
|
(51,904 |
) |
|
|
(33,656 |
) |
|
|
(21,242 |
) |
|
|
65,595 |
|
|
|
(14,715 |
) |
(Gain) loss on securities transactions |
|
|
(43 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
21 |
|
(Increase) decrease in other assets |
|
|
96 |
|
|
|
(21,375 |
) |
|
|
(5,861 |
) |
|
|
(23,592 |
) |
|
|
938 |
|
(Decrease) increase in other liabilities |
|
|
25 |
|
|
|
75 |
|
|
|
(462 |
) |
|
|
(230 |
) |
|
|
(8,320 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
10,193 |
|
|
|
(19,849 |
) |
|
|
(5,003 |
) |
|
|
(23,151 |
) |
|
|
(6,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net outlay for business acquisition |
|
|
|
|
|
|
(37,840 |
) |
|
|
|
|
|
|
(37,840 |
) |
|
|
|
|
Purchase of investments available-for-sale |
|
|
(150 |
) |
|
|
(350 |
) |
|
|
(250 |
) |
|
|
(200 |
) |
|
|
(1,400 |
) |
Principal collected on ESOP loan |
|
|
1,001 |
|
|
|
969 |
|
|
|
969 |
|
|
|
499 |
|
|
|
399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
851 |
|
|
|
(37,221 |
) |
|
|
719 |
|
|
|
(37,541 |
) |
|
|
(1,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from subsidiary capital distributions |
|
|
|
|
|
|
19,361 |
|
|
|
|
|
|
|
19,361 |
|
|
|
|
|
Re-payments of subsidiary capital distributions |
|
|
|
|
|
|
(1,290 |
) |
|
|
(1,290 |
) |
|
|
|
|
|
|
|
|
Proceeds from sale of treasury stock to subsidiary |
|
|
4,688 |
|
|
|
5,526 |
|
|
|
4,061 |
|
|
|
5,631 |
|
|
|
4,726 |
|
Purchase of treasury stock |
|
|
(24,461 |
) |
|
|
(5,447 |
) |
|
|
(2,436 |
) |
|
|
(4,108 |
) |
|
|
(60,124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(19,773 |
) |
|
|
18,150 |
|
|
|
335 |
|
|
|
20,884 |
|
|
|
(55,398 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and due from bank |
|
|
(8,729 |
) |
|
|
(38,920 |
) |
|
|
(3,949 |
) |
|
|
(39,808 |
) |
|
|
(62,446 |
) |
Cash and due from bank at beginning of year |
|
|
14,640 |
|
|
|
53,560 |
|
|
|
18,589 |
|
|
|
58,397 |
|
|
|
120,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from bank at end of year |
|
$ |
5,911 |
|
|
|
14,640 |
|
|
|
14,640 |
|
|
|
18,589 |
|
|
|
58,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17) Selected Quarterly Financial Data (Unaudited)
The following tables are a summary of certain quarterly financial data for the years ended
December 31, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Quarter Ended |
|
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
|
(In thousands, except per share data) |
|
Interest and dividend income |
|
$ |
103,068 |
|
|
|
105,871 |
|
|
|
109,418 |
|
|
|
110,346 |
|
Interest expense |
|
|
41,138 |
|
|
|
40,724 |
|
|
|
38,978 |
|
|
|
38,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
61,930 |
|
|
|
65,147 |
|
|
|
70,440 |
|
|
|
71,894 |
|
Provision for loan losses |
|
|
13,050 |
|
|
|
15,450 |
|
|
|
19,000 |
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
48,880 |
|
|
|
49,697 |
|
|
|
51,440 |
|
|
|
52,894 |
|
Non-interest income |
|
|
3,933 |
|
|
|
4,139 |
|
|
|
7,014 |
|
|
|
11,439 |
|
Non-interest expenses |
|
|
30,426 |
|
|
|
30,773 |
|
|
|
31,654 |
|
|
|
37,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
22,387 |
|
|
|
23,063 |
|
|
|
26,800 |
|
|
|
26,372 |
|
Income tax expense |
|
|
9,077 |
|
|
|
7,787 |
|
|
|
10,242 |
|
|
|
9,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,320 |
|
|
|
15,276 |
|
|
|
16,558 |
|
|
|
16,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per common share |
|
$ |
0.12 |
|
|
|
0.14 |
|
|
|
0.15 |
|
|
|
0.16 |
|
104
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended |
|
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
Interest and dividend income |
|
$ |
92,749 |
|
|
|
93,364 |
|
|
|
98,631 |
|
|
|
99,641 |
|
Interest expense |
|
|
51,591 |
|
|
|
50,034 |
|
|
|
47,176 |
|
|
|
43,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
41,158 |
|
|
|
43,330 |
|
|
|
51,455 |
|
|
|
56,346 |
|
Provision for loan losses |
|
|
8,000 |
|
|
|
8,025 |
|
|
|
12,375 |
|
|
|
11,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
33,158 |
|
|
|
35,305 |
|
|
|
39,080 |
|
|
|
45,296 |
|
Non-interest income |
|
|
3,417 |
|
|
|
2,411 |
|
|
|
5,359 |
|
|
|
3,648 |
|
Non-interest expenses |
|
|
24,455 |
|
|
|
28,163 |
|
|
|
26,611 |
|
|
|
29,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
12,120 |
|
|
|
9,553 |
|
|
|
17,828 |
|
|
|
19,055 |
|
Income tax expense |
|
|
5,042 |
|
|
|
4,081 |
|
|
|
7,355 |
|
|
|
6,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
7,078 |
|
|
|
5,472 |
|
|
$ |
10,473 |
|
|
|
12,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per common share |
|
|
0.07 |
|
|
|
0.05 |
|
|
|
0.10 |
|
|
|
0.11 |
|
(18) Earnings Per Share
The following is a summary of the Companys earnings per share calculations and reconciliation
of basic to diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Month Period |
|
|
|
Year Ended December 31, 2010 |
|
|
Year Ended December 31, 2009 |
|
|
Ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
|
Share |
|
|
|
|
|
|
|
|
|
|
Share |
|
|
|
|
|
|
|
|
|
|
Share |
|
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
62,019 |
|
|
|
|
|
|
|
|
|
|
$ |
35,112 |
|
|
|
|
|
|
|
|
|
|
$ |
22,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common stockholders |
|
$ |
62,019 |
|
|
|
109,713,516 |
|
|
$ |
0.57 |
|
|
$ |
35,112 |
|
|
|
107,550,061 |
|
|
$ |
0.33 |
|
|
$ |
22,562 |
|
|
|
109,862,617 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive common stock equivalents(1) |
|
|
|
|
|
|
164,736 |
|
|
|
|
|
|
|
|
|
|
|
68,165 |
|
|
|
|
|
|
|
|
|
|
|
126,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common stockholders |
|
$ |
62,019 |
|
|
|
109,878,252 |
|
|
$ |
0.56 |
|
|
$ |
35,112 |
|
|
|
107,618,226 |
|
|
$ |
0.33 |
|
|
$ |
22,562 |
|
|
|
109,989,048 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
|
Share |
|
|
|
|
|
|
|
|
|
|
Share |
|
|
|
Loss |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
Net income (loss) |
|
$ |
(64,918 |
) |
|
|
|
|
|
|
|
|
|
$ |
16,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common stockholders |
|
$ |
(64,918 |
) |
|
|
104,530,402 |
|
|
$ |
(0.62 |
) |
|
$ |
16,029 |
|
|
|
105,447,910 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive common stock equivalents(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common stockholders |
|
$ |
(64,918 |
) |
|
|
104,530,402 |
|
|
$ |
(0.62 |
) |
|
$ |
16,029 |
|
|
|
105,601,764 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the years ended December 31, 2010 and 2009, the six month period
ended December 31, 2009 and the years ended June 30, 2009 and 2008,
there were 5.3 million, 5.8 million (unaudited), 5.3 million, 5.3
million and 4.9 million equity awards, respectively, that could
potentially dilute basic earnings per share in the future that were
not included in the computation of diluted earnings per share because
to do so would have been anti-dilutive for the periods presented. |
(19) Recent Accounting Pronouncements
In December 2010, the FASB issued Accounting Standards Update (ASU) 2010-29, which specifies
that if a public entity presents comparative financial statements, the entity should disclose
revenue and earnings of the combined entity as though the business combination(s) that occurred
during the current year had occurred as of the beginning of the comparable prior annual
reporting period only. The amendments in this Update also expand the supplemental pro forma
disclosures under Topic 805 to include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the business combination included in
the reported pro forma revenue and earnings. The amendments in this Update are effective
prospectively for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2010. The
adoption of this pronouncement did not have a material impact on the Companys financial
condition or results of operations.
105
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
In December 2010, the FASB issued ASU 2010-28, which modifies Step 1 of the goodwill impairment
test for reporting units with zero or negative carrying amounts. For those reporting units, an
entity is required to perform Step 2 of the goodwill impairment test if it is more likely than
not that a goodwill impairment exists. In determining whether it is more likely than not that a
goodwill impairment exists, an entity should consider whether there are any adverse qualitative
factors indicating that an impairment may exist. The qualitative factors are consistent with the
existing guidance, which requires that goodwill of a reporting unit be tested for impairment
between annual tests if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount. For public entities, the
amendments in this Update are effective for fiscal years, and interim periods within those
years, beginning after December 15, 2010. The adoption of this pronouncement did not have a
material impact on the Companys financial condition or results of operations.
In July 2010, the FASB issued ASU 2010-20 to provide financial statement users with greater
transparency about an entitys allowance for credit losses and the credit quality of its
financing receivables. The objective of the ASU is to provide disclosures that assist financial
statement users in their evaluation of (1) the nature of an entitys credit risk associated with
its financing receivables, (2) how the entity analyzes and assesses that risk in arriving at the
allowance for credit losses and (3) the changes in the allowance for credit losses and the
reasons for those changes. Disclosures provided to meet the objective above should be provided
on a disaggregated basis. The disclosures as of the end of a reporting period are effective for
interim and annual reporting periods ending on or after December 15, 2010. The disclosures about
activity that occurs during a reporting period are effective for interim and annual reporting
periods beginning on or after December 15, 2010. In January 2011, the FASB issued ASU No.
2011-01 Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled
Debt Restructurings in Update No. 2010-20 which defers the effective date of the loan
modification disclosures. The adoption of this pronouncement did not have a material impact on
the Companys financial condition or results of operations. The disclosures required by this
pronouncement can be found in Note 5 of the Notes to Consolidated Financial Statements.
In April 2010, the FASB issued ASU 2010-18, which states that modifications of loans that are
accounted for within a pool under ASC 310-30 do not result in the removal of those loans from
the pool even if the modification of those loans would otherwise be considered a troubled debt
restructuring. An entity will continue to be required to consider whether the pool of assets in
which the loan is included is impaired if expected cash flows for the pool change. The
amendments do not affect the accounting for loans under the scope of ASC 310-30 that are not
accounted for within pools. Loans accounted for individually under ASC 310-30 continue to be
subject to the troubled debt restructuring accounting provisions within ASC 310-40,
ReceivablesTroubled Debt Restructurings by Creditors. The amendments are effective for
modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first
interim or annual period ending on or after July 15, 2010. The adoption of this pronouncement
did not have a material impact on the Companys financial condition, results of operations or
financial statement disclosures.
In February 2010, the FASB issued ASU 2010-09, which amended the subsequent events pronouncement
issued in May 2009. The amendment removed the requirement to disclose the date through which
subsequent events have been evaluated. This pronouncement became effective immediately upon
issuance and is to be applied prospectively. The adoption of this pronouncement did not have a
material impact on the Companys financial condition, results of operations or financial
statement disclosures.
In January 2010, the FASB issued ASU 2010-06 to improve disclosures about fair value
measurements. This guidance requires new disclosures on transfers into and out of Level 1 and 2
measurements of the fair value hierarchy and requires separate disclosures about purchases,
sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing
fair value disclosures relating to the level of disaggregation and inputs and valuation
techniques used to measure fair value. It was effective for the first reporting period
(including interim periods) beginning after December 15, 2009, except for the requirement to
provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis,
which will be effective for fiscal years beginning after December 15, 2010. The adoption of this
pronouncement did not have a material impact on the Companys financial condition, results of
operations or financial statement disclosures.
In June 2009, the FASB Codification (the Codification) was issued. The Codification is the
source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the
FASB to be applied by non-governmental entities. Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative GAAP for SEC
registrants. The Codification supersedes all existing non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature not included in the
Codification became non-authoritative. This Statement was effective for financial statements
issued for interim and annual periods ending after September 15, 2009. The implementation of
this standard did not have an impact on the Companys consolidated financial condition and
results of operations.
106
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009 and June 30, 2009 and 2008
In June 2009, the FASB issued ASC 860, an amendment to the accounting and disclosure
requirements for transfers of financial assets. The guidance defines the term participating
interest to establish specific conditions for reporting a transfer of a portion of a financial
asset as a sale. If the transfer does not meet those conditions, a transferor should account for
the transfer as a sale only if it transfers an entire financial asset or a group of entire
financial assets and surrenders control over the entire transferred asset(s). The guidance
requires that a transferor recognize and initially measure at fair value all assets obtained
(including a transferors beneficial interest) and liabilities incurred as a result of a
transfer of financial assets accounted for as a sale. This Statement is effective as of the
beginning of each reporting entitys first annual reporting period that begins after November
15, 2009, for interim periods within that first annual reporting period, and for interim and
annual reporting periods thereafter. The Company is evaluating the impact the adoption of ASC
860 will have on its financial condition, results of operations or financial statement
disclosures.
In June 2008, the FASB ratified ASC 840-10, Accounting by Lessees for Nonrefundable Maintenance
Deposits. ASC 840-10 requires that all nonrefundable maintenance deposits be accounted for as a
deposit with the deposit expensed or capitalized in accordance with the lessees maintenance
accounting policy when the underlying maintenance is performed. Once it is determined that an
amount on deposit is not probable of being used to fund future maintenance expense, it is to be
recognized as additional expense at the time such determination is made. ASC 840-10 is effective
for fiscal years beginning after July 1, 2009. The adoption of ASC 840-10 did not have a
material impact on the Companys financial condition, results of operations or financial
statement disclosures.
In June 2008, ASC 260-10 was issued which addresses whether instruments granted in share-based
payment transactions are participating securities prior to vesting and, therefore, need to be
included in the earnings allocation in computing earnings per share. The Statement is effective
for financial statements issued for fiscal years beginning after December 15, 2009. The adoption
of ASC 260-10 on July 1, 2009 did not have a material impact on the Companys consolidated
financial statements.
In February 2008, ASC 820-10, Effective Date of ASC 820, was issued. ASC 820-10 delayed the
application of ASC 820 Fair Value Measurements and Disclosures for non-financial assets and
non-financial liabilities until July 1, 2009. The adoption of ASC 820-10 did not have a material
impact on the Companys consolidated financial statements.
In December 2007, the FASB issued ASC 805, Business Combinations. ASC 805 requires most
identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business
combination to be recorded at full fair value. ASC 805 applies to all business combinations,
including combinations among mutual entities and combinations by contract alone. Under ASC 805,
all business combinations will be accounted for by applying the acquisition method. The adoption
of ASC 805 on July 1, 2009 did not have a material impact on the Companys consolidated
financial statements.
107
|
|
(a)(2) Financial Statement Schedules |
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* |
|
10.3 |
|
Investors Savings Bank Director Retirement Plan* |
|
10.4 |
|
Investors Savings Bank Supplemental ESOP and Retirement Plan* |
|
10.5 |
|
Investors Bancorp, Inc. Supplemental Wage Replacement Plan* |
|
10.6 |
|
Investors Savings Bank Deferred Directors Fee Plan* |
|
10.7 |
|
Investors Bancorp, Inc. Deferred Directors Fee Plan* |
|
10.8 |
|
Executive Officer Annual Incentive Plan** |
|
10.9 |
|
Agreement and Plan of Merger by and Between Investors Bancorp, Inc and American Bancorp of New Jersey, Inc.*** |
|
10.10 |
|
Purchase and Assumption Agreement by and among Millennium and Investors Savings Bank**** |
|
14 |
|
Code of Ethics***** |
|
21 |
|
Subsidiaries of Registrant* |
|
23.1 |
|
Consent of Independent Registered Public Accounting Firm |
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32 |
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
|
101 |
|
The following materials from the Companys Annual Report on Form 10-K for the year ended December 31, 2010,
formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial
Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Changes in
Stockholders Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated
Financial Statements, tagged as blocks of text. ****** |
|
|
|
* |
|
Incorporated by reference to the Registration Statement on Form S-1
of Investors Bancorp, Inc. (file no. 333-125703), originally filed
with the Securities and Exchange Commission on June 10, 2005. |
|
** |
|
Incorporated by reference to Appendix A of the Companys definitive
proxy statement filed with the Securities and Exchange Commission
on September 26, 2008. |
|
*** |
|
Incorporated by reference to Form 8-Ks originally filed with the
Securities and Exchange Commission on December 15, 2008 and March
18, 2009. |
|
**** |
|
Incorporated by reference to Form 8-K originally filed with the
Securities and Exchange Commission on March 30, 2010. |
|
***** |
|
Available on our website www.isbnj.com |
|
****** |
|
Furnished, not filed |
108
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
Date: March 1, 2011 |
By: |
/s/ Kevin Cummings
|
|
|
|
Kevin Cummings |
|
|
|
Chief Executive Officer and President
(Principal Executive Officer)
(Duly Authorized Representative) |
|
|
Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
Signatures |
|
Title |
|
Date |
|
|
|
|
|
|
|
Chief Executive Officer and President
|
|
March 1, 2011 |
Kevin Cummings
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ Thomas F. Splaine, Jr.
|
|
Chief Financial Officer
|
|
March 1, 2011 |
Thomas F. Splaine, Jr.
|
|
and Senior Vice President
(Principal Financial and Accounting Officer) |
|
|
|
|
|
|
|
|
|
Director
|
|
March 1, 2011 |
Doreen R. Byrnes
|
|
|
|
|
|
|
|
|
|
|
|
Director, Chief Operating Officer
|
|
March 1, 2011 |
Domenick Cama
|
|
and Senior Executive Vice President |
|
|
|
|
|
|
|
|
|
Director, Chairman
|
|
March 1, 2011 |
Robert M. Cashill |
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 1, 2011 |
Brian D. Dittenhafer |
|
|
|
|
|
|
|
|
|
/s/ Vincent D. Manahan, III
|
|
Director
|
|
March 1, 2011 |
Vincent D. Manahan, III |
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 1, 2011 |
Richard Petroski |
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 1, 2011 |
Stephen J. Szabatin |
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 1, 2011 |
James H. Ward III |
|
|
|
|
109