e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: June 30, 2010
Commission file number: 0-51557
Investors Bancorp, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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22-3493930
(I.R.S. Employer Identification No.) |
101 JFK Parkway, Short Hills, New Jersey 07078
(Address of principal executive offices)
(973) 924-5100
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
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
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
As of July 30, 2010 there were 114,893,587 shares of the Registrants common stock, par value
$0.01 per share, outstanding, of which 64,844,373 shares, or 56.44% of the Registrants outstanding
common stock, were held by Investors Bancorp, MHC, the Registrants mutual holding company.
Investors Bancorp, Inc.
FORM 10-Q
Index
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2010 (unaudited) and December 31, 2009
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June 30, |
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December 31, |
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2010 |
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2009 |
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|
(In thousands) |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
100,008 |
|
|
|
73,606 |
|
Securities available-for-sale, at estimated fair value |
|
|
483,748 |
|
|
|
471,243 |
|
Securities held-to-maturity, net (estimated fair value of
$647,148 and $753,405 at June 30, 2010
and December 31, 2009, respectively) |
|
|
604,642 |
|
|
|
717,441 |
|
Loans receivable, net |
|
|
7,174,222 |
|
|
|
6,615,459 |
|
Loans held-for-sale |
|
|
32,978 |
|
|
|
27,043 |
|
Stock in the Federal Home Loan Bank |
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|
79,469 |
|
|
|
66,202 |
|
Accrued interest receivable |
|
|
39,210 |
|
|
|
36,942 |
|
Other Real Estate Owned |
|
|
751 |
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|
|
|
|
Office properties and equipment, net |
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|
52,588 |
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|
49,384 |
|
Net deferred tax asset |
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|
119,644 |
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|
117,143 |
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Bank owned life insurance |
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|
115,722 |
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|
114,542 |
|
Intangible assets |
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31,945 |
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|
31,668 |
|
Other assets |
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|
31,212 |
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|
37,143 |
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Total assets |
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$ |
8,866,139 |
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|
8,357,816 |
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Liabilities and Stockholders Equity |
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Liabilities: |
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Deposits |
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$ |
6,056,351 |
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|
5,840,643 |
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Borrowed funds |
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|
1,825,528 |
|
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|
1,600,542 |
|
Advance payments by borrowers for taxes and insurance |
|
|
34,543 |
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|
29,675 |
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Other liabilities |
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|
60,001 |
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|
36,743 |
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Total liabilities |
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7,976,423 |
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7,507,603 |
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Stockholders equity: |
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Preferred stock, $0.01 par value, 50,000,000 authorized shares;
none issued |
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Common stock, $0.01 par value, 200,000,000 shares authorized;
118,020,280 issued; 114,893,587 and 114,448,888 outstanding
at June 30, 2010 and December 31, 2009, respectively |
|
|
532 |
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|
532 |
|
Additional paid-in capital |
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|
528,874 |
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|
530,133 |
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Retained earnings |
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|
449,836 |
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|
422,211 |
|
Treasury stock, at cost; 3,126,693 and 3,571,392 shares at
June 30, 2010 and December 31, 2009, respectively |
|
|
(38,183 |
) |
|
|
(44,810 |
) |
Unallocated common stock held by the employee stock
ownership plan |
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|
(34,742 |
) |
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|
(35,451 |
) |
Accumulated other comprehensive loss |
|
|
(16,601 |
) |
|
|
(22,402 |
) |
|
|
|
|
|
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|
Total stockholders equity |
|
|
889,716 |
|
|
|
850,213 |
|
|
|
|
|
|
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|
Total liabilities and
stockholders equity |
|
$ |
8,866,139 |
|
|
|
8,357,816 |
|
|
|
|
|
|
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|
See accompanying notes to consolidated financial statements.
1
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
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For the Three Months |
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For the Six Months |
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Ended June 30, |
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Ended June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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(Dollars in thousands, except per share data) |
|
Interest and dividend income: |
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|
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|
|
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|
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|
Loans receivable and loans held-for-sale |
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$ |
94,300 |
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|
79,184 |
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185,328 |
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|
155,907 |
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Securities: |
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Government-sponsored enterprise obligations |
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174 |
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292 |
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372 |
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|
596 |
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Mortgage-backed securities |
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9,493 |
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11,312 |
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19,539 |
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23,259 |
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Municipal bonds and other debt |
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1,009 |
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|
1,331 |
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1,804 |
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|
4,317 |
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Interest-bearing deposits |
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117 |
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|
235 |
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|
190 |
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|
354 |
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Federal Home Loan Bank stock |
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|
778 |
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|
1,010 |
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1,706 |
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|
1,680 |
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|
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|
|
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Total interest and dividend income |
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|
105,871 |
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|
93,364 |
|
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|
208,939 |
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|
186,113 |
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Interest expense: |
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|
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|
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|
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|
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|
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|
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Deposits |
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|
22,906 |
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|
|
32,525 |
|
|
|
46,666 |
|
|
|
66,425 |
|
Secured borrowings |
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|
17,818 |
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|
17,509 |
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|
35,196 |
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|
|
35,200 |
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|
|
|
|
|
|
|
|
|
|
|
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Total interest expense |
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|
40,724 |
|
|
|
50,034 |
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|
|
81,862 |
|
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|
101,625 |
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|
|
|
|
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|
|
|
|
|
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Net interest income |
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|
65,147 |
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|
|
43,330 |
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|
|
127,077 |
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|
|
84,488 |
|
Provision for loan losses |
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|
15,450 |
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|
|
8,025 |
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|
|
28,500 |
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|
|
16,025 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net interest income after provision
for loan losses |
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|
49,697 |
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|
|
35,305 |
|
|
|
98,577 |
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|
|
68,463 |
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|
|
|
|
|
|
|
|
|
|
|
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Non-interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees and service charges |
|
|
1,610 |
|
|
|
816 |
|
|
|
3,200 |
|
|
|
1,722 |
|
Income on bank owned life insurance |
|
|
659 |
|
|
|
670 |
|
|
|
1,180 |
|
|
|
926 |
|
Gain on sales of loans, net |
|
|
1,737 |
|
|
|
2,114 |
|
|
|
3,484 |
|
|
|
4,277 |
|
Gain (loss) on securities transactions |
|
|
37 |
|
|
|
(1,297 |
) |
|
|
(11 |
) |
|
|
(1,295 |
) |
Other income |
|
|
96 |
|
|
|
108 |
|
|
|
219 |
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
4,139 |
|
|
|
2,411 |
|
|
|
8,072 |
|
|
|
5,828 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Non-interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and fringe benefits |
|
|
17,371 |
|
|
|
14,672 |
|
|
|
34,507 |
|
|
|
30,342 |
|
Advertising and promotional expense |
|
|
1,475 |
|
|
|
1,235 |
|
|
|
2,347 |
|
|
|
1,875 |
|
Office occupancy and equipment expense |
|
|
4,379 |
|
|
|
3,124 |
|
|
|
8,735 |
|
|
|
6,122 |
|
Federal insurance premiums |
|
|
2,475 |
|
|
|
5,400 |
|
|
|
5,700 |
|
|
|
7,200 |
|
Stationery, printing, supplies and telephone |
|
|
645 |
|
|
|
565 |
|
|
|
1,280 |
|
|
|
1,053 |
|
Professional fees |
|
|
1,095 |
|
|
|
530 |
|
|
|
2,177 |
|
|
|
1,129 |
|
Data processing service fees |
|
|
1,475 |
|
|
|
1,240 |
|
|
|
2,906 |
|
|
|
2,353 |
|
Other operating expenses |
|
|
1,858 |
|
|
|
1,397 |
|
|
|
3,547 |
|
|
|
2,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
|
30,773 |
|
|
|
28,163 |
|
|
|
61,199 |
|
|
|
52,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
23,063 |
|
|
|
9,553 |
|
|
|
45,450 |
|
|
|
21,673 |
|
Income tax expense |
|
|
7,787 |
|
|
|
4,081 |
|
|
|
16,864 |
|
|
|
9,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,276 |
|
|
|
5,472 |
|
|
|
28,586 |
|
|
|
12,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
|
$ |
0.14 |
|
|
|
0.05 |
|
|
|
0.26 |
|
|
|
0.12 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
110,160,916 |
|
|
|
106,194,322 |
|
|
|
110,153,944 |
|
|
|
105,199,182 |
|
Diluted |
|
|
110,396,858 |
|
|
|
106,224,400 |
|
|
|
110,276,464 |
|
|
|
105,229,301 |
|
See accompanying notes to consolidated financial statements.
2
INVESTORS BANCORP, INC.
Consolidated Statements of Stockholders Equity
Six months ended June 30, 2010 and 2009
(Unaudited)
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|
|
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|
|
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|
|
|
|
|
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|
|
|
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|
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|
|
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|
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|
Accumulated |
|
|
|
|
|
|
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|
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|
Additional |
|
|
|
|
|
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|
|
|
|
Unallocated |
|
|
other |
|
|
Total |
|
|
|
Common |
|
|
paid-in |
|
|
Retained |
|
|
Treasury |
|
|
Common Stock |
|
|
comprehensive |
|
|
stockholders |
|
|
|
stock |
|
|
capital |
|
|
earnings |
|
|
stock |
|
|
Held by ESOP |
|
|
loss |
|
|
equity |
|
|
|
(In thousands) |
|
Balance at December 31, 2008 |
|
$ |
532 |
|
|
|
518,457 |
|
|
|
408,534 |
|
|
|
(128,121 |
) |
|
|
(36,869 |
) |
|
|
(8,734 |
) |
|
|
753,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
12,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,550 |
|
Change in funded status of retirement
obligations, net of tax expense of $311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(464 |
) |
|
|
(464 |
) |
Unrealized gain on securities available-
for-sale, net of tax benefit of $955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,529 |
|
|
|
3,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cummulative effect of initial application of
new OTTI guidance under ASC 320,
net of tax benefit of $14,577 |
|
|
|
|
|
|
|
|
|
|
21,108 |
|
|
|
|
|
|
|
|
|
|
|
(21,108 |
) |
|
|
|
|
Common stock issued from treasury to finance
acquisition (6,503,897 shares) |
|
|
|
|
|
|
|
|
|
|
(42,520 |
) |
|
|
93,250 |
|
|
|
|
|
|
|
|
|
|
|
50,730 |
|
Purchase of treasury stock (864,806 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,576 |
) |
|
|
|
|
|
|
|
|
|
|
(7,576 |
) |
Compensation cost for stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options and restricted stock |
|
|
|
|
|
|
6,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,061 |
|
ESOP shares allocated or committed to be released |
|
|
|
|
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
709 |
|
|
|
|
|
|
|
654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
532 |
|
|
|
524,463 |
|
|
|
399,672 |
|
|
|
(42,447 |
) |
|
|
(36,160 |
) |
|
|
(26,777 |
) |
|
|
819,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
532 |
|
|
|
530,133 |
|
|
|
422,211 |
|
|
|
(44,810 |
) |
|
|
(35,451 |
) |
|
|
(22,402 |
) |
|
|
850,213 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
28,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,586 |
|
Change in funded status of retirement
obligations, net of tax expense of $68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99 |
|
|
|
99 |
|
Unrealized gain on securities available-for-sale, net of tax expense of $3,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,191 |
|
|
|
5,191 |
|
Other-than-temporary impairment accretion
on debt securities, net of tax
expense of $353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511 |
|
|
|
511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock (50,500 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(608 |
) |
|
|
|
|
|
|
|
|
|
|
(608 |
) |
Treasury stock allocated to
restricted stock plan |
|
|
|
|
|
|
(6,272 |
) |
|
|
(961 |
) |
|
|
7,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost for stock
options and restricted stock |
|
|
|
|
|
|
4,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,806 |
|
ESOP shares allocated or committed to be released |
|
|
|
|
|
|
207 |
|
|
|
|
|
|
|
2 |
|
|
|
709 |
|
|
|
|
|
|
|
918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010 |
|
$ |
532 |
|
|
|
528,874 |
|
|
|
449,836 |
|
|
|
(38,183 |
) |
|
|
(34,742 |
) |
|
|
(16,601 |
) |
|
|
889,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
INVESTORS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
28,586 |
|
|
|
12,550 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
ESOP and stock-based compensation expense |
|
|
5,724 |
|
|
|
6,715 |
|
Accretion and (amortization) on securities, net |
|
|
1,861 |
|
|
|
(778 |
) |
Amortization of premium and accretion of fees and costs on loans, net |
|
|
3,062 |
|
|
|
5,350 |
|
Amortization of intangible assets |
|
|
360 |
|
|
|
70 |
|
Provision for loan losses |
|
|
28,500 |
|
|
|
16,025 |
|
Depreciation and amortization of office properties and equipment |
|
|
1,143 |
|
|
|
1,720 |
|
Loss on securities transactions |
|
|
11 |
|
|
|
1,295 |
|
Mortgage loans originated for sale |
|
|
(247,374 |
) |
|
|
(549,536 |
) |
Proceeds from mortgage loan sales |
|
|
243,903 |
|
|
|
515,622 |
|
Gain on sales of loans, net |
|
|
(2,464 |
) |
|
|
(4,277 |
) |
Income on bank owned life insurance contract |
|
|
(1,180 |
) |
|
|
(926 |
) |
Increase in accrued interest |
|
|
(2,268 |
) |
|
|
(1,908 |
) |
Deferred tax (expense) benefit |
|
|
(6,296 |
) |
|
|
928 |
|
Decrease (increase) in other assets |
|
|
5,293 |
|
|
|
(9 |
) |
Increase in other liabilities |
|
|
23,426 |
|
|
|
7,747 |
|
|
|
|
|
|
|
|
Total adjustments |
|
|
53,701 |
|
|
|
(1,962 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
82,287 |
|
|
|
10,588 |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of loans receivable |
|
|
(413,863 |
) |
|
|
(442,694 |
) |
Net (originations) repayments of loans receivable |
|
|
(179,177 |
) |
|
|
367,110 |
|
Mortgage-backed securities available for sale received in like-kind exchange |
|
|
|
|
|
|
3,911 |
|
Proceeds from sale of non performing loan |
|
|
2,984 |
|
|
|
|
|
Gain on disposition of loans held for investment |
|
|
(1,020 |
) |
|
|
|
|
Purchases of mortgage-backed securities held to maturity |
|
|
(3,690 |
) |
|
|
|
|
Purchases of mortgage-backed securities available-for-sale |
|
|
(100,908 |
) |
|
|
(104,245 |
) |
Purchases of other investments available-for-sale |
|
|
(150 |
) |
|
|
|
|
Proceeds from paydowns/maturities on mortgage-backed
securities held-to-maturity |
|
|
117,276 |
|
|
|
126,244 |
|
Proceeds from calls/maturities on debt securities held-to-maturity |
|
|
1,507 |
|
|
|
|
|
Proceeds from paydowns/maturities on mortgage-backed
securities available-for-sale |
|
|
68,816 |
|
|
|
35,548 |
|
Proceeds from maturities of US Government and agency obligations available-for-sale |
|
|
25,000 |
|
|
|
|
|
Purchase of maturities of US Government and Agency Obligations held to maturity |
|
|
|
|
|
|
(109,997 |
) |
Proceeds from maturities of US Government and Agency Obligations held to maturity |
|
|
|
|
|
|
120,120 |
|
Redemption of equity secruties available-for-sale |
|
|
|
|
|
|
(4,774 |
) |
Proceeds from sale of equity securities available-for-sale |
|
|
|
|
|
|
863 |
|
Proceeds from redemptions of Federal Home Loan Bank stock |
|
|
5,941 |
|
|
|
22,771 |
|
Purchases of Federal Home Loan Bank stock |
|
|
(19,208 |
) |
|
|
(5,722 |
) |
Purchases of office properties and equipment |
|
|
(4,347 |
) |
|
|
(4,250 |
) |
Cash received, net of consideration paid for acquisition |
|
|
|
|
|
|
(4,225 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by investing
activities |
|
|
(500,839 |
) |
|
|
660 |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
215,708 |
|
|
|
754,893 |
|
Proceeds from funds borrowed under other repurchase agreements |
|
|
|
|
|
|
35,000 |
|
Repayments of funds borrowed under other repurchase agreements |
|
|
(125,000 |
) |
|
|
(85,000 |
) |
Net increase (decrease) in other borrowings |
|
|
349,986 |
|
|
|
(424,737 |
) |
Net increase in advance payments by borrowers for taxes and insurance |
|
|
4,868 |
|
|
|
3,043 |
|
Purchase of treasury stock |
|
|
(608 |
) |
|
|
(3,382 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
444,954 |
|
|
|
279,817 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
26,402 |
|
|
|
291,065 |
|
Cash and cash equivalents at beginning of the period |
|
|
73,606 |
|
|
|
26,692 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period |
|
$ |
100,008 |
|
|
|
317,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Noncash investing activities: |
|
|
|
|
|
|
|
|
Real estate acquired through foreclosure |
|
$ |
751 |
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
|
|
81,831 |
|
|
|
102,955 |
|
Income taxes |
|
|
25,601 |
|
|
|
14,174 |
|
Fair value of assets acquired |
|
|
|
|
|
|
628,847 |
|
Goodwill and core deposit intangible |
|
|
|
|
|
|
21,549 |
|
Liabilities assumed |
|
|
|
|
|
|
595,440 |
|
Common stock issued for American Bancorp of NJ acquisition |
|
|
|
|
|
|
50,730 |
|
See accompanying notes to consolidated financial statements.
4
INVESTORS BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements are comprised of the accounts of Investors Bancorp, Inc. and
its wholly owned subsidiary, Investors Savings Bank Bank (collectively, the Company) and the
Banks wholly-owned subsidiaries.
In the opinion of management, all the adjustments (consisting of normal and recurring adjustments)
necessary for the fair presentation of the consolidated financial condition and the consolidated
results of operations for the unaudited periods presented have been included. The results of
operations and other data presented for the six-month period ended June 30, 2010 are not
necessarily indicative of the results of operations that may be expected for subsequent periods.
Certain information and note disclosures usually included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for the
preparation of the Form 10-Q. The consolidated financial statements presented should be read in
conjunction with the Companys audited consolidated financial statements and notes to consolidated
financial statements included in the Companys December 31, 2009 Annual Report on Form 10-K.
2. Business Combinations
The following table summarizes the estimated fair values of the assets acquired and liabilities
assumed at the date of acquisition for American Bancorp of New Jersey, Inc. (American):
|
|
|
|
|
|
|
At May 31, 2009 |
|
|
|
(In millions) |
|
Cash and cash equivalents |
|
$ |
43.2 |
|
Securities available-for-sale |
|
|
103.9 |
|
Loans receivable |
|
|
474.8 |
|
Allowance for loan loss |
|
|
(4.0 |
) |
Loans held-for-sale |
|
|
6.6 |
|
Accrued interest receivable |
|
|
2.5 |
|
Office properties and equipment, net |
|
|
8.1 |
|
Goodwill |
|
|
17.6 |
|
Intangible assets |
|
|
3.9 |
|
Other assets |
|
|
37.0 |
|
|
|
|
|
Total assets acquired |
|
|
693.6 |
|
|
|
|
|
Deposits |
|
|
(518.2 |
) |
Borrowed funds |
|
|
(71.7 |
) |
Other liabilities |
|
|
(5.5 |
) |
|
|
|
|
Total liabilities assumed |
|
|
(595.4 |
) |
|
|
|
|
Net assets acquired |
|
$ |
98.2 |
|
|
|
|
|
The Company has not identified any material changes to the provisional amounts recorded in the
American acquisition. In the event material changes to the recorded amounts are identified, the
Company will disclose information as required.
The Company announced on March 30, 2010 that it has signed a Purchase and Assumption Agreement with
Millennium bcpbank (Millennium) to acquire approximately $600 million of
5
deposits and seventeen branch offices in New Jersey, New York and Massachusetts for a deposit
premium of 0.11%. Under the purchase and assumption agreement the parties intend to enter into a
Loan Purchase Agreement in which Investors will purchase a portion of Millenniums performing loan
portfolio. Also, under the Purchase and Assumption Agreement, the parties will negotiate a Loan
Servicing Agreement for Investors to service those loans it does not purchase. The Company is
evaluating its options for the Massachusetts branch offices. This transaction has received
approvals from the boards of directors of both companies, and remains subject to regulatory
approval. The transactions with Millennium are expected to close during the fourth quarter of 2010.
3. Earnings Per Share
The following is a summary of our earnings per share calculations and reconciliation of basic to
diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
(Dollars in thousands, except per share data) |
|
|
|
|
|
Net Income |
|
$ |
15,276 |
|
|
|
|
|
|
|
|
|
|
$ |
5,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders |
|
$ |
15,276 |
|
|
|
110,160,916 |
|
|
$ |
0.14 |
|
|
$ |
5,472 |
|
|
|
106,194,322 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive common stock
equivalents |
|
|
|
|
|
|
235,942 |
|
|
|
|
|
|
|
|
|
|
|
30,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders |
|
$ |
15,276 |
|
|
|
110,396,858 |
|
|
$ |
0.14 |
|
|
$ |
5,472 |
|
|
|
106,224,400 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2010 and June 30, 2009, there were 4.9 million and 6.1 million
equity awards, respectively, that could potentially dilute basic earning 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
(Dollars in thousands, except per share data) |
|
|
|
|
|
Net Income |
|
$ |
28,586 |
|
|
|
|
|
|
|
|
|
|
$ |
12,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders |
|
$ |
28,586 |
|
|
|
110,153,944 |
|
|
$ |
0.26 |
|
|
$ |
12,550 |
|
|
|
105,199,182 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive common stock
equivalents |
|
|
|
|
|
|
122,520 |
|
|
|
|
|
|
|
|
|
|
|
30,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders |
|
$ |
28,586 |
|
|
|
110,276,464 |
|
|
$ |
0.26 |
|
|
$ |
12,550 |
|
|
|
105,229,301 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2010 and June 30, 2009, there were 5.6 million and 6.1 million
equity awards, respectively, that could potentially dilute basic earning 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.
6
4. Securities
The amortized cost, gross unrealized gains and losses and estimated fair value of securities
available-for-sale and held-to-maturity for the dates indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Estimated |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
fair value |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
2,002 |
|
|
|
484 |
|
|
|
|
|
|
|
2,486 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage
Corporation |
|
|
193,825 |
|
|
|
4,484 |
|
|
|
11 |
|
|
|
198,298 |
|
Federal National Mortgage
Association |
|
|
209,617 |
|
|
|
5,519 |
|
|
|
2 |
|
|
|
215,134 |
|
Government National Mortgage
Association |
|
|
9,934 |
|
|
|
178 |
|
|
|
|
|
|
|
10,112 |
|
Non-agency securities |
|
|
58,755 |
|
|
|
972 |
|
|
|
2,009 |
|
|
|
57,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
472,131 |
|
|
|
11,153 |
|
|
|
2,022 |
|
|
|
481,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale |
|
|
474,133 |
|
|
|
11,637 |
|
|
|
2,022 |
|
|
|
483,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises |
|
|
15,213 |
|
|
|
534 |
|
|
|
|
|
|
|
15,747 |
|
Municipal bonds |
|
|
10,252 |
|
|
|
199 |
|
|
|
2 |
|
|
|
10,449 |
|
Corporate and other debt securities |
|
|
22,451 |
|
|
|
20,108 |
|
|
|
1,289 |
|
|
|
41,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,916 |
|
|
|
20,841 |
|
|
|
1,291 |
|
|
|
67,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan
Mortgage Corporation |
|
|
288,149 |
|
|
|
11,367 |
|
|
|
24 |
|
|
|
299,492 |
|
Federal National Mortgage
Association |
|
|
203,980 |
|
|
|
11,357 |
|
|
|
203 |
|
|
|
215,134 |
|
Government National
Mortgage Association |
|
|
3,571 |
|
|
|
270 |
|
|
|
|
|
|
|
3,841 |
|
Federal housing authorities |
|
|
2,439 |
|
|
|
217 |
|
|
|
|
|
|
|
2,656 |
|
Non-agency securities |
|
|
58,587 |
|
|
|
380 |
|
|
|
408 |
|
|
|
58,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556,726 |
|
|
|
23,591 |
|
|
|
635 |
|
|
|
579,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held-to-maturity |
|
|
604,642 |
|
|
|
44,432 |
|
|
|
1,926 |
|
|
|
647,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
1,078,775 |
|
|
|
56,069 |
|
|
|
3,948 |
|
|
|
1,130,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Federal National Mortgage
Association |
|
|
236,109 |
|
|
|
9,268 |
|
|
|
24 |
|
|
|
245,353 |
|
Government National
Mortgage Association |
|
|
3,880 |
|
|
|
277 |
|
|
|
|
|
|
|
4,157 |
|
Federal housing authorities |
|
|
2,549 |
|
|
|
231 |
|
|
|
|
|
|
|
2,780 |
|
Non-agency securities |
|
|
69,009 |
|
|
|
47 |
|
|
|
1,561 |
|
|
|
67,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Gross unrealized losses on securities available-for-sale and held-to-maturity 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 June 30, 2010
and December 31, 2009, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
Association |
|
$ |
2,884 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
2,884 |
|
|
|
11 |
|
Federal National Mortgage
Association |
|
|
2,883 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2,883 |
|
|
|
2 |
|
Non-agency securities |
|
|
128 |
|
|
|
78 |
|
|
|
25,785 |
|
|
|
1,931 |
|
|
|
25,913 |
|
|
|
2,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,895 |
|
|
|
91 |
|
|
|
25,785 |
|
|
|
1,931 |
|
|
|
31,680 |
|
|
|
2,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale: |
|
|
5,895 |
|
|
|
91 |
|
|
|
25,785 |
|
|
|
1,931 |
|
|
|
31,680 |
|
|
|
2,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
1,035 |
|
|
|
2 |
|
|
|
1,035 |
|
|
|
2 |
|
Corporate and other debt securities |
|
|
248 |
|
|
|
955 |
|
|
|
208 |
|
|
|
334 |
|
|
|
456 |
|
|
|
1,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248 |
|
|
|
955 |
|
|
|
1,243 |
|
|
|
336 |
|
|
|
1,491 |
|
|
|
1,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan
Mortgage Corporation |
|
|
11,346 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
11,346 |
|
|
|
24 |
|
Federal National Mortgage
Association |
|
|
8,934 |
|
|
|
200 |
|
|
|
703 |
|
|
|
3 |
|
|
|
9,637 |
|
|
|
203 |
|
Non-agency securities |
|
|
|
|
|
|
|
|
|
|
31,738 |
|
|
|
408 |
|
|
|
31,738 |
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,280 |
|
|
|
224 |
|
|
|
32,441 |
|
|
|
411 |
|
|
|
52,721 |
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held-to-maturity |
|
|
20,528 |
|
|
|
1,179 |
|
|
|
33,684 |
|
|
|
747 |
|
|
|
54,212 |
|
|
|
1,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
26,423 |
|
|
|
1,270 |
|
|
|
59,469 |
|
|
|
2,678 |
|
|
|
85,892 |
|
|
|
3,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,853 |
|
|
|
975 |
|
|
|
26,752 |
|
|
|
3,454 |
|
|
|
138,605 |
|
|
|
4,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For our securities that have a estimated fair value less than the amortized cost basis, the
gross unrealized losses were primarily in our non-agency mortgage-backed securities and our
corporate and other debt securities portfolios, which accounted for 93.9% of the gross unrealized
losses at June 30, 2010. The total estimated fair value of our non-agency mortgage-backed
securities and our corporate and other debt securities portfolios represented 13.9% of our total
investment portfolio at June 30, 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 and credit deterioration subsequent to the purchase of these securities. As
such, the Company previously recognized credit related other-than-temporary impairment charges on
certain non-agency mortgage backed and corporate debt 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 June 30, 2010, the significant portion of the portfolio was comprised of 28 non-agency
mortgage-backed securities with an amortized cost of $116.3 million and an estimated fair value of
$115.2 million. These securities were originated in the period 2002-2004
10
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 June 30, 2010.
Under certain stress scenarios estimated future losses may arise. Management determined that no
additional other-than-temporary impairment existed as of June 30, 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 June
30, 2010, the amortized cost and estimated fair values of the trust preferred portfolio was $22.5
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
June 30, 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 six months ended
June 30, 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.
11
The following table summarizes the Companys pooled trust preferred securities which are at
least one rating below investment grade as of June 30, 2010. In addition, at June 30, 2010 the
Company held 2 pooled trust preferred securities with a book value of $4.0
million and a fair value of $6.0 million which are investment grade. The Company
does not own any single-issuer trust preferred securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
Expected |
|
|
Excess |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Deferrals and |
|
|
Deferrals and |
|
|
Subordination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Issuers |
|
|
Defaults as a |
|
|
Defaults as % |
|
|
as a % of |
|
|
Moodys/ |
(Dollars in 000s) |
|
|
|
|
|
|
|
|
|
|
|
Gains |
|
|
Currently |
|
|
% of Total |
|
|
of Remaining |
|
|
Performing |
|
|
Fitch Credit |
Description |
|
Class |
|
Book Value |
|
|
Fair Value |
|
|
(Losses) |
|
|
Performing |
|
|
Collateral (1) |
|
|
Collateral (2) |
|
|
Collateral (3) |
|
|
Ratings |
Alesco PF II |
|
B1 |
|
$ |
165.6 |
|
|
$ |
353.2 |
|
|
$ |
187.6 |
|
|
|
34 |
|
|
|
21.3 |
% |
|
|
14.6 |
% |
|
|
0.0 |
% |
|
Ca / C |
Alesco PF III |
|
B1 |
|
|
341.4 |
|
|
|
649.0 |
|
|
|
307.6 |
|
|
|
38 |
|
|
|
25.5 |
|
|
|
18.5 |
|
|
|
0.0 |
|
|
Ca / C |
Alesco PF III |
|
B2 |
|
|
136.7 |
|
|
|
259.6 |
|
|
|
122.9 |
|
|
|
38 |
|
|
|
25.5 |
|
|
|
18.5 |
|
|
|
0.0 |
|
|
Ca / C |
Alesco PF IV |
|
B1 |
|
|
233.3 |
|
|
|
235.4 |
|
|
|
2.1 |
|
|
|
47 |
|
|
|
25.4 |
|
|
|
18.4 |
|
|
|
0.0 |
|
|
Ca / C |
Alesco PF VI |
|
C2 |
|
|
290.7 |
|
|
|
597.5 |
|
|
|
306.8 |
|
|
|
46 |
|
|
|
30.9 |
|
|
|
17.2 |
|
|
|
0.0 |
|
|
Ca / C |
MM Comm III |
|
B |
|
|
1,380.8 |
|
|
|
3,835.3 |
|
|
|
2,454.5 |
|
|
|
7 |
|
|
|
41.2 |
|
|
|
13.8 |
|
|
|
12.8 |
|
|
Baa3 / B /* |
MM Comm IX |
|
B1 |
|
|
47.9 |
|
|
|
110.1 |
|
|
|
62.2 |
|
|
|
21 |
|
|
|
25.9 |
|
|
|
29.6 |
|
|
|
0.0 |
|
|
Caa3 / C |
MMCaps XVII |
|
C1 |
|
|
700.2 |
|
|
|
2,129.4 |
|
|
|
1,429.2 |
|
|
|
43 |
|
|
|
7.5 |
|
|
|
18.3 |
|
|
|
0.0 |
|
|
Ca / C |
MMCaps XIX |
|
C |
|
|
401.4 |
|
|
|
10.0 |
|
|
|
(391.4 |
) |
|
|
33 |
|
|
|
30.6 |
|
|
|
21.9 |
|
|
|
0.0 |
|
|
Ca / C |
Tpref I |
|
B |
|
|
1,180.7 |
|
|
|
2,865.8 |
|
|
|
1,685.1 |
|
|
|
15 |
|
|
|
37.4 |
|
|
|
15.1 |
|
|
|
0.0 |
|
|
Caa3 / D |
Tpref II |
|
B |
|
|
2,240.4 |
|
|
|
4,576.0 |
|
|
|
2,335.6 |
|
|
|
21 |
|
|
|
26.9 |
|
|
|
25.3 |
|
|
|
0.0 |
|
|
Caa3 / C |
US Cap I |
|
B2 |
|
|
502.6 |
|
|
|
1,278.6 |
|
|
|
776.0 |
|
|
|
36 |
|
|
|
8.3 |
|
|
|
16.3 |
|
|
|
0.0 |
|
|
Caa1 / C |
US Cap I |
|
B1 |
|
|
1,485.9 |
|
|
|
3,835.8 |
|
|
|
2,349.9 |
|
|
|
36 |
|
|
|
8.3 |
|
|
|
16.3 |
|
|
|
0.0 |
|
|
Caa1 / C |
US Cap II |
|
B1 |
|
|
715.7 |
|
|
|
2,313.5 |
|
|
|
1,597.8 |
|
|
|
49 |
|
|
|
11.7 |
|
|
|
17.3 |
|
|
|
0.0 |
|
|
Ca / C |
US Cap III |
|
B1 |
|
|
899.9 |
|
|
|
2,010.2 |
|
|
|
1,110.3 |
|
|
|
37 |
|
|
|
20.4 |
|
|
|
14.2 |
|
|
|
0.0 |
|
|
Ca / C |
US Cap IV |
|
B1 |
|
|
749.6 |
|
|
|
195.0 |
|
|
|
(554.6 |
) |
|
|
50 |
|
|
|
30.6 |
|
|
|
21.7 |
|
|
|
0.0 |
|
|
C / D |
Trapeza XII |
|
C1 |
|
|
720.1 |
|
|
|
754.4 |
|
|
|
34.3 |
|
|
|
35 |
|
|
|
18.9 |
|
|
|
23.8 |
|
|
|
0.0 |
|
|
Ca / C |
Trapeza XIII |
|
C1 |
|
|
660.8 |
|
|
|
1,245.0 |
|
|
|
584.2 |
|
|
|
45 |
|
|
|
15.5 |
|
|
|
26.8 |
|
|
|
0.0 |
|
|
Ca / C |
Pretsl IV |
|
Mezzanine |
|
|
108.9 |
|
|
|
129.0 |
|
|
|
20.1 |
|
|
|
5 |
|
|
|
27.1 |
|
|
|
20.4 |
|
|
|
19.0 |
|
|
Ca / CCC |
Pretsl V |
|
Mezzanine |
|
|
51.5 |
|
|
|
43.1 |
|
|
|
(8.4 |
) |
|
|
3 |
|
|
|
43.1 |
|
|
|
26.4 |
|
|
|
0.0 |
|
|
Ba3 / C |
Pretsl VII |
|
Mezzanine |
|
|
982.9 |
|
|
|
1,359.0 |
|
|
|
376.1 |
|
|
|
6 |
|
|
|
46.3 |
|
|
|
62.3 |
|
|
|
0.0 |
|
|
Ca / C |
Pretsl XV |
|
B1 |
|
|
570.2 |
|
|
|
972.9 |
|
|
|
402.7 |
|
|
|
59 |
|
|
|
20.0 |
|
|
|
19.7 |
|
|
|
0.0 |
|
|
Ca / C |
Pretsl XVII |
|
C |
|
|
313.5 |
|
|
|
398.1 |
|
|
|
84.6 |
|
|
|
42 |
|
|
|
18.0 |
|
|
|
21.0 |
|
|
|
0.0 |
|
|
Ca / C |
Pretsl XVIII |
|
C |
|
|
655.0 |
|
|
|
1,361.6 |
|
|
|
706.6 |
|
|
|
62 |
|
|
|
17.4 |
|
|
|
15.8 |
|
|
|
0.0 |
|
|
Ca / C |
Pretsl XIX |
|
C |
|
|
237.2 |
|
|
|
399.5 |
|
|
|
162.3 |
|
|
|
57 |
|
|
|
19.3 |
|
|
|
15.8 |
|
|
|
0.0 |
|
|
Ca / C |
Pretsl XX |
|
C |
|
|
154.6 |
|
|
|
128.5 |
|
|
|
(26.1 |
) |
|
|
51 |
|
|
|
22.8 |
|
|
|
16.2 |
|
|
|
0.0 |
|
|
C / C |
Pretsl XXI |
|
C1 |
|
|
192.9 |
|
|
|
297.8 |
|
|
|
104.9 |
|
|
|
57 |
|
|
|
23.7 |
|
|
|
20.6 |
|
|
|
0.0 |
|
|
Ca / C |
Pretsl XXIII |
|
A-FP |
|
|
1,685.2 |
|
|
|
2,494.9 |
|
|
|
809.7 |
|
|
|
99 |
|
|
|
19.1 |
|
|
|
19.9 |
|
|
|
18.3 |
|
|
B1 / BB /* |
Pretsl XXIV |
|
C1 |
|
|
388.2 |
|
|
|
79.9 |
|
|
|
(308.3 |
) |
|
|
68 |
|
|
|
25.3 |
|
|
|
22.7 |
|
|
|
0.0 |
|
|
Ca / C |
Pretsl XXV |
|
C1 |
|
|
137.9 |
|
|
|
144.6 |
|
|
|
6.7 |
|
|
|
56 |
|
|
|
21.8 |
|
|
|
23.7 |
|
|
|
0.0 |
|
|
C / C |
Pretsl XXVI |
|
C1 |
|
|
113.6 |
|
|
|
165.5 |
|
|
|
51.9 |
|
|
|
56 |
|
|
|
24.2 |
|
|
|
19.3 |
|
|
|
0.0 |
|
|
C / C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,445.3 |
|
|
$ |
35,228.2 |
|
|
$ |
16,782.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At June 30, 2010, assumed recoveries for current deferrals and defaulted issuers
ranged from 0.0% to 9.5%. |
|
(2) |
|
At June 30, 2010, assumed recoveries for expected deferrals and defaulted issuers ranged from
10.0% to 13.4%. |
|
(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. |
|
* |
|
Ratings watch negative |
12
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Balance of credit related OTTI,
beginning of period |
|
$ |
122,410 |
|
|
|
121,110 |
|
|
|
122,410 |
|
|
|
121,110 |
|
Additions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial credit impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent credit impairments |
|
|
|
|
|
|
1,300 |
|
|
|
|
|
|
|
1,300 |
|
Reductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of credit related OTTI,
end of period |
|
$ |
122,410 |
|
|
|
122,410 |
|
|
|
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 June 30, 2010, noncredit-related OTTI was $34.1 million ($20.2 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.
There were no sales from the securities portfolio during the quarter ended June 30, 2010. A
portion of the Companys securities are pledged to secure borrowings.
The contractual maturities of mortgage-backed securities generally exceed 20 years; however, the
effective lives are expected to be shorter due to anticipated prepayments. Expected maturities may
differ from contractual maturities due to prepayment or early call privileges of the issuer. The
amortized cost and estimated fair value of debt securities at June 30, 2010, by contractual
maturity, are shown below.
13
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
|
Amortized |
|
|
Estimated |
|
|
|
cost |
|
|
fair value |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
16,165 |
|
|
|
16,727 |
|
Due after one year through five years |
|
|
3,937 |
|
|
|
4,003 |
|
Due after five years through ten years |
|
|
233 |
|
|
|
233 |
|
Due after ten years |
|
|
27,581 |
|
|
|
46,503 |
|
|
|
|
|
|
|
|
Total |
|
$ |
47,916 |
|
|
|
67,466 |
|
|
|
|
|
|
|
|
5. Loans Receivable, Net
Loans receivable, net are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans |
|
$ |
4,956,203 |
|
|
|
4,773,556 |
|
Multi-family loans |
|
|
768,317 |
|
|
|
612,743 |
|
Commercial real estate loans |
|
|
905,347 |
|
|
|
730,012 |
|
Construction loans |
|
|
394,607 |
|
|
|
334,480 |
|
Consumer and other loans |
|
|
176,015 |
|
|
|
178,177 |
|
Commercial and industrial loans |
|
|
26,626 |
|
|
|
23,159 |
|
|
|
|
|
|
|
|
Total loans |
|
|
7,227,115 |
|
|
|
6,652,127 |
|
|
|
|
|
|
|
|
Premiums on purchased loans |
|
|
25,609 |
|
|
|
22,958 |
|
Deferred loan fees, net |
|
|
(6,178 |
) |
|
|
(4,574 |
) |
Allowance for loan losses |
|
|
(72,324 |
) |
|
|
(55,052 |
) |
|
|
|
|
|
|
|
Net loans |
|
$ |
7,174,222 |
|
|
|
6,615,459 |
|
|
|
|
|
|
|
|
An analysis of the allowance for loan losses is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Balance at beginning of period |
|
$ |
62,943 |
|
|
|
34,540 |
|
|
|
55,052 |
|
|
|
26,548 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction loans |
|
|
(3,629 |
) |
|
|
|
|
|
|
(6,879 |
) |
|
|
|
|
Residential mortgage loans |
|
|
(2,358 |
) |
|
|
|
|
|
|
(3,804 |
) |
|
|
|
|
Multi-family loans |
|
|
|
|
|
|
|
|
|
|
(454 |
) |
|
|
|
|
Consumer and other loans |
|
|
(10 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
(8 |
) |
Commercial and industrial loans |
|
|
(166 |
) |
|
|
|
|
|
|
(166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan charge-offs |
|
|
(6,163 |
) |
|
|
|
|
|
|
(11,322 |
) |
|
|
(8 |
) |
Recoveries |
|
|
94 |
|
|
|
|
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
(6,069 |
) |
|
|
|
|
|
|
(11,228 |
) |
|
|
(8 |
) |
Provision for loan losses |
|
|
15,450 |
|
|
|
8,025 |
|
|
|
28,500 |
|
|
|
16,025 |
|
Allowance acquired in acquisition |
|
|
|
|
|
|
4,043 |
|
|
|
|
|
|
|
4,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
72,324 |
|
|
|
46,608 |
|
|
|
72,324 |
|
|
|
46,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
6. Deposits
Deposits are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Savings acounts |
|
$ |
910,099 |
|
|
|
877,421 |
|
Checking accounts |
|
|
1,157,872 |
|
|
|
927,675 |
|
Money market accounts |
|
|
730,357 |
|
|
|
742,618 |
|
|
|
|
|
|
|
|
Total core deposits |
|
|
2,798,328 |
|
|
|
2,547,714 |
|
Certificates of deposit |
|
|
3,258,023 |
|
|
|
3,292,929 |
|
|
|
|
|
|
|
|
|
|
$ |
6,056,351 |
|
|
|
5,840,643 |
|
|
|
|
|
|
|
|
7. Equity Incentive Plan
During the six months ended June 30, 2010, the Company recorded $4.8 million of share-based
expense, comprised of stock option expense of $1.9 million and restricted stock expense of $2.9
million.
During the six months ended June 30, 2010, no options were forfeited and 5,000 options with a
weighted average grant date fair value of $4.40 were granted. At June 30, 2010, 5,151,752 options,
with a weighted average exercise price of $15.00 and a weighted average grant date fair value of
$4.09 were outstanding, of which 2,001,193 were unvested. Expected future expense relating to the
unvested options outstanding as of June 30, 2010 is $5.5 million over a weighted average period of
1.8 years.
During the six months ended June 30, 2010, 495,000 shares of restricted stock with a weighted
average grant date fair value of $12.67 were granted. At June 30, 2010, 1,234,880 shares of
restricted stock, with a weighted average grant date fair value of $14.19, are unvested. Expected
future compensation expense relating to the unvested restricted shares at June 30, 2010 is $13.2
million over a weighted average period of 3.8 years.
8. Net Periodic Benefit Plans Expense
The Company has a Supplemental Employee Retirement Plan (SERP). The SERP is a nonqualified, defined
benefit plan which provides benefits to employees of the Company if their benefits and/or
contributions under the pension plan are limited by the Internal Revenue Code. For the Companys
active directors as of December 31, 2006, the Company has a non-qualified, defined benefit plan
which provides pension benefits. The SERP and the Directors plan are unfunded and the costs of
the plans are recognized over the period that services are provided.
15
The components of net periodic benefit expense for the SERP and Directors Plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Service cost |
|
$ |
179 |
|
|
|
136 |
|
|
|
360 |
|
|
|
272 |
|
Interest cost |
|
|
221 |
|
|
|
263 |
|
|
|
440 |
|
|
|
526 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
25 |
|
|
|
24 |
|
|
|
49 |
|
|
|
49 |
|
Net loss |
|
|
14 |
|
|
|
35 |
|
|
|
27 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic
benefit expense |
|
$ |
439 |
|
|
|
458 |
|
|
|
876 |
|
|
|
916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the unfunded nature of these plans, no contributions are expected to be made to the
SERP and Directors plans during the year ending December 31, 2010.
The Company also 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. We did not
contribute to the defined benefit pension plan during the six months ended June 30, 2010. We
anticipate contributing funds to the plan to meet any minimum funding requirements.
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 June 30, 2010 and December 31, 2009, the pension plan had an accrued
liability of $894,000 and $990,000, respectively. At June 30, 2010 and December 31, 2009, the
charges recognized in accumulated other comprehensive loss for the pension plan were $1.2 million.
At June 30, 2010 and December 31, 2009, the SERP plan had an accrued liability of $904,000 and
$911,000, respectively. At June 30, 2010 and December 31, 2009, the charges recognized in
accumulated other comprehensive loss for the SERP plan were $88,000 and $98,000, respectively. For
the six-month periods ended June 30, 2010 and 2009, the expense related to these plans was $148,000
and $152,000, respectively.
9. 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,
mortgage servicing rights, or MSR, loans receivable and real estate owned, or 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) Accounting Standards Codification
(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:
16
|
|
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. |
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 June 30, 2010.
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at June 30, 2010 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
481,262 |
|
|
|
|
|
|
|
481,262 |
|
|
|
|
|
Equity securities |
|
|
2,486 |
|
|
|
|
|
|
|
2,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
483,748 |
|
|
|
|
|
|
|
483,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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
18
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 June 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
|
(In thousands) |
|
Impaired loans |
|
$ |
39,969 |
|
|
|
|
|
|
|
|
|
|
|
39,969 |
|
Other real estate owned |
|
|
751 |
|
|
|
|
|
|
|
|
|
|
|
751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
40,720 |
|
|
|
|
|
|
|
|
|
|
|
40,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Fair Value of Financial Instruments
Fair value estimates, methods and assumptions for the Companys financial instruments are set forth
below.
Cash and Cash Equivalents
For cash and due from banks, the carrying amount approximates fair value.
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.
19
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. Fair values estimated in this manner do not fully incorporate an exit price
approach to fair value, but instead are based on a comparison to current market rates for
comparable loans.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
December 31, 2009 |
|
|
Carrying |
|
|
|
|
|
Carrying |
|
|
|
|
amount |
|
Fair value |
|
amount |
|
Fair value |
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
100,008 |
|
|
|
100,008 |
|
|
|
73,606 |
|
|
|
73,606 |
|
Securities available-for-sale |
|
|
483,748 |
|
|
|
483,748 |
|
|
|
471,243 |
|
|
|
471,243 |
|
Securities held-to-maturity |
|
|
604,642 |
|
|
|
647,148 |
|
|
|
717,441 |
|
|
|
753,405 |
|
Stock in FHLB |
|
|
79,469 |
|
|
|
79,469 |
|
|
|
66,202 |
|
|
|
66,202 |
|
Loans |
|
|
7,207,200 |
|
|
|
7,471,056 |
|
|
|
6,642,502 |
|
|
|
6,821,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
6,056,351 |
|
|
|
6,106,264 |
|
|
|
5,840,643 |
|
|
|
5,881,083 |
|
Borrowed funds |
|
|
1,825,528 |
|
|
|
1,904,446 |
|
|
|
1,600,542 |
|
|
|
1,666,513 |
|
20
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.
11. Recent Accounting Pronouncements
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
adoption of ASC 860 did not have a material impact on the Companys financial condition, results of
operations or financial statement disclosures.
In January 2010, the FASB issued Accounting Standards Update (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 is 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 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
21
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 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 Company does not expect that the adoption of this pronouncement will have
a material impact on the Companys financial condition, results of operations or financial
statement disclosures.
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. The Company does not expect that the adoption of this
pronouncement will have a material impact on the Companys financial condition or results of
operations.
12. Subsequent Events
As defined in FASB ASC 855-10, Subsequent Events, subsequent events are events or transactions
that occur after the balance sheet date but before financial statements are issued or available to
be issued. Financial statements are considered issued when they are widely distributed to
shareholders and other financial statement users for general use and reliance in a form and format
that compiles with GAAP. The Company has evaluated subsequent events through August 6, 2010, which
is the date that the Companys financial statements are being issued.
Based on the evaluation, the Company did not identify any recognized subsequent events that would
have required an adjustment to the financial statements.
22
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Forward Looking Statements
Certain statements contained herein are not based on historical facts and are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to
a future period or periods or by the use of forward-looking terminology, such as may, will,
believe, expect, estimate, anticipate, continue, or similar terms or variations on those
terms, or the negative of those terms. Forward-looking statements are subject to numerous risks
and uncertainties, including, but not limited to, those related to the economic environment,
particularly in the market areas in which Investors Bancorp, Inc. (the Company) operates,
competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in
government regulations or interpretations of regulations affecting financial institutions, changes
in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk
management, asset-liability management, the financial and securities markets and the availability
of and costs associated with sources of liquidity.
The Company wishes to caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The Company wishes to advise that the factors
listed above could affect the Companys financial performance and could cause the Companys actual
results for future periods to differ materially from any opinions or statements expressed with
respect to future periods in any current statements. The Company does not undertake and
specifically declines any obligation to publicly release the result of any revisions, which may be
made to any forward-looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events except as may be
required by law.
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
23
cover
specifically identifiable losses, as well as estimated losses inherent in our portfolio for which
certain losses are probable but not specifically identifiable.
Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. The
analysis of the allowance for loan losses has two components: specific and general allocations.
Specific allocations are made for loans determined to be impaired. A loan is deemed to be impaired
if it is a commercial real estate, multi-family or construction loan with an outstanding balance
greater than $3.0 million and on non-accrual status 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. 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.
24
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 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 the loans are
individually assessed to determine that the loans carrying value is not in excess of the fair
value of the collateral.
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 and surrounding states. 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
25
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. 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. 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, 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.
26
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.
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 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 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.
27
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 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.
Executive Summary
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 results of operations are also significantly affected by
general economic conditions.
While the U.S. economy is showing sign of stabilization, the financial services industry continues
to be negatively impacted by adverse economic conditions which include mounting credit losses,
depressed property values in real estate markets, and additional bank failures.
The Federal Reserve has maintained short term interest rates at historically low levels resulting
in a steep yield curve. Lower short term interest rates have helped us reduce the cost of our
interest-bearing liabilities contributing to a $42.6 million increase in our net interest income to
$127.1 million for the six months ended June 30, 2010 from $84.5 million for the six months ended
June 30, 2009.
While the interest rate environment is important to our net interest income, so is the composition
of our balance sheet. Despite the difficult operating environment, our financial strength has
allowed us to take advantages of opportunities to add more loans and increase the size of our
balance sheet. Net loans increased to $7.17 billion at June 30, 2010 from $6.62 billion at
28
December
31, 2009, an increase of 8.4%. Diversification of the loan portfolio, which remains an important
goal, may provide us with an opportunity to increase net interest income and improve our interest
rate risk position. During the six month period ended June 30, 2010, commercial real estate loans
increased $175.3 million, or 24.0%, to $905.3 million and multi-family loans increased $155.6
million, or 25.4% to $768.3 million. As we add more loans to our balance sheet we remain focused on
maintaining our historically strict underwriting standards. We have never originated any sub-prime
loans, negative amortization loans or option ARM loans.
During the six months ended June 30, 2010, we recorded a $28.5 million provision for loan losses.
We believe higher loan loss provisions are prudent and necessary given the continued growth in our
loan portfolio, the increase in the amount of commercial real estate loans and the current economic
environment. It is difficult to determine how the economy will fare as we expect to experience
higher levels of unemployment in our lending area through the remainder of 2010. We will continue
to monitor our loan portfolio carefully and maintain our conservative loan underwriting practices.
Total non-performing loans, defined as non-accruing loans, increased to $135.9 million, or 1.88% of
total loans at June 30, 2010, compared to $120.2 million, or 1.81% of total loans at December 31,
2009. For the six months ended June 30, 2010, the Company recorded $11.3 million in charge-offs.
Although we have resolved a number of non-performing loans, the current economic environment
continues to negatively impact several large construction loan borrowers. Additionally, residential
loan delinquency has risen as unemployment in our lending area has increased over the past year.
The current economic conditions have also had a negative impact on certain of our investment
securities. Our securities portfolio includes non-agency mortgage backed securities with an
amortized cost of $117.3 million and a fair value of $116.3 million. The fair values of certain of
these securities are being adversely impacted by higher loan delinquency rates, rising projected
loss rates, and the securities re-pricing to lower interest rates. Our securities portfolio also
includes pooled trust preferred securities, principally issued by banks and to a lesser extent
insurance companies. These securities, which were written down through an other-than-temporary
impairment charge in December 2008, continue to be negatively impacted by payment deferrals by
issuers and the absence of an orderly and liquid market. The trust preferred securities portfolio
has a book value of $22.5 million and a fair value of $41.3 million. We continue to closely monitor
all of these securities and will continue to evaluate them for possible other-than-temporary
impairment, which could result in future non-cash charges to earnings in upcoming quarters.
During the six month period ended June 30, 2010, core deposits increased $250.6 million, or 9.8%,
while total deposits increased by $215.7 million to $6.06 billion at June 30, 2010. Increasing core
deposits remains one of our primary goals.
We are a well capitalized bank with a tangible capital ratio of 9.71%. Given our strong capital and
liquidity positions, we believe we will be able to take advantage of opportunities to grow and
enhance our franchise value.
Comparison of Financial Condition at June 30, 2010 and December 31, 2009
Total Assets. Total assets increased by $508.3 million, or 6.1%, to $8.87 billion at June 30, 2010
from $8.36 billion at December 31, 2009. This increase was largely the result of a $564.7
29
million
increase in our net loans, including loans held for sale, to $7.21 billion at June 30, 2010 from
$6.64 billion at December 31, 2009, as well as a $26.4 million increase in cash and cash
equivalents to $100.0 million at June 30, 2010 from $73.6 million at December 31, 2009. This was
partially offset by a $100.3 million, or 8.4%, decrease in securities to $1.09 billion at June 30,
2010 from $1.19 billion at December 31, 2009
Net Loans. Net loans, including loans held for sale, increased by $564.7 million, or 8.5%, to $7.21
billion at June 30, 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 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 six month period ended June 30, 2010 ISB Mortgage Co. originated $609.7 million in residential
mortgage loans of which $247.4 million were sold to third party investors and $362.3 million
remained in our portfolio. In addition, we purchase mortgage loans from correspondent entities
including other banks and mortgage bankers. Our agreements with these correspondent entities
require them to originate loans that adhere to our underwriting standards. During the six month
period ended June 30, 2010, we purchased loans totaling $399.1 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 six month period ended June 30, 2010, we purchased $14.8 million of residential mortgage
loans on a bulk purchase basis.
Additionally, for the six month period ended June 30, 2010, we originated $185.4 million in
commercial real estate loans, $142.1 million in multi-family loans, $115.0 million in construction
loans, $35.3 million in consumer and other loans, and $7.5 million in commercial and industrial
loans. This activity is consistent with our strategy to diversify our loan portfolio by adding more
multi-family and commercial real estate 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 loan repayment when the
contractually required repayments increase due to the required amortization of the principal
amount. These payment increases could affect the borrowers ability to repay the loan. The amount
of interest-only one- to four-family mortgage loans at June 30, 2010 was $548.4 million compared to
$560.7 million at December 31, 2009. The ability of borrowers to repay 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 maintains stricter underwriting criteria for these interest-only loans than it does for
its amortizing loans. The Company believes these criteria adequately minimize the potential
exposure to such risks and that adequate provisions for loan losses are provided for all known and
inherent risks.
30
The following table sets forth non-performing assets and accruing past due loans on the dates
indicated in conjunction with our quality ratios:
|
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June 30, |
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March 31, |
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December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
|
# of |
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|
|
|
|
# of |
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|
|
|
|
|
# of |
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|
|
|
|
|
# of |
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|
|
|
|
# of |
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|
|
|
|
|
loans |
|
|
Amount |
|
|
loans |
|
|
Amount |
|
|
loans |
|
|
Amount |
|
|
loans |
|
|
Amount |
|
|
loans |
|
|
Amount |
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|
|
|
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(Dollars in millions) |
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|
|
|
|
|
|
|
|
|
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|
Accruing past due loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 days past due: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential and consumer |
|
|
65 |
|
|
$ |
19.0 |
|
|
|
84 |
|
|
$ |
18.2 |
|
|
|
69 |
|
|
$ |
15.9 |
|
|
|
80 |
|
|
$ |
22.5 |
|
|
|
77 |
|
|
$ |
16.0 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1.9 |
|
|
|
3 |
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
2.9 |
|
Multi-family |
|
|
3 |
|
|
|
11.7 |
|
|
|
2 |
|
|
|
3.9 |
|
|
|
1 |
|
|
|
0.4 |
|
|
|
3 |
|
|
|
3.6 |
|
|
|
1 |
|
|
|
2.6 |
|
Commercial |
|
|
2 |
|
|
|
0.8 |
|
|
|
4 |
|
|
|
4.5 |
|
|
|
5 |
|
|
|
3.4 |
|
|
|
2 |
|
|
|
2.4 |
|
|
|
7 |
|
|
|
8.4 |
|
Commercial and industrial |
|
|
3 |
|
|
|
0.6 |
|
|
|
4 |
|
|
|
0.9 |
|
|
|
6 |
|
|
|
1.2 |
|
|
|
2 |
|
|
|
0.2 |
|
|
|
2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total 30 to 59 days past due |
|
|
73 |
|
|
|
32.1 |
|
|
|
95 |
|
|
|
29.4 |
|
|
|
84 |
|
|
|
29.1 |
|
|
|
87 |
|
|
|
28.7 |
|
|
|
88 |
|
|
|
30.1 |
|
60 to 89 days past due: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential and consumer |
|
|
40 |
|
|
|
8.0 |
|
|
|
39 |
|
|
|
10.0 |
|
|
|
63 |
|
|
|
13.8 |
|
|
|
56 |
|
|
|
15.4 |
|
|
|
45 |
|
|
|
9.5 |
|
Construction |
|
|
1 |
|
|
|
2.4 |
|
|
|
6 |
|
|
|
23.6 |
|
|
|
2 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1.0 |
|
Multi-family |
|
|
3 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
0.2 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
3.0 |
|
|
|
3 |
|
|
|
0.8 |
|
Commercial and industrial |
|
|
3 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
0.7 |
|
|
|
1 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 60 to 89 days past due |
|
|
47 |
|
|
|
11.7 |
|
|
|
46 |
|
|
|
34.2 |
|
|
|
68 |
|
|
|
22.1 |
|
|
|
58 |
|
|
|
18.6 |
|
|
|
50 |
|
|
|
11.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing past due loans |
|
|
120 |
|
|
$ |
43.8 |
|
|
|
141 |
|
|
$ |
63.6 |
|
|
|
152 |
|
|
$ |
51.2 |
|
|
|
145 |
|
|
$ |
47.3 |
|
|
|
138 |
|
|
$ |
41.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing (non-accruing): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential and consumer |
|
|
210 |
|
|
$ |
60.4 |
|
|
|
199 |
|
|
$ |
57.1 |
|
|
|
185 |
|
|
$ |
51.2 |
|
|
|
164 |
|
|
$ |
41.0 |
|
|
|
112 |
|
|
$ |
30.0 |
|
Construction |
|
|
21 |
|
|
|
67.6 |
|
|
|
22 |
|
|
|
61.6 |
|
|
|
22 |
|
|
|
65.0 |
|
|
|
22 |
|
|
|
70.5 |
|
|
|
19 |
|
|
|
68.8 |
|
Multi-family |
|
|
3 |
|
|
|
2.7 |
|
|
|
2 |
|
|
|
2.5 |
|
|
|
4 |
|
|
|
0.6 |
|
|
|
4 |
|
|
|
0.6 |
|
|
|
4 |
|
|
|
20.1 |
|
Commercial |
|
|
8 |
|
|
|
4.6 |
|
|
|
9 |
|
|
|
3.5 |
|
|
|
10 |
|
|
|
3.4 |
|
|
|
9 |
|
|
|
3.4 |
|
|
|
8 |
|
|
|
2.8 |
|
Commercial and industrial |
|
|
2 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing Loans |
|
|
244 |
|
|
$ |
135.9 |
|
|
|
232 |
|
|
$ |
124.7 |
|
|
|
221 |
|
|
$ |
120.2 |
|
|
|
199 |
|
|
$ |
115.5 |
|
|
|
143 |
|
|
$ |
121.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans |
|
|
|
|
|
|
1.88 |
% |
|
|
|
|
|
|
1.82 |
% |
|
|
|
|
|
|
1.81 |
% |
|
|
|
|
|
|
1.82 |
% |
|
|
|
|
|
|
1.97 |
% |
Allowance for loan loss as a
percent of non-performing
loans |
|
|
|
|
|
|
53.23 |
% |
|
|
|
|
|
|
50.47 |
% |
|
|
|
|
|
|
45.80 |
% |
|
|
|
|
|
|
46.35 |
% |
|
|
|
|
|
|
38.30 |
% |
Allowance for loan losses as a
percent of total loans |
|
|
|
|
|
|
1.00 |
% |
|
|
|
|
|
|
0.92 |
% |
|
|
|
|
|
|
0.83 |
% |
|
|
|
|
|
|
0.84 |
% |
|
|
|
|
|
|
0.76 |
% |
Total non-performing loans, defined as non-accruing loans, increased by $15.7 million to
$135.9 million at June 30, 2010 from $120.2 million at December 31, 2009. Although we have had
resolution on a number of non-performing loans, the current economic environment continues to cause
financial difficulties for several large construction loans. Additionally, residential loan
delinquency has risen as unemployment in our lending area has steadily increased.
At June 30, 2010 loans meeting the Companys definition of an impaired loan were primarily
collateral-dependent and totaled $52.2 million of which $46.8 million of impaired loans had a
related allowance for credit losses of $12.3 million and $5.4 million of impaired loans had no
related allowance for credit losses. At December 31, 2009, loans meeting the Companys definition
of an impaired loan were primarily collateral dependent and totaled $48.4 million, of which $35.7
million of impaired loans had a related allowance for credit losses of $8.9 million and $12.7
million of impaired loans had no related allowance for credit losses.
31
At June 30, 2010 there are 6 residential loans totaling $1.7 million which are deemed troubled debt
restructurings. These loans are performing under the restructured terms and are accruing interest.
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 June 30, 2010, there are 3 loans totaling $19.1 million that
the Company has deemed as potential problem loans. Management is actively monitoring these loans.
The ratio of non-performing loans to total loans was 1.88% at June 30, 2010 compared to 1.81% at
December 31, 2009. The allowance for loan losses as a percentage of non-performing loans was 53.23%
at June 30, 2010 compared with 45.80% at December 31, 2009. At June 30, 2010
our allowance for loan losses as a percentage of total loans was 1.00% compared with 0.83% at
December 31, 2009.
The following table sets forth the allowance for loan losses at June 30, 2010 and December 31, 2009
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Percent of Loans in |
|
|
|
|
|
|
Percent of Loans in |
|
|
|
Allowance for |
|
|
Each Category to |
|
|
Allowance for |
|
|
Each Category to |
|
|
|
Loan Losses |
Total Loans |
|
|
Loan Losses |
Total Loans |
|
|
|
(Dollars in thousands) |
|
End of period allocated to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans |
|
$ |
16,984 |
|
|
|
70.39 |
% |
|
$ |
13,741 |
|
|
|
71.76 |
% |
Multi-family |
|
|
7,648 |
|
|
|
10.44 |
% |
|
|
3,227 |
|
|
|
9.21 |
% |
Commercial |
|
|
12,976 |
|
|
|
12.74 |
% |
|
|
10,208 |
|
|
|
10.97 |
% |
Construction loans |
|
|
31,684 |
|
|
|
3.56 |
% |
|
|
25,194 |
|
|
|
5.03 |
% |
Commercial and industrial |
|
|
708 |
|
|
|
0.35 |
% |
|
|
558 |
|
|
|
0.35 |
% |
Consumer and other loans |
|
|
443 |
|
|
|
2.52 |
% |
|
|
510 |
|
|
|
2.68 |
% |
Unallocated |
|
|
1,881 |
|
|
|
|
|
|
|
1,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance |
|
$ |
72,324 |
|
|
|
100.00 |
% |
|
$ |
55,052 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance for loan losses increased by $17.3 million to $72.3 million at June 30, 2010
from $55.1 million at December 31, 2009. The increase in the allowance was primarily attributable
to the higher current year loan loss provision which reflects the overall growth in the loan
portfolio, particularly residential and commercial real estate loans; the increased inherent credit
risk in our overall portfolio, particularly the credit risk associated with commercial real estate
lending; the increase in non-performing loans; and the continued adverse economic environment,
offset partially by net charge offs of $11.2 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 these construction loan charge-offs were caused by a variety of economic factors
32
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 our local area, and unemployment in
our lending area has increased steadily over the past year.
The Company believes these factors were the triggering events that led to the significant credit
deterioration in the loan portfolio in general and the construction loan portfolio in particular.
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.
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 possible continuation of the current adverse economic
environment. Although we use the best information available, the level of allowance for loan losses
remains an estimate that is subject to significant judgment and short-term change. See Critical
Accounting Policies.
Securities. Securities, in the aggregate, decreased by $100.3 million, or 8.4%, to $1.09 billion
at June 30, 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 $104.6 million of agency
issued mortgage backed securities during the six months ended June 30, 2010.
Stock in the Federal Home Loan Bank, Other Assets. The amount of stock we own in the Federal Home
Loan Bank (FHLB) increased by $13.3 million from $66.2 million at December 31, 2009 to $79.5
million at June 30, 2010 as a result of an increase in our level of borrowings at June 30, 2010.
Other assets decreased $5.9 million as prepaid FDIC insurance premiums amortized.
Deposits. Deposits increased by $215.7 million, or 3.7%, to $6.06 billion at June 30, 2010 from
$5.84 billion at December 31, 2009. Core deposits increased by $250.6 million, or 9.84% and
certificate of deposits decreased $34.9 million, or 1.1%. Our deposit gathering efforts continue to
be successful in our markets.
Borrowed Funds. Borrowed funds increased $225.0 million, or 14.1%, to $1.83 billion at June 30,
2010 from $1.60 billion at December 31, 2009.
Stockholders Equity. Stockholders equity increased $39.5 million to $889.7 million at June 30,
2010 from $850.2 million at December 31, 2009. The increase is primarily attributed to the $28.6
million net income for the six month period.
33
Average Balance Sheets for the Three Months ended June 30, 2010 and 2009
The following table presents certain information regarding Investors Bancorp, Inc.s financial
condition and net interest income for the three months ended June 30, 2010 and 2009. The table
presents the annualized average yield on interest-earning assets and the annualized average cost of
interest-bearing liabilities. We derived the yields and costs by dividing annualized income or
expense by the average balance of interest-earning assets and interest-bearing liabilities,
respectively, for the periods shown. We derived average balances from daily balances over the
periods indicated. Interest income includes fees that we consider adjustments to yields.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Three Months Ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Interest |
|
|
Average |
|
|
Outstanding |
|
|
Interest |
|
|
Average |
|
|
|
Balance |
|
|
Earned/Paid |
|
|
Yield/Rate |
|
|
Balance |
|
|
Earned/Paid |
|
|
Yield/Rate |
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning cash accounts |
|
$ |
226,886 |
|
|
$ |
117 |
|
|
|
0.21 |
% |
|
$ |
390,098 |
|
|
$ |
235 |
|
|
|
0.24 |
% |
Securities available-for-sale (1) |
|
|
494,983 |
|
|
|
3,335 |
|
|
|
2.70 |
% |
|
|
218,827 |
|
|
|
2,394 |
|
|
|
4.38 |
% |
Securities held-to-maturity |
|
|
633,184 |
|
|
|
7,341 |
|
|
|
4.64 |
% |
|
|
929,379 |
|
|
|
10,541 |
|
|
|
4.54 |
% |
Net loans (2) |
|
|
6,964,352 |
|
|
|
94,300 |
|
|
|
5.42 |
% |
|
|
5,816,205 |
|
|
|
79,184 |
|
|
|
5.45 |
% |
Stock in FHLB |
|
|
76,641 |
|
|
|
778 |
|
|
|
4.06 |
% |
|
|
71,794 |
|
|
|
1,010 |
|
|
|
5.63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
8,396,046 |
|
|
|
105,871 |
|
|
|
5.04 |
% |
|
|
7,426,303 |
|
|
|
93,364 |
|
|
|
5.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest earning assets |
|
|
389,090 |
|
|
|
|
|
|
|
|
|
|
|
283,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,785,136 |
|
|
|
|
|
|
|
|
|
|
$ |
7,709,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
898,903 |
|
|
$ |
3,449 |
|
|
|
1.53 |
% |
|
$ |
683,232 |
|
|
|
3,676 |
|
|
|
2.15 |
% |
Interest-bearing checking |
|
|
971,812 |
|
|
|
1,738 |
|
|
|
0.72 |
% |
|
|
804,485 |
|
|
|
4,744 |
|
|
|
2.36 |
% |
Money market accounts |
|
|
688,181 |
|
|
|
1,646 |
|
|
|
0.96 |
% |
|
|
417,344 |
|
|
|
1,884 |
|
|
|
1.81 |
% |
Certificates of deposit |
|
|
3,293,195 |
|
|
|
16,073 |
|
|
|
1.95 |
% |
|
|
3,104,165 |
|
|
|
22,221 |
|
|
|
2.86 |
% |
Borrowed funds |
|
|
1,794,212 |
|
|
|
17,818 |
|
|
|
3.97 |
% |
|
|
1,752,551 |
|
|
|
17,509 |
|
|
|
4.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
7,646,303 |
|
|
|
40,724 |
|
|
|
2.13 |
% |
|
|
6,761,777 |
|
|
|
50,034 |
|
|
|
2.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities |
|
|
254,340 |
|
|
|
|
|
|
|
|
|
|
|
162,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
7,900,643 |
|
|
|
|
|
|
|
|
|
|
|
6,923,955 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
884,493 |
|
|
|
|
|
|
|
|
|
|
|
785,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
8,785,136 |
|
|
|
|
|
|
|
|
|
|
$ |
7,709,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
65,147 |
|
|
|
|
|
|
|
|
|
|
$ |
43,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread (3) |
|
|
|
|
|
|
|
|
|
|
2.91 |
% |
|
|
|
|
|
|
|
|
|
|
2.07 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest earning assets (4) |
|
$ |
749,743 |
|
|
|
|
|
|
|
|
|
|
$ |
664,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (5) |
|
|
|
|
|
|
|
|
|
|
3.10 |
% |
|
|
|
|
|
|
|
|
|
|
2.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 loans include loans held-for-sale and non-performing loans. |
|
(3) |
|
Net interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing liabilities. |
|
(4) |
|
Net interest-earning assets represent total interest-earning assets less total
interest-bearing liabilities. |
|
(5) |
|
Net interest margin represents net interest income divided by average total interest-earning
assets. |
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Six Months Ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Interest |
|
|
Average |
|
|
Outstanding |
|
|
Interest |
|
|
Average |
|
|
|
Balance |
|
|
Earned/Paid |
|
|
Yield/Rate |
|
|
Balance |
|
|
Earned/Paid |
|
|
Yield/Rate |
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning cash accounts |
|
$ |
193,227 |
|
|
$ |
190 |
|
|
|
0.20 |
% |
|
$ |
298,101 |
|
|
$ |
354 |
|
|
|
0.24 |
% |
Securities available-for-sale (1) |
|
|
479,911 |
|
|
|
6,538 |
|
|
|
2.72 |
% |
|
|
199,172 |
|
|
|
4,477 |
|
|
|
4.50 |
% |
Securities held-to-maturity |
|
|
661,681 |
|
|
|
15,177 |
|
|
|
4.59 |
% |
|
|
945,075 |
|
|
|
23,695 |
|
|
|
5.01 |
% |
Net loans (2) |
|
|
6,840,581 |
|
|
|
185,328 |
|
|
|
5.42 |
% |
|
|
5,724,530 |
|
|
|
155,907 |
|
|
|
5.45 |
% |
Stock in FHLB |
|
|
75,454 |
|
|
|
1,706 |
|
|
|
4.52 |
% |
|
|
72,425 |
|
|
|
1,680 |
|
|
|
4.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
8,250,854 |
|
|
|
208,939 |
|
|
|
5.06 |
% |
|
|
7,239,303 |
|
|
|
186,113 |
|
|
|
5.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest earning assets |
|
|
388,036 |
|
|
|
|
|
|
|
|
|
|
|
271,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,638,890 |
|
|
|
|
|
|
|
|
|
|
$ |
7,510,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
887,881 |
|
|
$ |
6,878 |
|
|
|
1.55 |
% |
|
$ |
619,629 |
|
|
$ |
6,918 |
|
|
|
2.23 |
% |
Interest-bearing checking |
|
|
851,176 |
|
|
|
3,410 |
|
|
|
0.80 |
% |
|
|
758,038 |
|
|
|
8,826 |
|
|
|
2.33 |
% |
Money market accounts |
|
|
695,441 |
|
|
|
3,608 |
|
|
|
1.04 |
% |
|
|
356,474 |
|
|
|
3,442 |
|
|
|
1.93 |
% |
Certificates of deposit |
|
|
3,301,197 |
|
|
|
32,770 |
|
|
|
1.99 |
% |
|
|
3,064,851 |
|
|
|
47,239 |
|
|
|
3.08 |
% |
Borrowed funds |
|
|
1,787,771 |
|
|
|
35,196 |
|
|
|
3.94 |
% |
|
|
1,794,508 |
|
|
|
35,200 |
|
|
|
3.92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
7,523,466 |
|
|
|
81,862 |
|
|
|
2.18 |
% |
|
|
6,593,500 |
|
|
|
101,625 |
|
|
|
3.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities |
|
|
240,547 |
|
|
|
|
|
|
|
|
|
|
|
148,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
7,764,013 |
|
|
|
|
|
|
|
|
|
|
|
6,741,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
874,877 |
|
|
|
|
|
|
|
|
|
|
|
768,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
8,638,890 |
|
|
|
|
|
|
|
|
|
|
$ |
7,510,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
127,077 |
|
|
|
|
|
|
|
|
|
|
$ |
84,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread (3) |
|
|
|
|
|
|
|
|
|
|
2.88 |
% |
|
|
|
|
|
|
|
|
|
|
2.06 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest earning assets (4) |
|
$ |
727,388 |
|
|
|
|
|
|
|
|
|
|
$ |
645,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (5) |
|
|
|
|
|
|
|
|
|
|
3.08 |
% |
|
|
|
|
|
|
|
|
|
|
2.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 loans include loans held-for-sale and non-performing loans. |
|
(3) |
|
Net interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing liabilities. |
|
(4) |
|
Net interest-earning assets represent total interest-earning assets less total
interest-bearing liabilities. |
|
(5) |
|
Net interest margin represents net interest income divided by average total interest-earning
assets. |
35
Comparison of Operating Results for the Three Months Ended June 30, 2010 and 2009
Net Income. Net income was $15.3 million for the three months ended June 30, 2010 compared to net
income of $5.5 million for the three months ended June 30, 2009.
Net Interest Income. Net interest income increased by $21.8 million, or 50.4%, to $65.1 million for
the three months ended June 30, 2010 from $43.3 million for the three months ended June 30, 2009.
The increase was primarily due to an 83 basis point decrease in our cost of interest-bearing
liabilities to 2.13% for the three months ended June 30, 2010 from 2.96% for the three months ended
June 30, 2009. In addition, our yield on interest-earning assets increased by 1 basis point to
5.04% for the three months ended June 30, 2010 from 5.03% for the three months ended June 30, 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 77
basis points from 2.33% for the three months ended June 30, 2009 to 3.10% for the three months
ended June 30, 2010.
Interest and Dividend Income. Total interest and dividend income increased by $12.5 million, or
13.4%, to $105.9 million for the three months ended June 30, 2010 from $93.4 million for the three
months ended June 30, 2009. This increase is attributed to the average balance of interest-earning
assets increasing $969.7 million, or 13.1%, to $8.40 billion for the three months ended June 30,
2010 from $7.43 billion for the three months ended June 30, 2009. In addition, the weighted
average yield on interest-earning assets increased 1 basis point to 5.04% for the three months
ended June 30, 2010 compared to 5.03% for the three months ended June 30, 2009.
Interest income on loans increased by $15.1 million, or 19.1%, to $94.3 million for the three
months ended June 30, 2010 from $79.2 million for the three months ended June 30, 2009, reflecting
a $1.15 billion, or 19.7%, increase in the average balance of net loans to $6.96 billion for the
three months ended June 30, 2010 from $5.82 billion for the three months ended June 30, 2009. The
increase is primarily attributed to the average balance of commercial real estate loans and
multi-family loans increasing $546.7 million and $335.5 million, respectively. This activity is
consistent with our strategy to diversify our loan portfolio by adding more multi-family and
commercial real estate loans. This was partially offset by a 3 basis point decrease in the average
yield on loans to 5.42% for the three months ended June 30, 2010 from 5.45% for the three months
ended June 30, 2009.
Interest income on all other interest-earning assets, excluding loans, decreased by $2.6 million,
or 18.4%, to $11.6 million for the three months ended June 30, 2010 from $14.2 million for the
three months ended June 30, 2009. This decrease reflected a 29 basis point decrease in the average
yield on all other interest-earning assets, excluding loans, to 3.23% for the three months ended
June 30, 2010 from 3.52% for the three months ended June 30, 2009. The decrease in yield is
primarily attributed to the repricing of our adjustable rate securities and the purchase of
additional securities at lower yields.
Interest Expense. Total interest expense decreased by $9.3 million, or 18.6%, to $40.7 million for
the three months ended June 30, 2010 from $50.0 million for the three months ended June 30, 2009.
This decrease is attributed to the weighted average cost of total interest-bearing liabilities
decreasing 83 basis points to 2.13% for the three months ended June 30, 2010 compared to 2.96% for
the three months ended June 30, 2009. This was partially offset by the average balance of total
interest-bearing liabilities increasing by $884.5 million, or 13.1%, to $7.65
36
billion for the three
months ended June 30, 2010 from $6.76 billion for the three months ended June 30, 2009.
Interest expense on interest-bearing deposits decreased $9.6 million, or 29.6% to $22.9 million for
the three months ended June 30, 2010 from $32.5 million for the three months ended June 30, 2009.
This decrease is attributed to a 103 basis point decrease in the average cost of interest-bearing
deposits to 1.57% for the three months ended June 30, 2010 from 2.60% for the three months ended
June 30, 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 $842.9
million, or 16.8% to $5.85 billion for the three months ended June 30, 2010 from $5.00 billion for
the three months ended June 30, 2009. Core deposits growth represented 77.6%, or $653.8 million of
the increase in the average balance of total interest-bearing deposits.
Interest expense on borrowed funds increased by $309,000, or 1.8%, to $17.8 million for the three
months ended June 30, 2010 from $17.5 million for the three months ended June 30, 2009. This
increase is attributed to the average balance of borrowed funds increasing by $41.7 million or
2.4%, to $1.79 billion for the three months ended June 30, 2010 from $1.75 billion for the three
months ended June 30, 2009. This was partially offset by the average cost of borrowed funds
decreasing 3 basis points to 3.97% for the three months ended June 30, 2010 from 4.00% for the
three months ended June 30, 2009 due to the lower interest rate environment.
Provision for Loan Losses. The provision for loan losses was $15.5 million for the three
months ended June 30, 2010 compared to $8.0 million for the three months ended June 30, 2009. Net
charge-offs were $6.1 million for the three months ended June 30, 2010 and there were no net
charge-offs for the three months ended June 30, 2009. See discussion of the allowance for loan
losses and non-accrual loans in Comparison of Financial Condition at June 30, 2010 and December
31, 2009.
Non-interest Income. Total non-interest income was $4.1 million for the three months ended June 30,
2010 compared to $2.4 million for the three months ended June 30, 2009. The increase is attributed
to a $794,000 increase in fees and service charges to $1.6 million. This was partially offset by a
$377,000 decrease on gain on loan sales to $1.7 million for the three months ended June 30, 2010,
attributed to less loan origination activity during the current quarter compared to the prior year
quarter, resulting in fewer sales to the secondary market. In addition, the quarter ended June 30,
2009 included 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 $2.6 million, or 9.3%, to $30.8
million for the three months ended June 30, 2010 from $28.2 million for the three months ended June
30, 2009. Compensation and fringe benefits increased $2.7 million as a result of staff additions in
our retail banking areas due to the acquisition of American Bancorp of New Jersey in May 2009 and
the Banco Popular branch acquisition in October 2009, staff additions in our mortgage company and
commercial real estate lending department, particularly our New York lending office, as well as
normal merit increases. Occupancy expense increased $1.3 million as a result of the costs
associated with expanding our branch network. Professional fees increased $565,000 as a result of
outsourcing the valuation of TruPS securities and the internal audit function, as well as, other
projects involving the use of consultants. This was partially offset by a reduction of $2.9
million in FDIC insurance premiums as the quarter ended June 30, 2009 included a $3.6 million
special assessment on insured financial institutions to rebuild the Deposit Insurance Fund.
37
Income Taxes. Income tax expense was $7.8 million for the three months ended June 30, 2010,
representing a 33.76% effective tax rate. For the three months ended June 30, 2009, there was an
income tax expense of $4.1 million representing a 42.72% effective tax rate. The decrease in the
effective tax rate is due to more revenue being generated in states other than New Jersey.
Comparison of Operating Results for the Six Months Ended June 30, 2010 and 2009
Net Income. Net income was $28.6 million for the six months ended June 30, 2010 compared to net
income of $12.6 million for the six months ended June 30, 2009.
Net Interest Income. Net interest income increased by $42.6 million, or 50.4%, to $127.1 million
for the six months ended June 30, 2010 from $84.5 million for the six months ended June 30, 2009.
The increase was primarily due to a 90 basis point decrease in our cost of interest-bearing
liabilities to 2.18% for the six months ended June 30, 2010 from 3.08% for the six months ended
June 30, 2009. This was partially offset by an 8 basis point decrease in our yield on
interest-earning assets to 5.06% for the six months ended June 30, 2010 from 5.14% for the six
months ended June 30, 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 75 basis points from 2.33% for the six months ended June 30, 2009 to 3.08% for
the six months ended June 30, 2010.
Interest and Dividend Income. Total interest and dividend income increased by $22.8 million, or
12.3%, to $208.9 million for the six months ended June 30, 2010 from $186.1 million for the six
months ended June 30, 2009. This increase is attributed to the average balance of interest-earning
assets increasing $1.01 billion, or 14.0%, to $8.25 billion for the six months ended June 30, 2010
from $7.24 billion for the six months ended June 30, 2009. This was partially offset by an 8 basis
point decrease in the weighted average yield on interest-earning assets to 5.06% for the six months
ended June 30, 2010 compared to 5.14% for the six months ended June 30, 2009.
Interest income on loans increased by $29.4 million, or 18.9%, to $185.3 million for the six months
ended June 30, 2010 from $155.9 million for the six months ended June 30, 2009, reflecting a $1.12
billion, or 19.5%, increase in the average balance of net loans to $6.84 billion for the six months
ended June 30, 2010 from $5.72 billion for the six months ended June 30, 2009. The increase is
primarily attributed to the average balance of commercial real estate loans and multi-family loans
increasing by $540.2 million and $357.1 million, respectively. This activity is consistent with our
strategy to diversify our loan portfolio by adding more multi-family and commercial real estate
loans. This was partially offset by a 3 basis point decrease in the average yield on loans to
5.42% for the six months ended June 30, 2010 from 5.45% for the six months ended June 30, 2009.
Interest income on all other interest-earning assets, excluding loans, decreased by $6.6 million,
or 21.8%, to $23.6 million for the six months ended June 30, 2010 from $30.2 million for the six
months ended June 30, 2009. This decrease reflected a 64 basis point decrease in the average yield
on all other interest-earning assets, excluding loans, to 3.35% for the six months ended June 30,
2010 from 3.99% for the six months ended June 30, 2009. The decrease in yield is primarily
attributed to the repricing of our adjustable rate securities and the purchase of additional
securities at lower yields.
38
Interest Expense. Total interest expense decreased by $19.8 million, or 19.5%, to $81.9 million
for the six months ended June 30, 2010 from $101.6 million for the six months ended June 30, 2009.
This decrease is attributed to the weighted average cost of total interest-bearing liabilities
decreasing 90 basis points to 2.18% for the six months ended June 30, 2010 compared to 3.08% for
the six months ended June 30, 2009. This was partially offset by the average balance of total
interest-bearing liabilities increasing by $930.0 million, or 14.1%, to $7.52 billion for the six
months ended June 30, 2010 from $6.59 billion for the six months ended June 30, 2009.
Interest expense on interest-bearing deposits decreased $19.8 million, or 29.7% to $46.7 million
for the six months ended June 30, 2010 from $66.4 million for the six months ended June 30, 2009.
This decrease is attributed to a 114 basis point decrease in the average cost of interest-bearing
deposits to 1.63% for the six months ended June 30, 2010 from 2.77% for the six months ended June
30, 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 $936.7
million, or 19.5% to $5.74 billion for the six months ended June 30, 2010 from $4.80 billion for
the six months ended June 30, 2009. Core deposits growth represented 74.8%, or $700.4 million of
the increase in the average balance of total interest-bearing deposits.
Provision for Loan Losses. The provision for loan losses was $28.5 million for the six
months ended June 30, 2010 compared to $16.0 million for the six months ended June 30, 2009. Net
charge-offs were $11.2 million for the six months ended June 30, 2010 and net charge-offs of eight
thousand for the six months ended June 30, 2009. See discussion of the allowance for loan losses
and non-accrual loans in Comparison of Financial Condition at June 30, 2010 and December 31,
2009.
Non-interest Income. Total non-interest income was $8.1 million for the six months ended June 30,
2010 compared to $5.8 million for the six months ended June 30, 2009. The increase is primarily
attributed to a $1.5 million increase in fees and service charges to $3.2 million. This was
partially offset by a $793,000 decrease on gain on loan sales to $3.5 million for the six months
ended June 30, 2010, attributed to less loan origination activity during the current six months
compared to the prior year six months, resulting in fewer sales to the secondary market. In
addition, the six months ended June 30, 2009 included a $1.3 million pre-tax OTTI non-cash charge
on certain pooled TruPS.
Non-interest Expenses. Total non-interest expenses increased by $8.6 million, or 16.3%, to $61.2
million for the six months ended June 30, 2010 from $52.6 million for the six months ended June 30,
2009. Compensation and fringe benefits increased $4.2 million as a result of staff additions in our
retail banking areas due to the acquisition of American Bancorp of New Jersey in May 2009 and the
Banco Popular branch acquisition in October 2009, staff additions in our mortgage company and
commercial real estate lending department, particularly our New York lending office, as well as
normal merit increases. Occupancy expense increased $2.6 million as a result of the costs
associated with expanding our branch network. Professional fees increased $1.0 million as a result
of outsourcing the valuation of TruPS securities and the internal audit function, as well as, other
projects involving the use of consultants. This was partially offset by a reduction of $1.5
million in FDIC insurance premiums as the six months ended June 30, 2009 included a $3.6 million
special assessment on insured financial institutions to rebuild the Deposit Insurance Fund.
Income Taxes. Income tax expense was $16.9 million for the six months ended June 30, 2010,
representing a 37.10% effective tax rate. For the six months ended June 30, 2009, there was an
39
income tax expense of $9.1 million representing a 42.09% effective tax rate. The decrease in the
effective tax rate is due to more revenue being generated in states other than New Jersey.
Liquidity and Capital Resources
The Companys primary sources of funds are deposits, principal and interest payments on loans and
mortgage-backed securities, proceeds from the sale of loans, Federal Home Loan Bank (FHLB) and
other borrowings and, to a lesser extent, investment maturities. While scheduled amortization of
loans is a predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition. The Company has other
sources of liquidity if a need for additional funds arises, including an overnight line of credit
and other borrowings from the FHLB and other correspondent banks.
At June 30, 2010 and December 31, 2009 the Company had no overnight borrowings outstanding. The
Company utilizes the overnight line from time to time to fund short-term liquidity needs. The
Company had total borrowings of $1.83 billion at June 30, 2010, an increase from $1.60 billion at
December 31, 2009.
In the normal course of business, the Company routinely enters into various commitments, primarily
relating to the origination of loans. At June 30, 2010, outstanding commitments to originate loans
totaled $588.8 million; outstanding unused lines of credit totaled $441.2 million; standby letters
of credit totaled $4.8 million and outstanding commitments to sell loans totaled $99.7 million. The
Company expects to have sufficient funds available to meet current commitments in the normal course
of business.
Time deposits scheduled to mature in one year or less totaled $2.01 billion at June 30, 2010.
Based upon historical experience management estimates that a significant portion of such deposits
will remain with the Company.
The Board of Directors approved a third share repurchase program at their January 2008 meeting,
which authorizes the repurchase of an additional 10% of the Companys outstanding common stock. The
third share repurchase program commenced upon completion of the second program on May 7, 2008.
Under this program, up to 10% of its publiclyheld outstanding shares of common stock, or
4,307,248 shares of Investors Bancorp, Inc. common stock may be purchased in the open market and
through other privately negotiated transactions in accordance with applicable federal securities
laws. During the three month period ended June 30, 2010, the Company did not repurchase shares of
its common stock. Under the current share repurchase program, 2,828,304 shares remain available for
repurchase. As June 30, 2010, a total of 11,582,365 shares have been purchased under Board
authorized share repurchase programs, of which 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.
40
As of June 30, 2010 the Bank exceeded all regulatory capital requirements as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010 |
|
|
|
Actual |
|
Required |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
(Dollars in thousands) |
|
Total capital (to risk-weighted assets) |
|
$ |
852,975 |
|
|
|
15.3 |
% |
|
$ |
445,423 |
|
|
|
8.0 |
% |
Tier I capital (to risk-weighted assets) |
|
|
783,372 |
|
|
|
14.1 |
|
|
|
222,622 |
|
|
|
4.0 |
|
Tier I capital (to average assets) |
|
|
783,372 |
|
|
|
9.0 |
|
|
|
349,024 |
|
|
|
4.0 |
|
Off-Balance Sheet Arrangements and Contractual Obligations
In the normal course of operations, the Company engages in a variety of financial transactions
that, in accordance with generally accepted accounting principles, are not recorded in the
financial statements. These transactions primarily relate to lending commitments.
The following table shows the contractual obligations of the Company by expected payment period as
of June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
One-Two |
|
|
Two-Three |
|
|
More than |
|
Contractual Obligations |
|
Total |
|
|
One Year |
|
|
Years |
|
|
Years |
|
|
Three Years |
|
Debt obligations (excluding capitalized leases) |
|
$ |
1,825,528 |
|
|
|
595,000 |
|
|
|
430,528 |
|
|
|
280,000 |
|
|
|
520,000 |
|
Commitments to originate and purchase loans |
|
|
588,766 |
|
|
|
588,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to sell loans |
|
|
99,704 |
|
|
|
99,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, at June 30, 2010, the Companys commitments to fund unused lines of credit
totaled $441.2 million.
Debt obligations include borrowings from the FHLB and other borrowings. The borrowings have defined
terms and, under certain circumstances, $605.0 million of the borrowings are callable at the option
of the lender.
Commitments to originate loans and commitments to fund unused lines of credit are agreements to
lend additional funds to customers as long as there have been no violations of any of the
conditions established in the agreements. Commitments generally have a fixed expiration or other
termination clauses which may or may not require a payment of a fee. Since some of these loan
commitments are expected to expire without being drawn upon, total commitments do not necessarily
represent future cash requirements.
In addition to the contractual obligations previously discussed, we have other liabilities and
capitalized and operating lease obligations. These contractual obligations as of June 30, 2010 have
not changed significantly from December 31, 2009.
For further information regarding our off-balance sheet arrangements and contractual obligations,
see Part II, Item 6, Managements Discussion and Analysis of Financial Condition and Results of
Operations, in our December 31, 2009 Annual Report on Form 10-K.
41
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Qualitative Analysis. We believe our most significant form of market risk is interest rate risk.
Interest rate risk results from timing differences in the maturity or re-pricing of our assets,
liabilities and off-balance sheet contracts (i.e., loan commitments); the effect of loan
prepayments, deposits and withdrawals; the difference in the behavior of lending and funding rates
arising from the uses of different indices; and yield curve risk arising from changing interest
rate relationships across the spectrum of maturities for constant or variable credit risk
investments. Besides directly affecting our net interest income, changes in market interest rates
can also affect the amount of new loan originations, the ability of borrowers to repay variable
rate loans, the volume of loan prepayments and refinancings, the carrying value of securities
classified as available for sale and the mix and flow of deposits.
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 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. 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 and adjustable-rate
construction 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 two independent, nationally recognized consulting firms who specialize in asset and
liability management to complete our quarterly interest rate risk reports. They use a combination
of analyses to monitor our exposure to changes in interest rates. The economic value of equity
analysis is a model that estimates the change in net portfolio value (NPV) over a range of
immediately changed interest rate scenarios. NPV is the discounted present value of expected cash
flows from assets, liabilities, and off-balance sheet contracts. In calculating changes in NPV,
assumptions estimating loan prepayment rates, reinvestment rates and deposit decay rates that seem
most likely based on historical experience during prior interest rate changes are used.
42
The net interest income analysis uses data derived from a dynamic asset and liability analysis,
described below, and applies several additional elements, including actual interest rate indices
and margins, contractual limitations and the U.S. Treasury yield curve as of the balance sheet
date. In addition we apply consistent parallel yield curve shifts (in both directions) to
determine possible changes in net interest income if the theoretical yield curve shifts occurred
gradually. Net interest income analysis also adjusts the dynamic asset and liability repricing
analysis based on changes in prepayment rates resulting from the parallel yield curve shifts.
Our dynamic asset and liability analysis determines the relative balance between the repricing of
assets and liabilities over multiple periods of time (ranging from overnight to five years). This
dynamic asset and liability analysis includes expected cash flows from loans and mortgage-backed
securities, applying prepayment rates based on the differential between the current interest rate
and the market interest rate for each loan and security type. This analysis identifies mismatches
in the timing of asset and liability but does not necessarily provide an accurate 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 June 30, 2010 the estimated changes in
our NPV and our annual net interest income that would result from the designated changes in the
interest rates. Such changes to interest rates are calculated as an immediate and permanent change
for the purposes of computing NPV and a gradual change over a one year period for the purposes of
computing net interest income. Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions including relative levels of market interest rates, loan
prepayments and deposit decay, and should not be relied upon as indicative of actual results. We
did not estimate changes in NPV or net interest income for an interest rate decrease of greater
than 100 basis points or increase of greater than 200 basis points.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Portfolio Value (1),(2) |
|
Net
Interest Income (3) |
Change in |
|
|
|
|
|
|
|
Increase (decrease) in |
Interest |
|
|
|
|
|
Estimated Increase |
|
Estimated |
|
Estimated Net Interest |
Rates (basis |
|
Estimated |
|
(Decrease) |
|
Net Interest |
|
Income |
points) |
|
NPV |
|
Amount |
|
Percent |
|
Income |
|
Amount |
|
Percent |
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
+200bp |
|
$ |
788,118 |
|
|
$ |
(308,624 |
) |
|
|
(28.1 |
)% |
|
$ |
264,074 |
|
|
$ |
(12,352 |
) |
|
|
(4.5 |
)% |
0bp |
|
|
1,096,742 |
|
|
|
|
|
|
|
|
|
|
|
276,426 |
|
|
|
|
|
|
|
|
|
-100bp |
|
|
1,091,351 |
|
|
|
(5,391 |
) |
|
|
(0.5 |
) |
|
|
279,797 |
|
|
|
3,371 |
|
|
|
1.2 |
|
|
|
|
(1) |
|
NPV is the discounted present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. |
|
(2) |
|
Assumes an instantaneous uniform change in interest rates at all maturities. |
|
(3) |
|
Assumes a gradual change in interest rates over a one year period at all maturities |
The table set forth above indicates at June 30, 2010 in the event of a 200 basis points
increase in interest rates, we would be expected to experience a 28.1% decrease in NPV and a $12.4
million or 4.5% decrease in annual net interest income. In the event of a 100 basis points
decrease in interest rates, we would be expected to experience a 0.5% decrease in NPV and a $3.4
million or 1.2% increase in annual net interest income. These data do not reflect any future
actions we may take in response to changes in interest rates, such as changing the mix of our
assets and liabilities, which could change the results of the NPV and net interest income
calculations.
43
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.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Principal
Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) as of the end of the period covered by this report. Based upon that
evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of
the end of the period covered by this report, our disclosure controls and procedures were
effective.
There were no changes made in the Companys internal controls over financial reporting during the
period covered by this report that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
Part II Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are subject to various legal actions arising in the normal course
of business. In the opinion of management, the resolution of these legal actions is not expected
to have a material adverse effect on the Companys financial condition or results of operations.
Item 1A. Risk Factors
There have been no material changes in the Risk Factors disclosed in the Companys December 31,
2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission, except as
disclosed below:
44
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.
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
45
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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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 2,828,304 shares yet to be purchased as of June
30, 2010. There were no repurchases of our common stock during the second quarter of 2010.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. [Reserved]
Item 5. Other Information
Not applicable
Item 6. Exhibits
The following exhibits are either filed as part of this report or are incorporated herein by
reference:
|
|
|
3.1
|
|
Certificate of Incorporation of Investors Bancorp, Inc.* |
|
|
|
3.2
|
|
Bylaws of Investors Bancorp, Inc.* |
46
|
|
|
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 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* |
|
|
|
31.1
|
|
Certification of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
31.2
|
|
Certification of Principal Financial and Accounting Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32
|
|
Certification of Principal Executive Officer and Principal Financial and
Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
* |
|
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 |
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Investors Bancorp, Inc.
|
|
Dated: August 6, 2010 |
/s/ Kevin Cummings
|
|
|
Kevin Cummings |
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Dated: August 6, 2010 |
/s/ Thomas F. Splaine, Jr.
|
|
|
Thomas F. Splaine, Jr. |
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
|
48