SHORT HILLS, N.J., Nov. 4 /PRNewswire-FirstCall/ -- Investors Bancorp, Inc. (Nasdaq: ISBC) ('Company'), the holding company for Investors Savings Bank ('Bank'), reported today the results of its operations for the three months ended September 30, 2008.

Net income was $5.5 million for the three months ended September 30, 2008 compared to net income of $2.4 million for the three months ended September 30, 2007. Basic and diluted earnings were $0.05 per share for the three months ended September 30, 2008, compared to basic and diluted earnings of $0.02 per share for the three months ended September 30, 2007.

The Company recognized a $3.9 million pre-tax, ($2.3 million, or $0.02 per diluted share, after-tax), non-cash other-than-temporary impairment ('OTTI') charge for the three months ended September 30, 2008. The OTTI pertained to one pooled bank trust preferred collateralized debt obligation ('CDO'), with an amortized cost of $9.0 million which was classified as 'Held to Maturity.' The impairment occurred as a result of possible declines in future cash flows due to the weakness of certain financial institutions within the security.

Net interest margin increased by 82 basis points to 2.40% for the three months ended September 30, 2008 compared to 1.58% for the three months ended September 30, 2007. Our net interest margin was positively impacted by the Federal Reserve lowering the Fed Funds rate over 225 basis points in the last year. This resulted in a steeper yield curve which allowed us to borrow money at lower rates and reduce deposit rates while keeping mortgage rates relatively stable.

Net loans increased by $641.4 million, or 13.7%, to $5.31 billion at September 30, 2008 from $4.67 billion at June 30, 2008 while securities decreased $68.1 million, or 4.7%, to $1.39 billion at September 30, 2008 from $1.46 billion at June 30, 2008. This is consistent with our strategic plan to change our mix of assets by reducing the size of our securities portfolio and increasing the size of our loan portfolio.

Borrowings increased by $567.0 million, or 36.3%, to $2.13 billion at September 30, 2008 from $1.56 billion at June 30, 2008 as the Company utilized wholesale borrowings to fund new loan growth. Deposits also increased $31.7 million, or 0.8%, to $4.00 billion at September 30, 2008 from $3.97 billion at June 30, 2008.

'We have not been immune to some of the uncertainties that exist in the financial services industry,' said Kevin Cummings, the Company's president and CEO. 'During the quarter, we recorded an OTTI charge on one of our pooled bank trust preferred securities which has been negatively impacted by the lack of liquidity for these types of securities. We believe it is possible that the various programs recently announced by the US Government to support the banking industry may prove successful and have a favorable impact on these securities.'

Mr. Cummings continued, 'Despite all the turmoil in the financial services industry and the economy as a whole, our core earnings, loan growth, core deposit growth and capital are strong. The integration of the Summit acquisition has been outstanding as deposits for these branches are up over 60% at the end of October compared to June 6th, our acquisition date.'

'We remain focused on the execution of our strategic plan and vision to become New Jersey's leading community bank,' said Mr. Cummings. 'We are making significant investments in our branch network and commercial and residential businesses which will enhance our franchise in New Jersey. The Bank is well positioned to take advantage of opportunities to expand our customer base now and when the economy improves in the future.'

Comparison of Operating Results

Interest and Dividend Income

Total interest and dividend income increased by $11.3 million, or 14.9%, to $87.4 million for the three months ended September 30, 2008 from $76.1 million for the three months ended September 30, 2007. This increase is primarily due to an $831.1 million, or 14.8%, increase in the average balance of interest-earning assets to $6.46 billion for the three months ended September 30, 2008 from $5.63 billion for the three months ended September 30, 2007. The weighted average yield on interest-earning assets was 5.41% for the three months ended September 30, 2008 and the three months ended September 30, 2007.

Interest income on loans increased by $17.0 million, or 31.8%, to $70.5 million for the three months ended September 30, 2008 from $53.5 million for the three months ended September 30, 2007, reflecting a $1.19 billion, or 31.6%, increase in the average balance of net loans to $4.94 billion for the three months ended September 30, 2008 from $3.75 billion for the three months ended September 30, 2007. This is consistent with our strategic plan to change our mix of assets by increasing the size of our loan portfolio while reducing the size of our securities portfolio. There was only a 1 basis point increase in the average yield on loans to 5.71% for the three months ended September 30, 2008 from 5.70% for the three months ended September 30, 2007 as interest income was adversely impacted by the increase in non-performing loans and a decrease in market indices that caused a portion of our adjustable rate portfolio to be re-priced downward.

Interest income on all other interest-earning assets, excluding loans, decreased by $5.7 million, or 25.1%, to $17.0 million for the three months ended September 30, 2008 from $22.6 million for the three months ended September 30, 2007. This decrease reflected a $356.5 million decrease in the average balance of securities and other interest-earning assets, consistent with our strategic plan to change our mix of assets by reducing the size of our securities portfolio and increasing the size of our loan portfolio. In addition, there was a 36 basis point decrease in the average yield on securities and other interest-earning assets to 4.46% for the three months ended September 30, 2008 from 4.82% for the three months ended September 30, 2007 as some of our adjustable rate securities re-priced in relation to current market rates.

Interest Expense

Total interest expense decreased by $5.1 million, or 9.6%, to $48.7 million for the three months ended September 30, 2008 from $53.9 million for the three months ended September 30, 2007. This decrease was primarily due to a 100 basis point decrease in the weighted average cost of total interest-bearing liabilities to 3.43% for the three months ended September 30, 2008 compared to 4.43% for the three months ended September 30, 2007. This was partially offset by an $810.2 million, or 16.6%, increase in the average balance of total interest-bearing liabilities to $5.68 billion for the three months ended September 30, 2008 from $4.87 billion for the three months ended September 30, 2007.

Interest expense on interest-bearing deposits decreased $8.7 million, or 22.0%, to $31.0 million for the three months ended September 30, 2008 from $39.8 million for the three months ended September 30, 2007. This decrease was due to a 104 basis point decrease in the average cost of interest-bearing deposits to 3.20% for the three months ended September 30, 2008 compared to 4.24% for the three months ended September 30, 2007, as lower short term interest rates allowed us to lower our deposit rates. This was partially offset by a $124.1 million increase in the average balance of interest-bearing deposits.

Interest expense on borrowed funds increased by $3.6 million, or 25.5%, to $17.7 million for the three months ended September 30, 2008 from $14.1 million for the three months ended September 30, 2007. This increase was caused by a $686.1 million, or 61.3%, increase in the average balance of borrowed funds to $1.80 billion for the three months ended September 30, 2008 from $1.12 billion for the three months ended September 30, 2007, partially offset by a 112 basis point decrease in the average cost of borrowed funds to 3.92% for the three months ended September 30, 2008 from 5.04% for the three months ended September 30, 2007. We utilized wholesale borrowings to help fund loan growth for the quarter.

Net Interest Income

Net interest income increased by $16.5 million, or 74.0%, to $38.7 million for the three months ended September 30, 2008 from $22.3 million for the three months ended September 30, 2007. During the three months ended September 30, 2008, our net interest rate spread increased 100 basis points to 1.98% as a result of a 100 basis point decrease in our cost on interest-bearing liabilities to 3.43% for the three months ended September 30, 2008 from 4.43% for the three months ended September 30, 2007. Our net interest margin increased by 82 basis points from 1.58% for the three months ended September 30, 2007 to 2.40% for the three months ended September 30, 2008.

Our net interest margin was positively impacted by the Fed lowering the Fed Funds rate over 225 basis points in the last year. This resulted in a steeper yield curve which allowed us to borrow money at lower rates and reduce deposit rates while keeping mortgage rates relatively stable.

Provision for Loan Losses

The provision for loan losses was $5.0 million for the three months ended September 30, 2008 compared to $199,000 for the three months ended September 30, 2007. Net charge-offs were $3,000 for the three months ended September 30, 2008 compared to $4,000 for the three months ended September 30, 2007.

The allowance for loan losses increased by $5.0 million to $18.6 million at September 30, 2008 from $13.6 million at June 30, 2008. The increase in the allowance is 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; an additional $1.0 million specific reserve recorded on a previously disclosed $11.0 million impaired loan; 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.

Total non-performing loans, defined as non-accruing loans, increased by $22.8 million to $42.1 million at September 30, 2008 from $19.4 million at June 30, 2008. This increase is primarily the result of a previously disclosed $19.4 million multifamily loan which was placed on non-accrual status during the three months ended September 30, 2008. The loan was 30 days delinquent at June 30, 2008. A contract for the sale of the property is pending. While management believes that the probability of loss on this loan is low, we will continue to closely monitor the loan.