SHORT HILLS, N.J., Feb. 3 /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 and six months ended December 31, 2008. The Company incurred a net loss of $83.0 million for the three months ended December 31, 2008 compared to net income of $3.6 million for the three months ended December 31, 2007. The net loss for the six months ended December 31, 2008 was $77.5 million compared to net income of $6.0 million for the six months ended December 31, 2007. Basic loss per share was $0.80 for the three months ended December 31, 2008 compared to basic and diluted earnings of $0.03 per share for the three months ended December 31, 2007. Basic loss per share was $0.73 for the six months ended December 31, 2008 compared to basic and diluted earnings of $0.06 per share for the six months ended December 31, 2007.

The Company recognized a $152.8 million pre-tax, ($90.6 million after-tax, or $0.87 per share), non-cash other-than-temporary impairment ('OTTI') charge for the three months ended December 31, 2008 related to our portfolio of pooled bank trust preferred collateralized debt obligations ('CDOs'). The portfolio is comprised of 31 securities whose book value of $173.6 million has been reduced to $20.8 million as a result of this charge. Since purchase, the Company had received all payments due under the contractual terms through September 30, 2008. For the quarter ended December 31, 2008 the Company received 98.5% of the contractual payments due. The Company continues to have the ability and intent to hold these securities until their maturity, or recovery.

The impairment was recognized because the market value of these securities continued to decline during the quarter and we do not believe the market value of these securities will recover within the foreseeable future. While following the accounting rules for other-than-temporary impairment requires us to take this non-cash charge, we believe that actual losses, if any, will be less than this non-cash charge. Despite this charge, the Company maintains a strong tangible capital ratio of 10.48%, and is considered well capitalized under regulatory guidelines.

Excluding OTTI charges, net income from core earnings was $7.6 million and $15.6 million for the three month and six month periods ended December 31, 2008, respectively, compared to $3.6 million and $6.2 million for the three month and six month periods ended December 31, 2007, respectively. The results for the periods ended December 31, 2008 reflect the following:

• Net interest income increased to $42.9 million from $24.6 million for the quarter ended December 31, 2007. Net interest income was $81.6 million for the six months ended December 31, 2008 compared to net interest income of $46.9 million for the six months ended December 31, 2007.
• Net interest margin increased 75 basis points to 2.45% compared to prior year quarter and 5 basis points compared to linked quarter.
• Deposits increased $262.4 million, or 6.6%, to $4.23 billion at December 31, 2008 from $3.97 billion at June 30, 2008.
• Net loans increased by $948.0 million, or 20.3%, to $5.62 billion at December 31, 2008 from $4.67 billion at June 30, 2008.
• Non performing loans as a percentage of total loans increased slightly to 0.85% from 0.79% in the September 2008 quarter.
• The Company increased its loan loss provision to $8.0 million for the current quarter, $13.0 million for the six month period ending December 31, 2008, due to strong growth in the loan portfolio, recent deterioration in the economic conditions in our local markets and an increase in loan delinquencies.

On December 15, 2008, the Company announced the signing of a definitive agreement under which the Company will acquire American Bancorp of New Jersey, a community bank with $622 million in assets, $448 million in deposits and five branches in Essex and Passaic Counties. The transaction is expected to close in the second calendar quarter of 2009, subject to customary closing conditions including regulatory approvals and approval by American Bancorp of New Jersey's shareholders.

The Company also announced during the quarter that after careful consideration, it decided not to participate in the Treasury Department's Capital Purchase Program which is part of the broader Troubled Asset Relief Program (TARP). In reaching this decision, the Company felt its strong capital position and conservative lending practices would allow it to continue originating loans to qualified individuals and businesses in its local market and navigate through this difficult economic environment. In addition, the Company's mutual holding company parent, Investors Bancorp MHC, currently owns approximately 60% of the Company's outstanding stock. The Company therefore has the ability to raise additional capital through a second step stock offering.

Commenting on the OTTI charge, Kevin Cummings, the Company's president and CEO said, 'We purchased all of these securities, which were rated either A or AAA, following the Company's investment policy and to date we continue to receive virtually all of the contractual cash flows. However, the market value of these securities has decreased significantly due to the systemic problems of the banking industry and an illiquid market for these securities. Management believes that actual losses, if any, will be small compared to this non-cash charge.'

Mr. Cummings went on to discuss the positive events from the quarter. 'The entire staff is excited about our recently announced acquisition of American Bancorp. We believe this small conservatively run bank is going to enhance our geographic presence in Essex County and introduce Investors Savings Bank to Passaic County.' He also discussed the Company's loan growth. 'Our loan growth since June 30, 2008 has been outstanding as many of our competitors have either dropped out of the market or have reduced their volume of lending. This has given us a great opportunity to capture market share.'

'Even with the significant growth in our loan portfolio, our non-performing loans are less than 1% of total loans. However, we are mindful of the adverse conditions being experienced in the national and local economies. We believe 2009 will be a difficult year because of the local economies' dependence on Wall Street and the financial services industry. We will continue to be conservative in our lending practices by maintaining our strict loan underwriting standards and believe our strong capital position will enable us to withstand the difficult times ahead.'

Comparison of Operating Results

Interest and Dividend Income

Total interest and dividend income increased by $15.4 million, or 19.5%, to $94.5 million for the three months ended December 31, 2008 from $79.1 million for the three months ended December 31, 2007. This increase is attributed to the average balance of interest-earning assets increasing $1.24 billion, or 21.4%, to $7.02 billion for the three months ended December 31, 2008 from $5.78 billion for the three months ended December 31, 2007. This was partially offset by an 8 basis point decrease in the weighted average yield on interest-earning assets to 5.39% for the three months ended December 31, 2008 compared to 5.47% for the three months ended December 31, 2007.

Interest income on loans increased by $21.1 million, or 36.9%, to $78.3 million for the three months ended December 31, 2008 from $57.2 million for the three months ended December 31, 2007, reflecting a $1.57 billion, or 39.4%, increase in the average balance of net loans to $5.54 billion for the three months ended December 31, 2008 from $3.97 billion for the three months ended December 31, 2007. The average yield on loans decreased 10 basis points to 5.65% for the three months ended December 31, 2008 from 5.75% for the three months ended December 31, 2007.

Interest income on all other interest-earning assets, excluding loans, decreased by $5.7 million, or 25.9%, to $16.2 million for the three months ended December 31, 2008 from $21.9 million for the three months ended December 31, 2007. This decrease reflected a $326.8 million decrease in the average balance of all other interest-earning assets, excluding loans, and a 47 basis point decrease in the average yield on all other interest-earning assets, excluding loans, to 4.39% for the three months ended December 31, 2008 from 4.86% for the three months ended December 31, 2007.

Total interest and dividend income increased by $26.8 million, or 17.2%, to $181.9 million for the six months ended December 31, 2008 from $155.2 million for the six months ended December 31, 2007. This increase is due to the average balance of interest-earning assets increasing $1.04 billion, or 18.2%, to $6.74 billion for the six months ended December 31, 2008 from $5.70 billion for the six months ended December 31, 2007. This was partially offset by a 4 basis point decrease in the weighted average yield on interest-earning assets to 5.40% for the six months ended December 31, 2008 compared to 5.44% for the six months ended December 31, 2007.

Interest income on loans increased by $38.1 million, or 34.4%, to $148.8 million for the six months ended December 31, 2008 from $110.7 million for the six months ended December 31, 2007, reflecting a $1.38 billion, or 35.6%, increase in the average balance of net loans to $5.24 billion for the six months ended December 31, 2008 from $3.86 billion for the six months ended December 31, 2007. The average yield on loans decreased 5 basis points to 5.68% for the six months ended December 31, 2008 from 5.73% for the six months ended December 31, 2007.

Interest income on all other interest-earning assets, excluding loans, decreased by $11.4 million, or 25.5%, to $33.2 million for the six months ended December 31, 2008 from $44.5 million for the six months ended December 31, 2007. This decrease reflected a $341.4 million decrease in the average balance of all other interest-earning assets and a 42 basis point decrease in the average yield on all other interest-earning assets, excluding loans, to 4.42% for the six months ended December 31, 2008 from 4.84% for the six months ended December 31, 2007.

Interest Expense

Total interest expense decreased by $2.9 million, or 5.3%, to $51.6 million for the three months ended December 31, 2008 from $54.5 million for the three months ended December 31, 2007. This decrease was due to the weighted average cost of total interest-bearing liabilities decreasing 105 basis points to 3.29% for the three months ended December 31, 2008 compared to 4.34% for the three months ended December 31, 2007. This was partially offset by the average balance of total interest-bearing liabilities increasing by $1.24 billion, or 24.7%, to $6.27 billion for the three months ended December 31, 2008 from $5.03 billion for the three months ended December 31, 2007.

Interest expense on interest-bearing deposits decreased $8.1 million, or 20.3% to $31.9 million for the three months ended December 31, 2008 from $40.1 million for the three months ended December 31, 2007. This decrease was due to a 107 basis point decrease in the average cost of interest-bearing deposits to 3.12% for the three months ended December 31, 2008 from 4.19% for the three months ended December 31, 2007. This was partially offset by the average balance of interest-bearing deposits increasing $267.6 million, or 7.0% to $4.09 billion for the three months ended December 31, 2008 from $3.82 billion for the three months ended December 31, 2007.

Interest expense on borrowed funds increased by $5.2 million, or 36.3%, to $19.7 million for the three months ended December 31, 2008 from $14.4 million for the three months ended December 31, 2007. This increase is due to the average balance of borrowed funds increasing by $972.9 million or 81.0%, to $2.17 billion for the three months ended December 31, 2008 from $1.20 billion for the three months ended December 31, 2007. This was partially offset by the average cost of borrowed funds decreasing 118 basis points to 3.62% for the three months ended December 31, 2008 from 4.80% for the three months ended December 31, 2007.

Total interest expense decreased by $8.0 million, or 7.4%, to $100.3 million for the six months ended December 31, 2008 from $108.3 million for the six months ended December 31, 2007. This decrease was due to the weighted average cost of total interest-bearing liabilities decreasing 103 basis points to 3.35% for the six months ended December 31, 2008 compared to 4.38% for the six months ended December 31, 2007. This was partially offset by the average balance of total interest-bearing liabilities increasing by $1.04 billion, or 21.1%, to $5.99 billion for the six months ended December 31, 2008 from $4.95 billion for the six months ended December 31, 2007.

Interest expense on interest-bearing deposits decreased $16.9 million, or 21.1% to $62.9 million for the six months ended December 31, 2008 from $79.8 million for the six months ended December 31, 2007. This decrease was due to a 107 basis point decrease in the average cost of interest-bearing deposits to 3.15% for the six months ended December 31, 2008 from 4.22% for the six months ended December 31, 2007. This was partially offset by the average balance of interest-bearing deposits increasing $213.5 million, or 5.64% to $4.00 billion for the six months ended December 31, 2008 from $3.79 billion for the six months ended December 31, 2007.

Interest expense on borrowed funds increased by $8.8 million, or 31.0%, to $37.4 million for the six months ended December 31, 2008 from $28.5 million for the six months ended December 31, 2007. This increase is attributed to the average balance of borrowed funds increasing by $830.4 million or 71.6%, to $1.99 billion for the six months ended December 31, 2008 from $1.16 billion for the six months ended December 31, 2007. This was partially offset by the average cost of borrowed funds decreasing 117 basis points to 3.75% for the six months ended December 31, 2008 from 4.92% for the six months ended December 31, 2007.

Net Interest Income

Our net interest margin for the three months and six months ended December 31, 2008 was positively impacted by the Federal Reserve lowering the Fed Funds rate by over 400 basis points during 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 interest income increased by $18.3 million, or 74.5%, to $42.9 million for the three months ended December 31, 2008 from $24.6 million for the three months ended December 31, 2007. The increase was caused primarily by a 105 basis point decrease in our cost of interest-bearing liabilities to 3.29% for the three months ended December 31, 2008 from 4.34% for the three months ended December 31, 2007. This was partially offset by an 8 basis point decrease in our yield on interest-earning assets to 5.39% for the three months ended December 31, 2008 from 5.47% for the three months ended December 31, 2007. Our net interest margin improved by 75 basis points from 1.70% for the three months ended December 31, 2007 to 2.45% for the three months ended December 31, 2008.

Net interest income increased by $34.8 million, or 74.3%, to $81.6 million for the six months ended December 31, 2008 from $46.9 million for the six months ended December 31, 2007. The increase was caused primarily by a 103 basis point decrease in our cost of interest-bearing liabilities to 3.35% for the six months ended December 31, 2008 from 4.38% for the six months ended December 31, 2007. This was partially offset by a 4 basis point decrease in our yield on interest-earning assets to 5.40% for the six months ended December 31, 2008 from 5.44% for the six months ended December 31, 2007. Our net interest margin improved by 78 basis points from 1.64% for the six months ended December 31, 2007 to 2.42% for the six months ended December 31, 2008.

Provision for Loan Losses

Our provision for loan losses was $8.0 million for the three month period ended December 31, 2008 compared to $1.8 million for the three month period ended December 31, 2007. For the three months ended December 31, 2008, net charge-offs totaled $14,000 compared to net charge-offs of $4,000 for the three months ended December 31, 2007. The increase in our provision is due to continued growth in the loan portfolio; an additional $2.0 million specific reserve 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; an increase in loan delinquency and non-performing loans; and the adverse economic conditions in our lending area.