Q4 2020 Investors Bancorp Inc Earnings Call
Good morning, and welcome to the investors Bancorp fourth quarter 2020 earnings Conference call. All participants will be in listen only mode could you need assistance. Please signal of the conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
We'll begin this morning's call with the company's standard forward looking statement disclosure on this call Representatives of investors Bancorp incorporated may make some forward looking statements with respect to its financial position results of operations and business.
These forward looking statements are not guarantees of future performance and are subject to risks uncertainties and other factors some of which are beyond the investor Bancorp's control are difficult to predict and which could cause actual results to materially differ from those expressed or forecast in these forward looking statements.
Last Night's press release the company included its safe Harbor disclosure and refers you to that statement.
That document is incorporated into this presentation.
For a more complete discussion of the certain risks and uncertainties affecting investors Bancorp. Please see the sections entitled risk factors management discussion and analysis of financial conditions and results of operations set forth in Investor Bancorp's filings with the S E C.
And now I'd like to turn the call over to Kevin Cummings, Chairman and CEO of investors Bancorp.
Thank you Gary and good morning, and welcome to the investors Bancorp fourth quarter earnings call.
Last night the company reported in its press release net income of $75 1 million or 32 cents per diluted share for three months ended December 31 2020.
As to $64 3 million on 27 cents per diluted share.
Sure.
Pretty much said it in the third quarter had been 30 and.
And $48 7 million for 19 cents per diluted share for the three months ended December 31 2019.
These results represent a 17% increase in earnings for the third quarter of 2020 and of.
54% increase over the fourth quarter of 19 on.
On an EPS basis, the increase in earnings represents 19% increase over the linked quarter and of 68% increase over the prior year's quarter.
They were noncore transactions that impacted our fourth quarter on our results for this year.
During the quarter, we recorded a gain for two sales leaseback transaction totaling $22 8 million, which was offset by the early extinguishment of the long term borrowings of $24 1 million in expense. This transaction will have the positive effect on our net interest margin in future years, especially the 20th.
'twenty one.
In addition in the fourth quarter. We also recorded a restructuring charge of $11 7 million for the anticipate the closure of 10 branches, which will result in cost savings of approximately $4 million on an annual basis on an annual basis in the future.
Taking these transactions into effect and the related tax impact of <unk>.
Core operating earnings for the fourth quarter of 2020.
Was $84 billion of 35 cents per diluted share, which reflects a one point of two 7% return on average assets.
Return on tangible equity of 13% for the quarter.
On an annual basis. In addition to the items previously mentioned, we also had of transaction costs related to our acquisition of gold Coast Bank in the second quarter, which negatively impacted earnings by approximately $3 6 million early into the earlier in the year.
Taking all of these items into effect plus the related tax impact.
Earnings of core earnings for a charge of 34 million of 99 cents per diluted share for the year ended December 31st 2020.
Despite the difficult year with the.
The pandemic, we ended the year with strong results and move into 'twenty and 'twenty, one with great momentum.
As a result of the strong quarterly results excellent credit metrics and strong capital ratios of all of them.
The increase for 17% and our quarterly cash dividend of <unk> 14 per share.
In addition, the company bought back approximately 2 million share during the fourth quarter for approximately $25 million.
We believe we have sufficient capital strong liquidity.
And of robust credit culture to maintain the dividend and to continue to move forward with on Treasury stock buyback program.
Although the strong uncertainties in our economy and our markets. We are more optimistic for the future debt earlier in the year.
Starting this year, our core deposits increased 21%, what's non interest deposits, increasing 48% of $3 7 billion, which is approximately 19% of the total deposits versus 14% last year.
We continue to focus on driving low cost deposits into the bank and we have made significant progress on that.
Small and mid sized companies even during this pandemic.
Well, the marketing and culture of departments, we have been holding virtual E learning events with our customers throughout this pandemic.
These are similar to local chamber of commerce events, where we bring in and noted the authors and speakers.
So zoom meetings to discuss the current sales and virtual networking techniques. During this pandemic.
In fact, we had of session yesterday attended by all the 550 customers of prospects, but for Saracen and for.
They'll send along with Steve on a bottle and Emmy Award, winning TV and radio host the.
The second has been well received and have kept the brand and our momentum is strong and the markets that we serve.
And the per quarter, we expanded our consumer online account opening capabilities by adding 17 additional products to our platform.
And enabling the account opening for existing customers to our online and mobile banking platforms.
These efforts have allowed us to move closer to a true omni channel account opening experience and better assist customers and prospects during the pandemic.
And has resulted in the 161 per cent increase in online account openings in the fourth quarter versus the third quarter.
On mobile deposit use of base experienced the 72% increase in use of starting 2020.
We continue to refine our mobile deposit functionality and in the note in November we rolled out in the naval technology that set of customers mobile deposit limits using AI for customers based on their account activity.
And some of the digital bank uses increased 3% for the year as we accelerated the migration of our small business customers two of new online banking program and that has experienced an additional 6% increase in users.
Although use of base was up 124 per cent for the from the previous year.
And in late September.
The naval sales for our small business customers, which should help drive even more usage of this device, but the service.
For the for the.
The future, we intend to continue to invest in our online account opening capabilities.
And we will look to extend this functionality for our small business customers and.
In addition, this functionality will be used in our branches to speed up the account opening process and improve the customers' experience on site and the branch.
It was certainly a year of change of he ever of progress, but these investments in on digital platform over the last few years of paid dividends for us during the pandemic.
On the loans.
We had a strong quarter and the business lending growth.
C&I loans increased by the $500 million of 15% after giving effect to the sale of the P. P loans of $328 million.
As you may recall, our strategy prior to the pandemic, what's the use the cash flow from our raising of multifamily books the.
Growth in our business lending focusing on relationship banking and driving low cost deposits instead of bank.
As a result of the market forces.
Our investments in new loan officers of business development personnel on the retail side.
We have seen an increase of noninterest bearing deposits and business lending during this year.
Despite the uncertainty during the year we were.
We're able to reposition our focus would be more on the of purchase in the latter part of 2020.
We are cautiously optimistic going into this year and remain confident that we have a good understanding of our credit risks.
Due to the credit process that we've established monitoring the false monitoring are performing.
What are performing portfolio of nonperforming portfolio and the loan deferral of portfolios.
With respect to a lot of deferral of portfolio at year end.
We saw a slight increase in commercial loans of $42 million for $635 million from $593 million in the third quarter.
This increase is primarily due to one multifamily loans for $37 million, which went on its first apparel in late December.
It should be noted that I wanted to highlight that 80% of 500 of $9 million of these loans are paying us interest in tax escrow as we've only the first the principal payments.
We believe this approach is a fair approach to one of borrowers or the.
These difficult times and on.
Loud them to manage their businesses and their properties during this unprecedented epidemic.
The commitment by both us and the borrower to do the right thing.
Yeah.
As we look at the remaining 20 per cent of the deferrals of principal and interest of approximately $126 million.
There were five loans for borrowers that make up the majority of hunger in the 9 million of this exposure.
Two of the properties of multifamily loans in Brooklyn, why does the multifamily loans in Washington D. C area that just went on deferral status and what does the community theater located in New Jersey.
The remaining 17 million is comprised of 27 loans, mainly to small businesses in our market footprint with the largest of alone of this group for $2 3 million, which is an investment property secured by real estate.
The remaining 26 loans have an average balance of approximately 565000.
So by of covering those five for those five loans for borrowers we cover a good portion of the exposure for the 20% principal and interest of the first.
We continue to meet weekly to discuss these credits.
The other credits in our.
Portfolio.
In fact, we have net 38 times since June 3rd and a one of them setting with participation from all levels of management and lines of business.
This credit review process is the significant priority of the bank.
And we believe we have today, we believe we have a good handle on our exposures.
Our commercial delinquency trends improved for the quarter with no new significant problems on the horizon.
And the 30 day multifamily loans delinquencies all our current today well less than 30 day past due as of today.
And the CRE 30 day bucket $8 3 million is current and $1 million of matured law waiting for extension.
In the C&I group three loans for 750000 also in the process of extension.
For the $5 4 million in the commercial 60 day delinquency the largest loan in this group as the CRE loans for $2 6 million worth of 20 per cent L. T V.
There are no significant problems well losses on losses are anticipated at this time from these small loans in this category.
Our commercial non accrual loans were down 24 per cent for the quarter.
And the non accrual category of two largest exposures in this group of two multifamily loans, one for $14 9 million and the other small loans for $4 4 billion.
That small alone has the contract for sale with no loss anticipated in the larger loan is adequately written down to a value we expect to recover some of the foreclosure process for sale of the note.
The remaining $41 million is comprised of 63 loans for the average balance of approximately 660000 with no significant exposure to the bank.
As a result of the store.
The performance of our portfolio net of recoveries of $2 1 million.
On an improving economic recovery.
The provision for the quarter was a credit of $2 7 million, which allowed on a ratio of the allowance for loan losses as a percentage of total loans.
Relatively flat for the prior quarter at 1.36% versus 1.37.
It is also noted that our coverage ratio of to non accrual loans improved the charge of 64% at year end compared to 218 per cent at the end of the third quarter.
We remain diligent in our monitoring process and look forward to driving loan growth in the coming months.
We believe there are opportunities in our markets as a strong community bank deal with borrowers, especially in this environment more easily the some of the national banks.
We look forward to a strong year from our commercial lending teams as we all well positioned the capture market share. If there is such a strong fourth quarter.
Now I'd like to turn it over to Sean Burke, our CFO, who will give some additional commentary on our operating results for the quarter, Sean. Thank you Kevin.
Net interest margin increased 19 basis points to 298% in the fourth quarter on core margin expanded 16 basis points declining.
Declining deposit costs of cash balances plus the extinguishment of wholesale funding drove the improvement.
Total non interest income totaled $45 8 million, an increase of $25 9 million quarter over quarter ex.
Excluding gains on our sale leaseback transactions in the quarter noninterest income totaled $22 6 million, an increase of $2 7 million quarter over quarter, driven largely by continued strong mortgage banking activity and customer swap piece.
With respect to noninterest expenses, excluding 23 million of costs from the early extinguishment of debt $12 million of branch closure cost and $1 million of a tax credit investment non interest expenses for the quarter.
$107 million, an increase of 3 million compared to the third quarter.
The increase was primarily driven by incentive compensation given the strong fourth quarter results.
Provision for credit losses for the negative $2 7 million for the fourth quarter compared to $8 3 million for the third quarter. The decrease was driven primarily by an improving economic forecast of net loan recoveries in the quarter of $2 million.
Total loan balances increased 125 million quarter over quarter inclusive of the sale of our P. P P loans totaling $328 million.
Excluding the sale of PPP loans, C&I loans grew 505 million or 15% quarter over quarter.
Total deposits were up $422 million quarter over quarter, including non interest bearing deposits, which were up 318 million for 10% quarter over quarter.
On a percentage of noninterest bearing deposits to total deposits improved to 19% at year end 2020, compared to 14% of you right now.
Yeah.
During the quarter, we extinguish 1 billion in wholesale funding at an average cost of approximately 2%.
Year to date borrowings were down $2 5 billion and a ratio of borrowings to assets declined to 13% from 22% of year ago.
Asset quality liquidity and capital continued to remain in a solid position at quarter end now.
Non accrual loans represented five 1% of total loans at December 31, 2020, compared to six 3% and September 30th while our allowance for credit losses to loans remained unchanged at one point for 4%.
Our common equity tier one ratio was 13% at quarter end, our loan to deposit ratio was 107% compared to 122% and year end 2019.
Finally, I'd like to share some high level guidance for 2021.
We are targeting loan growth in the 6% to 10% range and deposit growth in the 6% to 7% range.
Net interest margin is forecast in the 3% area for full year 2021.
Noninterest income is expected in the range of $65 million to $75 million and expenses and the $425 million range.
We expect our effective tax rate to be in the area of 27%.
Now I'd like to turn it back over to Kevin for some concluding remarks, okay. Thanks, Sean.
What are the year 2020 is bad.
We've got some unbelievable fear and uncertainty in the early part of the first and then the the first quarter to 21, the ear of great possibilities.
Finished consecutive quarters of double digit return on tangible equity we are pleased but not satisfied with our results.
Wholesale with the rollout of the vaccine and are well positioned to take advantage of of the opportunities before us we are very optimistic and look forward to the December.
Yeah, So now I'd like to turn the.
The meeting all of the questions and open up the line Gary.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question is for Mark Fitzgibbon with Piper Sandler. Please go ahead.
Good morning.
Sean just to clarify did you give NIM guidance I think I missed that when you were saying it.
Yes, Mark for the <unk>.
For the full year 2021 of our guidance was the 3% area.
Okay great.
And then secondly of the loans you have on deferral you know what is the exploration schedule of those deferrals look like over the course.
Hey, Mark.
Of a number of the loans mature.
Sometime in November and December and we have a chunk of coming due in April also so I would say of the of the seven on $635 million in commercial loans of approximately 20 percentage coming due in the middle of the year and about 70%.
Range coming due towards the end of 2021 and the rest of the scattered throughout the year, but the big chunk coming due at the end of the year.
Okay.
And then Dom you you guys of you know benefit of two great degree from the decline in rates. It's it's certainly benefited your margin.
At what point would you expect to start kind of reducing liability sensitivity and the positioning the balance sheet for higher rates.
Well, we've already started doing that Mark we were doing that in 2020, and we saw of rates come down some.
So significantly we entered into a number of schwab.
Swap transactions that had an average cost of ranging anywhere from 55 basis points to 65 basis points. In addition, we are also positioning the loan portfolio, where we're doing more customer facing swaps and so we've reduced our liability sensitivity.
A year over year, and we still have some work to do but.
But we think we're in a pretty good position for the next few years and we continue to look at ways to reduce debt liability sensitivity.
Thank you and then last question is on M&A.
Wonder.
It strikes me the 'twenty 'twenty, one could be a fairly active year for M&A.
How are you guys thinking about it what are sort of your priorities and and you know what would be most appealing from.
From the acquisition or sales standpoint in the potential partner.
Yeah, I think Mark you know on we'd want to.
Continue to.
Take the bank.
Two of point of being more commercial like and so banks that can add obviously more non interest bearing deposits more C&I type loans are those are you know appealing to us on.
Because ultimately we believe that being more commercial bank like and reducing our reliance on Rosie and multifamily is a better way to go both from an ROE perspective, and from a valuation perspective.
Thank you.
The next question is from Steven Duong with RBC capital markets. Please go ahead.
Hi, good morning, guys.
Hey, I just wanted to.
Go into your six of 10% in loan guidance I assume that includes the three.
$300 million yourself, and the Berkshire acquisition.
Yes.
Okay, and I guess, if you were to strip that out I guess, where where do you see the loan growth coming from primarily I had such a.
Really strong C&I. This quarter, maybe you can just give us some more color on that and we're seeing that as a read through for this year.
Yeah, no. It's a good question, Steve we see the growth coming primarily from the commercial real estate sector and the C&I sector. You know as you point out you know C&I had a strong year for us even without a P. P P and weird continue but continuing a focus there.
You know we've seen a multifamily spreads widened over the last six months and so while we took a back seat to multifamily lending in the early part of the year, we fully ramped down.
Now I'll CRE and our multifamily business up again, I mean to the point, where our CRE pipelines. These days are about 1 billion for.
And and C&I is about 600 million. So you know the C&I pipeline at its peak was probably closer to $1 billion and so we have some building to do there, but the CRE pipeline. We think is in a good spot and that will help us grow in 2021, we continue to see rate.
And she will run off to some degree and so we think that'll be more than offset by the commercial real estate business.
Yeah.
Really the such a great quarter on the C&I side was there.
And increased demand or was it was it just more of you guys you know putting more sweat into it.
Yeah, I think it's the latter.
Okay, that's great day, Steve Yeah, Steve.
A lot of part of <unk> 19 in the early 2020, we hired some on offices that you know it takes them a while to get up and go in and we had some on some.
Pretty good loans in the education space out on long island, and the non for profit space.
And it was a pretty.
I got the notice of actually a lot of these people that it would be enough to meet them on zoom calls and they're pretty productive and as they came in the finally put some numbers up on the board for the fourth quarter. After a slow start in the first half of the year.
I think it is the ratio.
The the additions to the team.
Yeah, it's great to hear that that's paid off.
And then I guess just on on buybacks.
Buybacks what are you guys thinking about for this year.
I'm not sure in total in <unk>.
The dollar amounts of volumes, but clearly we'll continue to look at on the attractiveness of the stock you know obviously, it's moved quite a bit from us from when we first started too.
The put buybacks in place and we are waiting until.
Earnings are done and you know.
Sean and I will sit down and kind of go through what we think is the right level to be buying it.
We do have some repurchases built into to.
2021, Stephen.
I think it's safe to assume that you know six to 7 million shares would probably be on the lower end, but again it all depends on the stock price and kind of how the market trends, but I think if you were modeling. This up I think it's safe to assume $6 million to $7 million of shares repurchased throughout the year.
Yep got it in our U.
Targeting the capital level.
Just for you know for.
Modeling purposes at all.
Well the capital has has inched up a little bit.
As you know again I answered. This question it depends it depends on the environment. We're in you know.
2020 of its much more comfortable being at around 95%.
In a more normal environment, it's probably closer to that eight 5% so.
You know again, that's a tough question dependent on the economic environment that we find ourselves in.
Understood I appreciate it thank you.
The next question is from Laurie Hunsicker with Compass point. Please go ahead.
Well hi, good morning.
I Wonder if we could go back to the buyback for a minute I just want to clarify so after the two names personally parts of what are the faraway small point 6 million shares remaining in your authorization.
That rate numbers, there, yes, yes, okay and the end here.
It's oracle you've been active above current levels on can you just share with US why you went on need do half of that this year.
Well you know again, Laurie we want to be careful about how how we allocate out buybacks of you know as Sean said, we do have.
$75 million on so built in for 2021, but clearly we don't want to get over our skis in terms of.
Buying at valuations that are too high right. The earn back on debt you know would not be.
We would not be good for us so.
We're trying to assess where the market is where evaluations are going and where.
We're confident in out of business, but again, we want to be careful about where we are in.
Want to make sure that when we enter back when we continue our buyback program that we're doing it in a prudent way yeah, Laurie we increased the dividend and extra of any actually that we had.
Originally planned in our strategic plan.
So that picks up about $10 million returned to the shareholders and then.
When you look at the economic uncertainty that's why we're hedging our bets here, a little bit where that kind of put some number out there. We don't want all of our promise to deliver with respect the buybacks.
Okay that makes sense, Okay, and then I wonder if the if we could just switch back over the the multifamily loans of 37 million that they came on deferral where was that located.
That was in Washington D. C is about 600 of unit apartments.
That was the make up of excellent growth.
I think right and then do you have.
For our multifamily loans of 7 billion round numbers 3 billion in New York do you have of repo on what New York City multifamily deferrals law.
Yes.
New York City multifamily the phone excuse me of many.
74 million I'm, sorry $91 million.
Finding one on hustle.
That's on the 91 million of the round number of $3 billion was on Jeff for all.
The 90 million $91 million of the $635 million is on the ease of.
Most of our multifamily loans in Manhattan, and the weighted average LTV of those loans in Manhattan.
<unk> 53 per cent.
That's my answer and that's up about the.
From last quarter that number was around 12 million.
I don't think of it I don't know Lorie I don't have yeah. Okay. Okay fair enough on so just on New York can.
Can you give us a refresh in terms of the overall New York City.
For all of exposure I think last quarter of 313 million the gist.
Of your of your total loans.
How much of it is New York City of deferral, and then do you have a breakdown in terms of.
You know on that.
That's all.
It's $371 million in Manhattan of the 635 of its 371 and.
And the breakdown is $91 million multifamily.
$38 million in CRE C&I is $1 million.
And hotels lodging is $241 million.
Okay. Thanks, I'll leave it there.
The next question is from Zach Westerlund with Stephens. Please go ahead.
Good morning, guys at the exact westerlund filling in for Matt Breese.
How are you all day.
Good. Thanks, just one really quick one for me what was P. P. P income for the quarter.
Well, we sold out P. P P loans DAC and in the fourth quarter and we the revenue on it was about $7 million overall for the quarter or for the quarter of Zack it was less than $1 billion.
Much.
Alright, great I appreciate that thank you.
Yes.
This concludes our question and answer session I would like to turn the conference back over to Kevin Cummings for any closing remarks.
Okay. Thank you Gary.
Our retail and lending teams are engaged and excited to be working and more importantly by helping our customers and our communities through this pandemic and I want to thank them for all of their efforts over the last.
910 months.
Last year has not been easy, but we have face the challenge of continuing to get stronger and more adaptable as we navigate the changes for these unprecedented events.
So all of the challenges uncertainties on hardships.
We are of stronger, but maybe a more humble bank and understands that we are not driving the bus not only passengers.
We understand that it's not enough for the banks to be successful, but this year will be our year to leave an imprint on our story or our history.
This year will be our year to create the legacy of significance for our employees our customers and the communities that we share and if we take care of them hopefully our shareholders will prosper.
During this crisis, we didn't give people what they wanted we gave them what they needed.
And I think at the end of the day everyone needs inspiration.
The one the tone and everyone needs vary.
And that face the most importantly is the belief it ourselves on bank, our communities and our country to be the very best we can be during these troubled and unprecedented times.
I'm happy to report.
For the hard work of all of them and members of our retail and health care teams.
We will be announcing shortly of major grant or regional hospital.
The support that new treatment center for the post Covid care.
Yeah.
One of of the few such scientists in our region and around the country. This center will serve as both of the clinical and research based facility.
For the trade.
All of this COVID-19 patients and will be named the investors Bank post Covid care Center and.
When I think about it what better on legacy to have and to make a community of <unk>.
Little bit better today than it was yesterday.
And that in a nutshell is our bank's mission.
And we look forward to 2021.
With much of optimism and it's gonna be a year of great possibilities.
I want to thank you for your time today.
That's where all of the be safe and enjoy the Super Bowl of next week.
On yesterday's zoom calls with the boomer until the each pick different teams. So one of them has to be right.
The Kansas City, and sort of Tampa Bay.
I think I'm going to go on with country then the chiefs.
Because in reference to Mark the to Kevins I will never underestimate Tom Brady.
Even rate it should be a good game and try it another point of hopefully seeing you all soon at a conference a commodity bad or an industry event in person be safe and stay healthy. Thank you for your time today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yeah.
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