ISBC 2017 Form 10-K & 2018 Proxy Statement

33 our geographic footprint and improve our financial performance. In May 2014, we raised net proceeds of $2.2 billion in equity upon the completion of the second step mutual conversion (“Second Step Conversion”). As we deploy the capital raised in our Second Step Conversion, we remain mindful of our income performance and shareholder return metrics. For 2017, our return on average equity (“ROE”), adjusted for the impact of the Tax Cuts and Jobs Act, was 5.56% as compared to the median of our selected peer banking companies of 8.45%. This difference is primarily due to our excess capital position. As we continue to grow and leverage our capital, we expect our ROE to increase. Our total shareholder return (“TSR”) for the one, two and three year period ended December 31, 2017 was 1.94%, 16.89% and 32.26%, respectively. Capital management is a key component of our business strategy. We continue to execute on a strategy of prudent capital management to create stockholder value. During 2017, we accomplished this through a combination of organic growth, stock repurchases and dividends. Since receiving approval in March 2015 for our repurchase program, we have repurchased 67.4 million shares totaling $805.4 million at an average price of $11.95. For the year ended December 31, 2017 our dividend payout ratio was 75% which includes a 12.5% dividend increase in the fourth quarter of 2017 to $0.09 per share. Additionally, in 2017, we made significant investments in our risk management infrastructure and branch franchise as we continued to work diligently on BSA remediation efforts. These efforts remain a top priority of the Company. These costs had an impact on our non-interest expense, which increased $60.0 million. Our financial results in 2017 included a $49.2 million increase to income tax expense related to the enactment of the Tax Cuts and Jobs Act in December 2017, while 2016 included a $10.4 million decrease to income tax expense related to the adoption of Accounting Standard Update 2016-09. Total assets increased $1.95 billion, or 8.4%, to $25.13 billion at December 31, 2017 from $23.17 billion at December 31, 2016, driven mainly by loan growth of $1.28 billion year-over-year. One of our key operating objectives has been and continues to be maintaining a high level of asset quality. Our allowance for loan losses as a percentage of loans was 1.15% at December 31, 2017, which is above our peers. For 2017, non-performing assets increased $44.3 million. Included in this increase was $25.9 million of commercial loans which we classified as non-accrual, but were performing in accordance with their contractual terms. We continue to proactively and diligently work to resolve non-performing loans in light of the impact that low economic growth, rising interest rates and regional real estate market conditions may have on our portfolio. $181.5 $192.1 $179.6 (1) 2015 2016 2017 Net Income (in millions) 0.69% 0.47% 0.61% 2015 2016 2017 Credit Quality Non-Performing Assets / Assets PROXY STATEMENT