ISBC 2017 Form 10-K & 2018 Proxy Statement

FORM 10-K Interest Expense. Total interest expense increased by $48.6 million, or 31.7%, to $201.9 million for the year ended December 31, 2017. Interest expense on interest-bearing deposits increased $31.5 million, or 38.4%, to $113.5 million for the year ended December 31, 2017. The average balance of total interest-bearing deposits increased $1.37 billion, or 10.9%, to $13.93 billion for the year ended December 31, 2017. In addition, the weighted average cost of interest-bearing deposits increased 16 basis points to 0.81% for the year ended December 31, 2017. Interest expense on borrowed funds increased by $17.1 million, or 24.0%, to $88.4 million for the year ended December 31, 2017. The average balance of borrowed funds increased $859.5 million or 22.5%, to $4.68 billion for the year ended December 31, 2017. In addition, the weighted average cost of borrowings increased 2 basis points to 1.89% for the year ended December 31, 2017. Non-Interest Income. Total non-interest income decreased by $1.6 million, or 4.2%, to $35.6 million for the year ended December 31, 2017. Gain on securities transactions decreased $1.8 million for the year ended December 31, 2017. In addition, gain on loans decreased $1.6 million and other income decreased $1.1 million attributed to non-depository investment products. These decreases were offset by an increase of $3.2 million in fees and service charges for the year ended December 31, 2017. Non-Interest Expense. Total non-interest expense was $418.6 million for the year ended December 31, 2017, an increase of $60.0 million, or 16.7%, as compared to the year ended December 31, 2016. In December 2017, we announced a plan to reduce operating expenses including a workforce reduction and the closure of branches. This plan resulted in the recognition of $5.9 million of expenses during the year ended December 31, 2017 attributed to $3.4 million of severance benefits and $2.5 million related to the branch closures. In addition, professional fees increased $18.7 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016, largely attributable to BSA remediation efforts and the continued risk management infrastructure enhancements. Compensation and fringe benefits increased $17.1 million, excluding the workforce reduction severance benefits, for the year ended December 31, 2017 as a result of additions to our staff to support continued growth and continued build out of our risk management and operating infrastructure, as well as normal merit increases, partially offset by lower pension costs. Advertising and promotional expenses increased $5.8 million due to our current advertising campaigns and federal insurance premiums increased $4.4 million for the year ended December 31, 2017. Income Taxes. Income tax expense was $153.8 million and $106.9 million for the years ended December 31, 2017 and December 31, 2016, respectively. In December 2017, the Tax Act was enacted and resulted in the Company recognizing a $49.2 million increase to income tax expense due to the revaluation of the Company’s deferred tax assets during the year ended December 31, 2017. The effective tax rate was 54.8% for the year ended December 31, 2017 and 35.8% for the year ended December 31, 2016. Additionally, income tax expense includes the excess tax benefits related to the Company’s stock plans of $1.7 million for the year ended December 31, 2017 and $10.4 million for the year ended December 31, 2016. Comparison of Operating Results for the Year Ended December 31, 2016 and 2015 Net Income. Net income for the year ended December 31, 2016 was $192.1 million compared to net income of $181.5 million for the year ended December 31, 2015. Net Interest Income. Net interest income increased by $45.1 million, or 7.6%, to $640.2 million for the year ended December 31, 2016 from $595.1 million for the year ended December 31, 2015. The net interest margin decreased 8 basis points to 3.04% for the year ended December 31, 2016 from 3.12% for the year ended December 31, 2015. Interest and Dividend Income. Total interest and dividend income increased by $61.8 million, or 8.4%, to $793.5 million for the year ended December 31, 2016. Interest income on loans increased by $52.5 million, or 7.9%, to $715.9 million for the year ended December 31, 2016, as a result of a $1.8 billion, or 11.2%, increase in the average balance of net loans to $17.48 billion for the year ended December 31, 2016, primarily attributed to 63