ISBC 2017 Form 10-K & 2018 Proxy Statement

FORM 10-K the growth in the commercial loan portfolio. This increase was offset by a decrease of 12 basis points in the weighted average yield on net loans to 4.10%. Prepayment penalties, which are included in interest income, totaled $22.0 million for the year ended December 31, 2016 compared to $21.0 million for the year ended December 31, 2015. Interest income on all other interest-earning assets, excluding loans, increased by $9.3 million, or 13.6%, to $77.6 million for the year ended December 31, 2016 which is attributable to a $250.8 million increase in the average balance of all other interest earning assets, excluding loans, to $3.58 billion for the year ended December 31, 2016. In addition, the weighted average yield on interest-earning assets, excluding loans, increased 12 basis points to 2.17%. Interest Expense. Total interest expense increased by $16.7 million, or 12.2%, to $153.3 million for the year ended December 31, 2016. Interest expense on interest-bearing deposits increased $10.6 million, or 14.9%, to $82.1 million for the year ended December 31, 2016. The average balance of total interest-bearing deposits increased $1.06 billion, or 9.2% to $12.57 billion for the year ended December 31, 2016. In addition, the weighted average cost of interest-bearing deposits increased 3 basis points to 0.65% for the year ended December 31, 2016. Interest expense on borrowed funds increased by $6.1 million, or 9.3%, to $71.3 million for the year ended December 31, 2016. The average balance of borrowed funds increased $658.8 million or 20.9%, to $3.82 billion for the year ended December 31, 2016. This increase was offset by a decrease of 20 basis points in the weighted average cost of borrowings to 1.87% for the year ended December 31, 2016. Non-Interest Income. Total non-interest income decreased by $2.9 million, or 7.3%, to $37.2 million for the year ended December 31, 2016. Gain on loans decreased for the year ended December 31, 2016 primarily as a result of fewer loan sales at the Bank. Loan sales at our mortgage subsidiary were consistent year over year. In addition, gain on sale of other real estate owned decreased $1.5 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. These decreases were offset by an increase of $2.1 million in gain on securities transactions for the year ended December 31, 2016 primarily due to the sale of securities totaling $69.1 million, resulting in a gain of $3.1 million. Non-Interest Expense. Total non-interest expense was $358.6 million for the year ended December 31, 2016, an increase of $30.2 million, or 9.2% as compared to the year ended December 31, 2015. Compensation and fringe benefits increased $20.4 million for the year ended December 31, 2016. The increase was primarily due to an increase of $12.8 million in equity incentive expense for the year ended December 31, 2016 resulting from the restricted stock and stock option grants on June 23, 2015 to certain employees, officers and directors of the Company, pursuant to the Investors Bancorp, Inc. 2015 Equity Incentive Plan; additions to our staff to support our growth and continued build out of our risk management and operating infrastructure; as well as normal merit increases. These increases were partially offset by decreases of approximately $1.7 million in benefit expenses related to the freezing of both the defined benefit pension plan and supplemental executive retirement wage replacement plan that was approved by the Board of Directors during the fourth quarter of 2016. Office occupancy and equipment expense increased $5.4 million for the year ended December 31, 2016 primarily due to new branch openings. Professional fees and other operating expenses increased $4.0 million and $2.3 million, respectively for the year ended December 31, 2016 as we continue to enhance additional risk management and operational infrastructure as our company grows and we enhance our employee training and development programs. Included in professional fees for the three months ended December 31, 2016 is $840,000 related to the recently announced termination of the Bank of Princeton acquisition. Income Taxes. Income tax expense was $106.9 million and $99.4 million for the years ended December 31, 2016 and December 31, 2015, respectively. In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU No. 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows, and accounting for forfeitures. In the fourth quarter of 2016 the Company adopted ASU No. 2016-09. Adjustments to previously reported 2016 interim periods were made to reflect the adoption of this ASU. 64