Investors Bancorp, Inc. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2015

Commission file number: 001-36441

Investors Bancorp, Inc.

(Exact name of registrant as specified in its charter)




Delaware		46-4702118
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

101 JFK Parkway, Short Hills, New Jersey		07078
(Address of Principal Executive Offices)		Zip Code

(973) 924-5100

(Registrant’s telephone number)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large accelerated filer	þ		Accelerated filer
Non-accelerated filer		(Do not check if a smaller reporting company)	Smaller reporting company

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of November 2, 2015, the registrant had 359,070,852 shares of common stock, par value $0.01 per share, issued and 338,522,380 outstanding.

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INVESTORS BANCORP, INC.

FORM 10-Q

Index



	Part I. Financial Information
		Page
Item 1. Financial Statements
	Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014	1
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)	3
	Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 2015 and 2014 (unaudited)	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (unaudited)	5
	Notes to Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	59
Part II. Other Information
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	61
	Signature Page	62

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Part I Financial Information



ITEM 1.	FINANCIAL STATEMENTS

INVESTORS BANCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

September 30, 2015 (Unaudited) and December 31, 2014



	September 30, 2015			December 31, 2014
	(In thousands)
ASSETS
Cash and cash equivalents	$	161,613		230,961
Securities available-for-sale, at estimated fair value	1,298,464			1,197,924
Securities held-to-maturity, net (estimated fair value of $1,865,137 and $1,609,365 at September 30, 2015 and December 31, 2014, respectively)	1,796,779			1,564,479
Loans receivable, net	16,152,763			14,887,570
Loans held-for-sale	7,910			6,868
Stock in the Federal Home Loan Bank	182,850			151,287
Accrued interest receivable	61,179			55,267
Other real estate owned	6,643			7,839
Office properties and equipment, net	168,458			160,899
Net deferred tax asset	227,451			231,898
Bank owned life insurance	158,165			161,609
Goodwill and intangible assets	106,839			106,705
Other assets	2,212			10,333
Total assets	$	20,331,326		18,773,639
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits	$	13,341,158		12,172,326
Borrowed funds	3,358,553			2,766,104
Advance payments by borrowers for taxes and insurance	144,522			69,893
Other liabilities	124,909			187,461
Total liabilities	16,969,142			15,195,784
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 authorized shares; none issued	—			—
Common stock, $0.01 par value, 1,000,000,000 shares authorized; 359,070,852 issued at September 30, 2015 and December 31, 2014; 340,642,380 and 358,012,895 outstanding at September 30, 2015 and December 31, 2014, respectively	3,591			3,591
Additional paid-in capital	2,779,175			2,863,108
Retained earnings	908,740			836,639
Treasury stock, at cost; 18,428,472 and 1,057,957 shares at September 30, 2015 and December 31, 2014, respectively	(223,040		)	(11,131	)
Unallocated common stock held by the employee stock ownership plan	(88,396		)	(91,948	)
Accumulated other comprehensive loss	(17,886		)	(22,404	)
Total stockholders’ equity	3,362,184			3,577,855
Total liabilities and stockholders’ equity	$	20,331,326		18,773,639

See accompanying notes to consolidated financial statements.

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INVESTORS BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable and loans held-for-sale	$	169,216	152,397		493,783		447,899
Securities:
Equity	25		24		73		89
Government-sponsored enterprise obligations	11		12		34		35
Mortgage-backed securities	14,171		11,704		40,374		31,808
Municipal bonds and other debt	1,535		1,339		4,151		4,142
Interest-bearing deposits	68		70		124		379
Federal Home Loan Bank stock	1,871		1,512		5,046		5,420
Total interest and dividend income	186,897		167,058		543,585		489,772
Interest expense:
Deposits	18,664		14,489		51,112		43,245
Borrowed Funds	16,959		14,724		48,205		44,728
Total interest expense	35,623		29,213		99,317		87,973
Net interest income	151,274		137,845		444,268		401,799
Provision for loan losses	5,000		9,000		21,000		26,000
Net interest income after provision for loan losses	146,274		128,845		423,268		375,799
Non-interest income
Fees and service charges	4,347		5,173		12,949		15,330
Income on bank owned life insurance	949		1,632		2,961		3,598
Gain on loans, net	2,138		856		6,461		3,764
Gain on securities transactions, net	933		29		1,017		669
Gain on sale of other real estate owned, net	830		270		1,141		733
Other income	2,109		1,912		6,896		7,893
Total non-interest income	11,306		9,872		31,425		31,987
Non-interest expense
Compensation and fringe benefits	49,024		40,137		137,700		133,166
Advertising and promotional expense	3,260		3,046		8,532		9,001
Office occupancy and equipment expense	12,856		12,040		37,398		37,023
Federal deposit insurance premiums	2,200		2,750		6,800		11,550
Stationery, printing, supplies and telephone	1,742		939		3,379		3,335
Professional fees	3,880		4,121		11,593		11,685
Data processing service fees	5,979		6,381		16,775		19,686
Contribution to charitable foundation	—		—		—		20,000
Other operating expenses	6,980		7,170		20,489		20,492
Total non-interest expenses	85,921		76,584		242,666		265,938
Income before income tax expense	71,659		62,133		212,027		141,848
Income tax expense	22,865		23,092		74,924		53,204
Net income	$	48,794	$	39,041	$	137,103	$	88,644
Basic earnings per share	$	0.15	0.11		0.41		0.26
Diluted earnings per share	$	0.15	0.11		0.41		0.25
Weighted average shares outstanding
Basic	324,065,364		343,493,691		333,786,211		344,494,901
Diluted	327,193,519		346,773,543		337,005,469		348,112,740

See accompanying notes to consolidated financial statements.

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INVESTORS BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)



	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2015			2014		2015		2014
	(In thousands)
Net income	$	48,794		39,041		137,103		88,644
Other comprehensive income (loss), net of tax:
Change in funded status of retirement obligations	207			109		626		327
Unrealized gain (loss) on securities available-for-sale	3,198			(2,329	)	3,728		3,555
Accretion of loss on securities reclassified to held to maturity	371			441		1,130		1,310
Reclassification adjustment for security gains included in net income	(1,537		)	—		(1,537	)	(138	)
Other-than-temporary impairment accretion on debt securities	189			199		571		596
Total other comprehensive income (loss)	2,428			(1,580	)	4,518		5,650
Total comprehensive income	$	51,222		37,461		141,621		94,294

See accompanying notes to consolidated financial statements.

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INVESTORS BANCORP, INC. & SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

Nine Months Ended September 30, 2015 and 2014

(Unaudited)



	Common stock			Additional paid-in capital		Retained earnings		Treasury stock		Unallocated common stock held by ESOP		Accumulated other comprehensive loss		Total stockholders’ equity
	(In thousands)
Balance at December 31, 2013	$	1,519		720,766		734,563		(67,046	)	(29,779	)	(25,696	)	1,334,327
Net income	—			—		88,644		—		—		—		88,644
Other comprehensive income, net of tax	—			—		—		—		—		5,650		5,650
Corporate reorganization
Conversion of Investors Bancorp, MHC (213,963,274 shares)	2,140			2,091,579		—		—		—		—		2,093,719
Purchase by ESOP (6,617,421 shares)	66			66,108		—		—		(66,174	)	—		—
Treasury stock retired (14,293,439 shares)	(143		)	(64,126	)	—		64,269		—		—		—
Contribution of MHC	—			—		12,652		—		—		—		12,652
Equity from Gateway acquisition	—			22,000		—		—		—		—		22,000
Purchase of treasury stock (1,295,193 shares)	—					—		(13,524	)	—		—		(13,524	)
Treasury stock allocated to restricted stock plan	—			(390	)	258		132		—		—		—
Compensation cost for stock options and restricted stock	—			13,697		—		—		—		—		13,697
Net tax benefit from stock-based compensation	—			3,344		—		—		—		—		3,344
Option exercise	7			7,703		—		4,577		—		—		12,287
Cash dividend paid ($0.08 per common share)	—			—		(28,238	)	—		—		—		(28,238	)
ESOP shares allocated or committed to be released	—			916		—		—		2,680		—		3,596
Balance at September 30, 2014	$	3,589		2,861,597		807,879		(11,592	)	(93,273	)	(20,046	)	3,548,154

Balance at December 31, 2014	$	3,591		2,863,108		836,639		(11,131	)	(91,948	)	(22,404	)	3,577,855
Net income	—			—		137,103		—		—		—		137,103
Other comprehensive income, net of tax	—			—		—		—		—		4,518		4,518
Purchase of treasury stock (25,312,847 shares)	—			—		—		(304,242	)	—		—		(304,242	)
Treasury stock allocated to restricted stock plan (6,849,832 shares)	—			(85,897	)	5,473		80,424		—		—		—
Compensation cost for stock options and restricted stock	—			4,848		—		—		—		—		4,848
Net tax benefit from stock-based compensation	—			1,944		—		—		—		—		1,944
Option exercise	—			(5,487	)	—		11,909		—		—		6,422
Cash dividend paid ($0.20 per common share)	—			—		(70,475	)	—		—		—		(70,475	)
ESOP shares allocated or committed to be released	—			659		—		—		3,552		—		4,211
Balance at September 30, 2015	$	3,591		2,779,175		908,740		(223,040	)	(88,396	)	(17,886	)	3,362,184

See accompanying notes to consolidated financial statements

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INVESTORS BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)



	Nine Months Ended September 30,
	2015			2014
	(In thousands)
Cash flows from operating activities:
Net income	$	137,103		88,644
Adjustments to reconcile net income to net cash provided by operating activities:
Contribution of stock to charitable foundation	—			10,000
ESOP and stock-based compensation expense	9,060			17,293
Amortization of premiums and accretion of discounts on securities, net	10,795			6,880
Amortization of premiums and accretion of fees and costs on loans, net	(6,032		)	(38	)
Amortization of intangible assets	2,547			2,888
Provision for loan losses	21,000			26,000
Depreciation and amortization of office properties and equipment	10,019			9,423
Gain on securities, net	(1,017		)	(669	)
Mortgage loans originated for sale	(186,979		)	(110,738	)
Proceeds from mortgage loan sales	537,577			146,480
Gain on sales of mortgage loans, net	(4,308		)	(2,044	)
Gain on sale of other real estate owned	(1,141		)	(733	)
Gain on bargain purchase	—			(1,482	)
Income on bank owned life insurance	(2,961		)	(3,598	)
Increase in accrued interest receivable	(5,912		)	(5,575	)
Deferred tax expense (benefit)	58			(1,894	)
Decrease in other assets	5,895			7,822
(Decrease) increase in other liabilities	(61,495		)	51,620
Total adjustments	327,106			151,635
Net cash provided by operating activities	464,209			240,279
Cash flows from investing activities:
Purchases of loans receivable	(188,850		)	(191,726	)
Net originations of loans receivable	(1,468,831		)	(961,503	)
Proceeds from sale of loans held for investment	28,655			1,720
Gain on disposition of loans held for investment	(2,153		)	(1,720	)
Net proceeds from sale of foreclosed real estate	5,568			6,754
Purchases of mortgage-backed securities held to maturity	(413,466		)	(797,516	)
Purchases of debt securities held-to-maturity	(51,429		)	(11,230	)
Purchases of mortgage-backed securities available-for-sale	(289,298		)	(388,798	)
Proceeds from paydowns/maturities on mortgage-backed securities held-to-maturity	197,844			116,088
Proceeds from paydowns on equity securities available for sale	2,844			430
Proceeds from paydowns/maturities on debt securities held-to-maturity	21			11,484
Proceeds from calls/maturities on debt securities held-to-maturity	1,775			—
Proceeds from paydowns/maturities on mortgage-backed securities available-for-sale	186,073			124,566

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Proceeds from sales of mortgage-backed securities available-for-sale	—			37,682
Proceeds from maturity of US Government and agency obligations available-for-sale	—			3,000
Proceeds from maturities of municipal bonds	30,867
Proceeds from sale of equity securities available for sale	—			13,411
Redemption of equity securities available-for-sale	—			164
Proceeds from redemptions of Federal Home Loan Bank stock	122,867			135,172
Purchases of Federal Home Loan Bank stock	(154,430		)	(97,571	)
Purchases of office properties and equipment	(17,578		)	(24,480	)
Death benefit proceeds from bank owned life insurance	6,405			2,249
Cash received from MHC for merger	—			11,307
Cash received, net of cash consideration paid for acquisitions	—			17,917
Net cash used in investing activities	(2,003,116		)	(1,992,600	)
Cash flows from financing activities:
Net increase in deposits	1,168,832			498,115
Net proceeds from sale of common stock	—			2,149,893
Loan to ESOP for purchase of common stock	—			(66,174	)
Repayments of funds borrowed under other repurchase agreements	(10,000		)	(98,205	)
Net increase (decrease) in other borrowings	602,449			(737,660	)
Net increase in advance payments by borrowers for taxes and insurance	74,629			19,960
Dividends paid	(70,475		)	(28,238	)
Exercise of stock options	6,422			12,287
Purchase of treasury stock	(304,242		)	(13,524	)
Net tax benefit from stock-based compensation	1,944			3,344
Net cash provided by financing activities	1,469,559			1,739,798
Net decrease in cash and cash equivalents	(69,348		)	(12,523	)
Cash and cash equivalents at beginning of period	230,961			250,689
Cash and cash equivalents at end of period	$	161,613		238,166
Supplemental cash flow information:
Non-cash investing activities:
Real estate acquired through foreclosure	$	3,686		3,139
Cash paid during the year for:
Interest	98,909			87,939
Income taxes	82,673			59,616
Acquisitions:
Non-cash assets acquired:
Investment securities available for sale	—			50,347
Loans	—			195,062
Goodwill and other intangible assets, net	—			1,853
Other assets	—			21,343
Total non-cash assets acquired	—			268,605
Liabilities assumed:
Deposits	—			254,672
Borrowings	—			5,185
Other liabilities	—			3,184
Total liabilities assumed	—			263,041

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Net non-cash assets acquired	—	5,564

See accompanying notes to consolidated financial statements.

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INVESTORS BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1. Basis of Presentation

Investors Bancorp, Inc. (the “Company”) is a Delaware corporation that was incorporated in December 2013 to be the successor to Investors Bancorp, Inc. (“Old Investors Bancorp”) upon completion of the mutual-to-stock conversion of Investors Bancorp, MHC, the top tier holding company of Old Investors Bancorp. Old Investors Bancorp was the former mid tier holding company for Investors Bank. Prior to completion of the second step conversion, approximately 62% of the shares of common stock of Old Investors Bancorp was owned by Investors Bancorp, MHC. In conjunction with the second step conversion, Investors Bancorp, MHC merged into Old Investors Bancorp (and ceased to exist), and Old Investors Bancorp merged into the Company and the Company became its successor under the name Investors Bancorp, Inc. The second step conversion was completed May 7, 2014. The Company raised net proceeds of $2.15 billion by selling a total of 219,580,695 shares of common stock at $10.00 per share in the second step stock offering and issued 1,000,000 shares of common stock to the Investors Charitable Foundation. Concurrent with the completion of the stock offering, each share of Old Investors Bancorp common stock owned by public stockholders (stockholders other than Investors Bancorp, MHC) was exchanged for 2.55 shares of Company common stock, as such all share information prior to May 7, 2014 has been adjusted to reflect the ratio. A total of 137,560,968 shares of Company common stock were issued in the exchange. The conversion was accounted for as a capital raising transaction by entities under common control. The historical financial results of Investors Bancorp, MHC were immaterial to the results of the Company and therefore upon completion of the conversion, the net assets of Investors Bancorp, MHC were merged into the Company and are reflected as an increase to stockholders' equity. In addition, the second step conversion resulted in the accelerated vesting of all outstanding stock awards as of the conversion date. The withholding of shares for payment of taxes with respect to these awards resulted in treasury stock of 1,101,694 shares.

In the opinion of management, all the adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the nine months ended September 30, 2015 are not necessarily indicative of the results of operations that may be expected for subsequent periods or the full year results.

Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the preparation of the Form 10-Q. The consolidated financial statements presented should be read in conjunction with the Company’s audited consolidated financial statements and notes to the audited consolidated financial statements included in the Company’s December 31, 2014 Annual Report on Form 10-K. Certain reclassifications have been made to prior year amounts to conform to current year presentation.

2. Stock Transactions

Stock Repurchase Programs

In connection with the second step conversion completed on May 7, 2014, the existing stock repurchase plan was terminated. Under applicable federal regulations, the Company was not permitted to implement a stock repurchase program during the first year following completion of the second-step conversion without prior notice to, and the receipt of a non-objection from the Federal Reserve Board. On March 16, 2015, the Company announced it had received approval from the Board of Governors of the Federal Reserve System to commence a 5% buyback program prior to the one-year anniversary of the completion of its second step conversion. Accordingly, the Board of Directors authorized the repurchase of 17,911,561 shares.

On June 9, 2015, the Company announced its second share repurchase program, which authorized the purchase of an additional 10% of its publicly-held outstanding shares of common stock, or approximately 34,779,211 shares. The new repurchase program commenced immediately upon completion of the first repurchase plan on June 30, 2015.

During the nine months ended September 30, 2015, the Company purchased 25,312,847 shares at a cost of $304.2 million, or approximately $12.02 per share.

3. Business Combinations

On January 10, 2014, the Company completed its acquisition of Gateway Community Financial Corp., the federally-chartered holding company for GCF Bank ("Gateway"), which operated 4 branches in Gloucester County, New Jersey. After the purchase accounting adjustments, the Company added $254.7 million in customer deposits and acquired $195.1 million in loans. This transaction generated $1.9 million in core deposit premium. The acquisition was accounted for under the acquisition method

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of accounting as prescribed by Financial Accounting Standards Board ("FASB") ASC 805 “Business Combinations”, as amended. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based on their estimated fair values, net of applicable income tax effects. The acquisition resulted in a bargain purchase gain of $1.5 million, net of tax. In conjunction with the acquisition, Investors Bancorp issued 1,945,079 shares to Investors Bancorp, MHC which was determined using the closing average twenty day stock price of Investors Bancorp's common stock. GCF Bank was merged into the Bank as of the acquisition date.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for Gateway Financial, net of cash consideration paid:



	At January 10, 2014
	(In millions)
Cash and cash equivalents, net	$	17.9
Securities available-for-sale	50.3
Loans receivable	195.1
Accrued interest receivable	0.7
Other real estate owned	0.4
Office properties and equipment, net	4.3
Intangible assets	1.9
Other assets	15.9
Total assets acquired	286.5
Deposits	(254.7		)
Borrowed funds	(5.2		)
Other liabilities	(3.1		)
Total liabilities assumed	(263.0		)
Net assets acquired	$	23.5

The purchase accounting for the Gateway Financial transaction is complete and reflected in the table above and in our consolidated financial statements.

Fair Value Measurement of Assets Acquired and Liabilities Assumed

Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Gateway acquisition based on guidance from ASC 820-10 which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.

Securities. The estimated fair values of the investment securities classified as available for sale were calculated utilizing Level 1 inputs. The prices for these instruments are based upon sales of the securities shortly after the acquisition date. The Company reviewed the data and assumptions used in pricing the securities by its third party provider to ensure the highest level of significant inputs are derived from market observable data.

Loans. Level 3 inputs were utilized to value the acquired loan portfolio and included the use of present value techniques employing cash flow estimates and the incorporated assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine reasonable fair value. Specifically, the Company utilized three separate fair value analyses we believe a market participant might employ in estimating the entire fair value adjustment required under ASC 820-10. The three separate fair valuation methodologies used are: 1) interest rate loan fair value analysis, 2) general credit fair value adjustment, and 3) specific credit fair value adjustment.

To prepare the interest rate fair value analysis, loans were assembled into groupings by characteristics such as loan type, term, collateral and rate. Market rates for similar loans were obtained from various external data sources and reviewed by Company management for reasonableness. The average of these rates was used as the fair value interest rate a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value adjustment.

The general credit fair value adjustment was calculated using a two part general credit fair value analysis; 1) expected lifetime losses and 2) estimated fair value adjustment for qualitative factors. The expected lifetime losses were calculated using

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an average of historical losses of the Company, the acquired banks and peer banks. The adjustment related to qualitative factors was impacted by general economic conditions and the risk related to lack of familiarity with the originator's underwriting process.

To calculate the specific credit fair value adjustment the Company reviewed the acquired loan portfolio for loans meeting the definition of an impaired loan as defined by ASC 310-30. Loans meeting this criteria were reviewed by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value will result in an accretable yield amount. The accretable yield amount will be recognized over the life of the loans on a level yield basis as an adjustment to yield.

Deposits / Core Deposit Premium. Core deposit premium represents the value assigned to demand, interest checking, money market and savings accounts acquired as part of an acquisition. The core deposit premium value represents the future economic benefit, including the present value of future tax benefits, of the potential cost savings from acquiring core deposits as part of an acquisition compared to the cost alternative funding sources and is valued utilizing Level 2 inputs.

Certificates of deposit (time deposits) are not considered to be core deposits as they are assumed to have a low expected average life upon acquisition. The fair value of certificates of deposits represents the present value of the certificates' expected contractual payments discounted by market rates for similar CDs and is valued utilizing Level 2 inputs.

Borrowed Funds. The present value approach was used to determine the fair value of the borrowed funds acquired during 2014. The fair value of the liability represents the present value of the expected payments using the current rate of a replacement borrowing of the same type and remaining term to maturity and is valued utilizing Level 2 inputs.

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4. Earnings Per Share

The following is a summary of our earnings per share calculations and reconciliation of basic to diluted earnings per share.



	For the Three Months Ended September 30,
	2015					2014
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
	(Dollars in thousands, except per share data)
Net Income	$	48,794				$	39,041
Basic earnings per share:
Income available to common stockholders	$	48,794	324,065,364	$	0.15	$	39,041	343,493,691	$	0.11
Effect of dilutive common stock equivalents (1)			3,128,155					3,279,852
Diluted earnings per share:
Income available to common stockholders	$	48,794	327,193,519	$	0.15	$	39,041	346,773,543	$	0.11

(1) For the three months ended September 30, 2015 and 2014, there were 11,604,284 and 28,713 equity awards, respectively, that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented.



	For the Nine Months Ended September 30,
	2015					2014
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
	(Dollars in thousands, except per share data)
Net Income	$	137,103				$	88,644
Basic earnings per share:
Income available to common stockholders	$	137,103	333,786,211	$	0.41	$	88,644	344,494,901	$	0.26
Effect of dilutive common stock equivalents (1)			3,219,258					3,617,839
Diluted earnings per share:
Income available to common stockholders	$	137,103	337,005,469	$	0.41	$	88,644	348,112,740	$	0.25

(1) For the nine months ended September 30, 2015 and 2014, there were 18,454,117 and 143,463 equity awards, respectively, that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented.

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5. Securities

The following tables present the carrying value, gross unrealized gains and losses and estimated fair value for available-for-sale securities and the amortized cost, net unrealized losses, carrying value, gross unrecognized gains and losses and estimated fair value for held-to-maturity securities as of the dates indicated:



	At September 30, 2015
	Carrying value		Gross unrealized gains	Gross unrealized losses	Estimated fair value
	(In thousands)
Available-for-sale:
Equity securities	$	5,844	567	—	6,411
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	546,168		6,901	258	552,811
Federal National Mortgage Association	703,568		10,260	564	713,264
Government National Mortgage Association	25,940		38	—	25,978
Total mortgage-backed securities available-for-sale	1,275,676		17,199	822	1,292,053
Total available-for-sale securities	$	1,281,520	17,766	822	1,298,464



	At September 30, 2015
	Amortized cost		Net unrealized losses (1)		Carrying value	Gross unrecognized gains (2)	Gross unrecognized losses (2)	Estimated fair value
	(In thousands)
Held-to-maturity:
Debt securities:
Government-sponsored enterprises	$	4,272	—		4,272	35	—	4,307
Municipal bonds	44,881		—		44,881	1,406	—	46,287
Corporate and other debt securities	58,622		(24,083	)	34,539	44,280	—	78,819
Total debt securities held-to-maturity	107,775		(24,083	)	83,692	45,721	—	129,413
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	514,520		(2,787	)	511,733	6,283	300	517,716
Federal National Mortgage Association	1,181,781		(2,958	)	1,178,823	17,412	1,036	1,195,199
Government National Mortgage Association	22,502		—		22,502	278	—	22,780
Federal Housing Authorities	29		—		29	—	—	29
Total mortgage-backed securities held-to-maturity	1,718,832		(5,745	)	1,713,087	23,973	1,336	1,735,724
Total held-to-maturity securities	$	1,826,607	(29,828	)	1,796,779	69,694	1,336	1,865,137

(1) Net unrealized losses of held-to-maturity corporate and other debt securities represent the other than temporary charge related to other non-credit factors and is being amortized through accumulated other comprehensive income over the remaining life of the securities. For mortgage-backed securities, it represents the net loss on previously designated available-for sale securities transferred to held-to-maturity at fair value and is being amortized through accumulated other comprehensive income over the remaining life of the securities.

(2) Unrecognized gains and losses of held-to-maturity securities are not reflected in the financial statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as held-to-maturity; or (ii) the date that an other than temporary impairment ("OTTI") charge is recognized on a held-to-maturity security, through the date of the balance sheet.

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	At December 31, 2014
	Carrying value		Gross unrealized gains	Gross unrealized losses	Estimated fair value
	(In thousands)
Available-for-sale:
Equity securities	$	6,887	1,636	—	8,523
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	503,268		5,023	1,008	507,283
Federal National Mortgage Association	675,535		7,641	1,184	681,992
Government National Mortgage Association	125		1	—	126
Total mortgage-backed securities available-for-sale	1,178,928		12,665	2,192	1,189,401
Total available-for-sale securities	$	1,185,815	14,301	2,192	1,197,924



	At December 31, 2014
	Amortized cost		Net unrealized losses (1)		Carrying Value	Gross unrecognized gains (2)	Gross unrecognized losses (2)	Estimated fair value
	(In thousands)
Held-to-maturity:
Debt securities:
Government-sponsored enterprises	$	4,388	—		4,388	15	—	4,403
Municipal bonds	24,320		—		24,320	1,001	—	25,321
Corporate and other debt securities	58,487		(25,047	)	33,440	32,163	367	65,236
Total debt securities held-to-maturity	87,195		(25,047	)	62,148	33,179	367	94,960
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	504,407		(3,770	)	500,637	3,561	1,878	502,320
Federal National Mortgage Association	978,261		(3,885	)	974,376	11,629	1,218	984,787
Government National Mortgage Association	27,136		—		27,136	—	20	27,116
Federal housing authorities	182		—		182	—	—	182
Total mortgage-backed securities held-to-maturity	1,509,986		(7,655	)	1,502,331	15,190	3,116	1,514,405
Total held-to-maturity securities	$	1,597,181	(32,702	)	1,564,479	48,369	3,483	1,609,365

(2) Unrecognized gains and losses of held-to-maturity securities are not reflected in the financial statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as held-to-maturity; or (ii) the date that an OTTI charge is recognized on a held-to-maturity security, through the date of the balance sheet.

A portion of the Company’s securities are pledged to secure borrowings. The contractual maturities of mortgage-backed securities are generally less than 20 years with effective lives expected to be shorter due to anticipated prepayments. Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer, therefore, mortgage-backed securities are not included in the following table. The amortized cost and estimated fair value of debt securities at September 30, 2015, by contractual maturity, are shown below.

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	September 30, 2015
	Carrying Value		Estimated fair value
	(In thousands)
Due in one year or less	$	41,692	41,695
Due after one year through five years	2,456		2,488
Due after five years through ten years	—		—
Due after ten years	39,544		85,230
Total	$	83,692	129,413

Gross unrecognized losses on securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2015 and December 31, 2014, was as follows:



	September 30, 2015
	Less than 12 months			12 months or more		Total
	Estimated fair value		Unrealized losses	Estimated fair value	Unrealized losses	Estimated fair value	Unrealized losses
	(In thousands)
Available-for-sale:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	$	120,493	258	6,098	—	126,591	258
Federal National Mortgage Association	94,138		274	15,659	290	109,797	564
Total available-for-sale securities	$	214,631	532	21,757	290	236,388	822
Held-to-maturity:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	$	79,846	297	84	3	79,930	300
Federal National Mortgage Association	127,654		605	30,224	431	157,878	1,036
Total held-to-maturity securities	$	207,500	902	30,308	434	237,808	1,336
Total	$	422,131	1,434	52,065	724	474,196	2,158

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	December 31, 2014
	Less than 12 months			12 months or more		Total
	Estimated fair value		Unrealized losses	Estimated fair value	Unrealized losses	Estimated fair value	Unrealized losses
	(In thousands)
Available-for-sale:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	$	76,525	426	60,394	582	136,919	1,008
Federal National Mortgage Association	67,017		50	52,519	1,134	119,536	1,184
Total available-for-sale securities	143,542		476	112,913	1,716	256,455	2,192
Held-to-maturity:
Debt securities:
Corporate and other debt securities	$	674	40	233	327	907	367
Total debt securities held-to-maturity	674		40	233	327	907	367
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	199,962		1,043	47,892	835	247,854	1,878
Federal National Mortgage Association	145,520		371	37,517	847	183,037	1,218
Government National Mortgage Association	27,116		20	—	—	27,116	20
Total mortgage-backed securities held-to-maturity	372,598		1,434	85,409	1,682	458,007	3,116
Total held-to-maturity securities	$	373,272	1,474	85,642	2,009	458,914	3,483
Total	$	516,814	1,950	198,555	3,725	715,369	5,675

At September 30, 2015 gross unrealized losses relate to our mortgage-backed-security portfolio which are securities issued by U.S. Government Sponsored Enterprises. The fair values of these securities have been positively impacted by the recent decrease in intermediate-term market interest rates. The gross unrealized losses at December 31, 2014 also relate to our mortgage-backed-security portfolio as well as our corporate and other debt securities whose estimated fair value has been adversely impacted by the economic environment, market interest rates in effect at the time, wider credit spreads and credit deterioration subsequent to the purchase of these securities.

At September 30, 2015, the portfolio of corporate and other debt securities includes trust preferred securities ("TruPS") with an amortized cost and estimated fair values of $34.5 million and $78.8 million, respectively. The following table summarizes the Company’s pooled trust preferred securities as of September 30, 2015 excluding one trust preferred security for which the Company previously recorded a net other-than-temporary impairment charge which resulted in a zero net book balance for the security. At September 30, 2015 the security had a fair value of $100,000. The Company does not own any single-issuer trust preferred securities.

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(Dollars in 000’s)
Description	Class	Book Value		Fair Value		Unrealized Gains		Number of Issuers Currently Performing	Current Deferrals and Defaults as a % of Total Collateral (1)		Expected Deferrals and Defaults as % of Remaining Collateral (2)		Excess Subordination as a % of Performing Collateral (3)		Moody’s/ Fitch Credit Ratings
Alesco PF II	B1	$	375.9	$	792.6	$	416.7	31	7.60	%	6.70	%	—	%	Caa1 / C
Alesco PF III	B1	983.5		2,102.5		1,119.0		29	12.40	%	7.10	%	—	%	Ca / C
Alesco PF III	B2	393.5		841.0		447.5		29	12.40	%	7.10	%	—	%	Ca / C
Alesco PF IV	B1	465.4		845.0		379.6		38	1.20	%	9.00	%	—	%	C / C
Alesco PF VI	C2	862.9		1,869.1		1,006.2		42	7.60	%	11.20	%	—	%	Ca / C
MM Comm III	B	225.2		3,149.2		2,923.9		6	30.00	%	6.30	%	12.80	%	Ba1 / BB
MMCaps XVII	C1	1,897.6		2,772.0		874.4		31	13.80	%	7.50	%	—	%	B3 / C
Tpref I	B	1,717.2		2,576.6		859.4		5	54.20	%	11.00	%	—	%	Ca / WD
Tpref II	B	4,568.5		6,643.6		2,075.1		20	33.30	%	8.50	%	—	%	Caa3 / C
US Cap I	B2	1,023.5		1,990.8		967.3		31	10.50	%	6.60	%	—	%	B3 / CCC
US Cap I	B1	3,053.3		5,972.4		2,919.1		31	10.50	%	6.60	%	—	%	B3 / CCC
US Cap II	B1	1,609.8		3,266.0		1,656.2		35	13.40	%	9.80	%	—	%	B2 / C
US Cap III	B1	2,076.2		3,349.7		1,273.5		29	16.20	%	9.40	%	—	%	Caa2 / C
Trapeza XII	C1	2,138.1		5,164.7		3,026.6		33	20.00	%	9.50	%	—	%	C / C
Trapeza XIII	C1	2,244.7		5,932.0		3,687.3		48	13.50	%	9.20	%	—	%	Caa1 / CCC
Pretsl XXII	A1	345.3		1,287.1		941.7		70	17.70	%	11.50	%	31.40	%	Aa3 / A
Pretsl XXIV	A1	1,488.9		4,007.2		2,518.3		63	24.90	%	12.10	%	24.80	%	A1 / BBB
Pretsl IV	Mez	156.5		222.9		66.4		6	18.00	%	6.40	%	19.00	%	B1 / BB
Pretsl VII	Mez	581.2		2,287.2		1,706.1		12	47.80	%	9.50	%	—	%	Ca / WD
Pretsl XV	B1	915.6		2,508.4		1,592.8		60	11.60	%	11.20	%	—	%	Caa3 / C
Pretsl XVII	C	740.0		2,233.4		1,493.4		38	21.10	%	13.20	%	—	%	C / CC
Pretsl XVIII	C	1,797.4		4,114.6		2,317.1		49	22.70	%	9.30	%	—	%	Caa3 / CC
Pretsl XIX	C	842.1		2,083.7		1,241.6		53	5.20	%	12.40	%	—	%	Caa3 / CC
Pretsl XX	C	505.1		1,198.5		693.4		44	18.60	%	12.00	%	—	%	Ca / C
Pretsl XXI	C1	767.0		3,689.0		2,921.9		50	16.60	%	11.10	%	—	%	Caa2 / C
Pretsl XXIII	A-FP	207.2		1,641.1		1,433.9		91	19.10	%	11.10	%	18.30	%	Aa2 / BBB
Pretsl XXIV	C1	800.8		1,681.4		880.5		63	24.90	%	12.10	%	—	%	C / C
Pretsl XXV	C1	537.5		1,349.9		812.4		51	24.00	%	11.40	%	—	%	C / C
Pretsl XXVI	C1	589.4		1,761.8		1,172.4		55	20.70	%	10.50	%	—	%	Caa3 / C
Pref Pretsl IX	B2	405.3		905.6		500.3		27	25.50	%	10.00	%	—	%	B1 / C
Pretsl X	C2	224.7		480.3		255.5		33	26.90	%	8.50	%	—	%	Caa1 / C
		$	34,539	$	78,719	$	44,180


(1)	At September 30, 2015, current deferrals and defaults as a percent of collateral ranged from 1.2% to 54.2%.


(2)	At September 30, 2015, expected deferrals and defaults as a percent of remaining collateral ranged from 6.3% to 13.2%.

(3)

Excess subordination represents the amount of remaining performing collateral that is in excess of the amount needed to pay off a specified class of bonds and all classes senior to the specified class. Excess subordination reduces an investor’s potential risk of loss on their investment as excess subordination absorbs principal and interest shortfalls in the event underlying issuers are not able to make their contractual payments.

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Other-Than-Temporary Impairment (“OTTI”)

We conduct a quarterly review and evaluation of the securities portfolio to determine if the value of any security has declined below its cost or amortized cost, and whether such decline is other-than-temporary. If a determination is made that a debt security is other-than-temporarily impaired, the Company will estimate the amount of the unrealized loss that is attributable to credit and all other non-credit related factors. The credit related component will be recognized as an other-than-temporary impairment charge in non-interest income. The non-credit related component will be recorded as an adjustment to accumulated other comprehensive income, net of tax.

With the assistance of a valuation specialist, we evaluate the credit and performance of each underlying issuer of our trust preferred securities by deriving probabilities and assumptions for default, recovery and prepayment/amortization for the expected cash flows for each security. At September 30, 2015, management deemed that the present value of projected cash flows for each security was greater than the book value and did not recognize any additional OTTI charges for the period ended September 30, 2015. At September 30, 2015, non-credit related OTTI recorded on the previously impaired pooled trust preferred securities was $24.1 million ($14.2 million after-tax) and is being accreted into income over the estimated remaining life of the securities.

The following table presents the changes in the credit loss component of the impairment loss of debt securities that the Company has written down for such loss as an other-than-temporary impairment recognized in earnings.



	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2015			2014		2015		2014
	(In thousands)
Balance of credit related OTTI, beginning of period	$	106,872		110,522		108,817		112,235
Additions:
Initial credit impairments	—			—		—		—
Subsequent credit impairments	—			—		—		—
Reductions:
Accretion of credit loss impairment due to an increase in expected cash flows	(962		)	(853	)	(2,907	)	(2,566	)
Reductions for securities sold or paid off during the period	(4,770		)	—		(4,770	)	—
Balance of credit related OTTI, end of period	$	101,140		109,669		101,140		109,669

The credit loss component of the impairment loss represents the difference between the present value of expected future cash flows and the amortized cost basis of the securities prior to considering credit losses. The beginning balance represents the credit loss component for debt securities for which other-than-temporary impairment occurred prior to the period presented. If other-than-temporary impairment is recognized in earnings for credit impaired debt securities, they would be presented as additions in two components based upon whether the current period is the first time a debt security was credit impaired (initial credit impairment) or is not the first time a debt security was credit impaired (subsequent credit impairments). The credit loss component is reduced if the Company sells, intends to sell or believes it will be required to sell previously credit impaired debt securities. Additionally, the credit loss component is reduced if (i) the Company receives cash flows in excess of what it expected to receive over the remaining life of the credit impaired debt security, (ii) the security matures or (iii) the security is fully written down.

Realized Gains and Losses

Gains and losses on the sale of all securities are determined using the specific identification method. For the three and nine months ended September 30, 2015, the Company received proceeds of $2.6 million on an equity security from the available-for-sale portfolio resulting in a gross realized gain of $1.5 million. For the three and nine months ended September 30, 2015, the Company recognized gains on available-for-sale securities of $42,000 and $126,000, respectively, related to capital distributions of equity securities from the available-for-sale portfolio. For the three and nine months ended September 30, 2015, there were no sales of securities from held-to-maturity portfolio, however the Company recognized a loss of $646,000 on a TruP security which was liquidated by its Trustee.

For the three and nine months ended September 30, 2014, the Company recognized gains on available-for-sale securities of $29,000 and $669,000, of which $29,000 and $145,000 were related to capital distributions of equity securities from the available-for-sale portfolio. In December 2013, regulatory agencies adopted a rule on the treatment of certain collateralized debt obligations backed by trust preferred securities to implement sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the

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Volcker Rule. As a result of the evaluation of the impact of the Volcker Rule, the Company reclassified one trust preferred security to available-for-sale. The Company sold the security during the nine months ended September 30, 2014. Proceeds from the sale of that security was $911,000 which resulted in gross realized gains of $474,000. For the three and nine months ended September 30, 2014, there were no sales of securities from held-to-maturity portfolio, however for the nine months ended September 30, 2014, the Company recognized a gain of $50,000 on a TruP security which was entirely liquidated by its Trustee. For the three and nine months ended September 30, 2014 there were no losses recognized.

6. Loans Receivable, Net

The detail of the loan portfolio as of September 30, 2015 and December 31, 2014 was as follows:



	September 30, 2015			December 31, 2014
	(In thousands)
Multi-family loans	$	5,878,532		5,048,477
Commercial real estate loans	3,773,427			3,139,824
Commercial and industrial loans	922,335			544,402
Construction loans	205,647			143,664
Total commercial loans	10,779,941			8,876,367
Residential mortgage loans	5,111,776			5,764,896
Consumer and other loans	478,527			440,500
Total loans excluding PCI loans	16,370,244			15,081,763
PCI loans	12,845			17,789
Net unamortized premiums and deferred loan costs (1)	(11,868		)	(11,698	)
Allowance for loan losses	(218,458		)	(200,284	)
Net loans	$	16,152,763		14,887,570

(1) Included in unamortized premiums and deferred loan costs are accretable purchase accounting adjustments in connection with loans acquired.

Purchased Credit-Impaired Loans

Purchased Credit-Impaired ("PCI") loans, are loans acquired at a discount that is due, in part, to credit quality. PCI loans are accounted for in accordance with ASC Subtopic 310-30 and are initially recorded at fair value as determined by the present value of expected future cash flows with no valuation allowance reflected in the allowance for loan losses.

The following table presents information regarding the estimates of the contractually required payments, the cash flows expected to be collected and the estimated fair value of the PCI loans acquired in the Gateway Financial acquisition as of January 10, 2014:



	January 10, 2014
	(In thousands)
Contractually required principal and interest	$	4,172
Contractual cash flows not expected to be collected (non-accretable difference)	(1,024		)
Expected cash flows to be collected	3,148
Interest component of expected cash flows (accretable yield)	(216		)
Fair value of acquired loans	$	2,932

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The following table presents changes in the accretable yield for PCI loans during the three and nine months ended September 30, 2015 and 2014:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(In thousands)
Balance, beginning of period	740			1,401			971			4,154
Acquisitions	—			—			—			216
Accretion (1)	(232		)	(193		)	(463		)	(3,162		)
Net reclassification from non-accretable difference	—			—			—			—
Balance, end of period	$	508		$	1,208		$	508		$	1,208

(1) Includes the impact of PCI loans transferred to held for sale at lower cost or market as of March 31, 2014.

Allowance for Loan Loss

An analysis of the allowance for loan losses is summarized as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014

Balance at beginning of the period	$	213,962		$	186,070		$	200,284		$	173,928
Loans charged off	(1,390		)	(8,060		)	(5,667		)	(15,163		)
Recoveries	886			4,074			2,841			6,319
Net charge-offs	(504		)	(3,986		)	(2,826		)	(8,844		)
Provision for loan losses	5,000			9,000			21,000			26,000
Balance at end of the period	$	218,458		$	191,084		$	218,458		$	191,084

The allowance for loan losses is the estimated amount considered necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses that is charged against income. In determining the allowance for loan losses, we make significant estimates and therefore, have identified the allowance as a critical accounting policy. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

The allowance for loan losses has been determined in accordance with U.S. GAAP, under which we are required to maintain an allowance for probable losses at the balance sheet date. We are responsible for the timely and periodic determination of the amount of the allowance required. We believe that our allowance for loan losses is adequate to cover specifically identifiable losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable. Loans acquired are marked to fair value on the date of acquisition with no valuation allowance reflected in the allowance for loan losses. In conjunction with the quarterly evaluation of the adequacy of the allowance for loan loss, the Company performs an analysis on acquired loans to determine whether or not there has been subsequent deterioration in relation to those loans. If deterioration has occurred, the Company will include these loans in their calculation of the allowance for loan loss. For the nine months ended September 30, 2015, the Company recorded charge-offs related to PCI loans acquired of $184,000.

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value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans, including those loans not meeting the Company’s definition of an impaired loan, by type of loan, risk rating (if applicable) and payment history. In addition, the Company's residential portfolio is subdivided between fixed and adjustable rate loans as adjustable rate loans are deemed to be subject to more credit risk if interest rates rise. We also analyze historical loss experience using the appropriate look-back and loss emergence period. The loss factors used are based on the Company's historical loss experience over a look-back period determined to provide the appropriate amount of data to accurately estimate expected losses as of period end. Additionally, management assesses the loss emergence period for the expected losses of each loan segment and adjusts each historical loss factor accordingly. The loss emergence period is the estimated time from the date of a loss event (such as a personal bankruptcy) to the actual recognition of the loss (typically via the first full or partial loan charge-off), and is determined based upon a study of the Company's past loss experience by loan segment. The loss factors may also be adjusted to account for qualitative or environmental factors that are likely to cause estimated credit losses inherent in the portfolio to differ from historical loss experience. This evaluation is based on delinquency trends, general economic conditions, geographic concentrations, and industry and peer comparisons, but is inherently subjective as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be different than the allowance for loan losses we have established which could have a material negative effect on our financial results.

The allowance contains reserves identified as unallocated. These reserves reflect management's attempt to ensure that the overall allowance reflects a margin for imprecision and the uncertainty that is inherent in estimates of probable credit losses.

The results of this quarterly process are reviewed and approved by management. A summary of loan loss allowances is presented to the Board of Directors on a quarterly basis.

Our primary lending emphasis has been the origination of commercial real estate loans, multi-family loans, commercial and industrial loans and the origination and purchase of residential mortgage loans. We also originate home equity loans and home equity lines of credit. These activities resulted in a concentration of loans secured by real estate property and businesses located in New Jersey and New York. Based on the composition of our loan portfolio, we believe the primary risks are increases in interest rates, a decline in the general economy, and declines in real estate market values in New Jersey, New York and surrounding states. Any one or combination of these events may adversely affect our loan portfolio resulting in increased delinquencies, loan losses and future levels of loan loss provisions. We consider it important to maintain the ratio of our allowance for loan losses to total loans at an adequate level given current economic conditions and the composition of the portfolio. As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisal valuations are instrumental in determining the value of properties. Negative changes to appraisal assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans.

For commercial real estate, multi-family and construction loans, the Company obtains an appraisal for all collateral dependent loans upon origination. An updated appraisal is obtained annually for loans rated substandard or worse with a balance of $500,000 or greater. An updated appraisal is obtained bi-annually for loans rated special mention with a balance of $1.0 million or greater. This is done in order to determine the specific reserve or charge off needed. As part of the allowance for loan loss process, the Company reviews each collateral dependent commercial real estate loan previously classified as non-accrual and/or impaired and assesses whether there has been an adverse change in the collateral value supporting the loan. The Company utilizes information from its commercial lending officers and its credit department and loan workout department’s knowledge of changes in real estate conditions in our lending area to identify if possible deterioration of collateral value has occurred. Based on the severity of the changes in market conditions, management determines if an updated appraisal is warranted or if downward adjustments to the previous appraisal are warranted. If it is determined that the deterioration of the collateral value is significant enough to warrant ordering a new appraisal, an estimate of the downward adjustments to the existing appraised value is used in assessing if additional specific reserves are necessary until the updated appraisal is received.

For homogeneous residential mortgage loans, the Company’s policy is to obtain an appraisal upon the origination of the loan and an updated appraisal in the event a loan becomes 90 days delinquent. Thereafter, the appraisal is updated every two years if the

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loan remains in non-performing status and the foreclosure process has not been completed. Management adjusts the appraised value of residential loans to reflect estimated selling costs and declines in the real estate market.

Management believes the potential risk for outdated appraisals for impaired and other non-performing loans has been mitigated due to the fact that the loans are individually assessed to determine that the loan’s carrying value is not in excess of the fair value of the collateral. Loans are generally charged off after an analysis is completed which indicates that collectability of the full principal balance is in doubt.

Our allowance for loan losses reflects probable losses considering, among other things, the weak economic conditions, the actual growth and change in composition of our loan portfolio, the level of our non-performing loans and our charge-off experience. We believe the allowance for loan losses reflects the inherent credit risk in our portfolio.

Although we believe we have established and maintained the allowance for loan losses at adequate levels, additions may be necessary if the current economic environment deteriorates. Management uses the best information available; however, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change. In addition, the Federal Deposit Insurance Corporation and the New Jersey Department of Banking and Insurance, as an integral part of their examination process, will periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.

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The following tables present the balance in the allowance for loan losses and the recorded investment in loans including PCI loans, by portfolio segment and based on impairment method as of September 30, 2015 and December 31, 2014:



	September 30, 2015
	Multi- Family Loans			Commercial Real Estate Loans		Commercial and Industrial Loans		Construction Loans		Residential Mortgage Loans		Consumer and Other Loans		Unallocated		Total
	(Dollars in thousands)
Allowance for loan losses:
Beginning balance-December 31, 2014	$	71,147		44,030		20,759		6,488		47,936		3,347		6,577		200,284
Charge-offs	(273		)	(757	)	(279	)	(367	)	(3,624	)	(367	)	—		(5,667	)
Recoveries	421			436		219		266		1,245		254		—		2,841
Provision	7,571			4,701		12,198		1,807		(1,974	)	471		(3,774	)	21,000
Ending balance-September 30, 2015	$	78,866		48,410		32,897		8,194		43,583		3,705		2,803		218,458

Individually evaluated for impairment	$	—		—		2,461		—		1,928		—		—		4,389
Collectively evaluated for impairment	78,866			48,410		30,436		8,194		41,655		3,705		2,803		214,069
Loans acquired with deteriorated credit quality	—			—		—		—		—		—		—		—
Balance at September 30, 2015	$	78,866		48,410		32,897		8,194		43,583		3,705		2,803		218,458

Loans:
Individually evaluated for impairment	$	3,239		19,373		7,396		3,201		23,964		263		—		57,436
Collectively evaluated for impairment	5,875,293			3,754,054		914,939		202,446		5,087,812		478,264		—		16,312,808
Loans acquired with deteriorated credit quality	—			6,820		53		1,786		3,713		473		—		12,845
Balance at September 30, 2015	$	5,878,532		3,780,247		922,388		207,433		5,115,489		479,000		—		16,383,089

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	December 31, 2014
	Multi- Family Loans			Commercial Real Estate Loans		Commercial and Industrial Loans		Construction Loans		Residential Mortgage Loans		Consumer and Other Loans		Unallocated		Total
	(Dollars in thousands)
Allowance for loan losses:
Beginning balance-December 31, 2013	$	42,103		46,657		9,273		8,947		51,760		2,161		13,027		173,928
Charge-offs	(323		)	(6,147	)	(2,447	)	(640	)	(7,715	)	(972	)	—		(18,244	)
Recoveries	3,784			201		516		799		1,783		17		—		7,100
Provision	25,583			3,319		13,417		(2,618	)	2,108		2,141		(6,450	)	37,500
Ending balance-December 31, 2014	$	71,147		44,030		20,759		6,488		47,936		3,347		6,577		200,284

Individually evaluated for impairment	$	—		274		—		—		1,865		—		—		2,139
Collectively evaluated for impairment	71,147			43,756		20,759		6,488		46,071		3,347		6,577		198,145
Loans acquired with deteriorated credit quality	—			—		—		—		—		—		—		—
Balance at December 31, 2014	$	71,147		44,030		20,759		6,488		47,936		3,347		6,577		200,284

Loans:
Individually evaluated for impairment	$	4,111		22,995		3,310		6,798		23,285		—		—		60,499
Collectively evaluated for impairment	5,044,366			3,116,829		541,092		136,866		5,741,611		440,500		—		15,021,264
Loans acquired with deteriorated credit quality	637			7,329		56		4,732		4,581		454		—		17,789
Balance at December 31, 2014	$	5,049,114		3,147,153		544,458		148,396		5,769,477		440,954		—		15,099,552

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: the most current financial information available, historical payment experience, credit documentation, public information and current economic trends, among other factors. For non-homogeneous loans, such as commercial and commercial real estate loans the Company analyzes the loans individually by classifying the loans as to credit risk and assesses the probability of collection for each type of class. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Pass - “Pass” assets are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.

Watch - A "Watch" asset has all the characteristics of a Pass asset but warrant more than the normal level of supervision. These loans may require more detailed reporting to management because some aspects of underwriting may not conform to policy or adverse

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events may have affected or could affect the cash flow or ability to continue operating profitably, provided, however, the events do not constitute an undue credit risk.

Special Mention - A “Special Mention” asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Residential loans delinquent 30-89 days are considered special mention.

Substandard - A “Substandard” asset is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Residential loans delinquent 90 days or greater are considered substandard.

Doubtful - An asset classified “Doubtful” has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.

Loss - An asset or portion thereof, classified “Loss” is considered uncollectible and of such little value that its continuance on the institution’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur. As such, it is not practical or desirable to defer the write-off.

The following tables present the risk category of loans as of September 30, 2015 and December 31, 2014 by class of loans excluding PCI loans:



	September 30, 2015
	Pass		Watch	Special Mention	Substandard	Doubtful	Loss	Total
	(In thousands)
Commercial loans:
Multi-family	$	5,473,862	346,801	31,999	25,870	—	—	5,878,532
Commercial real estate	3,371,101		306,387	31,449	64,490	—	—	3,773,427
Commercial and industrial	741,771		153,787	13,313	13,464	—	—	922,335
Construction	191,773		9,594	—	4,280	—	—	205,647
Total commercial loans	9,778,507		816,569	76,761	108,104	—	—	10,779,941
Residential mortgage	4,973,394		—	36,017	102,365	—	—	5,111,776
Consumer and other	469,755		—	2,146	6,626	—	—	478,527
Total	$	15,221,656	816,569	114,924	217,095	—	—	16,370,244



	December 31, 2014
	Pass		Watch	Special Mention	Substandard	Doubtful	Loss	Total
	(In thousands)
Commercial loans:
Multi-family	$	4,710,124	247,921	62,886	27,546	—	—	5,048,477
Commercial real estate	2,757,949		276,660	29,248	75,967	—	—	3,139,824
Commercial and industrial	405,021		110,374	20,321	8,686	—	—	544,402
Construction	134,356		2,228	2,075	5,005	—	—	143,664
Total commercial loans	8,007,450		637,183	114,530	117,204	—	—	8,876,367
Residential mortgage	5,641,190		—	29,710	93,996	—	—	5,764,896
Consumer and other	433,968		—	2,339	4,193	—	—	440,500
Total	$	14,082,608	637,183	146,579	215,393	—	—	15,081,763

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The following tables present the payment status of the recorded investment in past due loans as of September 30, 2015 and December 31, 2014 by class of loans excluding PCI loans:



	September 30, 2015
	30-59 Days		60-89 Days	Greater than 90 Days	Total Past Due	Current	Total Loans Receivable
	(In thousands)
Commercial loans:
Multi-family	$	11,161	—	1,971	13,132	5,865,400	5,878,532
Commercial real estate	7,752		270	8,175	16,197	3,757,230	3,773,427
Commercial and industrial	4,948		859	2,150	7,957	914,378	922,335
Construction	—		—	968	968	204,679	205,647
Total commercial loans	23,861		1,129	13,264	38,254	10,741,687	10,779,941
Residential mortgage	23,577		15,831	80,898	120,306	4,991,470	5,111,776
Consumer and other	1,522		721	6,154	8,397	470,130	478,527
Total	$	48,960	17,681	100,316	166,957	16,203,287	16,370,244



	December 31, 2014
	30-59 Days		60-89 Days	Greater than 90 Days	Total Past Due	Current	Total Loans Receivable
	(In thousands)
Commercial loans:
Multi-family	$	698	239	2,989	3,926	5,044,551	5,048,477
Commercial real estate	6,566		778	13,940	21,284	3,118,540	3,139,824
Commercial and industrial	792		395	2,903	4,090	540,312	544,402
Construction	—		—	4,345	4,345	139,319	143,664
Total commercial loans	8,056		1,412	24,177	33,645	8,842,722	8,876,367
Residential mortgage	23,712		8,900	75,610	108,222	5,656,674	5,764,896
Consumer and other	1,334		1,006	4,211	6,551	433,949	440,500
Total	$	33,102	11,318	103,998	148,418	14,933,345	15,081,763

The following table presents non-accrual loans excluding PCI loans at the dates indicated:



	September 30, 2015			December 31, 2014
	# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
Non-accrual:
Multi-family	4	$	3,012	2	$	2,989
Commercial real estate	40	13,799		36	13,940
Commercial and industrial	9	6,499		11	2,903
Construction	5	968		7	4,345
Total commercial loans	58	24,278		56	24,177
Residential mortgage and consumer	506	99,867		406	84,182
Total non-accrual loans	564	$	124,145	462	$	108,359

Included in the non-accrual table above are TDR loans whose payment status is current but the Company has classified as non-accrual as the loans have not maintained their current payment status for six consecutive months under the restructured terms and therefore do not meet the criteria for accrual status. As of September 30, 2015, these loans are comprised of 13 residential TDR loans

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totaling $2.8 million, 7 commercial TDR loans totaling $2.9 million, 3 consumer loans totaling $263,000 and 1 multi-family TDR loan totaling $1.0 million. There were 9 residential TDR loans totaling $2.8 million which were also 30-89 days delinquent and classified as non-accrual. As of December 31, 2014, these loans are comprised of 5 residential TDR loans totaling $1.5 million. There were 10 residential TDR loans totaling $2.9 million which were also 30-89 days delinquent and classified as non-accrual. The Company has no loans past due 90 days or more delinquent that are still accruing interest. PCI loans are excluded from non-accrual loans, as they are recorded at fair value based on the present value of expected future cash flows. As of September 30, 2015, PCI loans with a carrying value of $12.8 million included $7.1 million of which were current and $5.7 million of which were 90 days or more delinquent. As of December 31, 2014, PCI loans with a carrying value of $17.8 million included $9.2 million of which were current and $8.6 million of which were 90 days or more delinquent.

At September 30, 2015 and December 31, 2014, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans which totaled $57.4 million and $60.5 million, respectively, with allocations of the allowance for loan losses of $4.4 million and $2.1 million, respectively. During the three months ended September 30, 2015 and 2014, interest income received and recognized on these loans totaled $656,000 and $678,000, respectively. During the nine months ended September 30, 2015 and 2014, interest income received and recognized on these loans totaled $2.1 million and $1.9 million, respectively.

The following tables present loans individually evaluated for impairment by portfolio segment as of September 30, 2015 and

December 31, 2014:



	September 30, 2015
	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
	(In thousands)
With no related allowance:
Multi-family	$	3,239	6,836	—	2,938	96
Commercial real estate	19,373		24,087	—	19,309	849
Commercial and industrial	3,047		3,046	—	2,838	52
Construction	3,201		3,207	—	6,896	106
Total commercial loans	28,860		37,176	—	31,981	1,103
Residential mortgage and consumer	7,907		10,608	—	7,323	413
With an allowance recorded:
Multi-family	—		—	—	—	—
Commercial real estate	—		—	—	—	—
Commercial and industrial	4,349		4,349	2,461	4,431	147
Construction	—		—	—	—	—
Total commercial loans	4,349		4,349	2,461	4,431	147
Residential mortgage and consumer	16,320		16,793	1,928	16,559	406
Total:
Multi-family	3,239		6,836	—	2,938	96
Commercial real estate	19,373		24,087	—	19,309	849
Commercial and industrial	7,396		7,395	2,461	7,269	199
Construction	3,201		3,207	—	6,896	106
Total commercial loans	33,209		41,525	2,461	36,412	1,250
Residential mortgage and consumer	24,227		27,401	1,928	23,882	819
Total impaired loans	$	57,436	68,926	4,389	60,294	2,069

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	December 31, 2014
	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
	(In thousands)
With no related allowance:
Multi-family	$	4,111	7,846	—	4,746	135
Commercial real estate	19,901		23,601	—	17,056	879
Commercial and industrial	3,310		3,310	—	1,985	152
Construction	6,798		9,292	—	13,609	410
Total commercial loans	34,120		44,049	—	37,396	1,576
Residential mortgage and consumer	6,755		8,830	—	6,606	370
With an allowance recorded:
Multi-family	—		—	—	—	—
Commercial real estate	3,094		4,760	274	3,106	72
Commercial and industrial	—		—	—	—	—
Construction	—		—	—	—	—
Total commercial loans	3,094		4,760	274	3,106	72
Residential mortgage and consumer	16,530		16,882	1,865	16,547	507
Total:
Multi-family	4,111		7,846	—	4,746	135
Commercial real estate	22,995		28,361	274	20,162	951
Commercial and industrial	3,310		3,310	—	1,985	152
Construction	6,798		9,292	—	13,609	410
Total commercial loans	37,214		48,809	274	40,502	1,648
Residential mortgage and consumer	23,285		25,712	1,865	23,153	877
Total impaired loans	$	60,499	74,521	2,139	63,655	2,525

The average recorded investment is the annual average calculated based upon the ending quarterly balances. The interest income recognized is the year to date interest income recognized on a cash basis.

Troubled Debt Restructurings

On a case-by-case basis, the Company may agree to modify the contractual terms of a borrower’s loan to remain competitive and assist customers who may be experiencing financial difficulty, as well as preserve the Company’s position in the loan. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a troubled debt restructured loan ("TDR").

Substantially all of our TDR loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan, or a combination of these two methods. These modifications rarely result in the forgiveness of principal or accrued interest. In addition, we frequently obtain additional collateral or guarantor support when modifying commercial loans. Restructured loans remain on non accrual status until there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.

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The following table presents the total troubled debt restructured loans at September 30, 2015 and December 31, 2014. There were two residential PCI loans that were classified as TDRs and are included in the table below at September 30, 2015. There were no PCI loans classified as a TDR for the period ended December 31, 2014.



	September 30, 2015
	Accrual			Non-accrual			Total
	# of loans	Amount		# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
Commercial loans:
Multi-family	1	$	551	1	$	1,041	2	$	1,592
Commercial real estate	5	13,256		8	6,102		13	19,358
Commercial and industrial	2	1,115		—	—		2	1,115
Construction	1	937		2	478		3	1,415
Total commercial loans	9	15,859		11	7,621		20	23,480
Residential mortgage and consumer	29	9,377		53	14,850		82	24,227
Total	38	$	25,236	64	$	22,471	102	$	47,707



	December 31, 2014
	Accrual			Non-accrual			Total
	# of loans	Amount		# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
Commercial loans:
Multi-family	2	$	1,122	—	$	—	2	$	1,122
Commercial real estate	8	15,250		1	3,197		9	18,447
Commercial and industrial	2	1,381		—	—		2	1,381
Construction	2	3,066		—	—		2	3,066
Total commercial loans	14	20,819		1	3,197		15	24,016
Residential mortgage and consumer	41	14,805		29	8,456		70	23,261
Total	55	$	35,624	30	$	11,653	85	$	47,277

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The following table presents information about troubled debt restructurings that occurred during the three and nine months ended September 30, 2015 and 2014:



	Three Months Ended September 30,
	2015					2014
	Number of Loans	Pre-modification Recorded Investment		Post- modification Recorded Investment		Number of Loans	Pre-modification Recorded Investment		Post- modification Recorded Investment
	(Dollars in thousands)
Troubled Debt Restructings:
Multi-family	1	$	1,115	$	1,115	—	$	—	$	—
Commercial real estate	2	699		699		2	9,549		6,549
Construction	1	182		182		—	—		—
Total commercial loans	4	1,996		1,996		2	9,549		6,549
Residential mortgage and consumer	3	376		376		—	—		—



	Nine Months Ended September 30,
	2015					2014
	Number of Loans	Pre-modification Recorded Investment		Post- modification Recorded Investment		Number of Loans	Pre-modification Recorded Investment		Post- modification Recorded Investment
	(Dollars in thousands)
Troubled Debt Restructings:
Multi-family	1	$	1,115	$	1,115	—	$	—	$	—
Commercial real estate	3	777		777		3	10,657		7,657
Construction	2	1,508		1,508		—	—		—
Total commercial loans	6	3,400		3,400		3	10,657		7,657
Residential mortgage and consumer	16	2,830		2,830		8	2,546		2,546

Post-modification recorded investment represents the net book balance immediately following modification.

All TDRs are impaired loans, which are individually evaluated for impairment, as discussed above. Collateral dependant impaired loans classified as TDRs were written down to the estimated fair value of the collateral. There were no charge-offs for collateral dependant TDRs during the three and nine months ended September 30, 2015 and 2014. The allowance for loan losses associated with the TDRs presented in the above tables totaled $1.9 million and $1.9 million at September 30, 2015 and December 31, 2014, respectively.

Residential mortgage loan modifications primarily involved the reduction in loan interest rate and extension of loan maturity dates. All residential loans deemed to be TDRs were modified to reflect a reduction in interest rates to current market rates. Several residential TDRs include step up interest rates in their modified terms which will impact their weighted average yield in the future. For the three and nine months ended September 30, 2015, the commerical loans which qualified as a TDR involved the maturity and payment terms being modified. As of September 30, 2015 and 2014, the Company has no additional fundings to any borrowers classified as a troubled debt restructuring.

The following table presents information about pre and post modification interest yield for troubled debt restructurings which occurred during the three and nine months ended September 30, 2015 and 2014:

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	Three Months Ended September 30,
	2015					2014
	Number of Loans	Pre-modification Interest Yield		Post- modification Interest Yield		Number of Loans	Pre-modification Interest Yield		Post- modification Interest Yield

Troubled Debt Restructings:
Multi-family	1	3.88	%	3.88	%	—	—	%	—	%
Commercial real estate	2	4.73	%	5.78	%	2	6.42	%	5.49	%
Construction	1	4.75	%	4.75	%	—	—		—
Residential mortgage and consumer	3	5.28	%	3.19	%	—	—		—



	Nine Months Ended September 30,
	2015					2014
	Number of Loans	Pre-modification Interest Yield		Post- modification Interest Yield		Number of Loans	Pre-modification Interest Yield		Post- modification Interest Yield

Troubled Debt Restructings:
Multi-family	1	3.88	%	3.88	%	—	—	%	—	%
Commercial real estate	3	4.78	%	5.64	%	3	6.59	%	5.75	%
Construction	2	4.97	%	4.97	%	—	—		—
Residential mortgage and consumer	16	5.19	%	3.39	%	8	5.18	%	3.57	%

Loans modified as TDRs in the previous 12 months to September 30, 2015, for which there was a payment default consisted of 1 residential loan with a recorded investment of $478,000 at September 30, 2015. There were no loans modified as TDRs in the previous 12 months to September 30, 2014, for which there was a payment default.

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7. Deposits

Deposits are summarized as follows:



	September 30, 2015		December 31, 2014
	(In thousands)
Checking accounts	$	4,186,633	3,892,839
Money market deposits	3,670,902		3,390,238
Savings	2,121,817		2,318,911
Total transaction accounts	9,979,352		9,601,988
Certificates of deposit	3,361,806		2,570,338
Total deposits	$	13,341,158	12,172,326

8. Goodwill and Other Intangible Assets

The following table summarizes net intangible assets and goodwill at September 30, 2015 and December 31, 2014:



	September 30, 2015		December 31, 2014
	(In thousands)
Mortgage servicing rights	$	16,965	14,261
Core deposit premiums	12,135		14,683
Other	168		190
Total other intangible assets	29,268		29,134
Goodwill	77,571		77,571
Goodwill and intangible assets	$	106,839	106,705

The following table summarizes other intangible assets as of September 30, 2015 and December 31, 2014:



	Gross Intangible Asset		Accumulated Amortization		Valuation Allowance		Net Intangible Assets
	(In thousands)
September 30, 2015
Mortgage servicing rights	$	24,604	(7,518	)	(121	)	16,965
Core deposit premiums	25,058		(12,923	)	—		12,135
Other	300		(132	)	—		168
Total other intangible assets	$	49,962	(20,573	)	(121	)	29,268

December 31, 2014
Mortgage servicing rights	$	23,925	(9,543	)	(121	)	14,261
Core deposit premiums	25,058		(10,375	)	—		14,683
Other	300		(110	)	—		190
Total other intangible assets	$	49,283	(20,028	)	(121	)	29,134

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Mortgage servicing rights are accounted for using the amortization method. Under this method, the Company amortizes the loan servicing asset in proportion to, and over the period of, estimated net servicing revenues. The Company sells loans on a servicing-retained basis. Loans that were sold on this basis, amounted to $2.16 billion and $1.85 billion at September 30, 2015 and December 31, 2014 respectively, all of which relate to residential mortgage loans. At September 30, 2015 and December 31, 2014, the servicing asset, included in intangible assets, had an estimated fair value of $17.0 million and $14.3 million, respectively. Fair value was based on expected future cash flows considering a weighted average discount rate of 10.21%, a weighted average constant prepayment rate on mortgages of 11.64% and a weighted average life of 6.1 years.

Core deposit premiums are amortized using an accelerated method and having a weighted average amortization period of 10 years.

9. Equity Incentive Plan

At the annual meeting held on June 9, 2015, stockholders of the Company approved the Investors Bancorp, Inc. 2015 Equity Incentive Plan ("2015 Plan"). On June 23, 2015, the Company granted to directors and certain employees a total of 6,849,832 restricted stock awards and 11,576,612 stock options to purchase Company stock. The restricted stock awards and stock options were issued out of the 2015 Plan, which allows the Company to grant common stock or options to purchase common stock at specific prices to directors and employees of the Company. The 2015 Plan provides for the issuance or delivery of up to 30,881,296 shares (13,234,841 restricted stock awards and 17,646,455 stock options) of Investors Bancorp, Inc. common stock.

Restricted shares granted under the 2015 Plan vest in equal installments, over the service period generally ranging from 5 to 7 years beginning one year from the date of grant. Additionally, certain restricted shares awarded are performance vesting awards, which may or may not vest depending upon the attainment of certain corporate financial targets. The vesting of restricted stock may accelerate in accordance with the terms of the 2015 Plan. The product of the number of shares granted and the grant date closing market price of the Company's common stock determine the fair value of restricted shares under the 2015 Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period.

Stock options granted under the 2015 Plan vest in equal installments, over the service period generally ranging from 5 to 7 years beginning one year from the date of grant. The vesting of stock options may accelerate in accordance with the terms of the 2015 Plan. Stock options were granted at an exercise price equal to the fair value of the Company's common stock on the grant date based on the closing market price and have an expiration period of 10 years.

The fair value of stock options granted on June 23, 2015 was estimated utilizing the Black-Scholes option pricing model using the following assumptions:



	Stock Options Granted

Weighted average expected life (in years)	7.43
Weighted average risk-free rate of return	1.96		%
Weighted average volatility	25.33		%
Dividend yield	1.59		%
Weighted average fair value of options granted	$	3.12

The weighted average expected life of the stock option represents the period of time that stock options are expected to be outstanding and is estimated using historical data of stock option exercises and forfeitures. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the historical volatility of the Company's stock. The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards.

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The Company applied ASC, 718 “Compensation- Stock Compensation," ("ASC 718") and began to expense the fair value of all share-based compensation granted over the requisite service periods. ASC 718 requires the Company to report as a financing cash flow the benefits of realized tax deductions in excess of previously recognized tax benefits on compensation expense. In accordance with SEC Staff Accounting Bulletin No. 107 (“SAB 107”), the Company classified share-based compensation for employees and outside directors within “compensation and fringe benefits” in the consolidated statements of income to correspond with the same line item as the cash compensation paid.

The following table presents the share based compensation expense for the three and nine months ended September 30, 2015 and 2014. Upon completion of the mutual-to-stock conversion of Investors Bancorp, MHC on May 7, 2014, vesting accelerated for both stock options and restricted stock outstanding awards and all applicable expenses were recognized during the period.



	Three Months Ended September 30,			Nine Months Ended September 30,
	2015		2014	2015	2014
	(Dollars in thousands)
Stock option expense	$	1,499	11	1,513	1,775
Restricted stock expense	2,994		—	3,335	11,922
Total share based compensation expense	$	4,493	11	4,848	13,697

The following is a summary of the Company’s stock option activity as of September 30, 2015:



	Number of Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at December 31, 2014	9,092,584			$6.06	2.8		$46,984
Granted	11,576,612		12.54		10.2
Exercised	(1,092,908	)	5.88		2.0
Forfeited	—		—
Expired	—		—
Outstanding at September 30, 2015	19,576,288			$9.90	6.9		$50,062
Exercisable at September 30, 2015	7,976,341			$6.07	2.1		$50,023

Expected future expenses relating to the non-vested options outstanding as of September 30, 2015 is $34.1 million over a weighted average period of 6.1 years.

The following is a summary of the Company’s restricted shares as of September 30, 2015:



	Number of Shares Awarded	Weighted Average Grant Date fair Value
Outstanding at December 31, 2014	—	$	—
Granted	6,849,832	12.54
Vested	—	—
Forfeited	—	—
Outstanding and non vested at September 30, 2015	6,849,832	$	12.54

Expected future expenses relating to the non-vested restricted shares outstanding as of September 30, 2015 is $81.7 million over a weighted average period of 5.9 years.

10. Net Periodic Benefit Plan Expense

The Company has a Supplemental Executive Retirement Wage Replacement Plan (SERP). The SERP is a nonqualified, defined benefit plan which provides benefits to employees as designated by the Compensation Committee of the Board of Directors if their benefits and/or contributions under the pension plan are limited by the Internal Revenue Code. The Company also has a

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nonqualified, defined benefit plan which provides benefits to certain directors. The SERP and the directors’ plan are unfunded and the costs of the plans are recognized over the period that services are provided.

The components of net periodic benefit cost are as follows:



	Three Months Ended September 30,			Nine Months Ended September 30,
	2015		2014	2015	2014
	(In thousands)
Service cost	$	774	580	2,322	1,740
Interest cost	374		331	1,123	992
Amortization of:
Prior service cost	12		24	37	73
Net gain	321		158	962	474
Total net periodic benefit cost	$	1,481	1,093	4,444	3,279

Due to the unfunded nature of these plans, no contributions have been made or were expected to be made to the SERP and Directors’ plans during the nine months ended September 30, 2015.

The Company also maintains a defined benefit pension plan. Since it is a multiemployer plan, costs of the pension plan are based on contributions required to be made to the pension plan. We contributed $2.8 million to the defined benefit pension plan during the nine months ended September 30, 2015. We anticipate contributing funds to the plan to meet any minimum funding requirements for the remainder of 2015.

11. Comprehensive Income (loss)

The components of comprehensive income (loss), both gross and net of tax, are as follows:



	Three Months Ended September 30,
	2015							2014
	Gross			Tax		Net		Gross		Tax		Net
	(Dollars in thousands)
Net income	$	71,659		(22,865	)	48,794		62,133		(23,092	)	39,041
Other comprehensive income (loss):
Change in funded status of retirement obligations	351			(144	)	207		182		(73	)	109
Unrealized gain (loss) on securities available-for-sale	6,357			(3,159	)	3,198		(3,973	)	1,644		(2,329	)
Accretion of loss on securities reclassified to held to maturity available for sale	627			(256	)	371		745		(304	)	441
Reclassification adjustment for security gains included in net income	(1,537		)	—		(1,537	)	—		—		—
Other-than-temporary impairment accretion on debt securities	319			(130	)	189		336		(137	)	199
Total other comprehensive income (loss)	6,117			(3,689	)	2,428		(2,710	)	1,130		(1,580	)
Total comprehensive income	$	77,776		(26,554	)	51,222		59,423		(21,962	)	37,461

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	Nine Months Ended September 30,
	2015							2014
	Gross			Tax		Net		Gross		Tax		Net
	(Dollars in thousands)
Net income	$	212,027		(74,924	)	137,103		141,848		(53,204	)	88,644
Other comprehensive income (loss):
Change in funded status of retirement obligations	1,058			(432	)	626		547		(220	)	327
Unrealized gain (loss) on securities available-for-sale	6,372			(2,644	)	3,728		5,874		(2,319	)	3,555
Accretion of loss on securities reclassified to held to maturity from available for sale	1,910			(780	)	1,130		2,215		(905	)	1,310
Reclassification adjustment for security gains included in net income	(1,537		)	—		(1,537	)	(233	)	95		(138	)
Other-than-temporary impairment accretion on debt securities	965			(394	)	571		1,007		(411	)	596
Total other comprehensive income	8,768			(4,250	)	4,518		9,410		(3,760	)	5,650
Total comprehensive income	$	220,795		(79,174	)	141,621		151,258		(56,964	)	94,294

The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the nine months ended September 30, 2015 and 2014:



	Change in funded status of retirement obligations			Accretion of loss on securities reclassified to held to maturity		Unrealized gain on securities available-for-sale	Reclassification adjustment for losses included in net income		Other-than- temporary impairment accretion on debt securities		Total accumulated other comprehensive loss
	(Dollars in thousands)
Balance - December 31, 2014	$	(10,911	)	(4,528	)	7,851	—		(14,816	)	(22,404	)
Net change	626			1,130		3,728	(1,537	)	571		4,518
Balance - September 30, 2015	$	(10,285	)	(3,398	)	11,579	(1,537	)	(14,245	)	(17,886	)

Balance - December 31, 2013	$	(5,869	)	(6,255	)	1,900	138		(15,610	)	(25,696	)
Net change	327			1,310		3,555	(138	)	596		5,650
Balance - September 30, 2014	$	(5,542	)	(4,945	)	5,455	—		(15,014	)	(20,046	)

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The following table presents information about amounts reclassified from accumulated other comprehensive loss to the consolidated statement of income and the affected line item in the statement where net income is presented.



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015		2014
	(In thousands)
Reclassification adjustment for gains included in net income
Gain on security transactions	$	(1,537	)	—		(1,537	)	(233	)
Change in funded status of retirement obligations (1)
Compensation and fringe benefits:
Amortization of net obligation or asset	—			6		—		19
Amortization of prior service cost	12			31		40		93
Amortization of net gain	339			145		1,018		435
Compensation and fringe benefits	351			182		1,058		547
Total before tax	(1,186		)	182		(835	)	314
Income tax	(144		)	(73	)	(432	)	(131	)
Net of tax	$	(1,330	)	109		(1,267	)	183

(1) These accumulated other comprehensive loss components are included in the computations of net periodic cost for our defined benefit plans and other post-retirement benefit plan. See Note 10 for additional details.

12. Fair Value Measurements

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Our securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets or liabilities on a non-recurring basis, such as held-to-maturity securities, mortgage servicing rights (“MSR”), loans receivable and real estate owned (“REO”). These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets. Additionally, in connection with our mortgage banking activities we have commitments to fund loans held-for-sale and commitments to sell loans, which are considered free-standing derivative instruments, the fair values of which are not material to our financial condition or results of operations.

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, we group our assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:


•	Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.


•	Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

•

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets Measured at Fair Value on a Recurring Basis

Securities available-for-sale

Our available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity. The fair values of available-for-

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sale securities are based on quoted market prices (Level 1), where available. The Company obtains one price for each security primarily from a third-party pricing service (pricing service), which generally uses quoted or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded (Level 2), the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes. As the Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in adjustment in the prices obtained from the pricing service.

The following tables provide the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a recurring basis at September 30, 2015 and December 31, 2014.



	Carrying Value at September 30, 2015
	Total		Level 1	Level 2	Level 3
	(In thousands)
Securities available for sale:
Equity securities	$	6,411	—	6,411	—
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	552,811		—	552,811	—
Federal National Mortgage Association	713,264		—	713,264	—
Government National Mortgage Association	25,978		—	25,978	—
Total mortgage-backed securities available-for-sale	1,292,053		—	1,292,053	—
Total securities available-for-sale	$	1,298,464	—	1,298,464	—



	Carrying Value at December 31, 2014
	Total		Level 1	Level 2	Level 3
	(In thousands)
Securities available for sale:
Equity securities	$	8,523	—	8,523	—
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	507,283		—	507,283	—
Federal National Mortgage Association	681,992		—	681,992	—
Government National Mortgage Association	126		—	126	—
Total mortgage-backed securities available-for-sale	1,189,401		—	1,189,401	—
Total securities available-for-sale	$	1,197,924	—	1,197,924	—

There have been no changes in the methodologies used at September 30, 2015 from December 31, 2014, and there were no transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2015.

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The changes in Level 3 assets measured at fair value on a recurring basis for the three and nine months ended September 30, 2015 and 2014 are summarized below:



	Three Months Ended September 30,			Nine Months Ended September 30,
	2015		2014	2015	2014
	(Dollars in thousands)
Balance beginning of period (1)	$	—	—	—	670
Transfers from held-to-maturity	—		—	—	—
Total net (losses) gains for the period included in:
Net income	—		—	—	470
Other comprehensive income (loss)	—		—	—	(229	)
Sales	—		—	—	(911	)
Settlements	—		—	—	—
Balance end of period	$	—	—	—	—

(1) Represents a trust preferred security transferred to available for sale at its fair value on December 31, 2013 due to the impact of the Volcker Rule adopted in December 2013. The Volcker Rule requires specific treatment of certain collateralized debt obligations backed by trust preferred securities. The security was subsequently sold during the nine months ended September 30, 2014.

Assets Measured at Fair Value on a Non-Recurring Basis

Mortgage Servicing Rights, Net

Mortgage servicing rights are carried at the lower of cost or estimated fair value. The estimated fair value of MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements. The prepayment speed and the discount rate are considered two of the most significant inputs in the model. At September 30, 2015, the fair value model used prepayment speeds ranging from 6.30% to 41.70% and a discount rate of 10.21% for the valuation of the mortgage servicing rights. At December 31, 2014, the fair value model used prepayment speeds ranging from 5.70% to 29.40% and a discount rate of 10.17% for the valuation of the mortgage servicing rights. A significant degree of judgment is involved in valuing the mortgage servicing rights using Level 3 inputs. The use of different assumptions could have a significant positive or negative effect on the fair value estimate.

Loans Receivable

Loans which meet certain criteria are evaluated individually for impairment. A loan is deemed to be impaired if it is a commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, loans modified in a troubled debt restructuring, and other commercial loans with $1.0 million in outstanding principal if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. Our impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling costs. In order to estimate fair value, once interest or principal payments are 90 days delinquent or when the timely collection of such income is considered doubtful an updated appraisal is obtained. Thereafter, in the event the most recent appraisal does not reflect the current market conditions due to the passage of time and other factors, management will obtain an updated appraisal or make downward adjustments to the existing appraised value based on their knowledge of the property, local real estate market conditions, recent real estate transactions, and for estimated selling costs, if applicable. At September 30, 2015, appraisals were discounted in a range of 0%-25%.

Other Real Estate Owned

Other Real Estate Owned is recorded at estimated fair value, less estimated selling costs when acquired, thus establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are discounted an additional 0%-25% for estimated costs to sell. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If the estimated fair value of the asset declines, a writedown is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions. Operating costs after acquisition are generally expensed.

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The following tables provides the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis at September 30, 2015 and December 31, 2014. For the three months ended September 30, 2015 there was no change to mortgage servicing rights measured at fair value on a non-recurring basis. For the year ended December 31, 2014, there was no change to carrying value of impaired loans measured at fair value on a non-recurring basis.



					Carrying Value at September 30, 2015
Security Type	Valuation Technique	Unobservable Input	Range	Weighted Average	Total		Level 1	Level 2	Level 3
					(In thousands)
Impaired loans	Market comparable	Probability of default	0.0% - 25.0%	12.10%	1,647		—	—	1,647
Other real estate owned	Market comparable	Lack of marketability	0.0% - 25.0%	20.18%	250		—	—	250
					$	1,897	—	—	1,897



					Carrying Value at December 31, 2014
Security Type	Valuation Technique	Unobservable Input	Range	Weighted Average	Total		Level 1	Level 2	Level 3
					(In thousands)
MSR, net	Estimated cash flow	Prepayment speeds	5.70% - 29.40%	11.22%	$	13,081	—	—	13,081
Other real estate owned	Market comparable	Lack of marketability	0.0% - 25.0%	15.87%	566		—	—	566
					$	13,647	—	—	13,647

Other Fair Value Disclosures

Fair value estimates, methods and assumptions for the Company’s financial instruments not recorded at fair value on a recurring or non-recurring basis are set forth below.

Cash and Cash Equivalents

For cash and due from banks, the carrying amount approximates fair value.

Securities Held-to-Maturity

Our held-to-maturity portfolio, consisting primarily of mortgage backed securities and other debt securities for which we have a positive intent and ability to hold to maturity, is carried at amortized cost. Management utilizes various inputs to determine the fair value of the portfolio. The Company obtains one price for each security primarily from a third-party pricing service, which generally uses quoted or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes. In the absence of quoted prices and in an illiquid market, valuation techniques, which require inputs that are both significant to the fair value measurement and unobservable, are used to determine fair value of the investment. Valuation techniques are based on various assumptions, including, but not limited to cash flows, discount rates, rate of return, adjustments for nonperformance and liquidity, and liquidation values. As the Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in adjustment in the prices obtained from the pricing service.

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FHLB Stock

The fair value of the Federal Home Loan Bank of New York ("FHLB") stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock and the Bank is required to hold a minimum investment based upon the unpaid principal of home mortgage loans and/or FHLB advances outstanding.

Loans

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories.

The fair value of performing loans, except residential mortgage loans, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs, if applicable. Fair value for significant non-performing loans is based on recent external appraisals of collateral securing such loans, adjusted for the timing of anticipated cash flows. Fair values estimated in this manner do not fully incorporate an exit price approach to fair value, but instead are based on a comparison to current market rates for comparable loans.

Deposit Liabilities

The fair value of deposits with no stated maturity, such as savings, checking accounts and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates which approximate currently offered for deposits of similar remaining maturities.

Borrowings

The fair value of borrowings are based on securities dealers’ estimated fair values, when available, or estimated using discounted contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.

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Commitments to Extend Credit

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For commitments to originate fixed rate loans, fair value also considers the difference between current levels of interest rates and the committed rates. Due to the short-term nature of our outstanding commitments, the fair values of these commitments are immaterial to our financial condition.

The carrying values and estimated fair values of the Company’s financial instruments are presented in the following table.



	September 30, 2015
	Carrying		Estimated Fair Value
	value		Total	Level 1	Level 2	Level 3
	(In thousands)
Financial assets:
Cash and cash equivalents	$	161,613	161,613	161,613	—	—
Securities available-for-sale	1,298,464		1,298,464	—	1,298,464	—
Securities held-to-maturity	1,796,779		1,865,137	—	1,786,318	78,819
Stock in FHLB	182,850		182,850	182,850	—	—
Loans held for sale	7,910		7,910	—	7,910	—
Net loans	16,152,763		16,195,604	—	—	16,195,604
Financial liabilities:
Deposits, other than time deposits	$	9,979,352	9,979,352	9,979,352	—	—
Time deposits	3,361,806		3,370,572	—	3,370,572	—
Borrowed funds	3,358,553		3,140,460	—	3,140,460	—



	December 31, 2014
	Carrying		Estimated Fair Value
	value		Total	Level 1	Level 2	Level 3
	(In thousands)
Financial assets:
Cash and cash equivalents	$	230,961	230,961	230,961	—	—
Securities available-for-sale	1,197,924		1,197,924	—	1,197,924	—
Securities held-to-maturity	1,564,479		1,609,365	—	1,544,129	65,236
Stock in FHLB	151,287		151,287	151,287	—	—
Loans held for sale	6,868		6,868	—	6,868	—
Net loans	14,887,570		14,747,319	—	—	14,747,319
Financial liabilities:
Deposits, other than time deposits	$	9,601,988	9,601,988	9,601,988	—	—
Time deposits	2,570,338		2,580,572	—	2,580,572	—
Borrowed funds	2,766,104		2,796,969	—	2,796,969	—

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets that are not considered financial assets include deferred tax assets, premises and equipment and bank owned life insurance. Liabilities for pension and other postretirement benefits are not considered financial liabilities. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

13. Recent Accounting Pronouncements

In September 2015, the FASB issued ASU 2015-16, “Business Combinations- Simplifying the Accounting for Measurement-Period Adjustments." Under the new rules, acquirers no longer have to retrospectively adjust provisional amounts included in acquisition-date financial statements, when final facts and circumstances are not known on the acquisition date, and later become known in the measurement period. Instead, adjustments that are made in a later period are to be reported in that period. However, acquirers must disclose the amount of adjustments to current period income relating to amounts that would have been recognized in previous periods if the adjustments were recognized as of the acquisition date. For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” The ASU changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. According to the ASU’s Basis for Conclusions, debt issuance costs incurred before the associated funding is received should be reported on the balance sheet as deferred charges until that debt liability amount is recorded. For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.

In April 2015, the FASB issued ASU 2015-04, "Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets." The ASU gives an employer whose fiscal year-end does not coincide with a calendar month-end the ability, as a practical expedient, to measure defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end. The ASU also provides guidance on accounting for contributions to the plan and significant events that require a remeasurement that occur during the period between a month-end measurement date and the employer’s fiscal year-end. An entity should reflect the effects of those contributions or significant events in the measurement of the retirement benefit obligations and related plan assets. The ASU is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are in the scope of other standards. In April 2015, the FASB issued a proposed ASU to defer for one year the effective date of the new revenue standard. The original effective date was for annual reporting periods beginning after December 15, 2016. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.

14. Subsequent Events

As defined in FASB ASC 855, "Subsequent Events", subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Financial statements are considered issued when they are widely distributed to stockholders and other financial statement users for general use and reliance in a form and format that complies with GAAP.

On October 29, 2015, the Company declared a cash dividend of $0.05 per share. The $0.05 dividend per share will be paid to stockholders on November 25, 2015, with a record date of November 10, 2015.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

Certain statements contained herein are not based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the economic environment, particularly in the market areas in which Investors Bancorp, Inc. (the “Company”) operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations or interpretations of regulations affecting financial institutions, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity. Reference is made to Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake and specifically declines any obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events except as may be required by law.

Critical Accounting Policies

We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the following to be our critical accounting policies.

Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses that is charged against income. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

The allowance for loan losses has been determined in accordance with U.S. generally accepted accounting principles, under which we are required to maintain an allowance for probable losses at the balance sheet date. We are responsible for the timely and periodic determination of the amount of the allowance required. We believe that our allowance for loan losses is adequate to cover specifically identifiable losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable.

Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. The analysis of the allowance for loan losses has two components: specific and general allocations. Specific allocations are made for loans determined to be impaired. A loan is deemed to be impaired if it is a commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, loans modified in a troubled debt restructuring ("TDR"), and other commercial loans with an outstanding balance greater than $1.0 million if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans, including those loans not meeting the Company's definition of an impaired loan, by type of loan, risk weighting (if applicable) and payment history. In addition, the Company's residential portfolio is subdivided between fixed and adjustable rate loans as adjustable rate loans are deemed to be subject to more credit risk if interest rates rise. We also analyze historical loss experience using the appropriate look-back and loss emergence period. The loss factors used are based on the Company's historical loss experience over a look-back period determined to provide the appropriate amount of data to accurately estimate expected losses as of period end. Additionally, management assesses the loss emergence period for the expected losses of each loan segment and adjusts each historical loss factor accordingly. The loss emergence period is the estimated time from the date of a loss event (such as a personal bankruptcy) to the actual recognition of

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the loss (typically via the first full or partial loan charge-off), and is determined based upon a study of the Company's past loss experience by loan segment. The loss factors may also be adjusted to account for qualitative or environmental factors that are likely to cause estimated credit losses inherent in the portfolio to differ from historical loss experience. This evaluation is based on delinquency trends, general economic conditions, geographic concentrations, and industry and peer comparisons, but is inherently subjective as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be different than the allowance for loan losses we have established which could have a material negative effect on our financial results.

Purchased Credit-Impaired ("PCI") loans, are loans acquired at a discount due, in part, to credit quality. PCI loans are accounted for in accordance with ASC Subtopic 310-30 and are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses). The difference between the undiscounted cash flows expected at acquisition and the initial carrying amount (fair value) of the PCI loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of the loans. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment, as a loss accrual or a valuation allowance. Reclassifications of the non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to increases in expected cash flows of the loans and would result in an increase in yield on a prospective basis. The Company analyzes the actual cash flow versus the forecasts and any adjustments to credit loss expectations are made based on actual loss recognized as well as changes in the probability of default. For a period in which cash flows aren't reforecasted, the prior period's estimated cash flows are adjusted to reflect the actual cash received and credit events that occurred during the current reporting period.

On a quarterly basis, management reviews the current status of various loan assets in order to evaluate the adequacy of the allowance for loan losses. In this evaluation process, specific loans are analyzed to determine their potential risk of loss. This process includes all loans, concentrating on non-accrual and classified loans. Each non-accrual or classified loan is evaluated for potential loss exposure. Any shortfall results in a recommendation of a specific allowance if the likelihood of loss is evaluated as probable. To determine the adequacy of collateral on a particular loan, an estimate of the fair market value of the collateral is based on the most current appraised value for real property or a discounted cash flow analysis on a business. This appraised value for real property is then reduced to reflect estimated liquidation expenses. Acquired loans are marked to fair value on the date of acquisition. In conjunction with the quarterly evaluation of the adequacy of the allowance for loan loss, the Company performs an analysis on acquired loans to determine whether or not there has been subsequent deterioration in relation to those loans. If deterioration has occurred, the Company will include these loans in their calculation of the allowance for loan loss.

The results of this quarterly process are reviewed and approved by management. A summary of loan loss allowances is presented to the Board of Directors on a quarterly basis.

Deferred Income Taxes. The Company records income taxes in accordance with ASC 740, “Income Taxes,” as amended, using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled. Where applicable, deferred tax assets are reduced by a valuation allowance for any portions determined not likely to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment. The valuation allowance is adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant.

Asset Impairment Judgments. Certain of our assets are carried on our consolidated balance sheets at cost, fair value or at the lower of cost or fair value. Valuation allowances or write-downs are established when necessary to recognize impairment of such assets. We periodically perform analyses to test for impairment of such assets. In addition to the impairment analyses related to our loans discussed above, another significant impairment analysis is the determination of whether there has been an other-than-temporary decline in the value of one or more of our securities.

Our available-for-sale portfolio is carried at estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders' equity. While the Company does not intend to sell these securities, and it is more likely than not that we will not be required to sell these securities before their anticipated recovery of the remaining carrying value, we have the ability to sell the securities. Our held-to-maturity portfolio, consisting primarily of mortgage- backed securities and other debt securities for which we have a positive intent and ability to hold to maturity, is carried at carrying value. We conduct a periodic review and evaluation of the securities portfolio to determine if the value of any security has declined

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below its cost or amortized cost, and whether such decline is other-than-temporary. Management utilizes various inputs to determine the fair value of the portfolio. To the extent they exist, unadjusted quoted market prices in active markets (Level 1) or quoted prices on similar assets (Level 2) are utilized to determine the fair value of each investment in the portfolio. In the absence of quoted prices and in an illiquid market, valuation techniques, which require inputs that are both significant to the fair value measurement and unobservable (Level 3), are used to determine fair value of the investment. Valuation techniques are based on various assumptions, including, but not limited to, cash flows, discount rates, rate of return, adjustments for nonperformance and liquidity, and liquidation values. Management is required to use a significant degree of judgment when the valuation of investments includes unobservable inputs. The use of different assumptions could have a positive or negative effect on our consolidated financial condition or results of operations.

The fair values of our securities portfolio are also affected by changes in interest rates. When significant changes in interest rates occur, we evaluate our intent and ability to hold the security to maturity or for a sufficient time to recover our recorded investment balance.

If a determination is made that a debt security is other-than-temporarily impaired, the Company will estimate the amount of the unrealized loss that is attributable to credit and all other non-credit related factors. The credit related component will be recognized as an other-than-temporary impairment charge in non-interest income as a component of gain (loss) on securities, net. The non-credit related component will be recorded as an adjustment to accumulated other comprehensive income, net of tax.

Goodwill Impairment. Goodwill is presumed to have an indefinite useful life and is tested, at least annually, for impairment at the reporting unit level. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. For purposes of our goodwill impairment testing, we have identified a single reporting unit.

In connection with our annual impairment assessment we applied the guidance in FASB ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. For the three months ended September 30, 2015, our qualitative assessment concluded that it was not more likely than not that the fair value of the reporting unit is less than its carrying amount and, therefore, the two-step goodwill impairment test was not required.

Valuation of Mortgage Servicing Rights ("MSR"). The initial asset recognized for originated MSR is measured at fair value. The fair value of MSR is estimated by reference to current market values of similar loans sold with servicing released. MSR are amortized in proportion to and over the period of estimated net servicing income. We apply the amortization method for measurements of our MSR. MSR are assessed for impairment based on fair value at each reporting date. MSR impairment, if any, is recognized in a valuation allowance through charges to earnings as a component of fees and service charges. Subsequent increases in the fair value of impaired MSR are recognized only up to the amount of the previously recognized valuation allowance.

The estimated fair value of the MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market's perception of future interest rate movements. The valuation allowance is then adjusted in subsequent periods to reflect changes in the measurement of impairment. All assumptions are reviewed for reasonableness on a quarterly basis to ensure they reflect current and anticipated market conditions.

The fair value of MSR is highly sensitive to changes in assumptions. Changes in prepayment speed assumptions generally have the most significant impact on the fair value of our MSR. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSR. As interest rates rise, mortgage loan prepayments slow down, which results in an increase in the fair value of MSR. Thus, any measurement of the fair value of our MSR is limited by the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different point in time.

Stock-Based Compensation. We recognize the cost of employee services received in exchange for awards of equity

instruments based on the grant-date fair value of those awards in accordance with ASC 718, “Compensation-Stock Compensation”.

We estimate the per share fair value of option grants on the date of grant using the Black-Scholes option pricing model using assumptions for the expected dividend yield, expected stock price volatility, risk-free interest rate and expected option term. These assumptions are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. The Black-Scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets.

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The per share fair value of options is highly sensitive to changes in assumptions. In general, the per share fair value of options will move in the same direction as changes in the expected stock price volatility, risk-free interest rate and expected option term, and in the opposite direction as changes in the expected dividend yield. For example, the per share fair value of options will generally increase as expected stock price volatility increases, risk-free interest rate increases, expected option term increases and expected dividend yield decreases. The use of different assumptions or different option pricing models could result in materially different per share fair values of options.

Executive Summary

Our fundamental business strategy is to be a well-capitalized, full service community bank that provides high quality customer service and competitively priced products and services to individuals and businesses in the communities we serve.

Our results of operations depend primarily on net interest income, which is directly impacted by the market interest rate environment. Net interest income is the difference between the interest income we earn on our interest-earning assets, primarily mortgage loans and investment securities, and the interest we pay on our interest-bearing liabilities, primarily interest-bearing transaction accounts, time deposits, and borrowed funds. Net interest income is affected by the level of interest rates, the shape of the market yield curve, the timing of the placement and the repricing of interest-earning assets and interest-bearing liabilities on our balance sheet, and the prepayment rate on our mortgage-related assets.

While an increase in intermediate-term treasury yields earlier in the year provided an opportunity to increase loan rates, the persistent low interest rate environment has resulted in a significant portion of our interest-earning assets being originated or re-priced at yields lower than the overall portfolio. However, we have been able to generally offset net interest income compression through interest earning asset growth. We continue to actively manage our interest rate risk against a backdrop of slow but positive economic growth and a potential rise in short-term interest rates beginning at the end of 2015. If short-term interest rates increase, and the curve flattens, we may be subject to near-term net interest margin compression. Should the treasury yield curve steepen, we may experience an improvement in net interest income, particularly if short-term interest rates remain unchanged.

Our results of operations are also significantly affected by general economic conditions. While the consumer has benefited from lower energy costs and national and regional unemployment rates have improved, the velocity of economic growth remains sluggish. The overall level of non-performing loans remains low compared to our national and regional peers. We attribute this to our conservative underwriting standards, our diligence in resolving our problem loans as well as the unseasoned nature of our loan portfolio.

We continue to grow and transform the composition of our balance sheet. Total assets increased by $1.56 billion, or 8.3%, to $20.33 billion at September 30, 2015 from $18.77 billion at December 31, 2014. Net loans increased $1.27 billion to $16.15 billion at September 30, 2015, while securities increased by $332.8 million, or 12.0%, to $3.10 billion at September 30, 2015 from $2.76 billion at December 31, 2014. During the nine months ended September 30, 2015, we originated $1.50 billion in multi-family loans, $797.2 million in commercial real estate loans, $575.3 million in commercial and industrial loans, $505.6 million in residential loans, $172.1 million in consumer and other loans and $45.6 million in construction loans. This increase in loans reflects our continued focus on generating multi-family loans, commercial real estate loans and commercial and industrial loans, which was partially offset by pay downs and payoffs of loans. The multi-family and commercial real estate loans we originate are secured by properties located primarily in New Jersey and New York.

Capital management is a key component of our business strategy. With the completion of the second step conversion in May 2014, we raised net proceeds of $2.15 billion in equity. We plan to manage our capital through a combination of organic growth, acquisitions, stock repurchases and cash dividends. Effective capital management and prudent growth allowed us to effectively leverage the capital from the Company’s initial public offering, while being mindful of tangible book value for stockholders. Our capital to total assets ratio has decreased to 16.54% at September 30, 2015 from 19.90% at September 30, 2014. In March 2015, we commenced the first stock repurchase plan for 5% of our outstanding shares of common stock, or approximately 17.9 million shares. This repurchase plan was completed in June 2015 when we announced our second share repurchase program which authorizes the repurchase of an additional 10% of outstanding shares of common stock, or approximately 34.8 million shares. Stockholders' equity has been impacted for the nine months ended September 30, 2015 by the repurchase of 25.3 million shares of common stock for $304.2 million as well as cash dividends of $0.20 per share totaling $70.5 million.

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We will continue to execute our business strategies with a focus on prudent and opportunistic growth while producing financial results that will create value for our stockholders. We intend to continue to grow our business and strengthen our market share through planned de novo branching, additional product offerings, investments in staff and opportunistic acquisitions in our market area. We will continue to build additional operational infrastructure and add key personnel as our company grows and our business changes. In August 2015, we completed the conversion of the Bank's core operating system. This conversion will allow us to provide an additional level of service to our customers and bring efficiencies to current processes. We will continue to enhance stockholder value through our strategic capital initiatives, including growth both organically and through acquisitions, stock buybacks and cash dividend payments.

Comparison of Financial Condition at September 30, 2015 and December 31, 2014

Total Assets. Total assets increased by $1.56 billion, or 8.3%, to $20.33 billion at September 30, 2015 from $18.77 billion at December 31, 2014. Net loans increased $1.27 billion to $16.15 billion at September 30, 2015, while securities increased by $332.8 million, or 12.0%, to $3.10 billion at September 30, 2015 from $2.76 billion at December 31, 2014.

Net Loans. Net loans increased by $1.27 billion, or 8.5%, to $16.15 billion at September 30, 2015 from $14.89 billion at December 31, 2014. At September 30, 2015, total loans were $16.38 billion which included $5.88 billion in multi-family loans, $5.12 billion in residential loans, $3.78 billion in commercial real estate loans, $922.4 million in commercial and industrial loans, $479.0 million in consumer and other loans and $207.4 million in construction loans. During the nine months ended September 30, 2015, we originated $1.50 billion in multi-family loans, $797.2 million in commercial real estate loans, $575.3 million in commercial and industrial loans, $505.6 million in residential loans, $172.1 million in consumer and other loans and $45.6 million in construction loans. In addition, during the three months ended September 30, 2015, we purchased $144.4 million of commercial real estate loans and sold $347.3 million in residential loans. This increase in loans reflects our continued focus on generating multi-family loans, commercial real estate loans and commercial and industrial loans, which was partially offset by pay downs and payoffs of loans. Our loans are primarily on properties and businesses located in New Jersey and New York.

In addition to the loans originated for our portfolio, our mortgage subsidiary, Investors Home Mortgage Co., originated $187.0 million for the nine months ended September 30, 2015 in residential mortgage loans that were sold to third party investors.

We also hold in our loan portfolio interest-only one-to four-family mortgage loans in which the borrower makes only interest payments for the first five, seven or ten years of the mortgage loan term. This feature will result in future increases in the borrower’s contractually required payments due to the required amortization of the principal amount after the interest-only period. These payment increases could affect the borrower’s ability to repay the loan. The amount of interest-only one-to four-family mortgage loans at September 30, 2015 and December 31, 2014 was $199.0 million and $288.0 million, respectively. From time to time and for competitive purposes, we originate commercial loans with limited interest only periods. As of September 30, 2015, we had $866.3 million commercial real estate interest only loans in our loan portfolio. We maintained stricter underwriting criteria for these interest-only loans than for amortizing loans. We believe these criteria adequately control the potential exposure to such risks and that adequate provisions for loan losses are provided for all known and inherent risks.

Our past due loans and non-accrual loans discussed below exclude certain purchased credit impaired (PCI) loans, primarily consisting of loans recorded in the acquisitions of Gateway, Roma Financial Corporation and Marathon Bank. For the period ending September 30, 2015, PCI loans totaled $12.8 million. Under U.S. GAAP, the PCI loans (acquired at a discount that is due, in part, to credit quality) are not subject to delinquency classification in the same manner as loans originated by the Bank. The following table sets forth non-accrual loans and accruing past due loans (excluding PCI loans and loans held-for-sale) on the dates indicated as well as certain asset quality ratios.

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	September 30, 2015				June 30, 2015				March 31, 2015				December 31, 2014				September 30, 2014
	# of Loans	Amount			# of Loans	Amount			# of Loans	Amount			# of Loans	Amount			# of Loans	Amount
	(dollars in millions)

Multi-family	4	$	3.0		6	$	4.1		5	$	3.9		2	$	3.0		1	$	1.9
Commercial real estate	40	13.8			36	12.9			35	11.6			36	13.9			29	14.6
Commercial and industrial	9	6.5			7	2.2			8	2.3			11	2.9			4	0.8
Construction	5	1.0			3	0.9			7	4.3			7	4.4			6	12.8
Total commercial loans	58	24.3			52	20.1			55	22.1			56	24.2			40	30.1
Residential and consumer	506	99.8			422	86.6			423	88.0			406	84.2			383	85.9
Total non-accrual loans	564	$	124.1		474	$	106.7		478	$	110.1		462	$	108.4		423	$	116.0
Accruing troubled debt restructured loans	38	$	25.2		48	$	29.6		50	$	31.5		55	$	35.6		55	$	32.3
Non-accrual loans to total loans		0.76		%		0.68		%		0.70		%		0.72		%		0.81		%
Allowance for loan loss as a percent of non-accrual loans		175.97		%		200.51		%		189.02		%		184.83		%		164.68		%
Allowance for loan loss as a percent of total loans		1.33		%		1.36		%		1.33		%		1.33		%		1.33		%

Total non-accrual loans increased to $124.1 million at September 30, 2015 compared to $108.4 million at December 31, 2014, which is primarily related to an increase in residential non accrual loans. We continue to diligently resolve our troubled loans, however it takes a long period of time to resolve residential credits in our lending area. At September 30, 2015, our allowance for loan loss as a percent of total loans is 1.33%. At September 30, 2015, there were $47.7 million of loans deemed as troubled debt restructurings, of which $24.2 million were residential and consumer loans, $19.4 million were commercial real estate loans, $1.4 million were construction loans, $1.6 million were multi-family loans and $1.1 million were commercial and industrial loans. Troubled debt restructured loans in the amount of $25.2 million were classified as accruing and $22.5 million were classified as non-accrual at September 30, 2015.

In addition to non-accrual loans, we continue to monitor our portfolio for potential problem loans. Potential problem loans are defined as loans about which we have concerns as to the ability of the borrower to comply with the current loan repayment terms and which may cause the loan to be placed on non-accrual status. As of September 30, 2015, the Company has deemed potential problem loans excluding PCI loans, totaling $22.6 million, which comprised of 9 multi-family loans totaling $11.2 million, 14 commercial real estate loans totaling $7.6 million and 12 commercial and industrial loans totaling $3.8 million. Management is actively monitoring these loans.

The ratio of non-accrual loans to total loans was 0.76% at September 30, 2015 compared to 0.72% at December 31, 2014. The allowance for loan losses as a percentage of non-accrual loans was 175.97% at September 30, 2015 compared to 184.83% at December 31, 2014. At September 30, 2015 and December 31, 2014, our allowance for loan losses as a percentage of total loans was 1.33% for both periods.

At September 30, 2015, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans totaling $57.4 million, of which $20.7 million of impaired loans had a specific allowance for credit losses of $4.4 million and $36.7 million of impaired loans had no specific allowance for credit losses. At December 31, 2014, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans totaling $60.5 million, of which $19.6 million had a related allowance for credit losses of $2.1 million and $40.9 million had no related allowance for credit losses.

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The allowance for loan losses increased by $18.2 million to $218.5 million at September 30, 2015 from $200.3 million at December 31, 2014. The increase in our allowance for loan losses is due to the growth of the loan portfolio and the credit risk in our overall portfolio, particularly the inherent credit risk associated with commercial real estate lending and commercial and industrial loans. Future increases in the allowance for loan losses may be necessary based on the growth and composition of the loan portfolio, the level of loan delinquency and the economic conditions in our lending area.

The following table sets forth the allowance for loan losses at September 30, 2015 and December 31, 2014 allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.



	September 30, 2015				December 31, 2014
	Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans		Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
End of period allocated to:
Multi-family loans	$	78,866	35.88	%	$	71,147	33.44	%
Commercial real estate loans	48,410		23.07	%	44,030		20.84	%
Commercial and industrial loans	32,897		5.63	%	20,759		3.61	%
Construction loans	8,194		1.28	%	6,488		0.98	%
Residential mortgage loans	43,583		31.22	%	47,936		38.21	%
Consumer and other loans	3,705		2.92	%	3,347		2.92	%
Unallocated	2,803		—		6,577		—
Total allowance	$	218,458	100.00	%	$	200,284	100.00	%

Securities. Securities, in the aggregate, increased by $332.8 million, or 12.0%, to $3.10 billion at September 30, 2015 from $2.76 billion at December 31, 2014. This increase was a result of purchases partially offset by paydowns.

Stock in the Federal Home Loan Bank, Bank Owned Life Insurance and Other Assets. The amount of stock we own in the FHLB increased by $31.6 million, or 20.9%, to $182.9 million at September 30, 2015 from $151.3 million at December 31, 2014. The amount of stock we own in the FHLB is primarily related to the balance of borrowings, therefore the increase in borrowings has an impact on FHLB stock owned. Bank owned life insurance was $158.2 million at September 30, 2015 and $161.6 million at December 31, 2014. Other assets were $2.2 million at September 30, 2015 and $10.3 million at December 31, 2014.

Deposits. Deposits increased by $1.17 billion, or 9.6%, from $12.17 billion at December 31, 2014 to $13.34 billion at September 30, 2015. Certificates of deposit increased $791.5 million to $3.36 billion at September 30, 2015 from $2.57 billion at December 31, 2014. Core deposits represent approximately 75% of our total deposit portfolio.

Borrowed Funds. Borrowed funds increased by $592.5 million, or 21.4%, to $3.36 billion at September 30, 2015 from $2.77 billion at December 31, 2014 to help fund the continued growth of the loan portfolio.

Stockholders’ Equity. Stockholders' equity decreased by $215.7 million to $3.36 billion at September 30, 2015 from $3.58 billion at December 31, 2014. The decrease is primarily attributed to the repurchase of 25.3 million shares of common stock for $304.2 million as well as cash dividends of $0.20 per share totaling $70.5 million for the nine months ended September 30, 2015. These decreases are offset by an increase related to net income of $137.1 million for the nine months ended September 30, 2015.

Analysis of Net Interest Income

Net interest income represents the difference between income we earn on our interest-earning assets and the expense we pay on interest-bearing liabilities. Net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned on such assets and paid on such liabilities.

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Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, however interest receivable on these loans have been fully reserved for and not included in interest income. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

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	Three Months Ended September 30,
	2015						2014
	Average Outstanding Balance		Interest Earned/ Paid		Average Yield/ Rate		Average Outstanding Balance		Interest Earned/ Paid		Average Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits	$	224,276	$	68	0.12	%	$	253,280	$	70	0.11	%
Securities available-for-sale	1,274,256		5,759		1.81	%	1,069,550		4,715		1.76	%
Securities held-to-maturity	1,772,043		9,983		2.25	%	1,449,443		8,364		2.31	%
Net loans	15,843,434		169,216		4.27	%	13,931,314		152,397		4.38	%
Stock in FHLB	177,616		1,871		4.21	%	141,283		1,512		4.28	%
Total interest-earning assets	19,291,625		186,897		3.88	%	16,844,870		167,058		3.97	%
Non-interest-earning assets	773,225						729,113
Total assets	$	20,064,850					$	17,573,983
Interest-bearing liabilities:
Savings deposits	$	2,178,877	$	1,732	0.32	%	$	2,219,351	$	1,679	0.30	%
Interest-bearing checking	2,632,445		2,255		0.34	%	2,596,455		2,364		0.36	%
Money market accounts	3,571,504		5,602		0.63	%	2,255,112		3,059		0.54	%
Certificates of deposit	3,283,262		9,075		1.11	%	3,084,715		7,387		0.96	%
Total interest-bearing deposits	11,666,088		18,664		0.64	%	10,155,633		14,489		0.57	%
Borrowed funds	3,245,751		16,959		2.09	%	2,489,116		14,724		2.37	%
Total interest-bearing liabilities	14,911,839		35,623		0.96	%	12,644,749		29,213		0.92	%
Non-interest-bearing liabilities	1,766,491						1,388,052
Total liabilities	16,678,330						14,032,801
Stockholders’ equity	3,386,520						3,541,182
Total liabilities and stockholders’ equity	$	20,064,850					$	17,573,983
Net interest income			$	151,274					$	137,845
Net interest rate spread(1)					2.92	%					3.05	%
Net interest-earning assets(2)	$	4,379,786					$	4,200,121
Net interest margin(3)					3.14	%					3.27	%
Ratio of interest-earning assets to total interest-bearing liabilities	1.29x						1.33x


(1)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.


(2)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.


(3)	Net interest margin represents net interest income divided by average total interest-earning assets.

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	For the Nine Months Ended September 30,
	2015						2014
	Average Outstanding Balance		Interest Earned/ Paid		Average Yield/ Rate		Average Outstanding Balance		Interest Earned/ Paid		Average Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits	$	203,336	$	124	0.08	%	$	350,906	$	379	0.14	%
Securities available-for-sale	1,236,175		16,675		1.80	%	922,108		13,254		1.92	%
Securities held-to-maturity	1,668,829		27,957		2.23	%	1,235,518		22,820		2.46	%
Net loans	15,515,391		493,783		4.24	%	13,549,571		447,899		4.41	%
Stock in FHLB	171,194		5,046		3.93	%	156,209		5,420		4.63	%
Total interest-earning assets	18,794,925		543,585		3.86	%	16,214,312		489,772		4.03	%
Non-interest-earning assets	768,739						731,942
Total assets	$	19,563,664					$	16,946,254
Interest-bearing liabilities:
Savings deposits	$	2,275,965	$	5,026	0.29	%	$	2,234,224	$	4,998	0.30	%
Interest-bearing checking	2,694,033		7,110		0.35	%	2,394,235		6,274		0.35	%
Money market accounts	3,504,684		17,538		0.67	%	2,149,500		8,687		0.54	%
Certificates of deposit	2,824,479		21,438		1.01	%	3,284,864		23,286		0.95	%
Total interest-bearing deposits	11,299,161		51,112		0.60	%	10,062,823		43,245		0.57	%
Borrowed funds	3,141,608		48,205		2.05	%	2,811,826		44,728		2.12	%
Total interest-bearing liabilities	14,440,769		99,317		0.92	%	12,874,649		87,973		0.91	%
Non-interest-bearing liabilities	1,637,013						1,531,647
Total liabilities	16,077,782						14,406,296
Stockholders’ equity	3,485,882						2,539,958
Total liabilities and stockholders’ equity	$	19,563,664					$	16,946,254
Net interest income			$	444,268					$	401,799
Net interest rate spread(1)					2.94	%					3.12	%
Net interest-earning assets(2)	$	4,354,156					$	3,339,663
Net interest margin(3)					3.15	%					3.30	%
Ratio of interest-earning assets to total interest-bearing liabilities	1.30x						1.26x


(1)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.


(2)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.


(3)	Net interest margin represents net interest income divided by average total interest-earning assets.

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Comparison of Operating Results for the Three and Nine Months Ended September 30, 2015 and 2014

Net Income. Net income for the for the three and nine months ended September 30, 2015 was $48.8 million and $137.1 million, respectively, compared to net income of $39.0 million and $88.6 million for the three and nine months ended September 30, 2014.

Net Interest Income. Net interest income increased by $13.4 million, or 9.7%, to $151.3 million for the three months ended September 30, 2015 from $137.8 million for the three months ended September 30, 2014. The increase was primarily due to the average balance of interest earning assets increasing $2.45 billion to $19.29 billion at September 30, 2015 compared to $16.84 billion at September 30, 2014. This was partially offset by the average balance of our interest bearing liabilities increasing $2.27 billion to $14.91 billion at September 30, 2015 compared to $12.64 billion at September 30, 2014. In addition, the weighted average yield on our interest-earning assets decreased 9 basis points to 3.88% for the three months ended September 30, 2015 from 3.97% for the three months ended September 30, 2014 and the weighted average cost of our interest bearing liabilities increased 4 basis points to 0.96% for the three months ended September 30, 2015 from 0.92% at September 30, 2014. The net interest spread decreased by 13 basis points to 2.92% for the three months ended September 30, 2015 from 3.05% for the three months ended September 30, 2014 as the weighted average yield on interest earning assets declined 9 basis points and the weighted average cost of interest bearing liabilities increased 4 basis points.

Net interest income increased by $42.5 million, or 10.6%, to $444.3 million for the nine months ended September 30, 2015 from $401.8 million for the nine months ended September 30, 2014. The increase was primarily due to the average balance of interest earning assets increasing $2.58 billion to $18.79 billion at September 30, 2015 compared to $16.21 billion at September 30, 2014. This was partially offset by the average balance of our interest bearing liabilities increasing $1.57 billion to $14.44 billion at September 30, 2015 compared to $12.87 billion at September 30, 2014, as well as the weighted average yield on our interest-earning assets decreasing 17 basis points to 3.86% for the nine months ended September 30, 2015 from 4.03% for the nine months ended September 30, 2014. The net interest spread decreased by 18 basis points to 2.94% for the nine months ended September 30, 2015 from 3.12% for the nine months ended September 30, 2014 as the weighted average yield on interest earning assets declined 17 basis points and cost of interest bearing liabilities increased one basis point.

Interest and Dividend Income. Total interest and dividend income increased by $19.8 million, or 11.9%, to $186.9 million for the three months ended September 30, 2015 from $167.1 million for the three months ended September 30, 2014. This increase is attributed to the average balance of interest-earning assets increasing $2.45 billion, or 14.5%, to $19.29 billion for the three months ended September 30, 2015 from $16.84 billion for the three months ended September 30, 2014 as a result of organic growth. This was partially offset by the weighted average yield on interest-earning assets decreasing 9 basis points to 3.88% for the three months ended September 30, 2015 compared to 3.97% for the three months ended September 30, 2014.

Interest income on loans increased by $16.8 million, or 11.0%, to $169.2 million for the three months ended September 30, 2015 from $152.4 million for the three months ended September 30, 2014 as a result of a $1.91 billion, or 13.7%, increase in the average balance of net loans to $15.84 billion for the three months ended September 30, 2015 from $13.93 billion for the three months ended September 30, 2014. The increase is primarily attributed to the average balance of multi-family loans, commercial real estate loans and commercial and industrial loans increasing $1.25 billion, $728.3 million and $503.2 million, respectively, partially offset by the average balance of residential loans decreasing $591.5 million for the three months ended September 30, 2015. The weighted average yield on net loans decreased 11 basis points to 4.27% for the three months ended September 30, 2015 from 4.38% for the three months ended September 30, 2014. The decrease in the weighted average yield on net loans reflects lower rates on new and refinanced loans due to the current interest rate environment and the sale of $347.3 million of residential loans for the three months ended September 30, 2015. Prepayment penalties, which are included in interest income, increased to $6.4 million for the three months ended September 30, 2015 from $4.3 million for the three months ended September 30, 2014.

Interest income on all other interest-earning assets, excluding loans, increased by $3.0 million, or 20.6%, to $17.7 million for the three months ended September 30, 2015 from $14.7 million for the three months ended September 30, 2014. The increase is attributed to a $534.6 million increase in the average balance of all other interest-earning assets, excluding loans, to $3.45 billion for the three months ended September 30, 2015 from $2.91 billion for the three months ended September 30, 2014. In addition, the weighted average yield on interest-earning assets, excluding loans increased 4 basis points to 2.05% for the three months ended September 30, 2015 compared to 2.01% for the three months ended September 30, 2014.

Total interest and dividend income increased by $53.8 million, or 11.0%, to $543.6 million for the nine months ended September 30, 2015 from $489.8 million for the nine months ended September 30, 2014. This increase is attributed to the average balance of interest-earning assets increasing $2.58 billion, or 15.9%, to $18.79 billion for the nine months ended September 30, 2015 from $16.21 billion for the nine months ended September 30, 2014. This was partially offset by the weighted average yield on interest-earning assets decreasing 17 basis points to 3.86% for the nine months ended September 30, 2015 compared to 4.03% for the nine months ended September 30, 2014.

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Interest income on loans increased by $45.9 million, or 10.2%, to $493.8 million for the nine months ended September 30, 2015 from $447.9 million for the nine months ended September 30, 2014, reflecting a $1.97 billion, or 14.5%, increase in the average balance of net loans to $15.52 billion for the nine months ended September 30, 2015 from $13.55 billion for the nine months ended September 30, 2014. The increase is primarily attributed to the average balance of multi-family loans, commercial real estate loans and commercial and industrial loans increasing $1.20 billion, $696.2 million and $407.9 million, respectively, partially offset by the average balance of residential loans decreasing $324.4 million for the nine months ended September 30, 2015. The weighted average yield on net loans decreased 17 basis points to 4.24% for the nine months ended September 30, 2015 from 4.41% for the nine months ended September 30, 2014. The decrease in the weighted average yield on net loans reflects lower rates on new and refinanced loans due to the current interest rate environment. Prepayment penalties, which are included in interest income, increased to $16.6 million for the nine months ended September 30, 2015 from $13.2 million for the nine months ended September 30, 2014.

Interest income on all other interest-earning assets, excluding loans, increased by $7.9 million, or 18.9%, to $49.8 million for the nine months ended September 30, 2015 from $41.9 million for the nine months ended September 30, 2014. The average balance of all other interest-earning assets, excluding loans, increased by $614.8 million to $3.28 billion for the nine months ended September 30, 2015 from $2.66 billion for the nine months ended September 30, 2014. This was partially offset by the weighted average yield on interest-earning assets, excluding loans, decreasing by 8 basis points to 2.02% for the nine months ended September 30, 2015 compared to 2.10% for the nine months ended September 30, 2014.

Interest Expense. Total interest expense increased by $6.4 million, or 21.9%, to $35.6 million for the three months ended September 30, 2015 from $29.2 million for the three months ended September 30, 2014. This increase is due to the average balance of total interest-bearing liabilities increasing by $2.27 billion, or 17.9%, to $14.91 billion for the three months ended September 30, 2015 from $12.64 billion for the three months ended September 30, 2014. In addition, the weighted average cost of total interest-bearing liabilities increased 4 basis points to 0.96% for the three months ended September 30, 2015 compared to 0.92% for the three months ended September 30, 2014.

Interest expense on interest-bearing deposits increased $4.2 million, or 28.8% to $18.7 million for the three months ended September 30, 2015 from $14.5 million for the three months ended September 30, 2014. This increase is attributed to the average balance of total interest-bearing deposits increasing $1.51 billion, or 14.9% to $11.67 billion for the three months ended September 30, 2015 from $10.16 billion for the three months ended September 30, 2014. In addition, the weighted average cost of interest-bearing deposits increased by 7 basis point to 0.64% for the three months ended September 30, 2015 from 0.57% for the three months ended September 30, 2014.

Interest expense on borrowed funds increased by $2.2 million, or 15.2%, to $17.0 million for the three months ended September 30, 2015 from $14.7 million for the three months ended September 30, 2014. The average balance of borrowed funds increased $756.6 million or 30.4%, to $3.25 billion for the three months ended September 30, 2015 from $2.49 billion for the three months ended September 30, 2014. This increase was offset by a decrease to the weighted average cost of borrowings to 2.09% for the three months ended September 30, 2015 from 2.37% for the three months ended September 30, 2014.

Total interest expense increased by $11.3 million, or 12.9%, to $99.3 million for the nine months ended September 30, 2015 from $88.0 million for the nine months ended September 30, 2014. This increase is attributed to the average balance of total interest-bearing liabilities increasing by $1.57 billion, or 12.2%, to $14.44 billion for the nine months ended September 30, 2015 from $12.87 billion for the nine months ended September 30, 2014. In addition, the weighted average cost of total interest-bearing liabilities increased 1 basis point to 0.92% for the nine months ended September 30, 2015 from 0.91% at September 30, 2014.

Interest expense on interest-bearing deposits increased $7.9 million, or 18.2%, to $51.1 million for the nine months ended September 30, 2015 from $43.2 million for the nine months ended September 30, 2014. This increase is attributed to the average balance of total interest-bearing deposits increasing $1.24 billion, or 12.3% to $11.30 billion for the nine months ended September 30, 2015 from $10.06 billion for the nine months ended September 30, 2014. In addition, the average cost of interest-bearing deposits increased 3 basis point to 0.60% for the nine months ended September 30, 2015 from 0.57% for the nine months ended September 30, 2014.

Interest expense on borrowed funds increased by $3.5 million, or 7.8%, to $48.2 million for the the nine months ended September 30, 2015 from $44.7 million for the nine months ended September 30, 2014. The average balance of borrowed funds increased $329.8 million or 11.7%, to $3.14 billion for the nine months ended September 30, 2015 from $2.81 billion for the nine months ended September 30, 2014. This was partially offset by the weighted average cost of borrowings decreasing 7 basis points to 2.05% for the nine months ended September 30, 2015 from 2.12% for the nine months ended September 30, 2014.

Provision for Loan Losses. Our provision for loan losses was $5.0 million for the three months ended September 30, 2015 compared to $9.0 million for the three months ended September 30, 2014. For the three months ended September 30, 2015, net charge-offs were $504,000 compared to $4.0 million for the three months ended September 30, 2014. For the nine months ended September 30, 2015, our provision for loan losses was $21.0 million compared to $26.0 million for the nine months ended

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September 30, 2014. For the nine months ended September 30, 2015, net charge-offs were $2.8 million compared to $8.8 million for the nine months ended September 30, 2014. Our provision for the three and nine months ended September 30, 2015 is primarily a result of continued organic growth in the loan portfolio, specifically the multi-family, commercial real estate and commercial and industrial portfolios; the inherent credit risk in our overall portfolio, particularly the credit risk associated with commercial real estate lending and commercial and industrial lending; and the level of non-performing loans.

Non-Interest Income. Total non-interest income increased by $1.4 million, or 14.5% to $11.3 million for the three months ended September 30, 2015 from $9.9 million for the three months ended September 30, 2014. For the three months ended September 30, 2015 the Company recognized gain on security transactions of $933,000, resulting in an increase of $904,000 compared to the three months ended September 30, 2014. In addition, gain on loans increased $1.3 million which includes $611,000 attributable to the sale of $347.3 million of residential loans. Gains on other real estate owned increased $560,000 for the three months ended September 30, 2015. These increases were partially offset by decreases to fees and service charges and income on bank owned life insurance of $826,000 and $683,000, respectively, for the three months ended September 30, 2015.

Total non-interest income decreased by $562,000, or 1.8% to $31.4 million for the nine months ended September 30, 2015 from $32.0 million for the nine months ended September 30, 2014. The reduction is mainly attributed to decreases in fees and service charges and other income of $2.4 million and $1.0 million, respectively, for the nine months ended September 30, 2015. Included in other income for the nine months ended September 30, 2014 was a bargain purchase gain of $1.5 million, net of tax, relating to the acquisition of Gateway Community Financial Corp, the federally-chartered holding company for GCF Bank ("Gateway"), which was completed in January 2014. These decreases were partially offset by an increase in the gain on loans to $6.5 million for the nine months ended September 30, 2015 compared to $3.8 million for the nine months ended September 30, 2014.

Non-Interest Expenses. Total non-interest expenses increased by $9.3 million, or 12.2%, to $85.9 million for the three months ended September 30, 2015 from $76.6 million for the three months ended September 30, 2014. Compensation and fringe benefits increased $8.9 million for the three months ended September 30, 2015. This increase is primarily related to equity incentive expense of $4.5 million for the three months ended September 30, 2015. On June 23, 2015, the compensation committee of the Board of Directors approved restricted stock and stock option grants to employees, officers and directors of the Company, pursuant to the Investors Bancorp, Inc. 2015 Equity Incentive Plan. The remaining increase to compensation and fringe benefits relate to staff additions to support our continued growth as well as normal merit increases. Office occupancy and stationary, printing, supplies and telephone expense increased $816,000 and $803,000, respectively, for the three months ended September 30, 2015. For the three months ended September 30, 2015, stationary, printing, supplies and telephone expense included expenses for supplies to support our core conversion as well as mailings to customers in preparation of the conversion. These increases were offset by a decrease in FDIC insurance premium of $550,000 for the three months ended September 30, 2015 due to the continued improvement in asset quality and additional capital raised in the second step offering in May 2014.

Total non-interest expenses decreased by $23.3 million, or 8.8%, to $242.7 million for the nine months ended September 30, 2015 from $265.9 million for the nine months ended September 30, 2014. Compensation and fringe benefits increased $4.5 million for the nine months ended September 30, 2015, which included $4.8 million related to the 2015 Equity Incentive Plan. For the 2014 period, compensation expense includes a charge of $13.0 million related to the accelerated vesting of all stock option and restricted stock awards upon the completion of the second step capital offering in May 2014. Absent the acceleration in 2014 and the $4.8 in equity incentive expense for 2015, compensation and fringe benefits increased $12.7 million for the nine months ended September 30, 2015 related to staff additions to support our continued growth as well as normal merit increases. Contribution to charitable foundation represents the Company's contribution of $20.0 million to the Investors Charitable Foundation in conjunction with the second step capital offering in 2014. FDIC insurance premium decreased $4.8 million for the nine months ended September 30, 2015 due to the continued improvement in asset quality and additional capital raised in the second step offering. Data processing service fees decreased $2.9 million for the nine months ended September 30, 2015 to $16.8 million. Included in the nine months ended September 30, 2014 was $1.7 million of one time expense items related to acquisitions.

Income Tax Expense. Income tax expense was $22.9 million for the three months ended September 30, 2015, representing a 31.91% effective tax rate compared to income tax expense of $23.1 million for the three months ended September 30, 2014 representing a 37.17% effective tax rate. For the three months ended September 30, 2015, income tax expense includes a one time discrete item related to a NOL carryforward of $4.1 million. Excluding this discrete item, the effective tax rate for the three months ended September 30, 2015 would be 37.60%.

Income tax expense was $74.9 million for the nine months ended September 30, 2015, representing a 35.34% effective tax rate compared to income tax expense of $53.2 million for the nine months ended September 30, 2014 representing a 37.99% effective tax rate. Excluding this discrete item referenced above, the effective tax rate for the nine months ended September 30, 2015 would be 37.26%.

In April 2015, New York City changed their tax law to conform with that of New York State. As a result, the Company analyzed the impact of this change relative to its deferred tax positions. Based on that analysis, the Company revalued the deferred

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tax asset as of December 31, 2014 and applied the new adjusted tax rate for 2015. This analysis resulted in increasing our deferred tax asset by $5.6 million, which is being recognized in the effective tax rate for 2015. While this analysis resulted in lowering the effective tax rate for 2015, this change will result in the Company's effective tax rate increasing in future periods.

Liquidity and Capital Resources

The Company’s primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, proceeds from the sale of loans, FHLB and other borrowings and, to a lesser extent, investment maturities. While scheduled amortization of loans is a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including unsecured overnight lines of credit, brokered deposits and other borrowings from the FHLB and other correspondent banks.

At September 30, 2015, the Company had overnight borrowings outstanding of $270.0 million with FHLB as compared to $265.0 million at December 31, 2014. The Company utilizes overnight borrowings from time to time to fund short-term liquidity needs. The Company had total borrowings of $3.36 billion at September 30, 2015, an increase of $592.5 million from $2.77 billion at December 31, 2014.

In the normal course of business, the Company routinely enters into various commitments, primarily relating to the origination of loans. At September 30, 2015, outstanding commitments to originate loans totaled $660.3 million; outstanding unused lines of credit totaled $876.5 million; standby letters of credit totaled $22.2 million and outstanding commitments to sell loans totaled $22.0 million. The Company expects to have sufficient funds available to meet current commitments in the normal course of business. Time deposits scheduled to mature in one year or less totaled $2.44 billion at September 30, 2015. Based upon historical experience management estimates that a significant portion of such deposits will remain with the Company.

Regulatory Matters. In July 2013, the Federal Deposit insurance Corporation and the other federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The Final Capital Rules also revised the quantity and quality of required minimum risk-based and leverage capital requirements, consistent with the Reform Act and the Third Basel Accord adopted by the Basel Committee on Banking Supervision, or Basel III capital standards. In doing so, the Final Capital Rules:


•	Established a new minimum Common equity tier 1 risk-based capital ratio (common equity tier 1 capital to total risk-weighted assets) of 4.5% and increased the minimum Tier 1 risk-based capital ratio from 4.0% to 6.0%, while maintaining the minimum Total risk-based capital ratio of 8.0% and the minimum Tier 1 leverage capital ratio of 4.0%.


•	Revised the rules for calculating risk-weighted assets to enhance their risk sensitivity.


•	Phased out trust preferred securities and cumulative perpetual preferred stock as Tier 1 capital.

•

Added a requirement to maintain a minimum Conservation Buffer, composed of Common equity tier 1 capital, of 2.5% of risk-weighted assets, to be applied to the new Common equity tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio and the Total risk-based capital ratio, which means that banking organizations, on a fully phased in basis no later than January 1, 2019, must maintain a minimum Common equity tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5% and a minimum Total risk-based capital ratio of 10.5% or have restrictions imposed on capital distributions and discretionary cash bonus payments.

•

Changed the definitions of capital categories for insured depository institutions for purposes of the Federal Deposit Insurance Corporation Improvement Act of 1991 prompt corrective action provisions. Under these revised definitions, to be considered well-capitalized, an insured depository institution must have a Tier 1 leverage capital ratio of at least 5.0%, a Common equity tier 1 risk-based capital ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least 8.0% and a Total risk-based capital ratio of at least 10.0%.

The new minimum regulatory capital ratios and changes to the calculation of risk-weighted assets became effective for the Bank and Company on January 1, 2015. The required minimum Conservation Buffer will be phased in incrementally, starting at 0.625% on January 1, 2016 and increasing to 1.25% on January 1, 2017, 1.875% on January 1, 2018 and 2.5% on January 1, 2019. The rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the minimum Conservation Buffer is not met.

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As of September 30, 2015, the Bank and the Company exceeded all regulatory capital requirements as follows:



	September 30, 2015
	Actual				Minimum Capital Requirement				To be Well Capitalized under Prompt Corrective Action Provisions (1)
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Bank:
Tier 1 Leverage Ratio	$	2,503,988	12.57	%	$	796,785	4.00	%	$	995,982	5.00	%
Common equity tier 1 risk-based	2,503,988		16.08	%	700,629		4.50	%	1,012,020		6.50	%
Tier 1 Risk Based Capital	2,503,988		16.08	%	934,172		6.00	%	1,245,563		8.00	%
Total Risk-Based Capital	2,698,909		17.33	%	1,245,563		8.00	%	1,556,953		10.00	%

Company:
Tier 1 Leverage Ratio	$	3,300,019	16.55	%	$	797,456	4.00	%	n/a		n/a
Common equity tier 1 risk-based	3,300,019		21.17	%	701,320		4.50	%	n/a		n/a
Tier 1 Risk Based Capital	3,300,019		21.17	%	935,093		6.00	%	n/a		n/a
Total Risk-Based Capital	3,495,128		22.43	%	1,246,791		8.00	%	n/a		n/a

(1) Prompt corrective action provisions do not apply to the Bank holding company.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in the financial statements. These transactions primarily relate to debt obligations and lending commitments.

The following table shows the contractual obligations of the Company by expected payment period as of September 30, 2015:



Contractual Obligations	Total		Less than One Year	One-Two Years	Two-Three Years	More than Three Years
	(In thousands)
Debt obligations (excluding capitalized leases)	$	3,358,553	495,000	931,676	1,325,835	606,042
Commitments to originate and purchase loans	$	660,256	660,256	—	—	—
Commitments to sell loans	$	22,000	22,000	—	—	—

Debt obligations include borrowings from the FHLB and other borrowings. The borrowings have defined terms and, under certain circumstances, $29.6 million of the borrowings are callable at the option of the lender. Additionally, at September 30, 2015, the Company’s commitments to fund unused lines of credit totaled $876.5 million. Commitments to originate loans and commitments to fund unused lines of credit are agreements to lend additional funds to customers as long as there have been no violations of any of the conditions established in the agreements. Commitments generally have a fixed expiration or other termination clauses which may or may not require a payment of a fee. Since some of these loan commitments are expected to expire without being drawn upon, total commitments do not necessarily represent future cash requirements.

In addition to the contractual obligations previously discussed, we have other liabilities which include capitalized and operating lease obligations. These contractual obligations as of September 30, 2015 have not changed significantly from December 31, 2014.

In the normal course of business the Company sells residential mortgage loans to third parties. These loan sales are subject to customary representations and warranties. In the event that we are found to be in breach of these representations and warranties, we may be obligated to repurchase certain of these loans.

For further information regarding our off-balance sheet arrangements and contractual obligations, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our December 31, 2014 Annual Report on Form 10-K.

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ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Qualitative Analysis. We believe one significant form of market risk is interest rate risk. Interest rate risk results from timing differences in the maturity or re-pricing of our assets, liabilities and off-balance sheet contracts (i.e., loan commitments); the effect of loan prepayments, deposits and withdrawals; the difference in the behavior of lending and funding rates arising from the uses of different indices; and “yield curve risk” arising from changing interest rate relationships across the spectrum of maturities for constant or variable credit risk investments. Besides directly affecting our net interest income, changes in market interest rates can also affect the amount of new loan originations, the ability of borrowers to repay variable rate loans, the volume of loan prepayments and refinancings, the carrying value of securities classified as available for sale and the mix and flow of deposits.

The general objective of our interest rate risk management is to determine the appropriate level of risk given our business model and then manage that risk in a manner consistent with our policy to reduce, to the extent possible, the exposure of our net interest income to changes in market interest rates. Our Asset Liability Committee, which consists of senior management and executives, evaluates the interest rate risk inherent in certain assets and liabilities, our operating environment and capital and liquidity requirements and modifies our lending, investing and deposit gathering strategies accordingly. On a quarterly basis, our Board of Directors reviews the Asset Liability Committee report, the aforementioned activities and strategies, the estimated effect of those strategies on our net interest margin and the estimated effect that changes in market interest rates may have on the economic value of our loan and securities portfolios, as well as the intrinsic value of our deposits and borrowings.

We actively evaluate interest rate risk in connection with our lending, investing and deposit activities. Historically, our lending activities have emphasized one- to four-family fixed- and variable-rate first mortgages. At September 30, 2015 approximately 36% of our residential portfolio was in variable rate products, while 64% was in fixed rate products. Our variable-rate mortgage related assets have helped to reduce our exposure to interest rate fluctuations and is expected to benefit our long-term profitability, as the rates earned on these mortgage loans will increase as prevailing market rates increase. However, the current low interest rate environment, and the preferences of our customers, has resulted in more of a demand for fixed-rate products. This may adversely impact our net interest income, particularly in a rising rate environment. To help manage our interest rate risk, the origination of commercial real estate loans, particularly multi-family loans and commercial and industrial loans have outpaced the growth in the residential portfolio, as these loan types help reduce our interest rate risk due to their shorter term compared to residential mortgage loans. In addition, we primarily invest in shorter-to-medium duration securities, which generally have shorter average lives and lower yields compared to longer term securities. Shortening the average lives of our securities, along with originating more adjustable-rate mortgages and commercial real estate mortgages, will help to reduce interest rate risk.

We retain an independent, nationally recognized consulting firm that specializes in asset and liability management to complete our quarterly interest rate risk reports. We also retain a second nationally recognized consulting firm to prepare independently comparable interest rate risk reports for the purpose of validation. Both firms use a combination of analyses to monitor our exposure to changes in interest rates. The economic value of equity analysis is a model that estimates the change in net portfolio value (“NPV”) over a range of immediately changed interest rate scenarios. NPV is the discounted present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. In calculating changes in NPV, assumptions estimating loan prepayment rates, reinvestment rates and deposit decay rates that seem most likely based on historical experience during prior interest rate changes are used.

The net interest income analysis uses data derived from an asset and liability analysis, described below, and applies several additional elements, including actual interest rate indices and margins, contractual limitations and the U.S. Treasury yield curve as of the balance sheet date. In addition we apply consistent parallel yield curve shifts (in both directions) to determine possible changes in net interest income if the theoretical yield curve shifts occurred gradually over a one year period. Net interest income analysis also adjusts the asset and liability repricing analysis based on changes in prepayment rates resulting from the parallel yield curve shifts.

Our asset and liability analysis determines the relative balance between the repricing of assets and liabilities over multiple periods of time (ranging from overnight to five years). This asset and liability analysis includes expected cash flows from loans and mortgage-backed securities, applying prepayment rates based on the differential between the current interest rate and the market interest rate for each loan and security type. This analysis identifies mismatches in the timing of asset and liability cash flows but does not necessarily provide an accurate indicator of interest rate risk because the assumptions used in the analysis may not reflect the actual response to market changes.

Quantitative Analysis. The table below sets forth, as of September 30, 2015, the estimated changes in our NPV and our net interest income that would result from the designated changes in interest rates. Such changes to interest rates are calculated as an immediate and permanent change for the purposes of computing NPV and a gradual change over a one year period for the purposes of computing net interest income. Computations of prospective effects of hypothetical interest rate changes are based

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on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. The following table reflects management's expectations of the changes in NPV or net interest income for an interest rate decrease of 100 basis points or increase of 200 basis points.



	Net Portfolio Value (1) (2)							Net Interest Income (3)
Change in Interest Rates (basis points)	Estimated NPV		Estimated Increase (Decrease)					Estimated Net Interest Income		Estimated Increase (Decrease)
Change in Interest Rates (basis points)	Estimated NPV		Amount			Percent		Estimated Net Interest Income		Amount		Percent
	(Dollars in thousands)
+ 200bp	$	4,358,927		(228,414	)	(5.0	)%	$	541,555	(31,907	)	(5.6	)%
0bp	$	4,587,341		—		—		$	573,462	—		—
-100bp	$	4,412,460		(174,881	)	(3.8	)%	$	576,181	2,719		0.47	%


(1)	Assumes an instantaneous and parallel shift in interest rates at all maturities.


(2)	NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.


(3)	Assumes a gradual change in interest rates over a one year period at all maturities.

The table set forth above indicates at September 30, 2015, in the event of a 200 basis points increase in interest rates, we would be expected to experience a 5.0% decrease in NPV and a $31.9 million, or 5.6%, decrease in net interest income. In the event of a 100 basis points decrease in interest rates, we would be expected to experience a 3.8% decrease in NPV and a $2.7 million, or 0.47%, increase in net interest income. These data do not reflect any future actions we may take in response to changes in interest rates, such as changing the mix in or growth of our assets and liabilities, which could change the results of the NPV and net interest income calculations.

As mentioned above, we retain two nationally recognized firms to compute our quarterly interest rate risk reports. Certain shortcomings are inherent in any methodology used in the above interest rate risk measurements. Modeling changes in NPV and net interest income require certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The NPV and net interest income table presented above assumes the composition of our interest-rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions we may take in response to changes in interest rates. The table also assumes a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing characteristics of specific assets and liabilities. Accordingly, although the NPV and net interest income table provide an indication of our sensitivity to interest rate changes at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effects of changes in market interest rates on our NPV and net interest income.



ITEM 4.	CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II Other Information



ITEM 1.	LEGAL PROCEEDINGS

The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

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ITEM 1A.	RISK FACTORS

There have been no material changes in the “Risk Factors” disclosed in the Company’s December 31, 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission.



ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table reports information regarding repurchases of our common stock during the quarter ended September 30, 2015 and the stock repurchase plans approved by our Board of Directors.



Period	Total Number of Shares Purchased (1) (2)	Average Price paid Per Share		As part of Publicly Announced Plans or Programs		Yet to be Purchased under the Plans or Programs (1) (2)
July 1, 2015 through July 31, 2015	2,200,000	$	12.35	$	27,173,960	32,539,310
August 1, 2015 through August 31, 2015	2,661,385	12.00		31,933,918		29,877,925
September 1, 2015 through September 30, 2015	2,500,000	12.03		30,064,355		27,377,925
Total	7,361,385	$	12.11	$	89,172,233	27,377,925

(1) On March 16, 2015, the Company announced it had received approval from the Board of Governors of the Federal Reserve System to commence a 5% buyback program prior to the one-year anniversary of the completion of its second step conversion. Accordingly, the Board of Directors authorized the repurchase of up to 17,911,561 shares.

(2) On June 9, 2015, the Board of Directors authorized the repurchase of an additional 10% of the Company's outstanding shares of common stock or 34,779,211 million shares which commenced upon the completion of the first repurchase plan on June 30, 2015. This program has no expiration date and has 27,377,925 shares yet to be repurchased as of September 30, 2015.



ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

Not applicable.



ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.



ITEM 5.	OTHER INFORMATION

Not applicable.

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ITEM 6.	EXHIBITS

The following exhibits are either filed as part of this report or are incorporated herein by reference:



3.1			Certificate of Incorporation of Investors Bancorp, Inc. (1)

3.2			Bylaws of Investors Bancorp, Inc. (1)

31.1			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2			Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1			Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101			101.INS (1) XBRL Instance Document 101.SCH (1) XBRL Taxonomy Extension Schema Document 101.CAL (1) XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF (1) XBRL Taxonomy Extension Definition Linkbase Document 101.LAB (1) XBRL Taxonomy Extension Labels Linkbase Document 101.PRE (1) XBRL Taxonomy Presentation Linkbase Document



(1)	Incorporated by reference to the Registration Statement on Form S-1 of Investors Bancorp, Inc. (Commission File no. 333-192966), originally filed with the Securities and Exchange Commission on December 20, 2013.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




		INVESTORS BANCORP, INC.

Date: November 9, 2015	By:	/s/ Kevin Cummings
		Kevin Cummings Chief Executive Officer and President (Principal Executive Officer)
	By:	/s/ Sean Burke
		Sean Burke Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)