Investors Bancorp, Inc. - Quarter Report: 2016 June (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: June 30, 2016

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	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o

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 August 3, 2016, the registrant had 359,070,852 shares of common stock, par value $0.01 per share, issued and 310,397,357 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 June 30, 2016 (unaudited) and December 31, 2015	1
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2016 and 2015 (unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2016 and 2015 (unaudited)	3
	Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 2016 and 2015 (unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015 (unaudited)	5
	Notes to Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4.	Controls and Procedures	56
Part II. Other Information
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	58
	Signature Page	59

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Part I Financial Information



ITEM 1.	FINANCIAL STATEMENTS

INVESTORS BANCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

June 30, 2016 (Unaudited) and December 31, 2015



	June 30, 2016			December 31, 2015
	(In thousands)
ASSETS
Cash and cash equivalents	$	148,322		148,904
Securities available-for-sale, at estimated fair value	1,381,041			1,304,697
Securities held-to-maturity, net (estimated fair value of $1,905,064 and $1,888,686 at June 30, 2016 and December 31, 2015, respectively)	1,827,761			1,844,223
Loans receivable, net	17,410,871			16,661,133
Loans held-for-sale	9,970			7,431
Federal Home Loan Bank stock	208,824			178,437
Accrued interest receivable	64,491			58,563
Other real estate owned	3,774			6,283
Office properties and equipment, net	176,006			172,519
Net deferred tax asset	220,141			237,367
Bank owned life insurance	160,181			159,152
Goodwill and intangible assets	103,975			105,311
Other assets	2,941			4,664
Total assets	$	21,718,298		20,888,684
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits	$	14,425,857		14,063,656
Borrowed funds	3,894,171			3,263,090
Advance payments by borrowers for taxes and insurance	118,177			108,721
Other liabilities	147,841			141,570
Total liabilities	18,586,046			17,577,037
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 June 30, 2016 and December 31, 2015; 313,473,634 and 334,894,181 outstanding at June 30, 2016 and December 31, 2015, respectively	3,591			3,591
Additional paid-in capital	2,788,796			2,785,503
Retained earnings	984,958			936,040
Treasury stock, at cost; 45,597,218 and 24,176,671 shares at June 30, 2016 and December 31, 2015, respectively	(542,407		)	(295,412	)
Unallocated common stock held by the employee stock ownership plan	(88,752		)	(90,250	)
Accumulated other comprehensive loss	(13,934		)	(27,825	)
Total stockholders’ equity	3,132,252			3,311,647
Total liabilities and stockholders’ equity	$	21,718,298		20,888,684

See accompanying notes to consolidated financial statements.

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INVESTORS BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)



	Three Months Ended June 30,			Six Months Ended June 30,
	2016		2015	2016		2015
	(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable and loans held-for-sale	$	175,922	165,515	348,755		324,567
Securities:
Equity	47		24	98		48
Government-sponsored enterprise obligations	9		12	19		23
Mortgage-backed securities	14,830		13,385	29,928		26,202
Municipal bonds and other debt	2,057		1,024	4,009		2,616
Interest-bearing deposits	74		27	177		56
Federal Home Loan Bank stock	2,021		1,542	4,081		3,176
Total interest and dividend income	194,960		181,529	387,067		356,688
Interest expense:
Deposits	20,588		16,429	41,313		32,448
Borrowed Funds	17,067		16,548	33,886		31,247
Total interest expense	37,655		32,977	75,199		63,695
Net interest income	157,305		148,552	311,868		292,993
Provision for loan losses	5,000		7,000	10,000		16,000
Net interest income after provision for loan losses	152,305		141,552	301,868		276,993
Non-interest income
Fees and service charges	4,637		4,578	8,817		8,602
Income on bank owned life insurance	1,001		975	2,261		2,012
Gain on loans, net	1,677		3,104	2,115		4,323
Gain on securities transactions, net	1,640		42	3,028		84
Gain (loss) on sale of other real estate owned, net	131		238	(102	)	310
Other income	2,383		2,648	4,058		4,787
Total non-interest income	11,469		11,585	20,177		20,118
Non-interest expense
Compensation and fringe benefits	53,607		45,344	105,424		88,676
Advertising and promotional expense	2,451		2,737	4,145		5,272
Office occupancy and equipment expense	13,703		11,996	27,513		24,542
Federal deposit insurance premiums	2,800		2,400	5,200		4,600
Stationery, printing, supplies and telephone	949		786	1,766		1,637
Professional fees	4,807		4,442	8,820		7,713
Data processing service fees	4,962		5,346	10,523		10,796
Other operating expenses	7,730		6,785	14,764		13,508
Total non-interest expenses	91,009		79,836	178,155		156,744
Income before income tax expense	72,765		73,301	143,890		140,367
Income tax expense	28,410		26,939	55,909		52,058
Net income	$	44,355	46,362	87,981		88,309
Basic and diluted earnings per share	$	0.15	0.14	0.29		0.26
Weighted average shares outstanding
Basic	298,417,609		333,277,572	303,816,849		338,727,198
Diluted	301,509,608		336,452,548	307,032,615		341,869,777

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 June 30,					For the Six Months Ended June 30,
	2016			2015		2016		2015
	(In thousands)
Net income	$	44,355		46,362		87,981		88,309
Other comprehensive income (loss), net of tax:
Change in funded status of retirement obligations	318			208		635		414
Unrealized gain on securities available-for-sale	3,620			(5,624	)	13,621		(528	)
Accretion of loss on securities reclassified to held to maturity	284			380		567		761
Reclassification adjustment for security gains included in net income	(482		)	—		(1,315	)	—
Other-than-temporary impairment accretion on debt securities	190			189		383		382
Total other comprehensive income (loss)	3,930			(4,847	)	13,891		1,029
Total comprehensive income	$	48,285		41,515		101,872		89,338

See accompanying notes to consolidated financial statements.

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INVESTORS BANCORP, INC. & SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

Six Months Ended June 30, 2016 and 2015

(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, 2014	$	3,591	2,864,406		836,639		(11,131	)	(93,246	)	(22,404	)	3,577,855
Net income	—		—		88,309		—		—		—		88,309
Other comprehensive income, net of tax	—		—		—		—		—		1,029		1,029
Purchase of treasury stock (17,951,462 shares)	—		—		—		(215,070	)	—		—		(215,070	)
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	—		355		—		—		—		—		355
Net tax benefit from stock-based compensation	—		1,453		—		—		—		—		1,453
Option exercise	—		(3,945	)	—		8,905		—		—		4,960
Cash dividend paid ($0.15 per common share)	—		—		(53,210	)	—		—		—		(53,210	)
ESOP shares allocated or committed to be released	—		1,275		—		—		1,498		—		2,773
Balance at June 30, 2015	$	3,591	2,777,647		877,211		(136,872	)	(91,748	)	(21,375	)	3,408,454

Balance at December 31, 2015	$	3,591	2,785,503		936,040		(295,412	)	(90,250	)	(27,825	)	3,311,647
Net income	—		—		87,981		—		—		—		87,981
Other comprehensive income, net of tax	—		—		—		—		—		13,891		13,891
Purchase of treasury stock (22,823,110 shares)	—		—		—		(263,784	)	—		—		(263,784	)
Treasury stock allocated to restricted stock plan (221,890 shares)	—		(2,576	)	(80	)	2,656		—		—		—
Compensation cost for stock options and restricted stock	—		9,695		—		—		—		—		9,695
Net tax benefit from stock-based compensation	—		1,970		—		—		—		—		1,970
Option exercise	—		(7,053	)	—		14,149		—		—		7,096
Common stock repurchased for restricted stock plan (1,500 shares)	—		19		(3	)	(16	)	—		—		—
Cash dividend paid ($0.12 per common share)	—		—		(38,980	)	—		—		—		(38,980	)
ESOP shares allocated or committed to be released	—		1,238		—		—		1,498		—		2,736
Balance at June 30, 2016	$	3,591	2,788,796		984,958		(542,407	)	(88,752	)	(13,934	)	3,132,252

See accompanying notes to consolidated financial statements

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INVESTORS BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)



	Six Months Ended June 30,
	2016			2015
	(In thousands)
Cash flows from operating activities:
Net income	$	87,981		88,309
Adjustments to reconcile net income to net cash provided by operating activities:
ESOP and stock-based compensation expense	12,430			3,128
Amortization of premiums and accretion of discounts on securities, net	6,635			6,950
Amortization of premiums and accretion of fees and costs on loans, net	(1,489		)	(2,744	)
Amortization of intangible assets	1,487			1,708
Provision for loan losses	10,000			16,000
Depreciation and amortization of office properties and equipment	7,657			6,210
Gain on securities, net	(3,028		)	(84	)
Mortgage loans originated for sale	(87,459		)	(131,793	)
Proceeds from mortgage loan sales	86,551			125,209
Gain on sales of mortgage loans, net	(1,631		)	(2,264	)
Loss (gain) on sale of other real estate owned	102			(310	)
Income on bank owned life insurance	(2,261		)	(2,012	)
Increase in accrued interest receivable	(5,928		)	(2,550	)
Deferred tax expense	8,270			(8,076	)
Decrease in other assets	1,624			1,030
Increase in other liabilities	8,104			36,613
Total adjustments	41,064			47,015
Net cash provided by operating activities	129,045			135,324
Cash flows from investing activities:
Purchases of loans receivable	(35,434		)	(23,841	)
Net originations of loans receivable	(730,751		)	(954,848	)
Proceeds from sale of loans held for investment	7,560			28,561
Gain on disposition of loans held for investment	(484		)	(2,059	)
Net proceeds from sale of foreclosed real estate	3,214			1,985
Proceeds from principal repayments/calls/maturities of securities available for sale	134,601			116,630
Proceeds from sales of securities available for sale	57,757			—
Proceeds from principal repayments/calls/maturities of securities held to maturity	166,981			143,262
Proceeds from sales of securities held to maturity	14,348			—
Purchases of securities available for sale	(250,389		)	(200,736	)
Purchases of securities held to maturity	(165,012		)	(340,057	)
Proceeds from redemptions of Federal Home Loan Bank stock	79,287			93,596
Purchases of Federal Home Loan Bank stock	(109,674		)	(128,721	)
Purchases of office properties and equipment	(11,144		)	(12,899	)
Death benefit proceeds from bank owned life insurance	472			6,406
Net cash used in investing activities	(838,668		)	(1,272,721	)

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Cash flows from financing activities:
Net increase in deposits	362,201			700,503
Net increase in other borrowings	631,081			680,017
Net increase in advance payments by borrowers for taxes and insurance	9,456			16,750
Dividends paid	(38,980		)	(53,210	)
Exercise of stock options	7,096			4,960
Purchase of treasury stock	(263,784		)	(215,070	)
Net tax benefit from stock-based compensation	1,971			1,453
Net cash provided by financing activities	709,041			1,135,403
Net decrease in cash and cash equivalents	(582		)	(1,994	)
Cash and cash equivalents at beginning of period	148,904			230,961
Cash and cash equivalents at end of period	$	148,322		228,967
Supplemental cash flow information:
Non-cash investing activities:
Real estate acquired through foreclosure	$	860		3,383
Cash paid during the year for:
Interest	75,440			63,498
Income taxes	36,057			48,140

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

The consolidated financial statements are comprised of the accounts of Investors Bancorp, Inc. and its wholly owned

subsidiaries, including Investors Bank (the “Bank”) and the Bank’s wholly-owned subsidiaries (collectively, the “Company”). 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 six months ended June 30, 2016 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, 2015 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. The first program was completed on June 30, 2015.

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 34,779,211 shares. The second repurchase program commenced immediately upon completion of the first repurchase plan on June 30, 2015.

On April 28, 2016, the Company announced its third share repurchase program, which authorized the purchase of an additional 10% of its publicly-held outstanding shares of common stock, or 31,481,189 shares. The new repurchase program commenced immediately upon completion of the second repurchase plan on June 17, 2016.

During the six months ended June 30, 2016, the Company purchased 22,823,110 shares at a cost of $263.8 million, or approximately $11.56 per share.

3. Business Combinations

On May 3, 2016, the Company announced the signing of a definitive merger agreement with The Bank of Princeton. Under the terms of the merger agreement, 60% of the common shares of Princeton Bank will be converted into the Company's common stock and the remaining 40% will be exchanged for cash. The Bank of Princeton shareholders will have the option to receive either 2.633 shares of the Company's common stock or $30.75 in cash for each share of The Bank of Princeton common stock, subject to proration to ensure that, in the aggregate, 60% of The Bank of Princeton's shares will be converted into the Company's common stock. As of March 31, 2016, The Bank of Princeton had assets of $1.0 billion, loans of $842 million and deposits of $820 million and operated 10 branches in New Jersey and 3 in the Philadelphia market. The merger agreement has been approved by the boards of directors of each company. Conditions required to be completed for this transaction include The Bank of Princeton shareholder approval, regulatory approvals, the effectiveness of the registration statement to be filed by the Company with respect to the stock exchanged to be issued in the transaction and other customary closing conditions. As the merger has not been completed, the transaction is not reflected in the balance sheet or results of operation for the periods presented in this document.

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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 June 30,
	2016					2015
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
	(Dollars in thousands, except per share data)
Net Income	$	44,355				$	46,362
Basic earnings per share:
Income available to common stockholders	$	44,355	298,417,609	$	0.15	$	46,362	333,277,572	$	0.14
Effect of dilutive common stock equivalents (1)			3,091,999					3,174,976
Diluted earnings per share:
Income available to common stockholders	$	44,355	301,509,608	$	0.15	$	46,362	336,452,548	$	0.14

(1) For the three months ended June 30, 2016 and 2015, there were 11,585,684 and 18,454,239 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 Six Months Ended June 30,
	2016					2015
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
	(Dollars in thousands, except per share data)
Net Income	$	87,981				$	88,309
Basic earnings per share:
Income available to common stockholders	$	87,981	303,816,849	$	0.29	$	88,309	338,727,198	$	0.26
Effect of dilutive common stock equivalents (1)			3,215,766					3,142,579
Diluted earnings per share:
Income available to common stockholders	$	87,981	307,032,615	$	0.29	$	88,309	341,869,777	$	0.26

(1) For the six months ended June 30, 2016 and 2015, there were 11,717,574 and 18,454,239 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, gross unrecognized gains and losses and estimated fair value for held-to-maturity securities as of the dates indicated:



	At June 30, 2016
	Carrying value		Gross unrealized gains	Gross unrealized losses	Estimated fair value
	(In thousands)
Available-for-sale:
Equity securities	$	5,827	740	—	6,567
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	497,434		8,032	19	505,447
Federal National Mortgage Association	802,722		13,827	205	816,344
Government National Mortgage Association	52,314		369	—	52,683
Total mortgage-backed securities available-for-sale	1,352,470		22,228	224	1,374,474
Total available-for-sale securities	$	1,358,297	22,968	224	1,381,041



	At June 30, 2016
	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	$	2,174	—		2,174	33	—	2,207
Municipal bonds	37,966		—		37,966	1,505	—	39,471
Corporate and other debt securities	59,727		(22,603	)	37,124	36,425	—	73,549
Total debt securities held-to-maturity	99,867		(22,603	)	77,264	37,963	—	115,227
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	465,714		(2,014	)	463,700	9,589	139	473,150
Federal National Mortgage Association	1,270,206		(2,234	)	1,267,972	29,419	9	1,297,382
Government National Mortgage Association	18,825		—		18,825	480	—	19,305
Total mortgage-backed securities held-to-maturity	1,754,745		(4,248	)	1,750,497	39,488	148	1,789,837
Total held-to-maturity securities	$	1,854,612	(26,851	)	1,827,761	77,451	148	1,905,064

(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 charge is recognized on a held-to-maturity security, through the date of the balance sheet.

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	At December 31, 2015
	Carrying value		Gross unrealized gains	Gross unrealized losses	Estimated fair value
	(In thousands)
Available-for-sale:
Equity securities	$	5,778	733	16	6,495
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	546,652		3,242	2,443	547,451
Federal National Mortgage Association	724,851		4,520	3,299	726,072
Government National Mortgage Association	24,841		1	163	24,679
Total mortgage-backed securities available-for-sale	1,296,344		7,763	5,905	1,298,202
Total available-for-sale securities	$	1,302,122	8,496	5,921	1,304,697



	At December 31, 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	$	4,232	—		4,232	11	—	4,243
Municipal bonds	43,058		—		43,058	1,307	—	44,365
Corporate and other debt securities	58,358		(23,245	)	35,113	42,704	—	77,817
Total debt securities held-to-maturity	105,648		(23,245	)	82,403	44,022	—	126,425
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	516,841		(2,502	)	514,339	2,213	3,082	513,470
Federal National Mortgage Association	1,228,845		(2,705	)	1,226,140	7,305	6,120	1,227,325
Government National Mortgage Association	21,330		—		21,330	125	—	21,455
Federal housing authorities	11		—		11	—	—	11
Total mortgage-backed securities held-to-maturity	1,767,027		(5,207	)	1,761,820	9,643	9,202	1,762,261
Total held-to-maturity securities	$	1,872,675	(28,452	)	1,844,223	53,665	9,202	1,888,686

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Approximately $472.6 million 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 June 30, 2016, by contractual maturity, are shown below.



	June 30, 2016
	Carrying Value		Estimated fair value
	(In thousands)
Due in one year or less	$	32,041	32,040
Due after one year through five years	3,309		3,342
Due after five years through ten years	—		—
Due after ten years	41,914		79,845
Total	$	77,264	115,227

Gross unrealized 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 June 30, 2016 and December 31, 2015, was as follows:



	June 30, 2016
	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	$	21,085	19	—	—	21,085	19
Federal National Mortgage Association	53,957		177	13,717	28	67,674	205
Total available-for-sale securities	$	75,042	196	13,717	28	88,759	224
Held-to-maturity:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	$	—	—	4,288	139	4,288	139
Federal National Mortgage Association	15,423		9	—	—	15,423	9
Total held-to-maturity securities	$	15,423	9	4,288	139	19,711	148
Total	$	90,465	205	18,005	167	108,470	372

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	December 31, 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:
Equity Securities	$	4,692	16	—	—	4,692	16
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	$	263,255	2,443	—	—	263,255	2,443
Federal National Mortgage Association	375,792		2,850	14,821	449	390,613	3,299
Government National Mortgage Association	24,874		163	—	—	24,874	163
Total mortgage-backed securities available-for-sale	663,921		5,456	14,821	449	678,742	5,905
Total available-for-sale securities	$	668,613	5,472	14,821	449	683,434	5,921
Held-to-maturity:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	342,702		2,804	4,887	278	347,589	3,082
Federal National Mortgage Association	547,326		5,477	29,013	643	576,339	6,120
Total mortgage-backed securities held-to-maturity	890,028		8,281	33,900	921	923,928	9,202
Total held-to-maturity securities	$	890,028	8,281	33,900	921	923,928	9,202
Total	$	1,558,641	13,753	48,721	1,370	1,607,362	15,123

At June 30, 2016, gross unrealized losses relate to our mortgage-backed-security portfolio which is comprised of 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.

At June 30, 2016, corporate and other debt securities include a portfolio of collateralized debt obligations backed by pooled trust preferred securities ("TruPS"), principally issued by banks and to a lesser extent insurance companies, real estate investment trusts, and collateralized debt obligations. At June 30, 2016 the TruPS had a amortized cost and estimated fair value of $37.1 million and $73.5 million, respectively. While all were investment grade at purchase, securities classified as non-investment grade at June 30, 2016 had an amortized cost and estimated fair value of $35.2 million and $67.1 million, respectively. Fair value is derived from considering specific assumptions, including terms of the TruPS structure, events of deferrals, defaults and liquidations, the projected cashflow for principal and interest payments, and discounted cash flow modeling.

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 June 30, 2016 and 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 periods ended June 30, 2016 and 2015. At June 30, 2016, non-credit related OTTI recorded on the previously impaired pooled trust preferred securities was $22.6 million ($13.4 million after-tax) and is being accreted into income over the estimated remaining life of the securities.

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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 June 30,					For the Six Months Ended June 30,
	2016			2015		2016		2015
	(In thousands)
Balance of credit related OTTI, beginning of period	$	99,088		107,844		100,200		108,817
Additions:
Initial credit impairments	—			—		—		—
Subsequent credit impairments	—			—		—		—
Reductions:
Accretion of credit loss impairment due to an increase in expected cash flows	(1,111		)	(972	)	(2,223	)	(1,945	)
Balance of credit related OTTI, end of period	$	97,977		106,872		97,977		106,872

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 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 months ended June 30, 2016, the Company received sale proceeds of $24.7 million on a pool of mortgage-backed securities from the available-for-sale portfolio resulting in a gross realized gain of $804,000. For the six months ended June 30, 2016, the Company received sale proceeds of $57.8 million on pools of mortgage-backed securities from the available-for-sale portfolio resulting in a gross realized gain of $2.2 million.

For the three and six months ended June 30, 2016, the Company received sale proceeds of $14.3 million on a pool of mortgage-backed securities from the held-to-maturity portfolio resulting in a gross realized gain of $836,000. These securities met the criteria of principal pay downs under 85% of the original investment amount and therefore did not result in a tainting of the held-to-maturity portfolio. The Company sells securities when market pricing presents, in management’s assessment, an economic benefit that outweighs holding such securities, and when smaller balance securities become cost prohibitive to carry.

For the three and six months ended June 30, 2015, the Company recognized gains on available-for-sale securities of $42,000 and $84,000, respectively, which were related to capital distributions of equity securities from the available-for-sale portfolio. For the three and six months ended June 30, 2015, there were no sales of securities from the held-to-maturity portfolio.

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6. Loans Receivable, Net

The detail of the loan portfolio as of June 30, 2016 and December 31, 2015 was as follows:



	June 30, 2016			December 31, 2015
	(In thousands)
Multi-family loans	$	6,903,992		6,255,904
Commercial real estate loans	4,027,584			3,821,950
Commercial and industrial loans	1,100,397			1,044,329
Construction loans	240,876			224,057
Total commercial loans	12,272,849			11,346,240
Residential mortgage loans	4,819,832			5,037,898
Consumer and other loans	543,498			496,103
Total loans excluding PCI loans	17,636,179			16,880,241
PCI loans	11,245			11,089
Net unamortized premiums and deferred loan costs (1)	(16,237		)	(11,692	)
Allowance for loan losses	(220,316		)	(218,505	)
Net loans	$	17,410,871		16,661,133

(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 changes in the accretable yield for PCI loans during the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(In thousands)
Balance, beginning of period	$	1,603		$	855		$	449		$	971
Acquisitions	—			—			—			—
Accretion	(54		)	(115		)	(121		)	(231		)
Net reclassification from non-accretable difference	—			—			1,221			—
Balance, end of period	$	1,549		$	740		$	1,549		$	740

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(Dollars in thousands)
Balance at beginning of the period	$	216,613		$	208,181		$	218,505		$	200,284
Loans charged off	(2,431		)	(2,378		)	(10,408		)	(4,277		)
Recoveries	1,134			1,159			2,219			1,955
Net charge-offs	(1,297		)	(1,219		)	(8,189		)	(2,322		)
Provision for loan losses	5,000			7,000			10,000			16,000
Balance at end of the period	$	220,316		$	213,962		$	220,316		$	213,962

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 six months ended June 30, 2016, the Company recorded charge-offs related to PCI loans acquired of $25,000.

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 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 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. 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 among other things, loan and delinquency trends, general economic conditions, geographic concentrations, lending policies and procedures 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.

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. Loans determined to be impaired are evaluated for potential loss exposure. Any shortfall results in a recommendation of a charge-off or specific allowance or charge-off if the likelihood of loss is evaluated as probable. To determine the adequacy of collateral on a particular loan, an estimate of the fair value of the collateral is based on the most current appraised value available 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.

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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.

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. 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 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 biennially for loans rated special mention with a balance of $2.0 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 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 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.

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 by portfolio segment and based on impairment method as of June 30, 2016 and December 31, 2015:



	June 30, 2016
	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, 2015	$	88,223		46,999		40,585		6,794		31,443		3,155		1,306		218,505
Charge-offs	(137		)	(235	)	(3,966	)	(51	)	(5,835	)	(184	)	—		(10,408	)
Recoveries	1,310			226		19		259		318		87		—		2,219
Provision	3,187			4,392		1,907		1,914		(988	)	(263	)	(149	)	10,000
Ending balance-June 30, 2016	$	92,583		51,382		38,545		8,916		24,938		2,795		1,157		220,316

Individually evaluated for impairment	$	—		—		—		—		1,344		9		—		1,353
Collectively evaluated for impairment	92,583			51,382		38,545		8,916		23,594		2,786		1,157		218,963
Loans acquired with deteriorated credit quality	—			—		—		—		—		—		—		—
Balance at June 30, 2016	$	92,583		51,382		38,545		8,916		24,938		2,795		1,157		220,316

Loans:
Individually evaluated for impairment	$	1,001		9,516		4,113		1,426		23,038		293		—		39,387
Collectively evaluated for impairment	6,902,991			4,018,068		1,096,284		239,450		4,796,794		543,205		—		17,596,792
Loans acquired with deteriorated credit quality	—			7,817		56		1,426		1,583		363		—		11,245
Balance at June 30, 2016	$	6,903,992		4,035,401		1,100,453		242,302		4,821,415		543,861		—		17,647,424

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	December 31, 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	(284		)	(1,021	)	(516	)	(466	)	(9,526	)	(403	)	—		(12,216	)
Recoveries	445			807		295		317		2,295		278		—		4,437
Provision	16,915			3,183		20,047		455		(9,262	)	(67	)	(5,271	)	26,000
Ending balance-December 31, 2015	$	88,223		46,999		40,585		6,794		31,443		3,155		1,306		218,505

Individually evaluated for impairment	$	—		—		2,409		—		1,773		9		—		4,191
Collectively evaluated for impairment	88,223			46,999		38,176		6,794		29,670		3,146		1,306		214,314
Loans acquired with deteriorated credit quality	—			—		—		—		—		—		—		—
Balance at December 31, 2015	$	88,223		46,999		40,585		6,794		31,443		3,155		1,306		218,505

Loans:
Individually evaluated for impairment	$	3,219		18,941		9,395		2,504		22,539		389		—		56,987
Collectively evaluated for impairment	6,252,685			3,803,009		1,034,934		221,553		5,015,359		495,714		—		16,823,254
Loans acquired with deteriorated credit quality	—			7,149		56		1,786		1,645		453		—		11,089
Balance at December 31, 2015	$	6,255,904		3,829,099		1,044,385		225,843		5,039,543		496,556		—		16,891,330

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, 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. Residential loans delinquent 30-59 days are considered watch if not already identified as impaired.

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 60-89 days are considered special mention if not already identified as impaired.

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 as well as those identified as impaired 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 June 30, 2016 and December 31, 2015 by class of loans excluding PCI loans:



	June 30, 2016
	Pass		Watch	Special Mention	Substandard	Doubtful	Loss	Total
	(In thousands)
Commercial loans:
Multi-family	$	6,452,965	299,908	113,785	37,334	—	—	6,903,992
Commercial real estate	3,567,741		387,055	52,424	20,364	—	—	4,027,584
Commercial and industrial	835,414		236,585	22,670	5,728	—	—	1,100,397
Construction	203,221		32,533	1,200	3,922	—	—	240,876
Total commercial loans	11,059,341		956,081	190,079	67,348	—	—	12,272,849
Residential mortgage	4,707,626		22,385	7,481	82,340	—	—	4,819,832
Consumer and other	532,984		2,706	1,075	6,733	—	—	543,498
Total	$	16,299,951	981,172	198,635	156,421	—	—	17,636,179



	December 31, 2015
	Pass		Watch	Special Mention	Substandard	Doubtful	Loss	Total
	(In thousands)
Commercial loans:
Multi-family	$	5,876,425	325,414	17,033	37,032	—	—	6,255,904
Commercial real estate	3,411,876		331,429	38,265	40,380	—	—	3,821,950
Commercial and industrial	793,527		223,474	13,782	13,546	—	—	1,044,329
Construction	207,499		12,833	—	3,725	—	—	224,057
Total commercial loans	10,289,327		893,150	69,080	94,683	—	—	11,346,240
Residential mortgage	4,930,961		24,584	13,796	68,557	—	—	5,037,898
Consumer and other	482,715		3,987	427	8,974	—	—	496,103
Total	$	15,703,003	921,721	83,303	172,214	—	—	16,880,241

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The following tables present the payment status of the recorded investment in past due loans as of June 30, 2016 and December 31, 2015 by class of loans excluding PCI loans:



	June 30, 2016
	30-59 Days		60-89 Days	Greater than 90 Days	Total Past Due	Current	Total Loans Receivable
	(In thousands)
Commercial loans:
Multi-family	$	—	—	239	239	6,903,753	6,903,992
Commercial real estate	3,933		691	6,006	10,630	4,016,954	4,027,584
Commercial and industrial	3,047		806	434	4,287	1,096,110	1,100,397
Construction	—		—	190	190	240,686	240,876
Total commercial loans	6,980		1,497	6,869	15,346	12,257,503	12,272,849
Residential mortgage	23,385		8,017	65,618	97,020	4,722,812	4,819,832
Consumer and other	2,706		1,075	6,441	10,222	533,276	543,498
Total	$	33,071	10,589	78,928	122,588	17,513,591	17,636,179



	December 31, 2015
	30-59 Days		60-89 Days	Greater than 90 Days	Total Past Due	Current	Total Loans Receivable
	(In thousands)
Commercial loans:
Multi-family	$	14,236	—	1,886	16,122	6,239,782	6,255,904
Commercial real estate	4,171		352	6,429	10,952	3,810,998	3,821,950
Commercial and industrial	957		—	4,386	5,343	1,038,986	1,044,329
Construction	—		—	792	792	223,265	224,057
Total commercial loans	19,364		352	13,493	33,209	11,313,031	11,346,240
Residential mortgage	27,092		14,956	68,560	110,608	4,927,290	5,037,898
Consumer and other	3,987		427	8,976	13,390	482,713	496,103
Total	$	50,443	15,735	91,029	157,207	16,723,034	16,880,241

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



	June 30, 2016			December 31, 2015
	# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
Non-accrual:
Multi-family	2	$	1,240	4	$	3,467
Commercial real estate	33	11,713		37	10,820
Commercial and industrial	6	654		17	9,225
Construction	1	190		4	792
Total commercial loans	42	13,797		62	24,304
Residential mortgage and consumer	471	86,527		500	91,122
Total non-accrual loans	513	$	100,324	562	$	115,426

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Included in the non-accrual table above are troubled debt restructured loans ("TDR") 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 June 30, 2016 and December 31, 2015, these loans are comprised of the following:



	June 30, 2016			December 31, 2015
	# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
Current TDR classified as non-accrual:
Multi-family	1	$	1,001	1	$	1,032
Commercial real estate	3	524		2	240
Commercial and industrial	—	—		2	2,226
Total commercial loans	4	1,525		5	3,498
Residential mortgage and consumer	29	6,568		15	3,378
Total current TDR classified as non-accrual	33	$	8,093	20	$	6,876

The following table presents TDR loans which were also 30-89 days delinquent and classified as non-accrual at the dates indicated:



	June 30, 2016			December 31, 2015
	# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
TDR 30-89 days delinquent classified as non-accrual:
Multi-family	—	$	—	1	$	548
Commercial real estate	—	—		5	2,309
Commercial and industrial	1	220		1	360
Total commercial loans	1	220		7	3,217
Residential mortgage and consumer	5	1,537		11	3,338
Total current TDR classified as non-accrual	6	$	1,757	18	$	6,555

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 June 30, 2016, PCI loans with a carrying value of $11.2 million included $9.3 million of which were current, none of which were 30-89 days delinquent and $1.9 million of which were 90 days or more delinquent. As of December 31, 2015, PCI loans with a carrying value of $11.1 million included $9.0 million of which were current and $2.1 million of which were 90 days or more delinquent.

At June 30, 2016 and December 31, 2015, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans which totaled $39.4 million and $57.0 million, respectively, with allocations of the allowance for loan losses of $1.4 million and $4.2 million for the periods ending June 30, 2016 and December 31, 2015, respectively. During the six months ended June 30, 2016 and 2015, interest income received and recognized on these loans totaled $895,000 and $667,000, respectively.

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The following tables present loans individually evaluated for impairment by portfolio segment as of June 30, 2016 and

December 31, 2015:



	June 30, 2016
	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
	(In thousands)
With no related allowance:
Multi-family	$	1,001	1,077	—	2,073	21
Commercial real estate	9,516		14,355	—	8,474	285
Commercial and industrial	4,113		4,192	—	3,667	112
Construction	1,426		1,432	—	1,881	33
Total commercial loans	16,056		21,056	—	16,095	451
Residential mortgage and consumer	10,007		13,107	—	8,702	227
With an allowance recorded:
Multi-family	—		—	—	—	—
Commercial real estate	—		—	—	—	—
Commercial and industrial	—		—	—	—	—
Construction	—		—	—	—	—
Total commercial loans	—		—	—	—	—
Residential mortgage and consumer	13,324		13,705	1,353	15,086	217
Total:
Multi-family	1,001		1,077	—	2,073	21
Commercial real estate	9,516		14,355	—	8,474	285
Commercial and industrial	4,113		4,192	—	3,667	112
Construction	1,426		1,432	—	1,881	33
Total commercial loans	16,056		21,056	—	16,095	451
Residential mortgage and consumer	23,331		26,812	1,353	23,788	444
Total impaired loans	$	39,387	47,868	1,353	39,883	895

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	December 31, 2015
	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
	(In thousands)
With no related allowance:
Multi-family	$	3,219	6,806	—	2,872	119
Commercial real estate	18,941		27,961	—	19,025	1,136
Commercial and industrial	5,155		5,160	—	3,575	200
Construction	2,504		6,412	—	4,288	226
Total commercial loans	29,819		46,339	—	29,760	1,681
Residential mortgage and consumer	8,020		12,433	—	7,611	463
With an allowance recorded:
Multi-family	—		—	—	—	—
Commercial real estate	—		—	—	—	—
Commercial and industrial	4,240		4,271	2,409	4,389	194
Construction	—		—	—	—	—
Total commercial loans	4,240		4,271	2,409	4,389	194
Residential mortgage and consumer	14,908		13,695	1,782	16,424	476
Total:
Multi-family	3,219		6,806	—	2,872	119
Commercial real estate	18,941		27,961	—	19,025	1,136
Commercial and industrial	9,395		9,431	2,409	7,964	394
Construction	2,504		6,412	—	4,288	226
Total commercial loans	34,059		50,610	2,409	34,149	1,875
Residential mortgage and consumer	22,928		26,128	1,782	24,035	939
Total impaired loans	$	56,987	76,738	4,191	58,184	2,814

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 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 June 30, 2016 and December 31, 2015. There were three residential PCI loans that were classified as TDRs and are included in the table below at June 30, 2016. There were three residential PCI loans that were classified as TDRs for the period ended December 31, 2015.



	June 30, 2016
	Accrual			Non-accrual			Total
	# of loans	Amount		# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
Commercial loans:
Multi-family	—	$	—	1	$	1,001	1	$	1,001
Commercial real estate	3	4,499		5	3,649		8	8,148
Commercial and industrial	1	1,911		2	513		3	2,424
Construction	—	—		—	—		—	—
Total commercial loans	4	6,410		8	5,163		12	11,573
Residential mortgage and consumer	25	5,739		67	17,592		92	23,331
Total	29	$	12,149	75	$	22,755	104	$	34,904



	December 31, 2015
	Accrual			Non-accrual			Total
	# of loans	Amount		# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
Commercial loans:
Multi-family	—	$	—	2	$	1,580	2	$	1,580
Commercial real estate	5	13,161		9	5,826		14	18,987
Commercial and industrial	1	640		3	2,586		4	3,226
Construction	1	313		2	405		3	718
Total commercial loans	7	14,114		16	10,397		23	24,511
Residential mortgage and consumer	32	8,375		49	14,553		81	22,928
Total	39	$	22,489	65	$	24,950	104	$	47,439

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The following table presents information about troubled debt restructurings that occurred during the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30,
	2016					2015
	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 Restructurings:
Commercial real estate	1	$	128	$	128	1	$	78	$	78
Residential mortgage and consumer	7	635		635		6	913		913



	Six Months Ended June 30,
	2016			2015
	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 Restructurings:
Commercial real estate	3	570	570	1	78	78
Construction	—	—	—	1	1,326	1,326
Residential mortgage and consumer	14	1,593	1,593	13	2,454	2,454

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 dependent 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 six months ended June 30, 2016 and 2015. The allowance for loan losses associated with the TDRs presented in the above tables totaled $1.4 million and $1.8 million at June 30, 2016 and December 31, 2015, 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. Commercial loan modifications which qualified as a TDR comprised of terms of maturity being extended and reduction in interest rates to current market terms. As of June 30, 2016, the Company had 1 existing TDR commercial loan for which the Company extended an existing working capital line of credit. Subsequent to June 30, 2016, this TDR paid off all existing facilities. The borrower had drawn $1.0 million on such line of credit as of June 30, 2016.

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The following table presents information about pre and post modification interest yield for troubled debt restructurings which occurred during the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30,
	2016					2015
	Number of Loans	Pre-modification Interest Yield		Post- modification Interest Yield		Number of Loans	Pre-modification Interest Yield		Post- modification Interest Yield

Troubled Debt Restructurings:
Commercial real estate	1	3.25	%	3.25	%	1	5.00	%	5.00	%
Residential mortgage and consumer	7	6.71	%	3.72	%	6	5.89	%	3.54	%



	Six Months Ended June 30,
	2016					2015
	Number of Loans	Pre-modification Interest Yield		Post- modification Interest Yield		Number of Loans	Pre-modification Interest Yield		Post- modification Interest Yield

Troubled Debt Restructurings:
Commercial real estate	3	3.92	%	4.18	%	1	5.00	%	5.00	%
Construction	—	—	%	—	%	1	5.00	%	5.00	%
Residential mortgage and consumer	14	6.31	%	3.89	%	13	5.18	%	3.42	%

Payment defaults for loans modified as TDR in the previous 12 months to June 30, 2016 consisted of 4 residential loans, 3 commercial real estate loans and 1 construction loan with a recorded investment of $880,000, $246,000 and $132,000, respectively, at June 30, 2016. Payment defaults for loans modified as TDRs in the previous 12 months to June 30, 2015 consisted of 2 residential loans with a recorded investment of $614,000 at June 30, 2015.

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7. Deposits

Deposits are summarized as follows:



	June 30, 2016		December 31, 2015
	(In thousands)
Checking accounts	$	5,275,526	4,636,025
Money market deposits	3,849,932		3,861,317
Savings	2,101,142		2,150,004
Total transaction accounts	11,226,600		10,647,346
Certificates of deposit	3,199,257		3,416,310
Total deposits	$	14,425,857	14,063,656

8. Goodwill and Other Intangible Assets

The following table summarizes net intangible assets and goodwill at June 30, 2016 and December 31, 2015:



	June 30, 2016		December 31, 2015
	(In thousands)
Mortgage servicing rights	$	15,573	16,248
Core deposit premiums	9,859		11,332
Other	972		160
Total other intangible assets	26,404		27,740
Goodwill	77,571		77,571
Goodwill and intangible assets	$	103,975	105,311

The following table summarizes other intangible assets as of June 30, 2016 and December 31, 2015:



	Gross Intangible Asset		Accumulated Amortization		Valuation Allowance		Net Intangible Assets
	(In thousands)
June 30, 2016
Mortgage servicing rights	$	26,968	(11,274	)	(121	)	15,573
Core deposit premiums	25,058		(15,199	)	—		9,859
Other	1,150		(178	)	—		972
Total other intangible assets	$	53,176	(26,651	)	(121	)	26,404

December 31, 2015
Mortgage servicing rights	$	23,411	(7,042	)	(121	)	16,248
Core deposit premiums	25,058		(13,726	)	—		11,332
Other	300		(140	)	—		160
Total other intangible assets	$	48,769	(20,908	)	(121	)	27,740

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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 had an unpaid principal balance of $2.03 billion and $2.12 billion at June 30, 2016 and December 31, 2015 respectively, all of which relate to residential mortgage loans. At June 30, 2016 and December 31, 2015, the servicing asset, included in intangible assets, had an estimated fair value of $15.6 million and $16.2 million, respectively. For the six months ended June 30, 2016, fair value was based on expected future cash flows considering a weighted average discount rate of 10.19%, a weighted average constant prepayment rate on mortgages of 13.80% and a weighted average life of 5.7 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") which 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. For the six months ended June 30, 2016, the Company granted 221,890 shares of restricted stock awards under the 2015 Plan.

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. For the six months ended June 30, 2016, the Company granted 140,000 stock options under the 2015 Plan.

The fair value of stock options granted as part of the 2015 Plan was estimated utilizing the Black-Scholes option pricing model using the following assumptions for the period presented below.



	Six Months Ended June 30, 2016			Six Months Ended June 30, 2015

Weighted average expected life (in years)	7.00			7.43
Weighted average risk-free rate of return	1.82		%	1.96		%
Weighted average volatility	24.05		%	25.33		%
Dividend yield	1.86		%	1.59		%
Weighted average fair value of options granted	$	2.88		$	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.

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 six months ended June 30, 2016 and 2015:

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	Three Months Ended June 30,			Six Months Ended June 30,
	2016		2015	2016	2015
	(Dollars in thousands)
Stock option expense	$	1,516	111	2,990	115
Restricted stock expense	3,845		240	6,705	240
Total share based compensation expense	$	5,361	351	9,695	355

The following is a summary of the Company’s stock option activity and related information for its option plan for the six months ended June 30, 2016:



	Number of Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2015	18,804,816			$10.00	6.8		$46,996
Granted	140,000		11.51		9.7
Exercised	(1,182,173	)	6.00		0.5
Forfeited	(55,360	)	12.54
Expired	(102	)	8.08
Outstanding at June 30, 2016	17,707,181			$10.27	6.7		$36,718
Exercisable at June 30, 2016	8,063,494			$7.58	3.4		$36,645

Expected future expense relating to the non-vested options outstanding as of June 30, 2016 is $29.9 million over a weighted average period of 5.3 years.

The following is a summary of the status of the Company’s restricted shares as of June 30, 2016 and changes therein during the six months ended:



	Number of Shares Awarded		Weighted Average Grant Date fair Value
Outstanding at December 31, 2015	6,759,832		$	12.64
Granted	221,890		11.45
Vested	(971,571	)
Forfeited	(1,500	)
Outstanding and non vested at June 30, 2016	6,008,651		$	12.51

Expected future expense relating to the non-vested restricted shares outstanding as of June 30, 2016 is $72.9 million over a weighted average period of 5.5 years.

10. Net Periodic Benefit Plan Expense

The Company has an Executive Supplemental Retirement Wage Replacement Plan ("Wage Replacement Plan") and the Supplemental ESOP and Retirement Plan ("Supplemental ESOP") (collectively, the "SERPs"). The Wage Replacement Plan is a nonqualified, defined benefit plan which provides benefits to certain executives as designated by the Compensation Committee of the Board of Directors. More specifically, the Wage Replacement Plan is designed to provide participants with a normal retirement benefit equal to an annual benefit of 60% of the participant's highest annual base salary and cash inventive (over a consecutive 36-month period within the last 120 consecutive calendar months of employment) reduced by the sum of the benefits provided under the Pentagra DB Plan and the annualized value of their benefits payable under the defined benefit portion of the Supplemental ESOP.

The Supplemental ESOP compensates certain executives (as designated by the Compensation Committee of the Board of Directors) participating in the Pentegra DB Plan and the ESOP whose contributions are limited by the Internal Revenue Code. The Company also maintains the Amended and Restated Director Retirement Plan ("Directors' plan") for certain directors, which

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is a nonqualified, defined benefit plan. This plan was frozen on November 21, 2006 such that no new benefits accrued under, and no new directors were eligible to participate in the plan. The Wage Replacement Plan, Supplemental ESOP 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 June 30,			Six Months Ended June 30,
	2016		2015	2016	2015
	(In thousands)
Service cost	$	894	774	1,787	1,548
Interest cost	474		374	948	749
Amortization of:
Prior service cost	—		12	—	24
Net gain	514		321	1,028	641
Total net periodic benefit cost	$	1,882	1,481	3,763	2,962

Due to the unfunded nature of these plans, no contributions have been made or were expected to be made to the SERPs and Directors’ plan during the six months ended June 30, 2016.

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. There was no contribution to the defined benefit pension plan during the six months ended June 30, 2016. We anticipate contributing funds to the plan to meet any minimum funding requirements for the remainder of 2016.

11. Comprehensive Income

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



	Three Months Ended June 30,
	2016							2015
	Gross			Tax		Net		Gross		Tax		Net
	(Dollars in thousands)
Net income	$	72,765		(28,410	)	44,355		73,301		(26,939	)	46,362
Other comprehensive income (loss):
Change in funded status of retirement obligations	537			(219	)	318		352		(144	)	208
Unrealized gain (loss) on securities available-for-sale	4,920			(1,300	)	3,620		(9,409	)	3,785		(5,624	)
Accretion of loss on securities reclassified to held to maturity available for sale	484			(200	)	284		642		(262	)	380
Reclassification adjustment for security gains included in net income	(804		)	322		(482	)	—		—		—
Other-than-temporary impairment accretion on debt securities	322			(132	)	190		319		(130	)	189
Total other comprehensive income (loss)	5,459			(1,529	)	3,930		(8,096	)	3,249		(4,847	)
Total comprehensive income	$	78,224		(29,939	)	48,285		65,205		(23,690	)	41,515

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	Six Months Ended June 30,
	2016							2015
	Gross			Tax		Net		Gross		Tax		Net
	(Dollars in thousands)
Net income	$	143,890		(55,909	)	87,981		140,367		(52,058	)	88,309
Other comprehensive income:
Change in funded status of retirement obligations	1,074			(439	)	635		702		(288	)	414
Unrealized gain (loss) on securities available-for-sale	22,360			(8,739	)	13,621		(1,041	)	513		(528	)
Accretion of loss on securities reclassified to held to maturity from available for sale	959			(392	)	567		1,285		(524	)	761
Reclassification adjustment for security gains included in net income	(2,192		)	877		(1,315	)	—		—		—
Other-than-temporary impairment accretion on debt securities	646			(263	)	383		646		(264	)	382
Total other comprehensive income	22,847			(8,956	)	13,891		1,592		(563	)	1,029
Total comprehensive income	$	166,737		(64,865	)	101,872		141,959		(52,621	)	89,338

The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the six months ended June 30, 2016 and 2015:



	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 gains included in net income		Other-than- temporary impairment accretion on debt securities		Total accumulated other comprehensive loss
	(Dollars in thousands)
Balance - December 31, 2015	$	(12,366	)	(3,080	)	2,918		(1,547	)	(13,750	)	(27,825	)
Net change	635			567		13,621		(1,315	)	383		13,891
Balance - June 30, 2016	$	(11,731	)	(2,513	)	16,539		(2,862	)	(13,367	)	(13,934	)

Balance - December 31, 2014	$	(10,911	)	(4,528	)	7,851		—		(14,816	)	(22,404	)
Net change	414			761		(528	)	—		382		1,029
Balance - June 30, 2015	$	(10,497	)	(3,767	)	7,323		—		(14,434	)	(21,375	)

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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 June 30,					Six Months Ended June 30,
	2016			2015		2016		2015
	(In thousands)
Reclassification adjustment for gains included in net income
Gain on security transactions, net	$	(804	)	—		(2,192	)	—
Change in funded status of retirement obligations (1)
Compensation and fringe benefits:
Amortization of prior service cost	—			12		—		24
Amortization of net gain	537			339		1,074		678
Compensation and fringe benefits	537			351		1,074		702
Total before tax	(267		)	351		(1,118	)	702
Income tax expense	103			(144	)	438		(288	)
Net of tax	$	(164	)	207		(680	)	414

(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 Financial Accounting Standards Board ("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.

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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-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 June 30, 2016 and December 31, 2015.



	Carrying Value at June 30, 2016
	Total		Level 1	Level 2	Level 3
	(In thousands)
Securities available for sale:
Equity securities	$	6,567	6,567	—	—
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	505,447		—	505,447	—
Federal National Mortgage Association	816,344		—	816,344	—
Government National Mortgage Association	52,683		—	52,683	—
Total mortgage-backed securities available-for-sale	1,374,474		—	1,374,474	—
Total securities available-for-sale	$	1,381,041	6,567	1,374,474	—



	Carrying Value at December 31, 2015
	Total		Level 1	Level 2	Level 3
	(In thousands)
Securities available for sale:
Equity securities	$	6,495	6,495	—	—
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	547,451		—	547,451	—
Federal National Mortgage Association	726,072		—	726,072	—
Government National Mortgage Association	24,679		—	24,679	—
Total mortgage-backed securities available-for-sale	1,298,202		—	1,298,202	—
Total securities available-for-sale	$	1,304,697	6,495	1,298,202	—

There have been no changes in the methodologies used at June 30, 2016 from December 31, 2015, and there were no transfers between Level 1 and Level 2 during the six months ended June 30, 2016.

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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 June 30, 2016, the fair value model used prepayment speeds ranging from 2.18% to 26.22% and a discount rate of 10.19% for the valuation of the mortgage servicing rights. At December 31, 2015, the fair value model used prepayment speeds ranging from 6.30% to 26.28% and a discount rate of 10.20% 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.

Impaired 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 June 30, 2016, appraisals were discounted in a range of 0%-25% for estimated costs to sell.

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 June 30, 2016 and December 31, 2015. For the three months ended June 30, 2016 there was no change to the carrying value of impaired loans or mortgage servicing rights measured at fair value on a non-recurring basis. For the year ended December 31, 2015, there was no change to carrying value of impaired loans or mortgage servicing rights measured at fair value on a non-recurring basis.



					Carrying Value at June 30, 2016
Security Type	Valuation Technique	Unobservable Input	Range	Weighted Average	Total		Level 1	Level 2	Level 3
					(In thousands)
Other real estate owned	Market comparable	Lack of marketability	0.0% - 25.0%	5.30%	520		—	—	520
					$	520	—	—	520



					Carrying Value at December 31, 2015
Security Type	Valuation Technique	Unobservable Input	Range	Weighted Average	Total		Level 1	Level 2	Level 3
					(In thousands)
Other real estate owned	Market comparable	Lack of marketability	0.0% - 25.0%	8.90%	510		—	—	510
					$	510	—	—	510

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.

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.

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Loans Held For Sale

The fair value of loans held for sale is its carrying value, since this is the amount for which the Company intends to sell it for. The fair value is determined based on quoted prices for similar instruments in active markets.

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.



	June 30, 2016
	Carrying		Estimated Fair Value
	value		Total	Level 1	Level 2	Level 3
	(In thousands)
Financial assets:
Cash and cash equivalents	$	148,322	148,322	148,322	—	—
Securities available-for-sale	1,381,041		1,381,041	6,567	1,374,474	—
Securities held-to-maturity	1,827,761		1,905,064	—	1,831,515	73,549
Stock in FHLB	208,824		208,824	208,824	—	—
Loans held for sale	9,970		9,970	—	9,970	—
Net loans	17,410,871		17,459,023	—	—	17,459,023
Financial liabilities:
Deposits, other than time deposits	$	11,226,600	11,226,600	11,226,600	—	—
Time deposits	3,199,257		3,202,329	—	3,202,329	—
Borrowed funds	3,894,171		3,966,910	—	3,966,910	—



	December 31, 2015
	Carrying		Estimated Fair Value
	value		Total	Level 1	Level 2	Level 3
	(In thousands)
Financial assets:
Cash and cash equivalents	$	148,904	148,904	148,904	—	—
Securities available-for-sale	1,304,697		1,304,697	6,495	1,298,202	—
Securities held-to-maturity	1,844,223		1,888,686	—	1,810,869	77,817
Stock in FHLB	178,437		178,437	178,437	—	—
Loans held for sale	7,431		7,431	—	7,431	—
Net loans	16,661,133		16,650,529	—	—	16,650,529
Financial liabilities:
Deposits, other than time deposits	$	10,647,346	10,647,346	10,647,346	—	—
Time deposits	3,416,310		3,414,528	—	3,414,528	—
Borrowed funds	3,263,090		3,277,983	—	3,277,983	—

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 June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is currently evaluating the provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on the Company's Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting", a new standard that changes the accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The standard also allows entities to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on its cash flows statement, and provides an accounting policy election to account for forfeitures as they occur. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. The Company is currently evaluating the provisions of ASU No. 2016-09 to determine the potential impact the new standard will have on the Company's Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires all lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. Lessor accounting remains largely unchanged under the new guidance. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period, with early adoption permitted. A modified retrospective approach must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the provisions of ASU No. 2016-02 to determine the potential impact the new standard will have on the Company's Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This amendment supersedes the guidance to classify equity securities with readily determinable fair values into different categories, requires equity securities to be measured at fair value with changes in the fair value recognized through net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The amendment requires public business entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The amendment requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. The amendment requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. The amendment reduces diversity in current practice by clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. This

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amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendment by means of a cumulative-effect adjustment as of the beginning of the fiscal year of adoption, with the exception of the amendment related to equity securities without readily determinable fair values, which should be applied prospectively to equity investments that exist as of the date of adoption. The Company intends to adopt the accounting standard during the first quarter of 2018, as required, and is currently evaluating the impact on its results of operations, financial position, and liquidity.

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. The ASU is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2017, and early adoption is permitted. Subsequently, the FASB issued the following standards related to ASU 2014-09: ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”; ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”; and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”. These amendments are intended to improve and clarify the implementation guidance of ASU 2014-09 and have the same effective date as the original standard. The Company is currently evaluating the impact on its results of operations, financial position, and liquidity.

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. This guidance did not have a material impact to the Company's consolidated financial statements.

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. This guidance did not have a material impact to the Company's consolidated financial statements.

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. This guidance did not have a material impact to the Company's consolidated financial statements.

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 July 27, 2016, the Company declared a cash dividend of $0.06 per share. The $0.06 dividend per share will be paid to stockholders on August 25, 2016, with a record date of August 10, 2016.

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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, 2015.

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.

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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 among other things, loan and delinquency trends, general economic conditions, geographic concentrations, lending policies and procedures 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 significantly more 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, 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. Loans determined to be impaired are evaluated for potential loss. Any shortfall results in a recommendation of a charge-off or 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.

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 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 biennially for loans rated special mention with a balance of $2.0 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 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

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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 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 estimated 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.

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. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which those temporary differences and carryforwards became deductible. 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 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. The use of different assumptions could have a positive or negative effect on our consolidated financial condition or results of operations.

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 accumulate 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. Goodwill was last evaluated on November 1, 2015. 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 six months ended June 30, 2016, our qualitative assessment concluded that it was not more likely than

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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. 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

Since the Company's initial public offering in 2005, we have transitioned from a wholesale thrift business to a retail commercial bank. This transition has been primarily accomplished by increasing the amount of our commercial loans and core deposits. Our transformation can be attributed to a number of factors, including organic growth, de novo branches, bank and branch acquisitions, as well as expanding our product offerings. We believe the attractive markets we operate in, namely, New Jersey and the greater New York metropolitan area, will continue to provide us with growth opportunities. Our primary focus is to build and develop profitable customer relationships across all lines of business, both consumer and commercial.

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 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.

The persistent low interest rate environment over the last year, coupled with an increase in short term interest rates in December 2015, has resulted in sustained pressure on our net interest income. Interest-earning assets continue to be originated or re-priced at yields lower than the overall portfolio, and competitive pricing remains strong. But despite the overall flattening of the treasury yield curve, 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 the potential for additional increases in short-term rates before the end of 2016. If short-term interest rates increase, and the yield

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curve flattens further, 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 continues to benefit from lower energy costs and improved housing and employment metrics, the velocity of economic growth, domestically and internationally, 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 $829.6 million, or 4.0%, to $21.72 billion at June 30, 2016, from $20.89 billion December 31, 2015. Net loans increased $749.7 million, or 4.5%, to $17.41 billion at June 30, 2016 from $16.66 billion at December 31, 2015, and securities increased by $59.9 million, or 1.9%, to $3.21 billion at June 30, 2016 from $3.15 billion December 31, 2015. During the six months ended June 30, 2016, we originated $1.11 billion in multi-family loans, $452.8 million in commercial and industrial loans, $301.0 million in commercial real estate loans, $229.5 million in residential loans, $190.5 million in consumer and other loans and $197.8 million in construction loans. Our strategic objective is to become more commercial bank like and maintain a well-diversified loan portfolio. We understand the heightened regulatory sensitivity around commercial real estate and multi-family concentration and continue to be diligent in our underwriting and credit risk monitoring of these portfolios.

On May 3, 2016, we announced the signing of a definitive merger agreement with The Bank of Princeton. As of March 31, 2016, The Bank of Princeton had assets of $1.0 billion, loans of $842 million and deposits of $820 million and operated 10 branches in New Jersey and 3 in the Philadelphia market. The transaction is subject to regulatory approvals and customary closing conditions.

Capital management is a key component of our business strategy. We continue 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 public offerings, while being mindful of tangible book value for stockholders. Our capital to total assets ratio has decreased to 14.42% at June 30, 2016 from 15.85% at December 31, 2015. In March 2015, we commenced the first stock repurchase plan since our second step 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. On April 28, 2016, the Company announced its third share repurchase program, which authorized the purchase of an additional 10% of its publicly-held outstanding shares of common stock, or approximately 31.5 million shares. This plan commenced immediately upon the completion of the previous plan in June 2016. Stockholders' equity was impacted for the six months ended June 30, 2016 by the repurchase of 22.8 million shares of common stock for $263.8 million as well as cash dividends of $0.12 per share totaling $39.0 million.

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, enhanced product offerings, investments in our people and opportunistic acquisitions in our market area. During 2016, we continue to enhance our employee training and development programs, build additional risk management and operational infrastructure and add key personnel as our company grows and our business changes. We will continue to enhance stockholder value through our strategic capital initiatives, including growth both organically and through acquisitions, stock buybacks and dividend payments.

Comparison of Financial Condition at June 30, 2016 and December 31, 2015

Total Assets. Total assets increased by $829.6 million, or 4.0%, to $21.72 billion at June 30, 2016 from $20.89 billion at December 31, 2015. Net loans increased $749.7 million, or 4.5% to $17.41 billion at June 30, 2016 from $16.66 billion at December 31, 2015, while securities increased by $59.9 million, or 1.9%, to $3.21 billion at June 30, 2016 from $3.15 billion at December 31, 2015.

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Net Loans. Net loans increased by $749.7 million, or 4.5%, to $17.41 billion at June 30, 2016 from $16.66 billion at December 31, 2015. The detail of the loan portfolio (including PCI loans) is below:



	June 30, 2016			December 31, 2015
	(Dollars in thousands)
Commercial Loans:
Multi-family loans	$	6,903,992		$	6,255,903
Commercial real estate loans	4,035,401			3,829,099
Commercial and industrial loans	1,100,453			1,044,386
Construction loans	242,302			225,843
Total commercial loans	12,282,148			11,355,231
Residential mortgage loans	4,821,415			5,039,543
Consumer and other	543,861			496,556
Total Loans	17,647,424			16,891,330
Premiums on purchased loans and deferred loan fees, net	(16,237		)	(11,692		)
Allowance for loan losses	(220,316		)	(218,505		)
Net loans	$	17,410,871		$	16,661,133

During the six months ended June 30, 2016, we originated $1.11 billion in multi-family loans, $301.0 million in commercial real estate loans, $452.8 million in commercial and industrial loans, $229.5 million in residential loans, $190.5 million in consumer and other loans and $197.8 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. 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 $87.0 million for the six months ended June 30, 2016 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 June 30, 2016 and December 31, 2015 was $153.8 million and $172.3 million, respectively. From time to time and for competitive purposes, we originate commercial loans with limited interest only periods. As of June 30, 2016, we had $682.0 million commercial real estate interest only loans in our loan portfolio, of which $549.4 million have twenty-four months or less remaining on the interest only term. 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.

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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	June 30, 2016				March 31, 2016				December 31, 2015				September 30, 2015				June 30, 2015
	# of Loans	Amount			# of Loans	Amount			# of Loans	Amount			# of Loans	Amount			# of Loans	Amount
	(dollars in millions)

Multi-family	2	$	1.2		3	$	2.9		4	$	3.5		4	$	3.0		6	$	4.1
Commercial real estate	33	11.7			35	10.3			37	10.8			40	13.8			36	12.9
Commercial and industrial	6	0.7			10	5.6			17	9.2			9	6.5			7	2.2
Construction	1	0.2			3	0.5			4	0.8			5	1.0			3	0.9
Total commercial loans	42	13.8			51	19.3			62	24.3			58	24.3			52	20.1
Residential and consumer	471	86.5			488	85.9			500	91.1			506	99.8			422	86.6
Total non-accrual loans	513	$	100.3		539	$	105.2		562	$	115.4		564	$	124.1		474	$	106.7
Accruing troubled debt restructured loans	29	$	12.1		30	$	10.7		39	$	22.5		38	$	25.2		48	$	29.6
Non-accrual loans to total loans		0.57		%		0.61		%		0.68		%		0.76		%		0.68		%
Allowance for loan loss as a percent of non-accrual loans		219.60		%		205.83		%		189.30		%		175.97		%		200.51		%
Allowance for loan loss as a percent of total loans		1.25		%		1.26		%		1.29		%		1.33		%		1.36		%

Total non-accrual loans decreased to $100.3 million at June 30, 2016 compared to $105.2 million at March 31, 2016 and $106.7 million at June 30, 2015. 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 June 30, 2016, there were $34.9 million of loans deemed as troubled debt restructurings, of which $23.3 million were residential and consumer loans, $8.1 million were commercial real estate loans, $1.0 million were multi-family loans, and $2.4 million were commercial and industrial loans. Troubled debt restructured loans in the amount of $12.1 million were classified as accruing and $22.8 million were classified as non-accrual at June 30, 2016.

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 June 30, 2016, the Company has deemed potential problem loans excluding PCI loans, totaling $8.5 million, which comprised of 7 commercial real estate loans totaling $4.6 million and 3 commercial and industrial loans totaling $3.9 million. Management is actively monitoring these loans.

The ratio of non-accrual loans to total loans was 0.57% at June 30, 2016 compared to 0.68% at December 31, 2015. The allowance for loan losses as a percentage of non-accrual loans was 219.60% at June 30, 2016 compared to 189.30% at December 31, 2015. At June 30, 2016, our allowance for loan losses as a percentage of total loans was 1.25% compared to 1.29% at December 31, 2015.

At June 30, 2016, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans totaling $39.4 million, of which $13.3 million of impaired loans had a specific allowance for credit losses of $1.4 million and $26.1 million of impaired loans had no specific allowance for credit losses. At December 31, 2015, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans totaling $57.0 million, of which $19.1 million had a related allowance for credit losses of $4.2 million and $37.8 million had no related allowance for credit losses.

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The allowance for loan losses increased by $1.8 million to $220.3 million at June 30, 2016 from $218.5 million at December 31, 2015. The increase in our allowance for loan losses is due to the growth of the loan portfolio particularly the inherent credit risk associated with commercial real estate lending as well as 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. At June 30, 2016, our allowance for loan loss as a percent of total loans was 1.25%.

The following table sets forth the allowance for loan losses at June 30, 2016 and December 31, 2015 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.



	June 30, 2016				December 31, 2015
	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	$	92,583	39.12	%	$	88,223	37.04	%
Commercial real estate loans	51,382		22.87	%	46,999		22.67	%
Commercial and industrial loans	38,545		6.24	%	40,585		6.18	%
Construction loans	8,916		1.37	%	6,794		1.34	%
Residential mortgage loans	24,938		27.32	%	31,443		29.83	%
Consumer and other loans	2,795		3.08	%	3,155		2.94	%
Unallocated	1,157		—		1,306		—
Total allowance	$	220,316	100.00	%	$	218,505	100.00	%

Securities. Securities are held primarily for liquidity, interest rate risk management and long-term yield enhancement. Our Investment Policy requires that investment transactions conform to Federal and New Jersey State investment regulations. Our investments purchased may include, but are not limited to, U.S. Treasury obligations, securities issued by various Federal Agencies, State and Municipal subdivisions, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, investment grade corporate debt instruments, and mutual funds. In addition, Investors Bancorp may invest in equity securities subject to certain limitations. Purchase decisions are based upon a thorough analysis of each security to determine it conforms to our overall asset/liability management objectives. The analysis must consider its effect on our risk-based capital measurement, prospects for yield and/or appreciation and other risk factors. Securities are classified as held-to-maturity or available-for-sale when purchased.

At June 30, 2016, our securities portfolio represented 14.8% of our total assets. Securities, in the aggregate, increased by $59.9 million, or 1.9%, to $3.21 billion at June 30, 2016 from $3.15 billion at December 31, 2015. This increase was a result of purchases partially offset by paydowns and sales.

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 $30.4 million, or 17.0%, to $208.8 million at June 30, 2016 from $178.4 million at December 31, 2015. 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 $160.2 million at June 30, 2016 and $159.2 million at December 31, 2015. Other assets were $2.9 million at June 30, 2016 and $4.7 million at December 31, 2015.

Deposits. At June 30, 2016, deposits totaled $14.43 billion, representing 78% of our total liabilities. Our deposit strategy is focused on attracting core deposits (savings, checking and money market accounts), resulting in a continuing shift in deposit mix to lower cost core products. We remain committed to our plan of attracting more core deposits because core deposits represent a more stable source of low cost funds and may be less sensitive to changes in market interest rates.

We have a suite of commercial deposit products, designed to appeal to small business owners and non-profit organizations. The interest rates we pay, our maturity terms, service fees and withdrawal penalties are all reviewed on a periodic basis. Deposit

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rates and terms are based primarily on our current operating strategies, market rates, liquidity requirements, rates paid by competitors and growth goals. We also rely on personalized customer service, long-standing relationships with customers and an active marketing program to attract and retain deposits.

Deposits increased by $362.2 million, or 2.6%, from $14.06 billion at December 31, 2015 to $14.43 billion at June 30, 2016. Checking accounts increased $639.5 million to $5.28 billion at June 30, 2016 from $4.64 billion at December 31, 2015. Core deposits represent approximately 78% of our total deposit portfolio at June 30, 2016.

The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated.



	June 30, 2016			December 31, 2015
	Balance	Percent of Total Deposit		Balance	Percent of Total Deposit
	(Dollars in thousands)
Checking accounts	5,275,526	37	%	4,636,025	33	%
Money market deposits	3,849,932	27	%	3,861,317	27	%
Savings	2,101,142	15	%	2,150,004	15	%
Total core deposits	11,226,600	78	%	10,647,346	76	%
Certificates of deposit	3,199,257	22	%	3,416,310	24	%
Total Deposits	14,425,857	100	%	14,063,656	100	%

Borrowed Funds. We borrow directly from the FHLB and various financial institutions. Our FHLB borrowings, frequently referred to as advances, are over collateralized by our residential and non-residential mortgage portfolios as well as qualified investment securities. Borrowed funds increased by $631.1 million, or 19.3%, to $3.89 billion at June 30, 2016 from $3.26 billion at December 31, 2015 to help fund the continued growth of the loan portfolio.

Stockholders’ Equity. Stockholders' equity decreased by $179.4 million to $3.13 billion at June 30, 2016 from $3.31 billion at December 31, 2015. The decrease is primarily attributed to the repurchase of 22.8 million shares of common stock for $263.8 million as well as cash dividends of $0.12 per share totaling $39.0 million for the six months ended June 30, 2016. These decreases were offset by net income of $88.0 million for the six months ended June 30, 2016.

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.

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 June 30,
	2016						2015
	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	$	136,718	$	74	0.22	%	$	197,031	$	27	0.05	%
Securities available-for-sale	1,300,953		5,955		1.83	%	1,236,575		5,573		1.80	%
Securities held-to-maturity	1,876,567		10,988		2.34	%	1,660,688		8,872		2.14	%
Net loans	17,173,249		175,922		4.10	%	15,642,670		165,515		4.23	%
Stock in FHLB	196,130		2,021		4.12	%	183,116		1,542		3.37	%
Total interest-earning assets	20,683,617		194,960		3.77	%	18,920,080		181,529		3.84	%
Non-interest-earning assets	767,991						767,913
Total assets	$	21,451,608					$	19,687,993
Interest-bearing liabilities:
Savings deposits	$	2,076,058	$	2,342	0.45	%	$	2,283,388	$	1,608	0.28	%
Interest-bearing checking	3,146,805		3,612		0.46	%	2,716,780		2,421		0.36	%
Money market accounts	3,805,237		5,216		0.55	%	3,506,441		5,793		0.66	%
Certificates of deposit	3,376,342		9,418		1.12	%	2,685,177		6,607		0.98	%
Total interest-bearing deposits	12,404,442		20,588		0.66	%	11,191,786		16,429		0.59	%
Borrowed funds	3,608,637		17,067		1.89	%	3,379,440		16,548		1.96	%
Total interest-bearing liabilities	16,013,079		37,655		0.94	%	14,571,226		32,977		0.91	%
Non-interest-bearing liabilities	2,260,876						1,648,753
Total liabilities	18,273,955						16,219,979
Stockholders’ equity	3,177,653						3,468,014
Total liabilities and stockholders’ equity	$	21,451,608					$	19,687,993
Net interest income			$	157,305					$	148,552
Net interest rate spread(1)					2.83	%					2.93	%
Net interest-earning assets(2)	$	4,670,538					$	4,348,854
Net interest margin(3)					3.04	%					3.14	%
Ratio of interest-earning assets to total interest-bearing liabilities	1.29x						1.30x


(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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	Six Months Ended June 30,
	2016						2015
	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	$	147,297	$	177	0.24	%	$	192,693	$	56	0.06	%
Securities available-for-sale	1,296,045		12,035		1.86	%	1,216,819		10,916		1.79	%
Securities held-to-maturity	1,877,058		22,019		2.35	%	1,616,366		17,973		2.22	%
Net loans	16,971,190		348,755		4.11	%	15,348,650		324,567		4.23	%
Stock in FHLB	188,427		4,081		4.33	%	167,929		3,176		3.78	%
Total interest-earning assets	20,480,017		387,067		3.78	%	18,542,457		356,688		3.85	%
Non-interest-earning assets	772,010						766,460
Total assets	$	21,252,027					$	19,308,917
Interest-bearing liabilities:
Savings deposits	$	2,097,623	$	4,721	0.45	%	$	2,325,314	$	3,294	0.28	%
Interest-bearing checking	3,073,428		6,747		0.44	%	2,725,337		4,855		0.36	%
Money market accounts	3,815,996		10,665		0.56	%	3,470,721		11,936		0.69	%
Certificates of deposit	3,384,758		19,180		1.13	%	2,591,285		12,363		0.95	%
Total interest-bearing deposits	12,371,805		41,313		0.67	%	11,112,657		32,448		0.58	%
Borrowed funds	3,461,600		33,886		1.96	%	3,088,673		31,247		2.02	%
Total interest-bearing liabilities	15,833,405		75,199		0.95	%	14,201,330		63,695		0.90	%
Non-interest-bearing liabilities	2,193,148						1,571,200
Total liabilities	18,026,553						15,772,530
Stockholders’ equity	3,225,474						3,536,387
Total liabilities and stockholders’ equity	$	21,252,027					$	19,308,917
Net interest income			$	311,868					$	292,993
Net interest rate spread(1)					2.83	%					2.95	%
Net interest-earning assets(2)	$	4,646,612					$	4,341,127
Net interest margin(3)					3.05	%					3.16	%
Ratio of interest-earning assets to total interest-bearing liabilities	1.29x						1.31x

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Comparison of Operating Results for the Three and Six Months Ended June 30, 2016 and 2015

Net Income. Net income for the three months ended June 30, 2016 was $44.4 million compared to net income of $46.4 million for the three months ended June 30, 2015. Net income for the six months ended June 30, 2016 was $88.0 million compared to net income of $88.3 million for the six months ended June 30, 2015.

Net Interest Income. Net interest income increased by $8.8 million, or 5.9% to $157.3 million for the three months ended June 30, 2016 from $148.6 million for the three months ended June 30, 2015. The net interest margin decreased 10 basis points to 3.04% for the three months ended June 30, 2016 from 3.14% for the three months ended June 30, 2015.

Net interest income increased by $18.9 million, or 6.4% to $311.9 million for the six months ended June 30, 2016 from $293.0 million for the six months ended June 30, 2015. The net interest margin decreased 11 basis points to 3.05% for the six months ended June 30, 2016 from 3.16% for the six months ended June 30, 2015.

Total interest and dividend income increased by $13.4 million, or 7.4%, to $195.0 million for the three months ended June 30, 2016. Interest income on loans increased by $10.4 million, or 6.3%, to $175.9 million for the three months ended June 30, 2016 as a result of a $1.53 billion increase in the average balance of net loans to $17.17 billion, primarily attributable to growth in the commercial loan portfolio. The weighted average yield on net loans decreased 13 basis points to 4.10%. Prepayment penalties, which are included in interest income, totaled $5.9 million for the three months ended June 30, 2016 compared to $5.6 million for the three months ended June 30, 2015. Interest income on all other interest-earning assets, excluding loans, increased by $3.0 million, or 18.8% year over year, to $19.0 million for the three months ended June 30, 2016 which is attributable to a $233.0 million increase in the average balance of all other interest-earning assets, excluding loans, to $3.51 billion for the three months ended June 30, 2016. The weighted average yield on interest-earning assets, excluding loans, increased 22 basis points to 2.17%.

Total interest and dividend income increased by $30.4 million, or 8.5%, to $387.1 million for the six months ended June 30, 2016. Interest income on loans increased by $24.2 million, or 7.5%, to $348.8 million for the six months ended June 30, 2016 as a result of a $1.62 billion increase in the average balance of net loans to $17.00 billion primarily attributed to growth in the commercial loan portfolio. The weighted average yield on net loans decreased 12 basis points to 4.11%. Prepayment penalties, which are included in interest income, totaled $10.6 million for the six months ended June 30, 2016 compared to $10.2 million for the six months ended June 30, 2015. Interest income on all other interest-earning assets, excluding loans, increased by $6.2 million, or 19.3%, to $38.3 million for the six months ended June 30, 2016 which is attributed to a $315.0 million increase in the average balance of all other interest-earning assets, excluding loans, to $3.51 billion for the six months ended June 30, 2016. The weighted average yield on interest-earning assets, excluding loans, increased 17 basis points to 2.18%.

Total interest expense increased by $4.7 million, or 14.2% year over year, to $37.7 million for the three months ended June 30, 2016. Interest expense on interest-bearing deposits increased $4.2 million, or 25.3% year over year, to $20.6 million for the three months ended June 30, 2016. The average balance of total interest-bearing deposits increased $1.21 billion, or 10.8% year over year, to $12.40 billion for the six months ended June 30, 2016. In addition, the weighted average cost of interest-bearing deposits increased by 7 basis points to 0.66% for the three months ended June 30, 2016. Interest expense on borrowed funds increased by $519,000, or 3.14% year over year to $17.1 million for the three months ended June 30, 2016. The average balance of borrowed funds increased $229.2 million, or 6.8%, to $3.60 billion for the three months ended June 30, 2016. This increase was offset by a decrease of 7 basis points in the weighted average cost of borrowings to 1.89% for the three months ended June 30, 2016.

Total interest expense increased by $11.5 million, or 18.1% year over year, to $75.2 million for the six months ended June 30, 2016. Interest expense on interest-bearing deposits increased $8.9 million, or 27.32% year over year, to $41.3 million for the six months ended June 30, 2016. The average balance of total interest-bearing deposits increased $1.26 billion, or 11.3% year over year, to $12.37 billion for the six months ended June 30, 2016. In addition, the weighted average cost of interest-bearing deposits increased by 9 basis points to 0.67% for the six months ended June 30, 2016. Interest expense on borrowed funds increased by $2.6 million, or 8.45% year over year to $33.9 million for the six months ended June 30, 2016. The average balance of borrowed funds increased $373.0 million, or 12.1%, to $3.46 billion for the six months ended June 30, 2016. This increase was offset by a decrease of 6 basis points in the weighted average cost of borrowings to 1.96% for the six months ended June 30, 2016.

Non-Interest Income. Total non-interest income decreased $116,000, or 1.0% year over year, to $11.5 million for the three months ended June 30, 2016. Gain on loans, net decreased $1.4 million for the three months ended June 30, 2016 primarily as a result of lower loan sales through our mortgage subsidiary as well as the Bank. This decrease was offset by $1.6 million gain on securities transactions for the three months ended June 30, 2016 primarily due to the sale $37.4 million of securities.

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Total non-interest income increased $59,000, or 0.3%, to $20.2 million for the six months ended June 30, 2016. Gain on securities transactions increased $2.9 million for the six months ended June 30, 2016 primarily due to the sale of securities totaling $69.1 million, resulting in a gain of $3.0 million. This increase was offset by a decrease in gain on loans, net of $2.2 million for the six months ended June 30, 2016 primarily as a result of lower loan sales through our mortgage subsidiary as well as the Bank. Other income decreased $729,000 for the six months ended June 30, 2016 attributed to non-depository investment products.

Non-Interest Expenses. Compared to the second quarter of 2015, total non-interest expenses increased $11.2 million, or 14.0% year over year. Compensation and fringe benefits increased $8.3 million for the three months ended June 30, 2016 primarily due to equity incentive expense of $5.4 million for the three months ended June 30, 2016, resulting from the restricted stock and stock option grants on June 23, 2015 to certain employees, officers and directors of the Company, pursuant to the Investors Bancorp, Inc. 2015 Equity Incentive Plan; normal merit increases; and additions to our staff to support continued growth and infrastructure. Office occupancy and equipment expense increased $1.7 million for the three months ended June 30, 2016 primarily due to new branch openings.

Total non-interest expense was $178.2 million for the six months ended June 30, 2016, an increase of $21.4 million, or 13.7% as compared to the six months of 2015. Compensation and fringe benefits increased $16.7 million for the six months ended June 30, 2016 primarily due to equity incentive expense of $9.7 million for the six months ended June 30, 2016 resulting from the restricted stock and stock option grants on June 23, 2015 to certain employees, officers and directors of the Company, pursuant to the Investors Bancorp, Inc. 2015 Equity Incentive Plan; normal merit increases; and additions to our staff to support continued growth. Office occupancy and equipment expense increased $3.0 million for the six months ended June 30, 2016 primarily due to new branch openings. Professional fees and other operating expenses increased $1.1 million and $1.3 million, respectively for the six months ended June 30, 2016.

Income Taxes. Income tax expense was $28.4 million for the three months ended June 30, 2016, representing an effective tax rate of 39.0%. Income tax expense was $26.9 million for the three months ended June 30, 2015 representing an effective tax rate of 36.8% which includes a tax benefit realized from revaluing the Company's deferred tax asset related to changes in New York tax law. Absent this benefit, the tax rate for the three months ended June 30, 2015 would have been 38.3%.

Income tax expense was $55.9 million for the six months ended June 30, 2016 compared to $52.1 million for the six months ended June 30, 2015, representing an effective tax rate of 38.9% and 37.1%, respectively. The tax rate for the six months ended June 30, 2015 includes a tax benefit realized from revaluing the Company's deferred tax asset related to changes in New York City tax law. Absent this benefit, the tax rate for the six months ended June 30, 2015 would have been 37.9%.

Provision for Loan Losses. Our provision for loan losses was $5.0 million for the three months ended June 30, 2016 compared to $7.0 million for the three months ended June 30, 2015, respectively. For the three months ended June 30, 2016, net charge-offs were $1.3 million compared to $1.2 million for the three months ended June 30, 2015. For the sixth months ended June 30, 2016 our provision for loan loss was $10.0 million compared with $16.0 million for the six months ended June 30, 2015. For the six months ended June 30, 2016, net charge-offs were $8.2 million compared to $2.3 million for the six months June 30, 2015.

Our provision for the three and six months ended June 30, 2016 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 improvement in the level of non-performing loans.

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.

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At June 30, 2016, the Company had overnight borrowings outstanding of $682.0 million with FHLB as compared to $175.0 million at December 31, 2015. The Company utilizes overnight borrowings from time to time to fund short-term liquidity needs. The Company had total borrowings of $3.90 billion at June 30, 2016, an increase of $631.0 million from $3.26 billion at December 31, 2015.

In the normal course of business, the Company routinely enters into various commitments, primarily relating to the origination of loans. At June 30, 2016, outstanding commitments to originate loans totaled $796.3 million; outstanding unused lines of credit totaled $1.02 billion; standby letters of credit totaled $20.2 million and outstanding commitments to sell loans totaled $28.0 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 $2.40 billion at June 30, 2016. 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. As of June 30, 2016 the Company and the Bank met the currently applicable Conservation Buffer of 0.625%.

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As of June 30, 2016, the Bank and the Company exceeded all regulatory capital requirements as follows:



	June 30, 2016
	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	$	2,651,872	12.33	%	$	860,100	4.000	%	$	1,075,125	5.00	%
Common equity tier 1 risk-based	$	2,651,872	15.39	%	883,301		5.125	%	1,120,285		6.50	%
Tier 1 Risk Based Capital	$	2,651,872	15.39	%	1,141,828		6.625	%	1,378,812		8.00	%
Total Risk-Based Capital	2,867,373		16.64	%	1,486,531		8.625	%	1,723,515		10.00	%

Company:
Tier 1 Leverage Ratio	$	3,063,993	14.25	%	$	860,332	4.000	%	n/a		n/a
Common equity tier 1 risk-based	3,063,993		17.77	%	883,793		5.125	%	n/a		n/a
Tier 1 Risk Based Capital	3,063,993		17.77	%	1,142,465		6.625	%	n/a		n/a
Total Risk-Based Capital	3,279,416		19.02	%	1,487,360		8.625	%	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 June 30, 2016:



Contractual Obligations	Total		Less than One Year	One-Two Years	Two-Three Years	More than Three Years
	(In thousands)
Debt obligations (excluding capitalized leases)	$	3,894,171	957,000	574,006	732,237	1,630,928
Commitments to originate and purchase loans	$	796,257	796,257	—	—	—
Commitments to sell loans	$	28,000	28,000	—	—	—

Debt obligations include borrowings from the FHLB and other borrowings. The borrowings have defined terms and, under certain circumstances, $29.0 million of the borrowings are callable at the option of the lender. Additionally, at June 30, 2016, the Company’s commitments to fund unused lines of credit totaled $1.0 billion. 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 June 30, 2016 have not changed significantly from December 31, 2015.

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, 2015 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 June 30, 2016, 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 manage 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 June 30, 2016, 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 on numerous

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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	$	3,546,202		(340,407	)	(8.8	)%	$	565,830	(42,335	)	(7.0	)%
0bp	$	3,886,609		—		—		$	608,165	—		—
-100bp	$	3,574,344		(312,265	)	(8.0	)%	$	615,466	7,301		1.20	%


(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 June 30, 2016, in the event of a 200 basis points increase in interest rates, we would be expected to experience a 8.8% decrease in NPV and a $42.3 million, or 7.0%, decrease in net interest income. In the event of a 100 basis points decrease in interest rates, we would be expected to experience a 8.0% decrease in NPV and a $7.3 million, or 1.20%, 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 June 30, 2016 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, 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission.



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

(a) Not applicable.

(b) Not applicable.

(c) The following table reports information regarding repurchases of our common stock during the quarter ended June 30, 2016 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)
April 1, 2016 through April 30, 2016	4,200,000	$	11.59	$	48,698,620	4,764,351
May 1, 2016 through May 31, 2016	2,950,000	11.66		34,411,000		1,814,351
June 1, 2016 through June 30, 2016	3,523,110	11.49		40,481,880		29,772,430
Total	10,673,110	$	11.58	$	123,591,500	29,772,430

(1) On June 9, 2015, the Board of Directors announced its second share repurchase plan, which authorized the repurchase of an additional 10% of the Company's outstanding shares of common stock or 34,779,211 million shares. The plan commenced upon the completion of the first repurchase plan on June 30, 2015.

(2) On April 28, 2016, the Company announced its third share repurchase program, which authorized the purchase of an additional 10% of its publicly-held outstanding shares of common stock, or approximately 31,481,189 million shares. The plan commenced upon the completion of the second repurchase plan on June 17, 2016. This program has no expiration date and has 29,772,430 shares yet to be repurchased as of June 30, 2016.



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:



2.1			Agreement and Plan of Merger by and among Investors Bancorp, Inc., Investors Bank and The Bank of Princeton, dated May 3, 2016 (1)

3.1			Certificate of Incorporation of Investors Bancorp, Inc. (2)

3.2			Bylaws of Investors Bancorp, Inc. (2)

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 Investors Bancorp Inc. 8-K (Commission File no. 001-36441), originally filed with the Securities and Exchange Commission on May 4, 2016.
(2)	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: August 9, 2016	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)