Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2015March 31, 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 filero 
Non-accelerated filer o (Do not check if a smaller reporting company)  Smaller reporting companyo 
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 NovemberMay 2, 2015,2016, the registrant had 359,070,852 shares of common stock, par value $0.01 per share, issued and 338,522,380319,090,253 outstanding. 




INVESTORS BANCORP, INC.
FORM 10-Q

Index

 Part I. Financial Information 
  Page
Item 1. Financial Statements
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II. Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 





Part I    Financial Information
ITEM 1.FINANCIAL STATEMENTS
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2015March 31, 2016 (Unaudited) and December 31, 20142015  
September 30,
2015
 December 31,
2014
March 31,
2016
 December 31,
2015
(In thousands)(In thousands)
ASSETS      
Cash and cash equivalents$161,613
 230,961
$143,669
 148,904
Securities available-for-sale, at estimated fair value1,298,464
 1,197,924
1,311,532
 1,304,697
Securities held-to-maturity, net (estimated fair value of $1,865,137 and $1,609,365 at September 30, 2015 and December 31, 2014, respectively)1,796,779
 1,564,479
Securities held-to-maturity, net (estimated fair value of $1,954,346 and $1,888,686 at March 31, 2016 and December 31, 2015, respectively)1,887,000
 1,844,223
Loans receivable, net16,152,763
 14,887,570
16,922,727
 16,661,133
Loans held-for-sale7,910
 6,868
3,852
 7,431
Stock in the Federal Home Loan Bank182,850
 151,287
Federal Home Loan Bank stock190,240
 178,437
Accrued interest receivable61,179
 55,267
63,678
 58,563
Other real estate owned6,643
 7,839
4,431
 6,283
Office properties and equipment, net168,458
 160,899
173,609
 172,519
Net deferred tax asset227,451
 231,898
219,458
 237,367
Bank owned life insurance158,165
 161,609
159,184
 159,152
Goodwill and intangible assets106,839
 106,705
104,960
 105,311
Other assets2,212
 10,333
5,630
 4,664
Total assets$20,331,326
 18,773,639
$21,189,970
 20,888,684
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Liabilities:      
Deposits$13,341,158
 12,172,326
$14,201,387
 14,063,656
Borrowed funds3,358,553
 2,766,104
3,527,630
 3,263,090
Advance payments by borrowers for taxes and insurance144,522
 69,893
126,180
 108,721
Other liabilities124,909
 187,461
119,046
 141,570
Total liabilities16,969,142
 15,195,784
17,974,243
 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 September 30, 2015 and December 31, 2014; 340,642,380 and 358,012,895 outstanding at September 30, 2015 and December 31, 2014, respectively3,591
 3,591
Common stock, $0.01 par value, 1,000,000,000 shares authorized; 359,070,852 issued at March 31, 2016 and December 31, 2015; 323,385,503 and 334,894,181 outstanding at March 31, 2016 and December 31, 2015, respectively3,591
 3,591
Additional paid-in capital2,779,175
 2,863,108
2,785,702
 2,785,503
Retained earnings908,740
 836,639
959,790
 936,040
Treasury stock, at cost; 18,428,472 and 1,057,957 shares at September 30, 2015 and December 31, 2014, respectively(223,040) (11,131)
Treasury stock, at cost; 35,685,349 and 24,176,671 shares at March 31, 2016 and December 31, 2015, respectively(425,991) (295,412)
Unallocated common stock held by the employee stock ownership plan(88,396) (91,948)(89,501) (90,250)
Accumulated other comprehensive loss(17,886) (22,404)(17,864) (27,825)
Total stockholders’ equity3,362,184
 3,577,855
3,215,727
 3,311,647
Total liabilities and stockholders’ equity$20,331,326
 18,773,639
$21,189,970
 20,888,684
See accompanying notes to consolidated financial statements.

1


INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2015 2014 2015 20142016 2015
(Dollars in thousands, except per share data)(Dollars in thousands, except per share data)
Interest and dividend income:          
Loans receivable and loans held-for-sale$169,216
 152,397
 493,783
 447,899
$172,832
 159,052
Securities:          
Equity25
 24
 73
 89
51
 24
Government-sponsored enterprise obligations11
 12
 34
 35
11
 11
Mortgage-backed securities14,171
 11,704
 40,374
 31,808
15,097
 12,817
Municipal bonds and other debt1,535
 1,339
 4,151
 4,142
1,952
 1,592
Interest-bearing deposits68
 70
 124
 379
104
 29
Federal Home Loan Bank stock1,871
 1,512
 5,046
 5,420
2,060
 1,634
Total interest and dividend income186,897
 167,058
 543,585
 489,772
192,107
 175,159
Interest expense:          
Deposits18,664
 14,489
 51,112
 43,245
20,725
 16,019
Borrowed Funds16,959
 14,724
 48,205
 44,728
16,819
 14,699
Total interest expense35,623
 29,213
 99,317
 87,973
37,544
 30,718
Net interest income151,274
 137,845
 444,268
 401,799
154,563
 144,441
Provision for loan losses5,000
 9,000
 21,000
 26,000
5,000
 9,000
Net interest income after provision for loan losses146,274
 128,845
 423,268
 375,799
149,563
 135,441
Non-interest income          
Fees and service charges4,347
 5,173
 12,949
 15,330
4,180
 4,024
Income on bank owned life insurance949
 1,632
 2,961
 3,598
1,260
 1,037
Gain on loans, net2,138
 856
 6,461
 3,764
437
 1,219
Gain on securities transactions, net933
 29
 1,017
 669
1,388
 42
Gain on sale of other real estate owned, net830
 270
 1,141
 733
(Loss) gain on sale of other real estate owned, net(233) 72
Other income2,109
 1,912
 6,896
 7,893
1,675
 2,139
Total non-interest income11,306
 9,872
 31,425
 31,987
8,707
 8,533
Non-interest expense          
Compensation and fringe benefits49,024
 40,137
 137,700
 133,166
51,817
 43,332
Advertising and promotional expense3,260
 3,046
 8,532
 9,001
1,694
 2,535
Office occupancy and equipment expense12,856
 12,040
 37,398
 37,023
13,810
 12,546
Federal deposit insurance premiums2,200
 2,750
 6,800
 11,550
2,400
 2,200
Stationery, printing, supplies and telephone1,742
 939
 3,379
 3,335
817
 851
Professional fees3,880
 4,121
 11,593
 11,685
4,013
 3,271
Data processing service fees5,979
 6,381
 16,775
 19,686
5,561
 5,450
Contribution to charitable foundation
 
 
 20,000
Other operating expenses6,980
 7,170
 20,489
 20,492
7,034
 6,723
Total non-interest expenses85,921
 76,584
 242,666
 265,938
87,146
 76,908
Income before income tax expense71,659
 62,133
 212,027
 141,848
71,124
 67,066
Income tax expense22,865
 23,092
 74,924
 53,204
27,498
 25,119
Net income$48,794
 $39,041
 $137,103
 $88,644
$43,626
 $41,947
Basic earnings per share$0.15
 0.11
 0.41
 0.26
Diluted earnings per share$0.15
 0.11
 0.41
 0.25
Basic and diluted earnings per share$0.14
 $0.12
Weighted average shares outstanding
      
  
Basic324,065,364
 343,493,691
 333,786,211
 344,494,901
309,166,680
 344,237,371
Diluted327,193,519
 346,773,543
 337,005,469
 348,112,740
312,154,256
 347,470,957
See accompanying notes to consolidated financial statements.

2


INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)

 
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended March 31,
2015 2014 2015 20142016 2015
(In thousands)(In thousands)
Net income$48,794
 39,041
 137,103
 88,644
$43,626
 41,947
Other comprehensive income (loss), net of tax:       
Other comprehensive income, net of tax:   
Change in funded status of retirement obligations207
 109
 626
 327
317
 208
Unrealized gain (loss) on securities available-for-sale3,198
 (2,329) 3,728
 3,555
Unrealized gain on securities available-for-sale10,002
 5,093
Accretion of loss on securities reclassified to held to maturity371
 441
 1,130
 1,310
284
 379
Reclassification adjustment for security gains included in net income(1,537) 
 (1,537) (138)(833) 
Other-than-temporary impairment accretion on debt securities189
 199
 571
 596
191
 196
Total other comprehensive income (loss)2,428
 (1,580) 4,518
 5,650
Total other comprehensive income9,961
 5,876
Total comprehensive income$51,222
 37,461
 141,621
 94,294
$53,587
 47,823


See accompanying notes to consolidated financial statements.

3


INVESTORS BANCORP, INC. & SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
NineThree Months Ended September 30, 2015March 31, 2016 and 20142015
(Unaudited)
 
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Treasury
stock
 
Unallocated
common stock
held by ESOP
 
Accumulated
other
comprehensive
loss
 
Total
stockholders’
equity
 (In thousands)
Balance at December 31, 2013$1,519
 720,766
 734,563
 (67,046) (29,779) (25,696) 1,334,327
Net income
 
 88,644
 
 
 
 88,644
Other comprehensive income, net of tax
 
 
 
 
 5,650
 5,650
Corporate reorganization             
Conversion of Investors Bancorp, MHC (213,963,274 shares)2,140
 2,091,579
 
 
 
 
 2,093,719
Purchase by ESOP (6,617,421 shares)66
 66,108
 
 
 (66,174) 
 
Treasury stock retired (14,293,439 shares)(143) (64,126) 
 64,269
 
 
 
Contribution of MHC
 
 12,652
 
 
 
 12,652
Equity from Gateway acquisition
 22,000
 
 
 
 
 22,000
Purchase of treasury stock (1,295,193 shares)
 

 
 (13,524) 
 
 (13,524)
Treasury stock allocated to restricted stock plan
 (390) 258
 132
 
 
 
Compensation cost for stock options and restricted stock
 13,697
 
 
 
 
 13,697
Net tax benefit from stock-based compensation
 3,344
 
 
 
 
 3,344
Option exercise7
 7,703
 
 4,577
 
 
 12,287
Cash dividend paid ($0.08 per common share)
 
 (28,238) 
 
 
 (28,238)
ESOP shares allocated or committed to be released
 916
 
 
 2,680
 
 3,596
Balance at September 30, 2014$3,589
 2,861,597
 807,879
 (11,592) (93,273) (20,046) 3,548,154
              
Balance at December 31, 2014$3,591
 2,863,108
 836,639
 (11,131) (91,948) (22,404) 3,577,855
Net income
 
 137,103
 
 
 
 137,103
Other comprehensive income, net of tax
 
 
 
 
 4,518
 4,518
Purchase of treasury stock (25,312,847 shares)
 
 
 (304,242) 
 
 (304,242)
Treasury stock allocated to restricted stock plan (6,849,832 shares)
 (85,897) 5,473
 80,424
 
 
 
Compensation cost for stock options and restricted stock
 4,848
 
 
 
 
 4,848
Net tax benefit from stock-based compensation
 1,944
 
 
 
 
 1,944
Option exercise
 (5,487) 
 11,909
 
 
 6,422
Cash dividend paid ($0.20 per common share)
 
 (70,475) 
 
 
 (70,475)
ESOP shares allocated or committed to be released
 659
 
 
 3,552
 
 4,211
Balance at September 30, 2015$3,591
 2,779,175
 908,740
 (223,040) (88,396) (17,886) 3,362,184
              
See accompanying notes to consolidated financial statements
 
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
 
 41,947
 
 
 
 41,947
Other comprehensive income, net of tax
 
 
 
 
 5,876
 5,876
Purchase of treasury stock (2,950,000 shares)
 
 
 (34,709) 
 
 (34,709)
Compensation cost for stock options and restricted stock
 4
 
 
 
 
 4
Net tax benefit from stock-based compensation
 267
 
 
 
 
 267
Option exercise
 (1,098) 
 2,349
 
 
 1,251
Cash dividend paid ($0.10 per common share)
 
 (35,814) 
 
 
 (35,814)
ESOP shares allocated or committed to be released
 594
 
 
 749
 
 1,343
Balance at March 31, 2015$3,591
 2,864,173
 842,772
 (43,491) (92,497) (16,528) 3,558,020
              
Balance at December 31, 2015$3,591
 2,785,503
 936,040
 (295,412) (90,250) (27,825) 3,311,647
Net income
 
 43,626
 
 
 
 43,626
Other comprehensive income, net of tax
 
 
 
 
 9,961
 9,961
Purchase of treasury stock (12,150,000 shares)
 
 
 (140,192) 
 
 (140,192)
Treasury stock allocated to restricted stock plan (161,890 shares)
 (1,865) (71) 1,936
 
 
 
Compensation cost for stock options and restricted stock
 4,333
 
 
 
 
 4,333
Net tax benefit from stock-based compensation
 957
 
 
 
 
 957
Option exercise
 (3,842) 
 7,677
 
 
 3,835
Cash dividend paid ($.06 per common share)
 
 (19,805) 
 
 
 (19,805)
ESOP shares allocated or committed to be released
 616
 
 
 749
 
 1,365
Balance at March 31, 2016$3,591
 2,785,702
 959,790
 (425,991) (89,501) (17,864) 3,215,727
              
See accompanying notes to consolidated financial statements

4


INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended September 30,Three Months Ended March 31,
2015 20142016 2015
(In thousands)(In thousands)
Cash flows from operating activities:      
Net income$137,103
 88,644
$43,626
 41,947
Adjustments to reconcile net income to net cash provided by operating activities:      
Contribution of stock to charitable foundation
 10,000
ESOP and stock-based compensation expense9,060
 17,293
5,698
 1,347
Amortization of premiums and accretion of discounts on securities, net10,795
 6,880
3,203
 3,406
Amortization of premiums and accretion of fees and costs on loans, net(6,032) (38)(624) (1,000)
Amortization of intangible assets2,547
 2,888
740
 857
Provision for loan losses21,000
 26,000
5,000
 9,000
Depreciation and amortization of office properties and equipment10,019
 9,423
3,756
 2,800
Gain on securities, net(1,017) (669)(1,388) (42)
Mortgage loans originated for sale(186,979) (110,738)(29,956) (59,818)
Proceeds from mortgage loan sales537,577
 146,480
34,039
 57,974
Gain on sales of mortgage loans, net(4,308) (2,044)(504) (1,043)
Gain on sale of other real estate owned(1,141) (733)
Gain on bargain purchase
 (1,482)
Loss (gain) on sale of other real estate owned233
 (72)
Income on bank owned life insurance(2,961) (3,598)(1,260) (1,037)
Increase in accrued interest receivable(5,912) (5,575)(5,115) (2,709)
Deferred tax expense (benefit)58
 (1,894)
Decrease in other assets5,895
 7,822
Deferred tax expense11,422
 1,656
(Increase) decrease in other assets(1,335) 4,881
(Decrease) increase in other liabilities(61,495) 51,620
(21,227) 8,667
Total adjustments327,106
 151,635
2,682
 24,867
Net cash provided by operating activities464,209
 240,279
46,308
 66,814
Cash flows from investing activities:      
Purchases of loans receivable(188,850) (191,726)(9,419) (21,248)
Net originations of loans receivable(1,468,831) (961,503)(257,211) (502,771)
Proceeds from sale of loans held for investment28,655
 1,720

 176
Gain on disposition of loans held for investment(2,153) (1,720)
Loss (gain) on disposition of loans held for investment67
 (176)
Net proceeds from sale of foreclosed real estate5,568
 6,754
2,190
 881
Purchases of mortgage-backed securities held to maturity(413,466) (797,516)(113,788) (91,982)
Purchases of debt securities held-to-maturity(51,429) (11,230)(7,532) (6,659)
Purchases of mortgage-backed securities available-for-sale(289,298) (388,798)(86,938) (78,399)
Purchases of equity securities available-for-sale(25) 
Proceeds from paydowns/maturities on mortgage-backed securities held-to-maturity197,844
 116,088
64,079
 49,842
Proceeds from paydowns on equity securities available for sale2,844
 430
Proceeds from paydowns/maturities on debt securities held-to-maturity21
 11,484
12,034
 15,646
Proceeds from calls/maturities on debt securities held-to-maturity1,775
 
Proceeds from paydowns/maturities on mortgage-backed securities available-for-sale186,073
 124,566
61,590
 52,810
Proceeds from sales of mortgage-backed securities available-for-sale33,059
 
Proceeds from paydowns/ maturities of US Government and Agency Obligations held-to-maturity2,007
 

5


Proceeds from sales of mortgage-backed securities available-for-sale
 37,682
Proceeds from maturity of US Government and agency obligations available-for-sale
 3,000
Proceeds from maturities of municipal bonds30,867
  
Proceeds from sale of equity securities available for sale
 13,411
Redemption of equity securities available-for-sale
 164
Proceeds from redemptions of Federal Home Loan Bank stock122,867
 135,172
Purchases of Federal Home Loan Bank stock(154,430) (97,571)
Purchases of office properties and equipment(17,578) (24,480)
Death benefit proceeds from bank owned life insurance6,405
 2,249
Cash received from MHC for merger
 11,307
Cash received, net of cash consideration paid for acquisitions
 17,917
Net cash used in investing activities(2,003,116) (1,992,600)
Cash flows from financing activities:   
Net increase in deposits1,168,832
 498,115
Net proceeds from sale of common stock
 2,149,893
Loan to ESOP for purchase of common stock
 (66,174)
Repayments of funds borrowed under other repurchase agreements(10,000) (98,205)
Net increase (decrease) in other borrowings602,449
 (737,660)
Net increase in advance payments by borrowers for taxes and insurance74,629
 19,960
Dividends paid(70,475) (28,238)
Exercise of stock options6,422
 12,287
Purchase of treasury stock(304,242) (13,524)
Net tax benefit from stock-based compensation1,944
 3,344
Net cash provided by financing activities1,469,559
 1,739,798
Net decrease in cash and cash equivalents(69,348) (12,523)
Cash and cash equivalents at beginning of period230,961
 250,689
Cash and cash equivalents at end of period$161,613
 238,166
Supplemental cash flow information:   
Non-cash investing activities:   
Real estate acquired through foreclosure$3,686
 3,139
Cash paid during the year for:   
    Interest98,909
 87,939
    Income taxes82,673
 59,616
Acquisitions:   
Non-cash assets acquired:   
Investment securities available for sale
 50,347
Loans
 195,062
Goodwill and other intangible assets, net
 1,853
Other assets
 21,343
Total non-cash assets acquired
 268,605
Liabilities assumed:   
Deposits
 254,672
Borrowings
 5,185
Other liabilities
 3,184
Total liabilities assumed
 263,041

6


Net non-cash assets acquired
5,564
Redemption of equity securities available-for-sale
 122
Proceeds from redemptions of Federal Home Loan Bank stock33,609
 43,541
Purchases of Federal Home Loan Bank stock(45,412) (61,436)
Purchases of office properties and equipment(4,846) (6,538)
Death benefit proceeds from bank owned life insurance468
 3,205
Net cash used in investing activities(316,068) (602,986)
Cash flows from financing activities:   
Net increase in deposits137,731
 184,534
Net increase in other borrowings264,540
 395,509
Net increase in advance payments by borrowers for taxes and insurance17,459
 23,247
Dividends paid(19,805) (35,814)
Exercise of stock options3,835
 1,251
Purchase of treasury stock(140,192) (34,709)
Net tax benefit from stock-based compensation957
 267
Net cash provided by financing activities264,525
 534,285
Net decrease in cash and cash equivalents(5,235) (1,887)
Cash and cash equivalents at beginning of period148,904
 230,961
Cash and cash equivalents at end of period$143,669
 229,074
Supplemental cash flow information:   
Non-cash investing activities:   
    Real estate acquired through foreclosure$591
 2,024
Cash paid during the year for:   
    Interest37,884
 30,639
    Income taxes31,184
 27,477
See accompanying notes to consolidated financial statements.

7


INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
 
1.     Basis of Presentation

Investors Bancorp, Inc. (the “Company”) is a Delaware corporation that was incorporated in December 2013 to be the successor to Investors Bancorp, Inc. (“Old Investors Bancorp”) upon completion of the mutual-to-stock conversion of Investors Bancorp, MHC, the top tier holding company of Old Investors Bancorp. Old Investors Bancorp was the former mid tier holding company for Investors Bank. Prior to completion of the second step conversion, approximately 62% of the shares of common stock of Old Investors Bancorp was owned by Investors Bancorp, MHC. In conjunction with the second step conversion, Investors Bancorp, MHC merged into Old Investors Bancorp (and ceased to exist), and Old Investors Bancorp merged into the Company and the Company became its successor under the name Investors Bancorp, Inc. The second step conversion was completed May 7, 2014. The Company raised net proceeds of $2.15 billion by selling a total of 219,580,695 shares of common stock at $10.00 per share in the second step stock offering and issued 1,000,000 shares of common stock to the Investors Charitable Foundation. Concurrent with the completion of the stock offering, each share of Old Investors Bancorp common stock owned by public stockholders (stockholders other than Investors Bancorp, MHC) was exchanged for 2.55 shares of Company common stock, asstock. As such, all share information prior to May 7, 2014 has been adjusted to reflect the ratio. A total of 137,560,968 shares of Company common stock were issued in the exchange. The conversion was accounted for as a capital raising transaction by entities under common control. The historical financial results of Investors Bancorp, MHC were immaterial to the results of the Company and therefore upon completion of the conversion, the net assets of Investors Bancorp, MHC were merged into the Company and are reflected as an increase to stockholders' equity. In addition, the second step conversion resulted in the accelerated vesting of all outstanding stock awards as of the conversion date. The withholding of shares for payment of taxes with respect to these awards resulted in treasury stock of 1,101,694 shares.
In the opinion of management, all the adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the ninethree months ended September 30, 2015March 31, 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, 20142015 Annual Report on Form 10-K. Certain reclassifications have been made to prior year amounts to conform to current year presentation.

2.     Stock Transactions
Stock Repurchase Programs
In connection with the second step conversion completed on May 7, 2014, the existing stock repurchase plan was terminated. Under applicable federal regulations, the Company was not permitted to implement a stock repurchase program during the first year following completion of the second-step conversion without prior notice to, and the receipt of a non-objection from the Federal Reserve Board. On March 16, 2015, the Company announced it had received approval from the Board of Governors of the Federal Reserve System to commence a 5% buyback program prior to the one-year anniversary of the completion of its second step conversion. Accordingly, the Board of Directors authorized the repurchase of 17,911,561 shares.
On June 9, 2015, the Company announced its second share repurchase program, which authorized the purchase of an additional 10% of its publicly-held outstanding shares of common stock, or approximately 34,779,211 shares. The newsecond repurchase program commenced immediately upon completion of the first repurchase plan on June 30, 2015.
During the ninethree months ended September 30, 2015,March 31, 2016, the Company purchased 25,312,84712,150,000 shares at a cost of $304.2$140.2 million, or approximately $12.02$11.54 per share.

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

8


of accounting as prescribed by Financial Accounting Standards Board ("FASB") ASC 805 “Business Combinations”, as amended. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based on their estimated fair values, net of applicable income tax effects. The acquisition resulted in a bargain purchase gain of $1.5 million, net of tax. In conjunction with the acquisition, Investors Bancorp issued 1,945,079 shares to Investors Bancorp, MHC which was determined using the closing average twenty day stock price of Investors Bancorp's common stock. GCF Bank was merged into the Bank as of the acquisition date.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for Gateway Financial, net of cash consideration paid:
 At January 10, 2014
 (In millions)
Cash and cash equivalents, net$17.9
Securities available-for-sale50.3
Loans receivable195.1
Accrued interest receivable0.7
Other real estate owned0.4
Office properties and equipment, net4.3
Intangible assets1.9
Other assets15.9
Total assets acquired286.5
Deposits(254.7)
Borrowed funds(5.2)
Other liabilities(3.1)
Total liabilities assumed(263.0)
Net assets acquired$23.5
The purchase accounting for the Gateway Financial transaction is complete and reflected in the table above and in our consolidated financial statements.

Fair Value Measurement of Assets Acquired and Liabilities Assumed
Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Gateway acquisition based on guidance from ASC 820-10 which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
Securities. The estimated fair values of the investment securities classified as available for sale were calculated utilizing Level 1 inputs. The prices for these instruments are based upon sales of the securities shortly after the acquisition date.  The Company reviewed the data and assumptions used in pricing the securities by its third party provider to ensure the highest level of significant inputs are derived from market observable data.
Loans. Level 3 inputs were utilized to value the acquired loan portfolio and included the use of present value techniques employing cash flow estimates and the incorporated assumptions that marketplace participants would use in estimating fair values.  In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine reasonable fair value.  Specifically, the Company utilized three separate fair value analyses we believe a market participant might employ in estimating the entire fair value adjustment required under ASC 820-10.  The three separate fair valuation methodologies used are: 1) interest rate loan fair value analysis, 2) general credit fair value adjustment, and 3) specific credit fair value adjustment.
To prepare the interest rate fair value analysis, loans were assembled into groupings by characteristics such as loan type, term, collateral and rate.  Market rates for similar loans were obtained from various external data sources and reviewed by Company management for reasonableness.  The average of these rates was used as the fair value interest rate a market participant would utilize.  A present value approach was utilized to calculate the interest rate fair value adjustment.
The general credit fair value adjustment was calculated using a two part general credit fair value analysis; 1) expected lifetime losses and 2) estimated fair value adjustment for qualitative factors.  The expected lifetime losses were calculated using

9


an average of historical losses of the Company, the acquired banks and peer banks.  The adjustment related to qualitative factors was impacted by general economic conditions and the risk related to lack of familiarity with the originator's underwriting process.
To calculate the specific credit fair value adjustment the Company reviewed the acquired loan portfolio for loans meeting the definition of an impaired loan as defined by ASC 310-30.  Loans meeting this criteria were reviewed by comparing the contractual cash flows to expected collectible cash flows.  The aggregate expected cash flows less the acquisition date fair value will result in an accretable yield amount.  The accretable yield amount will be recognized over the life of the loans on a level yield basis as an adjustment to yield.
Deposits / Core Deposit Premium. Core deposit premium represents the value assigned to demand, interest checking, money market and savings accounts acquired as part of an acquisition.  The core deposit premium value represents the future economic benefit, including the present value of future tax benefits, of the potential cost savings from acquiring core deposits as part of an acquisition compared to the cost alternative funding sources and is valued utilizing Level 2 inputs. 
Certificates of deposit (time deposits) are not considered to be core deposits as they are assumed to have a low expected average life upon acquisition.  The fair value of certificates of deposits represents the present value of the certificates' expected contractual payments discounted by market rates for similar CDs and is valued utilizing Level 2 inputs. 
Borrowed Funds. The present value approach was used to determine the fair value of the borrowed funds acquired during 2014.  The fair value of the liability represents the present value of the expected payments using the current rate of a replacement borrowing of the same type and remaining term to maturity and is valued utilizing Level 2 inputs.


10


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

 
For the Three Months Ended September 30,For the Three Months Ended March 31,
2015 20142016 2015
Income Shares 
Per  Share
Amount
 Income Shares 
Per  Share
Amount
Income Shares 
Per  Share
Amount
 Income Shares 
Per  Share
Amount
(Dollars in thousands, except per share data)(Dollars in thousands, except per share data)
Net Income$48,794
     $39,041
    $43,626
     $41,947
    
Basic earnings per share:                      
Income available to common stockholders$48,794
 324,065,364
 $0.15
 $39,041
 343,493,691
 $0.11
$43,626
 309,166,680
 $0.14
 $41,947
 344,237,371
 $0.12
Effect of dilutive common stock equivalents (1)

 3,128,155
   

 3,279,852
  

 2,987,576
   

 3,233,586
  
Diluted earnings per share:                      
Income available to common stockholders$48,794
 327,193,519
 $0.15
 $39,041
 346,773,543
 $0.11
$43,626
 312,154,256
 $0.14
 $41,947
 347,470,957
 $0.12
(1) For the three months ended September 30,March 31, 2016 and 2015, and 2014, there were 11,604,28411,667,654 and 28,71328,203 equity awards, respectively, that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented.
 For the Nine Months Ended September 30,
 2015 2014
 Income Shares 
Per  Share
Amount
 Income Shares 
Per  Share
Amount
 (Dollars in thousands, except per share data)
Net Income$137,103
     $88,644
    
Basic earnings per share:           
Income available to common stockholders$137,103
 333,786,211
 $0.41
 $88,644
 344,494,901
 $0.26
Effect of dilutive common stock equivalents (1)  3,219,258
     3,617,839
  
Diluted earnings per share:           
Income available to common stockholders$137,103
 337,005,469
 $0.41
 $88,644
 348,112,740
 $0.25
(1) For the nine months ended September 30, 2015 and 2014, there were 18,454,117 and 143,463 equity awards, respectively, that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented.



11


5.4.     Securities

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

At September 30, 2015At March 31, 2016
Carrying value 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair value
Carrying value 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair value
(In thousands)(In thousands)
Available-for-sale:              
Equity securities$5,844
 567
 
 6,411
$5,804
 719
 
 6,523
Mortgage-backed securities:              
Federal Home Loan Mortgage Corporation546,168
 6,901
 258
 552,811
540,298
 7,031
 341
 546,988
Federal National Mortgage Association703,568
 10,260
 564
 713,264
724,204
 10,484
 376
 734,312
Government National Mortgage Association25,940
 38
 
 25,978
23,540
 169
 
 23,709
Total mortgage-backed securities available-for-sale1,275,676
 17,199
 822
 1,292,053
1,288,042
 17,684
 717
 1,305,009
Total available-for-sale securities$1,281,520
 17,766
 822
 1,298,464
$1,293,846
 18,403
 717
 1,311,532
At September 30, 2015At March 31, 2016
Amortized cost Net unrealized losses (1) Carrying value 
Gross
unrecognized
gains (2)
 
Gross
unrecognized
losses (2)
 
Estimated
fair value
Amortized cost Net unrealized losses (1) Carrying value 
Gross
unrecognized
gains (2)
 
Gross
unrecognized
losses (2)
 
Estimated
fair value
(In thousands)(In thousands)
Held-to-maturity:                      
Debt securities:                      
Government-sponsored enterprises$4,272
 
 4,272
 35
 
 4,307
$2,196
 
 2,196
 29
 
 2,225
Municipal bonds44,881
 
 44,881
 1,406
 
 46,287
38,868
 
 38,868
 1,434
 
 40,302
Corporate and other debt securities58,622
 (24,083) 34,539
 44,280
 
 78,819
59,159
 (22,925) 36,234
 36,016
 
 72,250
Total debt securities held-to-maturity107,775
 (24,083) 83,692
 45,721
 
 129,413
100,223
 (22,925) 77,298
 37,479
 
 114,777
Mortgage-backed securities:                      
Federal Home Loan Mortgage Corporation514,520
 (2,787) 511,733
 6,283
 300
 517,716
497,241
 (2,265) 494,976
 7,635
 225
 502,386
Federal National Mortgage Association1,181,781
 (2,958) 1,178,823
 17,412
 1,036
 1,195,199
1,297,056
 (2,463) 1,294,593
 22,320
 259
 1,316,654
Government National Mortgage Association22,502
 
 22,502
 278
 
 22,780
20,133
 
 20,133
 396
 
 20,529
Federal Housing Authorities29
 
 29
 
 
 29
Total mortgage-backed securities held-to-maturity1,718,832
 (5,745) 1,713,087
 23,973
 1,336
 1,735,724
1,814,430
 (4,728) 1,809,702
 30,351
 484
 1,839,569
Total held-to-maturity securities$1,826,607
 (29,828) 1,796,779
 69,694
 1,336
 1,865,137
$1,914,653
 (27,653) 1,887,000
 67,830
 484
 1,954,346

(1) Net unrealized losses of held-to-maturity corporate and other debt securities represent the other than temporary charge related to other non-credit factors and is being amortized through accumulated other comprehensive income over the remaining life of the securities. For mortgage-backed securities, it represents the net loss on previously designated available-for sale securities transferred to held-to-maturity at fair value and is being amortized through accumulated other comprehensive income over the remaining life of the securities.
(2) Unrecognized gains and losses of held-to-maturity securities are not reflected in the financial statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as held-to-maturity; or (ii) the date that an other than temporary impairment ("OTTI") charge is recognized on a held-to-maturity security, through the date of the balance sheet.


12

Table of Contents

At December 31, 2014At December 31, 2015
Carrying value 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair value
Carrying value 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair value
(In thousands)(In thousands)
Available-for-sale:              
Equity securities$6,887
 1,636
 
 8,523
$5,778
 733
 16
 6,495
Mortgage-backed securities:              
Federal Home Loan Mortgage Corporation503,268
 5,023
 1,008
 507,283
546,652
 3,242
 2,443
 547,451
Federal National Mortgage Association675,535
 7,641
 1,184
 681,992
724,851
 4,520
 3,299
 726,072
Government National Mortgage Association125
 1
 
 126
24,841
 1
 163
 24,679
Total mortgage-backed securities available-for-sale1,178,928
 12,665
 2,192
 1,189,401
1,296,344
 7,763
 5,905
 1,298,202
Total available-for-sale securities$1,185,815
 14,301
 2,192
 1,197,924
$1,302,122
 8,496
 5,921
 1,304,697
At December 31, 2014At December 31, 2015
Amortized cost Net unrealized losses (1) Carrying Value 
Gross
unrecognized
gains (2)
 
Gross
unrecognized
losses (2)
 
Estimated
fair value
Amortized cost Net unrealized losses (1) Carrying Value 
Gross
unrecognized
gains (2)
 
Gross
unrecognized
losses (2)
 
Estimated
fair value
(In thousands)(In thousands)
Held-to-maturity:                      
Debt securities:                      
Government-sponsored enterprises$4,388
 
 4,388
 15
 
 4,403
$4,232
 
 4,232
 11
 
 4,243
Municipal bonds24,320
 
 24,320
 1,001
 
 25,321
43,058
 
 43,058
 1,307
 
 44,365
Corporate and other debt securities58,487
 (25,047) 33,440
 32,163
 367
 65,236
58,358
 (23,245) 35,113
 42,704
 
 77,817
Total debt securities held-to-maturity87,195
 (25,047) 62,148
 33,179
 367
 94,960
105,648
 (23,245) 82,403
 44,022
 
 126,425
Mortgage-backed securities:                      
Federal Home Loan Mortgage Corporation504,407
 (3,770) 500,637
 3,561
 1,878
 502,320
516,841
 (2,502) 514,339
 2,213
 3,082
 513,470
Federal National Mortgage Association978,261
 (3,885) 974,376
 11,629
 1,218
 984,787
1,228,845
 (2,705) 1,226,140
 7,305
 6,120
 1,227,325
Government National Mortgage Association27,136
 
 27,136
 
 20
 27,116
21,330
 
 21,330
 125
 
 21,455
Federal housing authorities182
 
 182
 
 
 182
11
 
 11
 
 
 11
Total mortgage-backed securities held-to-maturity1,509,986
 (7,655) 1,502,331
 15,190
 3,116
 1,514,405
1,767,027
 (5,207) 1,761,820
 9,643
 9,202
 1,762,261
Total held-to-maturity securities$1,597,181
 (32,702) 1,564,479
 48,369
 3,483
 1,609,365
$1,872,675
 (28,452) 1,844,223
 53,665
 9,202
 1,888,686

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

A portion of the Company’s securities are pledged to secure borrowings. The contractual maturities of mortgage-backed securities are generally less than 20 years with effective lives expected to be shorter due to anticipated prepayments. Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer, therefore, mortgage-backed securities are not included in the following table. The amortized cost and estimated fair value of debt securities at September 30, 2015,March 31, 2016, by contractual maturity, are shown below. 

13

Table of Contents

September 30, 2015March 31, 2016
Carrying Value 
Estimated
fair value
Carrying Value 
Estimated
fair value
(In thousands)(In thousands)
Due in one year or less$41,692
 41,695
$32,943
 32,943
Due after one year through five years2,456
 2,488
3,331
 3,360
Due after five years through ten years
 

 
Due after ten years39,544
 85,230
41,024
 78,474
Total$83,692
 129,413
$77,298
 114,777

Gross unrecognizedunrealized losses on securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2015March 31, 2016 and December 31, 2014,2015, was as follows:
 
September 30, 2015March 31, 2016
Less than 12 months 12 months or more TotalLess than 12 months 12 months or more Total
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
(In thousands)(In thousands)
Available-for-sale:                      
Mortgage-backed securities:          

          

Federal Home Loan Mortgage Corporation$120,493
 258
 6,098
 
 126,591
 258
$99,570
 341
 
 
 99,570
 341
Federal National Mortgage Association94,138
 274
 15,659
 290
 109,797
 564
38,231
 203
 36,119
 173
 74,350
 376
Total available-for-sale securities$214,631
 532
 21,757
 290
 236,388
 822
$137,801
 544
 36,119
 173
 173,920
 717
Held-to-maturity:                      
Mortgage-backed securities:                      
Federal Home Loan Mortgage Corporation$79,846
 297
 84
 3
 79,930
 300
$32,543
 33
 4,599
 192
 37,142
 225
Federal National Mortgage Association127,654
 605
 30,224
 431
 157,878
 1,036
65,051
 112
 18,229
 147
 83,280
 259
Total held-to-maturity securities$207,500
 902
 30,308
 434
 237,808
 1,336
$97,594
 145
 22,828
 339
 120,422
 484
Total$422,131
 1,434
 52,065
 724
 474,196
 2,158
$235,395
 689
 58,947
 512
 294,342
 1,201
 

14


December 31, 2014December 31, 2015
Less than 12 months 12 months or more TotalLess than 12 months 12 months or more Total
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
(In thousands)(In thousands)
Available-for-sale:                      
Mortgage-backed securities:           
Federal Home Loan Mortgage Corporation$76,525
 426
 60,394
 582
 136,919
 1,008
Federal National Mortgage Association67,017
 50
 52,519
 1,134
 119,536
 1,184
Total available-for-sale securities143,542
 476
 112,913
 1,716
 256,455
 2,192
Held-to-maturity:           
Debt securities:           
Corporate and other debt securities$674
 40
 233
 327
 907
 367
Total debt securities held-to-maturity674
 40
 233
 327
 907
 367
Equity Securities$4,692
 16
 
 
 4,692
 16
Mortgage-backed securities:                      
Federal Home Loan Mortgage Corporation199,962
 1,043
 47,892
 835
 247,854
 1,878
$263,255
 2,443
 
 
 263,255
 2,443
Federal National Mortgage Association145,520
 371
 37,517
 847
 183,037
 1,218
375,792
 2,850
 14,821
 449
 390,613
 3,299
Government National Mortgage Association27,116
 20
 
 
 27,116
 20
24,874
 163
 
 
 24,874
 163
Total mortgage-backed securities available-for-sale663,921
 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 Corporation342,702
 2,804
 4,887
 278
 347,589
 3,082
Federal National Mortgage Association547,326
 5,477
 29,013
 643
 576,339
 6,120
Total mortgage-backed securities held-to-maturity372,598
 1,434
 85,409
 1,682
 458,007
 3,116
890,028
 8,281
 33,900
 921
 923,928
 9,202
Total held-to-maturity securities$373,272
 1,474
 85,642
 2,009
 458,914
 3,483
$890,028
 8,281
 33,900
 921
 923,928
 9,202
Total$516,814
 1,950
 198,555
 3,725
 715,369
 5,675
$1,558,641
 13,753
 48,721
 1,370
 1,607,362
 15,123
At September 30, 2015March 31, 2016, gross unrealized losses relate to our mortgage-backed-security portfolio which areis 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. The gross unrealized losses at December
At March 31, 2014 also relate to our mortgage-backed-security portfolio as well as our2016, corporate and other debt securities whose estimated fair value has been adversely impacted by the economic environment, market interest rates in effect at the time, wider credit spreads and credit deterioration subsequent to the purchase of these securities.
At September 30, 2015, theinclude a portfolio of corporate and othercollateralized debt securities includesobligations backed by pooled trust preferred securities ("TruPS") with, principally issued by banks and to a lesser extent insurance companies, real estate investment trusts, and collateralized debt obligations. At March 31, 2016 the TruPS had a amortized cost and estimated fair value of $36.2 million and $72.3 million, respectively. While all were investment grade at purchase, securities classified as non-investment grade at March 31, 2016 had an amortized cost and estimated fair valuesvalue of $34.5$34.3 million and $78.8$65.8 million, respectively. The following table summarizesFair value is derived from considering specific assumptions, including terms of the Company’s pooled trust preferred securities asTruPS structure, events of September 30, 2015 excluding one trust preferred securitydeferrals, defaults and liquidations, the projected cashflow for which the Company previously recorded a net other-than-temporary impairment charge which resulted in a zero net book balance for the security. At September 30, 2015 the security had a fair value of $100,000. The Company does not own any single-issuer trust preferred securities.

15

Table of Contents

(Dollars in 000’s)                 
DescriptionClass Book Value Fair Value 
Unrealized
Gains
 
Number of
Issuers
Currently
Performing
 
Current
Deferrals and
Defaults as a
% of Total
Collateral (1)
 
Expected
Deferrals and
Defaults as %
of Remaining
Collateral (2)
 
Excess
Subordination
as a % of
Performing
Collateral (3)
 
Moody’s/
Fitch Credit
Ratings
Alesco PF IIB1 $375.9
 $792.6
 $416.7
 31
 7.60% 6.70% % Caa1 / C
Alesco PF IIIB1 983.5
 2,102.5
 1,119.0
 29
 12.40% 7.10% % Ca / C
Alesco PF IIIB2 393.5
 841.0
 447.5
 29
 12.40% 7.10% % Ca / C
Alesco PF IVB1 465.4
 845.0
 379.6
 38
 1.20% 9.00% % C / C
Alesco PF VIC2 862.9
 1,869.1
 1,006.2
 42
 7.60% 11.20% % Ca / C
MM Comm IIIB 225.2
 3,149.2
 2,923.9
 6
 30.00% 6.30% 12.80% Ba1 / BB
MMCaps XVIIC1 1,897.6
 2,772.0
 874.4
 31
 13.80% 7.50% % B3 / C
Tpref IB 1,717.2
 2,576.6
 859.4
 5
 54.20% 11.00% % Ca / WD
Tpref IIB 4,568.5
 6,643.6
 2,075.1
 20
 33.30% 8.50% % Caa3 / C
US Cap IB2 1,023.5
 1,990.8
 967.3
 31
 10.50% 6.60% % B3 / CCC
US Cap IB1 3,053.3
 5,972.4
 2,919.1
 31
 10.50% 6.60% % B3 / CCC
US Cap IIB1 1,609.8
 3,266.0
 1,656.2
 35
 13.40% 9.80% % B2 / C
US Cap IIIB1 2,076.2
 3,349.7
 1,273.5
 29
 16.20% 9.40% % Caa2 / C
Trapeza XIIC1 2,138.1
 5,164.7
 3,026.6
 33
 20.00% 9.50% % C / C
Trapeza XIIIC1 2,244.7
 5,932.0
 3,687.3
 48
 13.50% 9.20% % Caa1 / CCC
Pretsl XXIIA1 345.3
 1,287.1
 941.7
 70
 17.70% 11.50% 31.40% Aa3 / A
Pretsl XXIVA1 1,488.9
 4,007.2
 2,518.3
 63
 24.90% 12.10% 24.80% A1 / BBB
Pretsl IVMez 156.5
 222.9
 66.4
 6
 18.00% 6.40% 19.00% B1 / BB
Pretsl VIIMez 581.2
 2,287.2
 1,706.1
 12
 47.80% 9.50% % Ca / WD
Pretsl XVB1 915.6
 2,508.4
 1,592.8
 60
 11.60% 11.20% % Caa3 / C
Pretsl XVIIC 740.0
 2,233.4
 1,493.4
 38
 21.10% 13.20% % C / CC
Pretsl XVIIIC 1,797.4
 4,114.6
 2,317.1
 49
 22.70% 9.30% % Caa3 / CC
Pretsl XIXC 842.1
 2,083.7
 1,241.6
 53
 5.20% 12.40% % Caa3 / CC
Pretsl XXC 505.1
 1,198.5
 693.4
 44
 18.60% 12.00% % Ca / C
Pretsl XXIC1 767.0
 3,689.0
 2,921.9
 50
 16.60% 11.10% % Caa2 / C
Pretsl XXIIIA-FP 207.2
 1,641.1
 1,433.9
 91
 19.10% 11.10% 18.30% Aa2 / BBB
Pretsl XXIVC1 800.8
 1,681.4
 880.5
 63
 24.90% 12.10% % C / C
Pretsl XXVC1 537.5
 1,349.9
 812.4
 51
 24.00% 11.40% % C / C
Pretsl XXVIC1 589.4
 1,761.8
 1,172.4
 55
 20.70% 10.50% % Caa3 / C
Pref Pretsl IXB2 405.3
 905.6
 500.3
 27
 25.50% 10.00% % B1 / C
Pretsl XC2 224.7
 480.3
 255.5
 33
 26.90% 8.50% % Caa1 / C
   $34,539
 $78,719
 $44,180
          
(1)
At September 30, 2015, current deferrals and defaults as a percent of collateral ranged from 1.2% to 54.2%.
(2)
At September 30, 2015, expected deferrals and defaults as a percent of remaining collateral ranged from 6.3% to 13.2%.
(3)Excess subordination represents the amount of remaining performing collateral that is in excess of the amount needed to pay off a specified class of bonds and all classes senior to the specified class. Excess subordination reduces an investor’s potential risk of loss on their investment as excess subordination absorbs principal and interest shortfalls in the event underlying issuers are not able to make their contractual payments.

principal and interest payments, and discounted cash flow modeling.


16

Table of Contents

Other-Than-Temporary Impairment (“OTTI”)
We conduct a quarterly review and evaluation of the securities portfolio to determine if the value of any security has declined below its cost or amortized cost, and whether such decline is other-than-temporary. If a determination is made that a debt security is other-than-temporarily impaired, the Company will estimate the amount of the unrealized loss that is attributable to credit and all other non-credit related factors. The credit related component will be recognized as an other-than-temporary impairment charge in non-interest income. The non-credit related component will be recorded as an adjustment to accumulated other comprehensive income, net of tax.
With the assistance of a valuation specialist, we evaluate the credit and performance of each underlying issuer of our trust preferred securities by deriving probabilities and assumptions for default, recovery and prepayment/amortization for the expected cash flows for each security. At September 30,March 31, 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 periodperiods ended September 30,March 31, 2016 and 2015. At September 30, 2015,March 31, 2016, non-credit related OTTI recorded on the previously impaired pooled trust preferred securities was $24.1$22.9 million ($14.213.6 million after-tax) and is being accreted into income over the estimated remaining life of the securities.

The following table presents the changes in the credit loss component of the impairment loss of debt securities that the Company has written down for such loss as an other-than-temporary impairment recognized in earnings.
 
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended March 31,
2015 2014 2015 20142016 2015
(In thousands)  (In thousands)
Balance of credit related OTTI, beginning of period$106,872
 110,522
 108,817
 112,235
$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(962) (853) (2,907) (2,566)(1,112) (973)
Reductions for securities sold or paid off during the period(4,770) 
 (4,770) 
Balance of credit related OTTI, end of period$101,140
 109,669
 101,140
 109,669
$99,088
 107,844

The credit loss component of the impairment loss represents the difference between the present value of expected future cash flows and the amortized cost basis of the securities prior to considering credit losses. The beginning balance represents the credit loss component for debt securities for which other-than-temporary impairment occurred prior to the period presented. If other-than-temporary impairment is recognized in earnings for credit impaired debt securities, they would be presented as additions in two components based upon whether the current period is the first time a debt security was credit impaired (initial credit impairment) or is not the first time a debt security was credit impaired (subsequent credit impairments). The credit loss component is reduced if the Company sells, intends to sell or believes it will be required to sell previously credit impaired debt securities. Additionally, the credit loss component is reduced if (i) the Company receives cash flows in excess of what it expected to receive over the remaining life of the credit impaired debt security, (ii) the security matures or (iii) the security is fully written down.
Realized Gains and Losses
    
Gains and losses on the sale of all securities are determined using the specific identification method. For the three and nine months ended September 30, 2015,March 31, 2016, the Company received sale proceeds of $2.6$33.1 million on an equity securitya pool of mortgage-backed securities from the available-for-sale portfolio resulting in a gross realized gain of $1.5$1.4 million. For the three and nine months ended September 30,March 31, 2016, there were no sales of securities from held-to-maturity portfolio.

For the three months ended March 31, 2015, the Company recognized gains on available-for-sale securities of $42,000 and $126,000, respectively,which were related to capital distributions of equity securities from the available-for-sale portfolio. For the three and nine months ended September 30,March 31, 2015, there were no sales of securities from held-to-maturity portfolio, however the Company recognized a loss of $646,000 on a TruP security which was liquidated by its Trustee.portfolio.
For the three and nine months ended September 30, 2014, the Company recognized gains on available-for-sale securities of $29,000 and $669,000, of which $29,000 and $145,000 were related to capital distributions of equity securities from the available-for-sale portfolio. In December 2013, regulatory agencies adopted a rule on the treatment of certain collateralized debt obligations backed by trust preferred securities to implement sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the

17

Table of Contents

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

6.5.    Loans Receivable, Net
The detail of the loan portfolio as of September 30, 2015March 31, 2016 and December 31, 20142015 was as follows:
 
September 30,
2015
 December 31,
2014
March 31,
2016
 December 31,
2015
(In thousands)(In thousands)
Multi-family loans$5,878,532
 5,048,477
$6,521,998
 6,255,904
Commercial real estate loans3,773,427
 3,139,824
3,890,839
 3,821,950
Commercial and industrial loans922,335
 544,402
1,052,139
 1,044,329
Construction loans205,647
 143,664
237,334
 224,057
Total commercial loans10,779,941
 8,876,367
11,702,310
 11,346,240
Residential mortgage loans5,111,776
 5,764,896
4,927,653
 5,037,898
Consumer and other loans478,527
 440,500
511,893
 496,103
Total loans excluding PCI loans16,370,244
 15,081,763
17,141,856
 16,880,241
PCI loans12,845
 17,789
11,329
 11,089
Net unamortized premiums and deferred loan costs (1)(11,868) (11,698)(13,845) (11,692)
Allowance for loan losses(218,458) (200,284)(216,613) (218,505)
Net loans$16,152,763
 14,887,570
$16,922,727
 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 information regarding the estimates of the contractually required payments, the cash flows expected to be collected and the estimated fair value of the PCI loans acquired in the Gateway Financial acquisition as of January 10, 2014:
 January 10, 2014
 (In thousands)
Contractually required principal and interest$4,172
Contractual cash flows not expected to be collected (non-accretable difference)(1,024)
Expected cash flows to be collected3,148
Interest component of expected cash flows (accretable yield)(216)
Fair value of acquired loans$2,932

18

Table of Contents


The following table presents changes in the accretable yield for PCI loans during the three and nine months ended September 30, 2015March 31, 2016 and 2014:2015:
 Three Months Ended September 30, Nine Months Ended September 30,
 2015 2014 2015 2014
 (In thousands)
Balance, beginning of period740
 1,401
 971
 4,154
Acquisitions
 
 
 216
Accretion (1)(232) (193) (463) (3,162)
Net reclassification from non-accretable difference
 
 
 
Balance, end of period$508
 $1,208
 $508
 $1,208
(1) Includes the impact of PCI loans transferred to held for sale at lower cost or market as of March 31, 2014.
 Three Months Ended March 31,
 2016 2015
 (In thousands)
Balance, beginning of period449
 971
Acquisitions
 
Accretion(67) (116)
Net reclassification from non-accretable difference1,221
 
Balance, end of period$1,603
 $855

Allowance for Loan Loss
An analysis of the allowance for loan losses is summarized as follows:
 
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2015 2014 2015 20142016 2015
     (Dollars in thousands)
Balance at beginning of the period$213,962
 $186,070
 $200,284
 $173,928
$218,505
 $200,284
Loans charged off(1,390) (8,060) (5,667) (15,163)(7,977) (1,899)
Recoveries886
 4,074
 2,841
 6,319
1,085
 796
Net charge-offs(504) (3,986) (2,826) (8,844)(6,892) (1,103)
Provision for loan losses5,000
 9,000
 21,000
 26,000
5,000
 9,000
Balance at end of the period$218,458
 $191,084
 $218,458
 $191,084
$216,613
 $208,181
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 ninethree months ended September 30, 2015,March 31, 2016, the Company recorded charge-offs related to PCI loans acquired of $184,000.$20,000.
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

19

Table of Contents

value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans, including those loans not meeting the Company’s definition of an impaired loan, by type of loan, risk rating (if applicable) and payment history. In addition, the Company's residential portfolio is subdivided between fixed and adjustable rate loans as adjustable rate loans are deemed to be subject to more credit risk if interest rates rise. We also analyze historical loss experience using the appropriate look-back and loss emergence period. The loss factors used are based on the Company's historical loss experience over a look-back period determined to provide the appropriate amount of data to accurately estimate expected losses as of period end. Additionally, management assesses the loss emergence period for the expected losses of each loan segment and adjusts each historical loss factor accordingly. The loss emergence period is the estimated time from the date of a loss event (such as a personal bankruptcy) to the actual recognition of the loss (typically via the first full or partial loan charge-off), and is determined based upon a study of the Company's past loss experience by loan segment. The loss factors may also be adjusted to account for qualitative or environmental factors that are likely to cause estimated credit losses inherent in the portfolio to differ from historical loss experience. This evaluation is based on 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. This process includes all loans, concentrating on non-accrual and classified loans. Each non-accrual or classified loan isLoans 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.
The allowance contains reserves identified as unallocated. These reserves reflect management's attempt to ensure that the overall allowance reflects a margin for imprecision and the uncertainty that is inherent in estimates of probable credit losses.
The results of this quarterly process are reviewed and approved by management. A summary of loan loss allowances is presented to the Board of Directors on a quarterly basis.
Our primary lending emphasis has been the origination of commercial real estate loans, multi-family loans, commercial and industrial loans and the origination and purchase of residential mortgage loans. We also originate home equity loans and home equity lines of credit. These activities resulted in a concentration of loans secured by real estate property and businesses located in New Jersey and New York. Based on the composition of our loan portfolio, we believe the primary risks are increases in interest rates, a decline in the general economy, and declines in real estate market values in New Jersey, New York and surrounding states. Any one or combination of these events may adversely affect our loan portfolio resulting in increased delinquencies, loan losses and future levels of loan loss provisions. We consider it important to maintain the ratio of our allowance for loan losses to total loans at an adequate level given current economic conditions and the composition of the portfolio. As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisal valuations are instrumental in determining the value of properties. Negative changes to appraisal assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans.
For commercial real estate, multi-family and construction loans, the Company obtains an appraisal for all collateral dependent loans upon origination. An updated appraisal is obtained annually for loans rated substandard or worse with a balance of $500,000 or greater. An updated appraisal is obtained bi-annually for loans rated special mention with a balance of $1.0$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 previously classified as non-accrual and/or impaired and assesses whether there has been an adverse change in the collateral value supporting the loan. The Company utilizes information from its commercial lending officers and its credit department and loan workout department’s knowledge of changes in real estate conditions in our lending area to identify if possible deterioration of collateral value has occurred. Based on the severity of the changes in market conditions, management determines if an updated appraisal is warranted or if downward adjustments to the previous appraisal are warranted. If it is determined that the deterioration of the collateral value is significant enough to warrant ordering a new appraisal, an estimate of the downward adjustments to the existing appraised value is used in assessing if additional specific reserves are necessary until the updated appraisal is received.
For homogeneous residential mortgage loans, the Company’s policy is to obtain an appraisal upon the origination of the loan and an updated appraisal in the event a loan becomes 90 days delinquent. Thereafter, the appraisal is updated every two years if the

20

Table of Contents

loan remains in non-performing status and the foreclosure process has not been completed. Management adjusts the appraised value of residential loans to reflect estimated selling costs and declines in the real estate market.
Management believes the potential risk for outdated appraisals for impaired and other non-performing loans has been mitigated due to the fact that the loans are individually assessed to determine that the loan’s carrying value is not in excess of the fair value of the collateral. Loans are generally charged off after an analysis is completed which indicates that collectability of the full principal balance is in doubt.
Our allowance for loan losses reflects probable losses considering, among other things, the weak economic conditions, the actual growth and change in composition of our loan portfolio, the level of our non-performing loans and our charge-off experience. We believe the allowance for loan losses reflects the inherent credit risk in our portfolio.
Although we believe we have established and maintained the allowance for loan losses at adequate levels, additions may be necessary if the current economic environment deteriorates. Management uses the best information available; however, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change. In addition, the Federal Deposit Insurance Corporation and the New Jersey Department of Banking and Insurance, as an integral part of their examination process, will periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.


21

Table of Contents

The following tables present the balance in the allowance for loan losses and the recorded investment in loans including PCI loans, by portfolio segment and based on impairment method as of September 30, 2015March 31, 2016 and December 31, 2014:2015:
 
September 30, 2015March 31, 2016
Multi-
Family Loans
 
Commercial
Real Estate Loans
 
Commercial
and Industrial
Loans
 
Construction
Loans
 
Residential
Mortgage Loans
 
Consumer
and Other
Loans
 Unallocated Total
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)(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
Beginning balance-December 31, 2015$88,223
 46,999
 40,585
 6,794
 31,443
 3,155
 1,306
 218,505
Charge-offs(273) (757) (279) (367) (3,624) (367) 
 (5,667)(10) (194) (3,966) (8) (3,622) (177) 
 (7,977)
Recoveries421
 436
 219
 266
 1,245
 254
 
 2,841
491
 170
 18
 100
 287
 19
 
 1,085
Provision7,571
 4,701
 12,198
 1,807
 (1,974) 471
 (3,774) 21,000
1,898
 1,875
 2,567
 (1,267) 516
 (390) (199) 5,000
Ending balance-September 30, 2015$78,866
 48,410
 32,897
 8,194
 43,583
 3,705
 2,803
 218,458
Ending balance-March 31, 2016$90,602
 48,850
 39,204
 5,619
 28,624
 2,607
 1,107
 216,613
                              
Individually evaluated for impairment$
 
 2,461
 
 1,928
 
 
 4,389
$
 
 
 
 1,344
 8
 
 1,352
Collectively evaluated for impairment78,866
 48,410
 30,436
 8,194
 41,655
 3,705
 2,803
 214,069
90,602
 48,850
 39,204
 5,619
 27,280
 2,599
 1,107
 215,261
Loans acquired with deteriorated credit quality
 
 
 
 
 
 
 

 
 
 
 
 
 
 
Balance at September 30, 2015$78,866
 48,410
 32,897
 8,194
 43,583
 3,705
 2,803
 218,458
Balance at March 31, 2016$90,602
 48,850
 39,204
 5,619
 28,624
 2,607
 1,107
 216,613
                              
Loans:                              
Individually evaluated for impairment$3,239
 19,373
 7,396
 3,201
 23,964
 263
 
 57,436
$2,664
 8,659
 4,807
 1,486
 22,954
 368
 
 40,938
Collectively evaluated for impairment5,875,293
 3,754,054
 914,939
 202,446
 5,087,812
 478,264
 
 16,312,808
6,519,334
 3,882,180
 1,047,332
 235,848
 4,904,699
 511,525
 
 17,100,918
Loans acquired with deteriorated credit quality
 6,820
 53
 1,786
 3,713
 473
 
 12,845

 7,900
 55
 1,354
 1,623
 397
 
 11,329
Balance at September 30, 2015$5,878,532
 3,780,247
 922,388
 207,433
 5,115,489
 479,000
 
 16,383,089
Balance at March 31, 2016$6,521,998
 3,898,739
 1,052,194
 238,688
 4,929,276
 512,290
 
 17,153,185

22


December 31, 2014December 31, 2015
Multi-
Family Loans
 
Commercial
Real Estate Loans
 
Commercial
and Industrial
Loans
 
Construction
Loans
 
Residential
Mortgage Loans
 
Consumer
and Other
Loans
 Unallocated Total
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)(Dollars in thousands)
Allowance for loan losses:                              
Beginning balance-December 31, 2013$42,103
 46,657
 9,273
 8,947
 51,760
 2,161
 13,027
 173,928
Beginning balance-December 31, 2014$71,147
 44,030
 20,759
 6,488
 47,936
 3,347
 6,577
 200,284
Charge-offs(323) (6,147) (2,447) (640) (7,715) (972) 
 (18,244)(284) (1,021) (516) (466) (9,526) (403) 
 (12,216)
Recoveries3,784
 201
 516
 799
 1,783
 17
 
 7,100
445
 807
 295
 317
 2,295
 278
 
 4,437
Provision25,583
 3,319
 13,417
 (2,618) 2,108
 2,141
 (6,450) 37,500
16,915
 3,183
 20,047
 455
 (9,262) (67) (5,271) 26,000
Ending balance-December 31, 2014$71,147
 44,030
 20,759
 6,488
 47,936

3,347
 6,577
 200,284
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$
 274
 
 
 1,865
 
 
 2,139
$
 
 2,409
 
 1,773
 9
 
 4,191
Collectively evaluated for impairment71,147
 43,756
 20,759
 6,488
 46,071
 3,347
 6,577
 198,145
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, 2014$71,147
 44,030
 20,759
 6,488
 47,936

3,347
 6,577
 200,284
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$4,111
 22,995
 3,310
 6,798
 23,285
 
 
 60,499
$3,219
 18,941
 9,395
 2,504
 22,539
 389
 
 56,987
Collectively evaluated for impairment5,044,366
 3,116,829
 541,092
 136,866
 5,741,611
 440,500
 
 15,021,264
6,252,685
 3,803,009
 1,034,934
 221,553
 5,015,359
 495,714
 
 16,823,254
Loans acquired with deteriorated credit quality637
 7,329
 56
 4,732
 4,581
 454
 
 17,789

 7,149
 56
 1,786
 1,645
 453
 
 11,089
Balance at December 31, 2014$5,049,114
 3,147,153
 544,458
 148,396
 5,769,477

440,954
 
 15,099,552
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: the most current financial information, available, historical payment experience, credit documentation, public information and current economic trends, among other factors. For non-homogeneous loans, such as commercial and commercial real estate loans the Company analyzes the loans individually by classifying the loans as to credit risk and assesses the probability of collection for each type of class. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:
Pass - “Pass” assets are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.
Watch - A "Watch" asset has all the characteristics of a Pass asset but warrant more than the normal level of supervision. These loans may require more detailed reporting to management because some aspects of underwriting may not conform to policy or adverse

23


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.
Special Mention - A “Special Mention” asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Residential loans delinquent 30-8960-89 days are considered special mention.
Substandard - A “Substandard” asset is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Residential loans delinquent 90 days or greater are considered substandard.
Doubtful - An asset classified “Doubtful” has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.
Loss - An asset or portion thereof, classified “Loss” is considered uncollectible and of such little value that its continuance on the institution’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur. As such, it is not practical or desirable to defer the write-off.
The following tables present the risk category of loans as of September 30, 2015March 31, 2016 and December 31, 20142015 by class of loans excluding PCI loans:
 
September 30, 2015March 31, 2016
Pass Watch Special  Mention Substandard Doubtful Loss TotalPass Watch Special  Mention Substandard Doubtful Loss Total
(In thousands)(In thousands)
Commercial loans:                          
Multi-family$5,473,862
 346,801
 31,999
 25,870
 
 
 5,878,532
$6,098,911
 293,468
 90,408
 39,211
 
 
 6,521,998
Commercial real estate3,371,101
 306,387
 31,449
 64,490
 
 
 3,773,427
3,476,202
 343,770
 43,434
 27,433
 
 
 3,890,839
Commercial and industrial741,771
 153,787
 13,313
 13,464
 
 
 922,335
801,245
 220,093
 23,258
 7,543
 
 
 1,052,139
Construction191,773
 9,594
 
 4,280
 
 
 205,647
214,836
 17,627
 1,200
 3,671
 
 
 237,334
Total commercial loans9,778,507
 816,569
 76,761
 108,104
 
 
 10,779,941
10,591,194
 874,958
 158,300
 77,858
 
 
 11,702,310
Residential mortgage4,973,394
 
 36,017
 102,365
 
 
 5,111,776
4,816,324
 30,745
 16,825
 63,759
 
 
 4,927,653
Consumer and other469,755
 
 2,146
 6,626
 
 
 478,527
501,715
 2,232
 1,064
 6,882
 
 
 511,893
Total$15,221,656
 816,569
 114,924
 217,095
 
 
 16,370,244
$15,909,233
 907,935
 176,189
 148,499
 
 
 17,141,856

December 31, 2014December 31, 2015
Pass Watch Special  Mention Substandard Doubtful Loss TotalPass Watch Special  Mention Substandard Doubtful Loss Total
(In thousands)(In thousands)
Commercial loans:                          
Multi-family$4,710,124
 247,921
 62,886
 27,546
 
 
 5,048,477
$5,876,425
 325,414
 17,033
 37,032
 
 
 6,255,904
Commercial real estate2,757,949
 276,660
 29,248
 75,967
 
 
 3,139,824
3,411,876
 331,429
 38,265
 40,380
 
 
 3,821,950
Commercial and industrial405,021
 110,374
 20,321
 8,686
 
 
 544,402
793,527
 223,474
 13,782
 13,546
 
 
 1,044,329
Construction134,356
 2,228
 2,075
 5,005
 
 
 143,664
207,499
 12,833
 
 3,725
 
 
 224,057
Total commercial loans8,007,450
 637,183
 114,530
 117,204
 
 
 8,876,367
10,289,327
 893,150
 69,080
 94,683
 
 
 11,346,240
Residential mortgage5,641,190
 
 29,710
 93,996
 
 
 5,764,896
4,930,961
 24,584
 13,796
 68,557
 
 
 5,037,898
Consumer and other433,968
 
 2,339
 4,193
 
 
 440,500
482,715
 3,987
 427
 8,974
 
 
 496,103
Total$14,082,608
 637,183
 146,579
 215,393
 
 
 15,081,763
$15,703,003
 921,721
 83,303
 172,214
 
 
 16,880,241
    

24

Table of Contents

The following tables present the payment status of the recorded investment in past due loans as of September 30, 2015March 31, 2016 and December 31, 20142015 by class of loans excluding PCI loans:
 
September 30, 2015March 31, 2016
30-59 Days 60-89 Days 
Greater
than 90
Days
 
Total Past
Due
 Current 
Total
Loans
Receivable
30-59 Days 60-89 Days 
Greater
than 90
Days
 
Total Past
Due
 Current 
Total
Loans
Receivable
(In thousands)(In thousands)
Commercial loans:                      
Multi-family$11,161
 
 1,971
 13,132
 5,865,400
 5,878,532
$17,963
 
 1,886
 19,849
 6,502,149
 6,521,998
Commercial real estate7,752
 270
 8,175
 16,197
 3,757,230
 3,773,427
25,370
 423
 7,430
 33,223
 3,857,616
 3,890,839
Commercial and industrial4,948
 859
 2,150
 7,957
 914,378
 922,335
4,096
 2,296
 780
 7,172
 1,044,967
 1,052,139
Construction
 
 968
 968
 204,679
 205,647

 
 516
 516
 236,818
 237,334
Total commercial loans23,861
 1,129
 13,264
 38,254
 10,741,687
 10,779,941
47,429
 2,719
 10,612
 60,760
 11,641,550
 11,702,310
Residential mortgage23,577
 15,831
 80,898
 120,306
 4,991,470
 5,111,776
30,745
 16,825
 63,759
 111,329
 4,816,324
 4,927,653
Consumer and other1,522
 721
 6,154
 8,397
 470,130
 478,527
2,232
 1,064
 6,882
 10,178
 501,715
 511,893
Total$48,960
 17,681
 100,316
 166,957
 16,203,287
 16,370,244
$80,406
 20,608
 81,253
 182,267
 16,959,589
 17,141,856
 

December 31, 2014December 31, 2015
30-59 Days 60-89 Days 
Greater
than 90
Days
 
Total Past
Due
 Current 
Total
Loans
Receivable
30-59 Days 60-89 Days 
Greater
than 90
Days
 
Total Past
Due
 Current 
Total
Loans
Receivable
(In thousands)(In thousands)
Commercial loans:                      
Multi-family$698
 239
 2,989
 3,926
 5,044,551
 5,048,477
$14,236
 
 1,886
 16,122
 6,239,782
 6,255,904
Commercial real estate6,566
 778
 13,940
 21,284
 3,118,540
 3,139,824
4,171
 352
 6,429
 10,952
 3,810,998
 3,821,950
Commercial and industrial792
 395
 2,903
 4,090
 540,312
 544,402
957
 
 4,386
 5,343
 1,038,986
 1,044,329
Construction
 
 4,345
 4,345
 139,319
 143,664

 
 792
 792
 223,265
 224,057
Total commercial loans8,056
 1,412
 24,177
 33,645
 8,842,722
 8,876,367
19,364
 352
 13,493
 33,209
 11,313,031
 11,346,240
Residential mortgage23,712
 8,900
 75,610
 108,222
 5,656,674
 5,764,896
27,092
 14,956
 68,560
 110,608
 4,927,290
 5,037,898
Consumer and other1,334
 1,006
 4,211
 6,551
 433,949
 440,500
3,987
 427
 8,976
 13,390
 482,713
 496,103
Total$33,102
 11,318
 103,998
 148,418
 14,933,345
 15,081,763
$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:
 
September 30, 2015 December 31, 2014March 31, 2016 December 31, 2015
# of loans Amount # of loans Amount# of loans Amount # of loans Amount
(Dollars in thousands)(Dollars in thousands)
Non-accrual:  
Multi-family4
 $3,012
 2
 $2,989
3
 $2,903
 4
 $3,467
Commercial real estate40
 13,799
 36
 13,940
35
 10,342
 37
 10,820
Commercial and industrial9
 6,499
 11
 2,903
10
 5,587
 17
 9,225
Construction5
 968
 7
 4,345
3
 516
 4
 792
Total commercial loans58
 24,278
 56
 24,177
51
 19,348
 62
 24,304
Residential mortgage and consumer506
 99,867
 406
 84,182
488
 85,892
 500
 91,122
Total non-accrual loans564
 $124,145
 462
 $108,359
539
 $105,240
 562
 $115,426


Included in the non-accrual table above are TDR loans whose payment status is current but the Company has classified as non-accrual as the loans have not maintained their current payment status for six consecutive months under the restructured terms and therefore do not meet the criteria for accrual status. As of September 30,March 31, 2016 and December 31, 2015,, these loans are comprised of 13 residentialthe following:
 March 31, 2016 December 31, 2015
 # of loans Amount # of loans Amount
 (Dollars in thousands)
Current TDR classified as non-accrual:       
Multi-family1
 $1,016
 1
 $1,032
Commercial real estate3
 406
 2
 240
Commercial and industrial2
 2,208
 2
 2,226
Total commercial loans6
 3,630
 5
 3,498
Residential mortgage and consumer18
 2,980
 15
 3,378
Total current TDR classified as non-accrual24
 $6,610
 20
 $6,876
The following table presents TDR loans

25

Table of Contents

totaling $2.8 million, 7 commercial TDR loans totaling $2.9 million, 3 consumer loans totaling $263,000 and 1 multi-family TDR loan totaling $1.0 million. There were 9 residential TDR loans totaling $2.8 million which were also 30-89 days delinquent and classified as non-accrual. As of December 31, 2014, these loans are comprised of 5 residential TDR loans totaling $1.5 million. There were 10 residential TDR loans totaling $2.9 million which were also 30-89 days delinquent and classified as non-accrual. non-accrual at the dates indicated:
 March 31, 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 estate2
 241
 5
 2,309
Commercial and industrial1
 345
 1
 360
Total commercial loans3
 586
 7
 3,217
Residential mortgage and consumer14
 5,485
 11
 3,338
Total current TDR classified as non-accrual17
 $6,071
 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 September 30, 2015,March 31, 2016, PCI loans with a carrying value of $12.8 million included $7.1 million of which were current and $5.7 million of which were 90 days or more delinquent. As of December 31, 2014, PCI loans with a carrying value of $17.8$11.3 million included $9.2$7.9 million of which were current, $1.4 million of which were 30-89 days delinquent and $8.6$2.0 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 September 30, 2015March 31, 2016 and December 31, 2014,2015, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans which totaled $57.4$40.9 million and $60.5$57.0 million,, respectively, with allocations of the allowance for loan losses of $4.4$1.4 million and $2.1$4.2 million for the periods ending March 31, 2016 and December 31, 2015, respectively. During the three months ended September 30,March 31, 2016 and 2015, and 2014, interest income received and recognized on these loans totaled $656,000$393,000 and $678,000,$667,000, respectively. During the nine months ended September 30, 2015 and 2014, interest income received and recognized on these loans totaled $2.1 million and $1.9 million, respectively.


The following tables present loans individually evaluated for impairment by portfolio segment as of September 30, 2015March 31, 2016 and
December 31, 2014:2015:
 
September 30, 2015March 31, 2016
Recorded
Investment
 
Unpaid Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Recorded
Investment
 
Unpaid Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
(In thousands)(In thousands)
With no related allowance:                  
Multi-family$3,239
 6,836
 
 2,938
 96
$2,664
 5,791
 
 2,144
 14
Commercial real estate19,373
 24,087
 
 19,309
 849
8,659
 17,762
 
 8,096
 108
Commercial and industrial3,047
 3,046
 
 2,838
 52
4,807
 8,761
 
 3,362
 32
Construction3,201
 3,207
 
 6,896
 106
1,486
 5,324
 
 2,795
 12
Total commercial loans28,860
 37,176
 
 31,981
 1,103
17,616
 37,638
 
 16,397
 166
Residential mortgage and consumer7,907
 10,608
 
 7,323
 413
9,653
 12,601
 
 8,191
 113
With an allowance recorded:                  
Multi-family
 
 
 
 

 
 
 
 
Commercial real estate
 
 
 
 

 
 
 
 
Commercial and industrial4,349
 4,349
 2,461
 4,431
 147

 
 
 
 
Construction
 
 
 
 

 
 
 
 
Total commercial loans4,349
 4,349
 2,461
 4,431
 147

 
 
 
 
Residential mortgage and consumer16,320
 16,793
 1,928
 16,559
 406
13,669
 14,023
 1,352
 15,809
 114
Total:                  
Multi-family3,239
 6,836
 
 2,938
 96
2,664
 5,791
 
 2,144
 14
Commercial real estate19,373
 24,087
 
 19,309
 849
8,659
 17,762
 
 8,096
 108
Commercial and industrial7,396
 7,395
 2,461
 7,269
 199
4,807
 8,761
 
 3,362
 32
Construction3,201
 3,207
 
 6,896
 106
1,486
 5,324
 
 2,795
 12
Total commercial loans33,209
 41,525
 2,461
 36,412
 1,250
17,616
 37,638
 
 16,397
 166
Residential mortgage and consumer24,227
 27,401
 1,928
 23,882
 819
23,322
 26,624
 1,352
 24,000
 227
Total impaired loans$57,436
 68,926
 4,389
 60,294
 2,069
$40,938
 64,262
 1,352
 40,397
 393

26


December 31, 2014December 31, 2015
Recorded
Investment
 
Unpaid Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Recorded
Investment
 
Unpaid Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
(In thousands)(In thousands)
With no related allowance:                  
Multi-family$4,111
 7,846
 
 4,746
 135
$3,219
 6,806
 
 2,872
 119
Commercial real estate19,901
 23,601
 
 17,056
 879
18,941
 27,961
 
 19,025
 1,136
Commercial and industrial3,310
 3,310
 
 1,985
 152
5,155
 5,160
 
 3,575
 200
Construction6,798
 9,292
 
 13,609
 410
2,504
 6,412
 
 4,288
 226
Total commercial loans34,120
 44,049
 
 37,396
 1,576
29,819
 46,339
 
 29,760
 1,681
Residential mortgage and consumer6,755
 8,830
 
 6,606
 370
8,020
 12,433
 
 7,611
 463
With an allowance recorded:                  
Multi-family
 
 
 
 

 
 
 
 
Commercial real estate3,094
 4,760
 274
 3,106
 72

 
 
 
 
Commercial and industrial
 
 
 
 
4,240
 4,271
 2,409
 4,389
 194
Construction
 
 
 
 

 
 
 
 
Total commercial loans3,094
 4,760
 274
 3,106
 72
4,240
 4,271
 2,409
 4,389
 194
Residential mortgage and consumer16,530
 16,882
 1,865
 16,547
 507
14,908
 13,695
 1,782
 16,424
 476
Total:                  
Multi-family4,111
 7,846
 
 4,746
 135
3,219
 6,806
 
 2,872
 119
Commercial real estate22,995
 28,361
 274
 20,162
 951
18,941
 27,961
 
 19,025
 1,136
Commercial and industrial3,310
 3,310
 
 1,985
 152
9,395
 9,431
 2,409
 7,964
 394
Construction6,798
 9,292
 
 13,609
 410
2,504
 6,412
 
 4,288
 226
Total commercial loans37,214
 48,809
 274
 40,502
 1,648
34,059
 50,610
 2,409
 34,149
 1,875
Residential mortgage and consumer23,285
 25,712
 1,865
 23,153
 877
22,928
 26,128
 1,782
 24,035
 939
Total impaired loans$60,499
 74,521
 2,139
 63,655
 2,525
$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 troubled debt restructured loan ("TDR").
Substantially all of our TDRtroubled debt restructured 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 accrualnon-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.


27

Table of Contents

The following table presents the total troubled debt restructured loans at September 30, 2015March 31, 2016 and December 31, 2014.2015. There were two residential PCI loans that were classified as TDRs and are included in the table below at September 30, 2015.March 31, 2016. There were nothree residential PCI loans that were classified as a TDRTDRs for the period ended December 31, 2014.2015.
 
September 30, 2015March 31, 2016
Accrual Non-accrual TotalAccrual Non-accrual Total
# of loans Amount # of loans Amount # of loans Amount# of loans Amount # of loans Amount # of loans Amount
(Dollars in thousands)(Dollars in thousands)
Commercial loans:                      
Multi-family1
 $551
 1
 $1,041
 2
 $1,592

 $
 1
 $1,016
 1
 $1,016
Commercial real estate5
 13,256
 8
 6,102
 13
 19,358
2
 3,476
 7
 3,751
 9
 7,227
Commercial and industrial2
 1,115
 
 
 2
 1,115

 
 3
 2,553
 3
 2,553
Construction1
 937
 2
 478
 3
 1,415

 
 1
 132
 1
 132
Total commercial loans9
 15,859
 11
 7,621
 20
 23,480
2
 3,476
 12
 7,452
 14
 10,928
Residential mortgage and consumer29
 9,377
 53
 14,850
 82
 24,227
28
 7,191
 59
 16,132
 87
 23,323
Total38
 $25,236
 64
 $22,471
 102
 $47,707
30
 $10,667
 71
 $23,584
 101
 $34,251

December 31, 2014December 31, 2015
Accrual Non-accrual TotalAccrual Non-accrual Total
# of loans Amount # of loans Amount # of loans Amount# of loans Amount # of loans Amount # of loans Amount
(Dollars in thousands)(Dollars in thousands)
Commercial loans:                      
Multi-family2
 $1,122
 
 $
 2
 $1,122

 $
 2
 $1,580
 2
 $1,580
Commercial real estate8
 15,250
 1
 3,197
 9
 18,447
5
 13,161
 9
 5,826
 14
 18,987
Commercial and industrial2
 1,381
 
 
 2
 1,381
1
 640
 3
 2,586
 4
 3,226
Construction2
 3,066
 
 
 2
 3,066
1
 313
 2
 405
 3
 718
Total commercial loans14
 20,819
 1
 3,197
 15
 24,016
7
 14,114
 16
 10,397
 23
 24,511
Residential mortgage and consumer41
 14,805
 29
 8,456
 70
 23,261
32
 8,375
 49
 14,553
 81
 22,928
Total55
 $35,624
 30
 $11,653
 85
 $47,277
39
 $22,489
 65
 $24,950
 104
 $47,439



28

Table of Contents

The following table presents information about troubled debt restructurings that occurred during the three and nine months ended September 30, 2015March 31, 2016 and 2014:2015:
 
Three Months Ended September 30,Three Months Ended March 31,
2015 20142016 2015
Number of
Loans
 
Pre-modification
Recorded
Investment
 
Post-
modification
Recorded
Investment
 
Number of
Loans
 
Pre-modification
Recorded
Investment
 
Post-
modification
Recorded
Investment
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)(Dollars in thousands)
Troubled Debt Restructings:                      
Multi-family1
 $1,115
 $1,115
 
 $
 $
Commercial real estate2
 699
 699
 2
 9,549
 6,549
2
 $442
 $442
 
 $
 $
Construction1
 182
 182
 
 
 

 
 
 1
 1,326
 1,326
Total commercial loans4
 1,996
 1,996
 2
 9,549
 6,549
Residential mortgage and consumer3
 376
 376
 
 
 
7
 958
 958
 7
 1,542
 1,542
    

 Nine Months Ended September 30,
 2015 2014
 
Number of
Loans
 
Pre-modification
Recorded
Investment
 
Post-
modification
Recorded
Investment
 
Number of
Loans
 
Pre-modification
Recorded
Investment
 
Post-
modification
Recorded
Investment
 (Dollars in thousands)
Troubled Debt Restructings:           
Multi-family1
 $1,115
 $1,115
 
 $
 $
Commercial real estate3
 777
 777
 3
 10,657
 7,657
Construction2
 1,508
 1,508
 
 
 
Total commercial loans6
 3,400
 3,400
 3
 10,657
 7,657
Residential mortgage and consumer16
 2,830
 2,830
 8
 2,546
 2,546

Post-modification recorded investment represents the net book balance immediately following modification.
All TDRs are impaired loans, which are individually evaluated for impairment, as discussed above. Collateral dependantdependent impaired loans classified as TDRs were written down to the estimated fair value of the collateral. There were no charge-offs for collateral dependant TDRs during the three and nine months ended September 30, 2015March 31, 2016 and 2014.2015. The allowance for loan losses associated with the TDRs presented in the above tables totaled $1.9$1.4 million and $1.9$1.8 million at September 30, 2015March 31, 2016 and December 31, 2014,2015, 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. For the three and nine months ended September 30, 2015, the commericalMarch 31, 2016, commercial loans which qualified as a TDR involved the maturity and payment terms being modified. As of September 30,March 31, 2016 and 2015, and 2014, the Company has no additional fundings to any borrowers classified as a troubled debt restructuring.
The following table presents information about pre and post modification interest yield for troubled debt restructurings which occurred during the three and nine months ended September 30, 2015March 31, 2016 and 2014:2015:

29

Table of Contents

 
Three Months Ended September 30,Three Months Ended March 31,
2015 20142016 2015
Number of
Loans
 
Pre-modification
Interest Yield
 
Post-
modification
Interest Yield
 
Number of
Loans
 
Pre-modification
Interest Yield
 
Post-
modification
Interest Yield
Number of
Loans
 
Pre-modification
Interest Yield
 
Post-
modification
Interest Yield
 
Number of
Loans
 
Pre-modification
Interest Yield
 
Post-
modification
Interest Yield
  
Troubled Debt Restructings:                      
Multi-family1
 3.88% 3.88% 
 % %
Commercial real estate2
 4.73% 5.78% 2
 6.42% 5.49%2
 4.12% 4.44% 
 % %
Construction1
 4.75% 4.75% 
 
 

 % % 1
 5.00% 5.00%
Residential mortgage and consumer3
 5.28% 3.19% 
 
 
7
 6.05% 3.99% 7
 4.84% 3.36%
 Nine Months Ended September 30,
 2015 2014
 
Number of
Loans
 
Pre-modification
Interest Yield
 
Post-
modification
Interest Yield
 
Number of
Loans
 
Pre-modification
Interest Yield
 
Post-
modification
Interest Yield
  
Troubled Debt Restructings:           
Multi-family1
 3.88% 3.88% 
 % %
Commercial real estate3
 4.78% 5.64% 3
 6.59% 5.75%
Construction2
 4.97% 4.97% 
 
 
Residential mortgage and consumer16
 5.19% 3.39% 8
 5.18% 3.57%
LoansPayment defaults for loans modified as TDRsTDR in the previous 12 months to September 30, 2015, for which there was a payment defaultMarch 31, 2016 consisted of 4 residential loans, 3 commercial real estate loans and 1 residentialconstruction loan with a recorded investment of $478,000$880,000, $246,000 and $132,000, respectively, at September 30, 2015. There were noMarch 31, 2016. Payment defaults for loans modified as TDRs in the previous 12 months to September 30, 2014, for which there wasMarch 31, 2015 consisted of 2 residential loans with a payment default.

30

Tablerecorded investment of Contents$1.1 million at March 31, 2015.


7.6.     Deposits
Deposits are summarized as follows:
 
September 30, 2015 December 31, 2014March 31, 2016 December 31, 2015
(In thousands)(In thousands)
Checking accounts$4,186,633
 3,892,839
$4,857,958
 4,636,025
Money market deposits3,670,902
 3,390,238
3,837,226
 3,861,317
Savings2,121,817
 2,318,911
2,082,122
 2,150,004
Total transaction accounts9,979,352
 9,601,988
10,777,306
 10,647,346
Certificates of deposit3,361,806
 2,570,338
3,424,081
 3,416,310
Total deposits$13,341,158
 12,172,326
$14,201,387
 14,063,656




8.7.    Goodwill and Other Intangible Assets
The following table summarizes net intangible assets and goodwill at September 30, 2015March 31, 2016 and December 31, 2014:2015:
 September 30,
2015
 December 31,
2014
 March 31,
2016
 December 31,
2015
 (In thousands) (In thousands)
Mortgage servicing rights $16,965
 14,261
 $15,803
 16,248
Core deposit premiums 12,135
 14,683
 10,593
 11,332
Other 168
 190
 993
 160
Total other intangible assets 29,268
 29,134
 27,389
 27,740
Goodwill 77,571
 77,571
 77,571
 77,571
Goodwill and intangible assets $106,839
 106,705
 $104,960
 105,311
 
The following table summarizes other intangible assets as of September 30, 2015March 31, 2016 and December 31, 2014:2015:
    
 Gross Intangible Asset Accumulated Amortization Valuation Allowance Net Intangible Assets Gross Intangible Asset Accumulated Amortization Valuation Allowance Net Intangible Assets
 (In thousands) (In thousands)
September 30, 2015        
March 31, 2016        
Mortgage servicing rights $24,604
 (7,518) (121) 16,965
 $27,335
 (11,411) (121) 15,803
Core deposit premiums 25,058
 (12,923) 
 12,135
 25,059
 (14,466) 
 10,593
Other 300
 (132) 
 168
 1,150
 (157) 
 993
Total other intangible assets $49,962
 (20,573) (121) 29,268
 $53,544
 (26,034) (121) 27,389
                
December 31, 2014        
December 31, 2015        
Mortgage servicing rights $23,925
 (9,543) (121) 14,261
 $23,411
 (7,042) (121) 16,248
Core deposit premiums 25,058
 (10,375) 
 14,683
 25,058
 (13,726) 
 11,332
Other 300
 (110) 
 190
 300
 (140) 
 160
Total other intangible assets $49,283
 (20,028) (121) 29,134
 $48,769
 (20,908) (121) 27,740

31

Table of Contents

Mortgage servicing rights are accounted for using the amortization method. Under this method, the Company amortizes the loan servicing asset in proportion to, and over the period of, estimated net servicing revenues. The Company sells loans on a servicing-retained basis. Loans that were sold on this basis, amounted to $2.16$2.08 billion and $1.85$2.12 billion at September 30, 2015March 31, 2016 and December 31, 20142015 respectively, all of which relate to residential mortgage loans. At September 30, 2015March 31, 2016 and December 31, 2014,2015, the servicing asset, included in intangible assets, had an estimated fair value of $17.0$15.8 million and $14.3$16.2 million,, respectively. FairFor the three months ended March 31, 2016, fair value was based on expected future cash flows considering a weighted average discount rate of 10.21%10.20%, a weighted average constant prepayment rate on mortgages of 11.64%12.24% and a weighted average life of 6.16.2 years.
Core deposit premiums are amortized using an accelerated method and having a weighted average amortization period of 10 years.


9.8.     Equity Incentive Plan

At the annual meeting held on June 9, 2015, stockholders of the Company approved the Investors Bancorp, Inc. 2015 Equity Incentive Plan ("2015 Plan"). On June 23, 2015, the Company granted to directors and certain employees a total of 6,849,832 restricted stock awards and 11,576,612 stock options to purchase Company stock. The restricted stock awards and stock options were issued out of the 2015 Plan, which allows the Company to grant common stock or options to purchase common stock at specific prices to directors and employees of the Company. The 2015 Plan provides for the issuance or delivery of up to 30,881,296 shares (13,234,841 restricted stock awards and 17,646,455 stock options) of Investors Bancorp, Inc. common stock.
    
Restricted shares granted under the 2015 Plan vest in equal installments, over the service period generally ranging from 5 to 7 years beginning one year from the date of grant. Additionally, certain restricted shares awarded are performance vesting awards, which may or may not vest depending upon the attainment of certain corporate financial targets. The vesting of restricted stock may accelerate in accordance with the terms of the 2015 Plan. The product of the number of shares granted and the grant date closing market price of the Company's common stock determine the fair value of restricted shares under the 2015 Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period. For the three months ended March 31, 2016, the Company granted 161,890 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 three months ended March 31, 2016, the Company granted 90,000 stock options under the 2015 Plan.

The fair value of stock options granted on June 23,as part of the 2015 Plan was estimated utilizing the Black-Scholes option pricing model using the following assumptions:assumptions for the period presented below. Note that there were no grants for the three months ended March 31, 2015.

Stock Options GrantedThree Months Ended March 31, 2016
  
Weighted average expected life (in years)7.43
6.50
Weighted average risk-free rate of return1.96%1.90%
Weighted average volatility25.33%24.06%
Dividend yield1.59%1.80%
Weighted average fair value of options granted$3.12
$2.93

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.


32

Table of Contents

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


The following table presents the share based compensation expense for the three and nine months ended September 30, 2015March 31, 2016 and 2014. Upon completion of the mutual-to-stock conversion of Investors Bancorp, MHC on May 7, 2014, vesting accelerated for both stock options and restricted stock outstanding awards and all applicable expenses were recognized during the period.2015:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2015 2014 2015 20142016 2015
(Dollars in thousands)(Dollars in thousands)
Stock option expense$1,499
 11
 1,513
 1,775
$1,380
 4
Restricted stock expense2,994
 
 3,335
 11,922
2,953
 
Total share based compensation expense$4,493
 11
 4,848
 13,697
$4,333
 4
The following is a summary of the Company’s stock option activity as ofand related information for its option plan for the three months ended September 30, 2015March 31, 2016:
 
 
Number of
Stock
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
 
Number of
Stock
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (in years)
 
Aggregate
Intrinsic
Value
Outstanding at December 31, 2014 9,092,584
 
$6.06
 2.8 
$46,984
Outstanding at December 31, 2015 18,804,816
 
$10.00
 6.8 
$46,996
Granted 11,576,612
 12.54
 10.2   90,000
 11.67
 9.8  
Exercised (1,092,908) 5.88
 2.0   (641,322) 5.98
 0.6  
Forfeited 
 
   (25,382) 12.54
  
Expired 
 
   
 
  
Outstanding at September 30, 2015 19,576,288
 
$9.90
 6.9 
$50,062
Exercisable at September 30, 2015 7,976,341
 
$6.07
 2.1 
$50,023
Outstanding at March 31, 2016 18,228,112
 
$10.15
 6.7 
$37,491
Exercisable at March 31, 2016 6,724,865
 
$6.07
 1.7 
$37,452
Expected future expensesexpense relating to the non-vested options outstanding as of September 30, 2015March 31, 2016 is $34.1$31.6 million over a weighted average period of 6.15.5 years.

The following is a summary of the status of the Company’s restricted shares as of September 30, 2015:March 31, 2016 and changes therein during the three months ended:
 Number of Shares Awarded Weighted Average Grant Date fair Value Number of Shares Awarded Weighted Average Grant Date fair Value
Outstanding at December 31, 2014 
 $
Outstanding at December 31, 2015 6,759,832
 $12.64
Granted 6,849,832
 12.54
 161,890
 11.53
Vested 
 
 
 
Forfeited 
 
 
 
Outstanding and non vested at September 30, 2015 6,849,832
 $12.54
Outstanding and non vested at March 31, 2016 6,921,722
 $12.52
Expected future expensesexpense relating to the non-vested restricted shares outstanding as of September 30, 2015March 31, 2016 is $81.7$76.4 million over a weighted average period of 5.95.4 years.

10.9.     Net Periodic Benefit Plan Expense
The Company has aan Executive Supplemental Executive Retirement Wage Replacement Plan (SERP)("Wage Replacement Plan") and the Supplemental ESOP and Retirement Plan ("Supplemental ESOP") (collectively, the "SERPs"). The SERPWage Replacement Plan is a nonqualified, defined benefit plan which provides benefits to employeescertain executives as designated by the Compensation Committee of the Board of Directors ifDirectors. 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 and/or contributionspayable under the pension plandefined 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 hasmaintains the Amended and Restated Director Retirement Plan ("Directors' plan") for certain directors, which

is a

33

Table of Contents

nonqualified, defined benefit plan. This plan which provideswas frozen on November 21, 2006 such that no new benefits accrued under, and no new directors were eligible to certain directors.participate in the plan. The SERPWage Replacement Plan, Supplemental ESOP and the directors’Directors’ plan are unfunded and the costs of the plans are recognized over the period that services are provided.
The components of net periodic benefit cost are as follows:

Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2015 2014 2015 20142016 2015
(In thousands)  (In thousands)
Service cost$774
 580
 2,322
 1,740
$894
 774
Interest cost374
 331
 1,123
 992
474
 374
Amortization of:          
Prior service cost12
 24
 37
 73

 12
Net gain321
 158
 962
 474
536
 321
Total net periodic benefit cost$1,481
 1,093
 4,444
 3,279
$1,904
 1,481
Due to the unfunded nature of these plans, no contributions have been made or were expected to be made to the SERPSERPs and Directors’ plansplan during the ninethree months ended September 30, 2015.March 31, 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. We contributed $2.8 millionThere was no contribution to the defined benefit pension plan during the ninethree months ended September 30, 2015.March 31, 2016. We anticipate contributing funds to the plan to meet any minimum funding requirements for the remainder of 2015.2016.
    
11.10.    Comprehensive Income (loss)

 The components of comprehensive income, (loss), both gross and net of tax, are as follows:
Three Months Ended September 30,Three Months Ended March 31,
2015 20142016 2015
Gross Tax Net Gross Tax NetGross Tax Net Gross Tax Net
(Dollars in thousands)(Dollars in thousands)
Net income$71,659
 (22,865) 48,794
 62,133
 (23,092) 39,041
$71,124
 (27,498) 43,626
 67,066
 (25,119) 41,947
Other comprehensive income (loss):           
Other comprehensive income:           
Change in funded status of retirement obligations351
 (144) 207
 182
 (73) 109
536
 (219) 317
 352
 (144) 208
Unrealized gain (loss) on securities available-for-sale6,357
 (3,159) 3,198
 (3,973) 1,644
 (2,329)
Unrealized gain on securities available-for-sale16,500
 (6,498) 10,002
 8,365
 (3,272) 5,093
Accretion of loss on securities reclassified to held to maturity available for sale627
 (256) 371
 745
 (304) 441
480
 (196) 284
 641
 (262) 379
Reclassification adjustment for security gains included in net income(1,537) 
 (1,537) 
 
 
(1,388) 555
 (833) 
 
 
Other-than-temporary impairment accretion on debt securities319
 (130) 189
 336
 (137) 199
322
 (131) 191
 329
 (133) 196
Total other comprehensive income (loss)6,117
 (3,689) 2,428
 (2,710) 1,130
 (1,580)
Total other comprehensive income16,450
 (6,489) 9,961
 9,687
 (3,811) 5,876
Total comprehensive income$77,776
 (26,554) 51,222
 59,423
 (21,962) 37,461
$87,574
 (33,987) 53,587
 76,753
 (28,930) 47,823


34

Table of Contents

 Nine Months Ended September 30,
 2015 2014
 Gross Tax Net Gross Tax Net
 (Dollars in thousands)
Net income$212,027
 (74,924) 137,103
 141,848
 (53,204) 88,644
Other comprehensive income (loss):           
Change in funded status of retirement obligations1,058
 (432) 626
 547
 (220) 327
Unrealized gain (loss) on securities available-for-sale6,372
 (2,644) 3,728
 5,874
 (2,319) 3,555
Accretion of loss on securities reclassified to held to maturity from available for sale1,910
 (780) 1,130
 2,215
 (905) 1,310
Reclassification adjustment for security gains included in net income(1,537) 
 (1,537) (233) 95
 (138)
Other-than-temporary impairment accretion on debt securities965
 (394) 571
 1,007
 (411) 596
Total other comprehensive income8,768
 (4,250) 4,518
 9,410
 (3,760) 5,650
Total comprehensive income$220,795
 (79,174) 141,621
 151,258
 (56,964) 94,294



The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the ninethree months ended September 30, 2015March 31, 2016 and 20142015:
 
Change in
funded status of
retirement
obligations
 Accretion of loss on securities reclassified to held to maturity 
Unrealized gain
on securities
available-for-sale
 Reclassification adjustment for losses included in net income 
Other-than-
temporary
impairment
accretion on debt
securities
 
Total
accumulated
other
comprehensive
loss
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)(Dollars in thousands)
Balance - December 31, 2015$(12,366) (3,080) 2,918
 (1,547) (13,750) (27,825)
Net change317
 284
 10,002
 (833) 191
 9,961
Balance - March 31, 2016$(12,049) (2,796) 12,920
 (2,380) (13,559) (17,864)
           
Balance - December 31, 2014$(10,911) (4,528) 7,851
 
 (14,816) (22,404)$(10,911) (4,528) 7,851
 
 (14,816) (22,404)
Net change626
 1,130
 3,728
 (1,537) 571
 4,518
208
 379
 5,093
 
 196
 5,876
Balance - September 30, 2015$(10,285) (3,398) 11,579
 (1,537) (14,245) (17,886)
           
Balance - December 31, 2013$(5,869) (6,255) 1,900
 138
 (15,610) (25,696)
Net change327
 1,310
 3,555
 (138) 596
 5,650
Balance - September 30, 2014$(5,542) (4,945) 5,455
 
 (15,014) (20,046)
Balance - March 31, 2015$(10,703) (4,149) 12,944
 
 (14,620) (16,528)
 

35

Table of Contents

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

Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2015 2014 2015 20142016 2015
(In thousands)    (In thousands)
Reclassification adjustment for gains included in net income          
Gain on security transactions$(1,537) 
 (1,537) (233)$(1,388) 
Change in funded status of retirement obligations (1)          
Compensation and fringe benefits:          
Amortization of net obligation or asset
 6
 
 19

 
Amortization of prior service cost12
 31
 40
 93

 12
Amortization of net gain339
 145
 1,018
 435
536
 340
Compensation and fringe benefits351
 182
 1,058
 547
536
 352
Total before tax(1,186) 182
 (835) 314
(852) 352
Income tax(144) (73) (432) (131)
Income tax benefit (expense)336
 (144)
Net of tax$(1,330) 109
 (1,267) 183
$(516) 208

 (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 109 for additional details.

12.11.    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 FASBFinancial 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.
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-

36

Table of Contents

saleavailable-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 September 30, 2015March 31, 2016 and December 31, 20142015.
 
Carrying Value at September 30, 2015Carrying Value at March 31, 2016
Total Level 1 Level 2 Level 3Total Level 1 Level 2 Level 3
(In thousands)(In thousands)
Securities available for sale:              
Equity securities$6,411
 
 6,411
 
$6,523
 6,523
 
 
Mortgage-backed securities:              
Federal Home Loan Mortgage Corporation552,811
 
 552,811
 
546,988
 
 546,988
 
Federal National Mortgage Association713,264
 
 713,264
 
734,312
 
 734,312
 
Government National Mortgage Association25,978
 
 25,978
 
23,709
 
 23,709
 
Total mortgage-backed securities available-for-sale1,292,053
 
 1,292,053
 
1,305,009
 
 1,305,009
 
Total securities available-for-sale$1,298,464
 
 1,298,464
 
$1,311,532
 6,523
 1,305,009
 
 
Carrying Value at December 31, 2014Carrying Value at December 31, 2015
Total Level 1 Level 2 Level 3Total Level 1 Level 2 Level 3
(In thousands)(In thousands)
Securities available for sale:              
Equity securities$8,523
 
 8,523
 
$6,495
 6,495
 
 
Mortgage-backed securities:              
Federal Home Loan Mortgage Corporation507,283
 
 507,283
 
547,451
 
 547,451
 
Federal National Mortgage Association681,992
 
 681,992
 
726,072
 
 726,072
 
Government National Mortgage Association126
 
 126
 
24,679
 
 24,679
 
Total mortgage-backed securities available-for-sale1,189,401
 
 1,189,401
 
1,298,202
 
 1,298,202
 
Total securities available-for-sale$1,197,924
 
 1,197,924
 
$1,304,697
 6,495
 1,298,202
 
There have been no changes in the methodologies used at September 30, 2015March 31, 2016 from December 31, 20142015, and there were no transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2015March 31, 2016.

37


The changes in Level 3 assets measured at fair value on a recurring basis for the three and nine months ended September 30, 2015 and 2014 are summarized below:
 Three Months Ended September 30, Nine Months Ended September 30,
 2015 2014 2015 2014
 (Dollars in thousands)    
Balance beginning of period (1)$
 
 
 670
Transfers from held-to-maturity
 
 
 
Total net (losses) gains for the period included in:       
Net income
 
 
 470
Other comprehensive income (loss)
 
 
 (229)
Sales
 
 
 (911)
Settlements
 
 
 
Balance end of period$
 
 
 
(1) Represents a trust preferred security transferred to available for sale at its fair value on December 31, 2013 due to the impact of the Volcker Rule adopted in December 2013. The Volcker Rule requires specific treatment of certain collateralized debt obligations backed by trust preferred securities. The security was subsequently sold during the nine months ended September 30, 2014.
Assets Measured at Fair Value on a Non-Recurring Basis
Mortgage Servicing Rights, Net
Mortgage servicing rights are carried at the lower of cost or estimated fair value. The estimated fair value of MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements. The prepayment speed and the discount rate are considered two of the most significant inputs in the model. At September 30,March 31, 2016, the fair value model used prepayment speeds ranging from 1.71% to 26.28% and a discount rate of 10.20% for the valuation of the mortgage servicing rights. At December 31, 2015, the fair value model used prepayment speeds ranging from 6.30% to 41.70%26.28% and a discount rate of 10.21% for the valuation of the mortgage servicing rights. At December 31, 2014, the fair value model used prepayment speeds ranging from 5.70% to 29.40% and a discount rate of 10.17%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.

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$1.0 million and on non-accrual status, loans modified in a troubled debt restructuring, and other commercial loans with $1.0 million in outstanding principal if management has specific information

that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. Our impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling costs. In order to estimate fair value, once interest or principal payments are 90 days delinquent or when the timely collection of such income is considered doubtful an updated appraisal is obtained. Thereafter, in the event the most recent appraisal does not reflect the current market conditions due to the passage of time and other factors, management will obtain an updated appraisal or make downward adjustments to the existing appraised value based on their knowledge of the property, local real estate market conditions, recent real estate transactions, and for estimated selling costs, if applicable. At September 30, 2015,March 31, 2016, appraisals were discounted in a range of 0%-25%-25%.
Other Real Estate Owned
Other Real Estate Owned is recorded at estimated fair value, less estimated selling costs when acquired, thus establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are discounted an additional 0%-25% for estimated costs to sell. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If the estimated fair value of the asset declines, a writedown is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions. Operating costs after acquisition are generally expensed.

38


The following tables provides the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis at September 30, 2015March 31, 2016 and December 31, 20142015. For the three months ended September 30, 2015March 31, 2016 there was no change to mortgage servicing rights measured at fair value on a non-recurring basis. For the year ended December 31, 20142015, 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 September 30, 2015 Carrying Value at March 31, 2016
Security TypeValuation TechniqueUnobservable InputRangeWeighted AverageTotalLevel 1Level 2Level 3Valuation TechniqueUnobservable InputRangeWeighted AverageTotalLevel 1Level 2Level 3
 (In thousands) (In thousands)
Impaired loansMarket comparableProbability of default0.0% - 25.0%12.10%1,647


1,647
Market comparableProbability of default0.0% - 25.0%2.82%116


116
Other real estate ownedMarket comparableLack of marketability0.0% - 25.0%20.18%250


250
Market comparableLack of marketability0.0% - 25.0%8.54%146


146
 $1,897


1,897
 $262


262
 

 Carrying Value at December 31, 2014 Carrying Value at December 31, 2015
Security TypeValuation TechniqueUnobservable InputRangeWeighted AverageTotalLevel 1Level 2Level 3Valuation TechniqueUnobservable InputRangeWeighted AverageTotalLevel 1Level 2Level 3
 (In thousands) (In thousands)
MSR, netEstimated cash flowPrepayment speeds5.70% - 29.40%11.22%$13,081


13,081
Other real estate ownedMarket comparableLack of marketability0.0% - 25.0%15.87%566


566
Market comparableLack of marketability0.0% - 25.0%8.90%510


510
 $13,647


13,647
 $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.

39

Table of Contents

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

40


Commitments to Extend Credit
The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For commitments to originate fixed rate loans, fair value also considers the difference between current levels of interest rates and the committed rates. Due to the short-term nature of our outstanding commitments, the fair values of these commitments are immaterial to our financial condition.
The carrying values and estimated fair values of the Company’s financial instruments are presented in the following table.
 
September 30, 2015March 31, 2016
Carrying Estimated Fair ValueCarrying Estimated Fair Value
value Total Level 1 Level 2 Level 3value Total Level 1 Level 2 Level 3
(In thousands)(In thousands)
Financial assets:                  
Cash and cash equivalents$161,613
 161,613
 161,613
 
 
$143,669
 143,669
 143,669
 
 
Securities available-for-sale1,298,464
 1,298,464
 
 1,298,464
 
1,311,532
 1,311,532
 6,523
 1,305,009
 
Securities held-to-maturity1,796,779
 1,865,137
 
 1,786,318
 78,819
1,887,000
 1,954,346
 
 1,882,096
 72,250
Stock in FHLB182,850
 182,850
 182,850
 
 
190,240
 190,240
 190,240
 
 
Loans held for sale7,910
 7,910
 
 7,910
 
3,852
 3,852
 
 3,852
 
Net loans16,152,763
 16,195,604
 
 
 16,195,604
16,922,727
 16,946,062
 
 
 16,946,062
Financial liabilities:                  
Deposits, other than time deposits$9,979,352
 9,979,352
 9,979,352
 
 
$10,777,306
 10,777,306
 10,777,306
 
 
Time deposits3,361,806
 3,370,572
 
 3,370,572
 
3,424,081
 3,427,225
 
 3,427,225
 
Borrowed funds3,358,553
 3,140,460
 
 3,140,460
 
3,527,630
 3,585,648
 
 3,585,648
 

December 31, 2014December 31, 2015
Carrying Estimated Fair ValueCarrying Estimated Fair Value
value Total Level 1 Level 2 Level 3value Total Level 1 Level 2 Level 3
(In thousands)(In thousands)
Financial assets:                  
Cash and cash equivalents$230,961
 230,961
 230,961
 
 
$148,904
 148,904
 148,904
 
 
Securities available-for-sale1,197,924
 1,197,924
 
 1,197,924
 
1,304,697
 1,304,697
 6,495
 1,298,202
 
Securities held-to-maturity1,564,479
 1,609,365
 
 1,544,129
 65,236
1,844,223
 1,888,686
 
 1,810,869
 77,817
Stock in FHLB151,287
 151,287
 151,287
 
 
178,437
 178,437
 178,437
 
 
Loans held for sale6,868
 6,868
 
 6,868
 
7,431
 7,431
 
 7,431
 
Net loans14,887,570
 14,747,319
 
 
 14,747,319
16,661,133
 16,650,529
 
 
 16,650,529
Financial liabilities:                  
Deposits, other than time deposits$9,601,988
 9,601,988
 9,601,988
 
 
$10,647,346
 10,647,346
 10,647,346
 
 
Time deposits2,570,338
 2,580,572
 
 2,580,572
 
3,416,310
 3,414,528
 
 3,414,528
 
Borrowed funds2,766,104
 2,796,969
 
 2,796,969
 
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.

41


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.

13.12.    Recent Accounting Pronouncements
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 our 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 assessing the impact that the guidance will have on its financial condition and results of operations.
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 assessing the impact that the guidance will have on its financial condition and results of operations.
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 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 September 2015, the FASB issued ASU 2015-16, “Business Combinations- Simplifying the Accounting for Measurement-Period Adjustments." Under the new rules, acquirers no longer have to retrospectively adjust provisional amounts included in acquisition-date financial statements, when final facts and circumstances are not known on the acquisition date, and later become known in the measurement period. Instead, adjustments that are made in a later period are to be reported in that period. However, acquirers must disclose the amount of adjustments to current period income relating to amounts that would have been recognized in previous periods if the adjustments were recognized as of the acquisition date. For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company doesThis guidance did not anticipatehave a material impact to the Company's consolidated financial statements related to this guidance.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. The Company doesThis guidance did not anticipatehave a material impact to the Company's consolidated financial statements related to this guidance.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. The Company doesThis guidance did not anticipatehave a material impact to the Company's consolidated financial statements related to this guidance.statements.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are in the scope of other standards. In April 2015, the FASB issued a proposed ASU to defer for one year the effective date of the new revenue standard. The original effective date was for annual reporting periods beginning after December 15, 2016. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.

14.13.    Subsequent Events
As defined in FASB ASC 855, "Subsequent Events", subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Financial statements are considered issued when they are widely distributed to stockholders and other financial statement users for general use and reliance in a form and format that complies with GAAP.
On October 29, 2015,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 million shares. The new repurchase program commenced immediately upon completion of the second repurchase plan on June 30, 2016. In addition, the Company declared a cash dividend of $0.05$0.06 per share. The $0.05$0.06 dividend per share will be paid to stockholders on NovemberMay 25, 2015,2016, with a record date of NovemberMay 10, 2015.2016.    

42

TableOn May 3, 2016, the Company announced the signing of Contentsa 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 Investors Bancorp 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 Investors Bancorp common stock or $30.75 in cash for each share of The Bank of Princeton, subject to proration to ensure that, in the aggregate, 60% of The Bank of Princeton's shares will be converted into Investors Bancorp 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. Required approvals to complete this transaction include The Bank of Princeton shareholder approval, regulatory approvals, the effectiveness of the registration statement to be filed by Investors Bancorp with respect to the stock exchanged to be issued in the transaction and other customary closing conditions. The Merger is expected to be completed in the fourth quarter of 2016. 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.



ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Certain statements contained herein are not based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the economic environment, particularly in the market areas in which Investors Bancorp, Inc. (the “Company”) operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations or interpretations of regulations affecting financial institutions, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity. Reference is made to Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.2015.
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.
The allowance for loan losses has been determined in accordance with U.S. generally accepted accounting principles, under which we are required to maintain an allowance for probable losses at the balance sheet date. We are responsible for the timely and periodic determination of the amount of the allowance required. We believe that our allowance for loan losses is adequate to cover specifically identifiable losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable. 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.
Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. The analysis of the allowance for loan losses has two components: specific and general allocations. Specific allocations are made for loans determined to be impaired. A loan is deemed to be impaired if it is a commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, loans modified in a troubled debt restructuring ("TDR"), and other commercial loans with an outstanding balance greater than $1.0 million if management has specific information that it is probable theywe will not collect all amounts due under the contractual terms of the loan agreement. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans, including those loans not meeting the Company's definition of an impaired loan, by type of loan, risk weightingrating (if applicable) and payment history. In addition, the Company's residential portfolio is subdivided between fixed and adjustable rate loans as adjustable rate loans are deemed to be subject to more credit risk if interest rates rise. We also analyze historical loss experience using the appropriate look-back and loss emergence period. The loss factors used are based on the

Company's historical loss experience over a look-back period determined to provide the appropriate amount of data to accurately estimate expected losses as of period end. Additionally, management assesses the loss emergence period for the expected losses of each loan segment and adjusts each historical loss factor accordingly. The loss emergence period is the estimated time from the date of a loss event (such as a personal bankruptcy) to the actual recognition of

43


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 differentsignificantly 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, the prior period's estimated cash flows are adjusted to reflect the actual cash received and credit events that occurred during the current reporting period.
On a quarterly basis, management reviews the current status of various loan assets in order to evaluate the adequacy of the allowance for loan losses. In this evaluation process, specific loans are analyzed to determine their potential risk of loss. This process includes all loans, concentrating on non-accrual and classified loans. Each non-accrual or classified loan isLoans determined to be impaired are evaluated for potential loss exposure.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. In conjunction with the quarterly evaluation of the adequacy of the allowance for loan loss, the Company performs an analysis on acquired loans to determine whether or not there has been subsequent deterioration in relation to those loans. If deterioration has occurred, the Company will include these loans in their calculation of the allowance for loan loss.
The allowance contains reserves identified as unallocated. These reserves reflect management's attempt to ensure that the overall allowance reflects a margin for imprecision and the uncertainty that is inherent in estimates of probable credit losses.
The resultsOur primary lending emphasis has been the origination of this quarterly processcommercial 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 reviewedincreases in interest rates, a decline in the general economy, and approved by management. A summarydeclines 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 allowancesprovisions. 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 presentedcollateralized 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 bi-annually 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 Boardprevious appraisal are warranted. If it is determined that the deterioration of Directorsthe 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 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.
Our allowance for loan losses reflects probable losses considering, among other things, the economic conditions, the actual growth and change in composition of our loan portfolio, the level of our non-performing loans and our charge-off experience. We believe the allowance for loan losses reflects the inherent credit risk in our portfolio.
Although we believe we have established and maintained the allowance for loan losses at adequate levels, additions may be necessary if the current economic environment deteriorates. Management uses the best information available; however, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change. In addition, the Federal Deposit Insurance Corporation and the New Jersey Department of Banking and Insurance, as an integral part of their examination process, will periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on a quarterly basis.their judgments about information available to them at the time of their examination.
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

44


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

If a determination is made that a debt security is other-than-temporarily impaired, the Company will estimate the amount of the unrealized loss that is attributable to credit and all other non-credit related factors. The credit related component will be recognized as an other-than-temporary impairment charge in non-interest income as a component of gain (loss) on securities, net. The non-credit related component will be recorded as an adjustment to accumulatedaccumulate 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 three months ended September 30, 2015,March 31, 2016, our qualitative assessment concluded that it was not more likely than not that the fair value of the reporting unit is less than its carrying amount and, therefore, the two-step goodwill impairment test was not required.
Valuation of Mortgage Servicing Rights ("MSR"). The initial asset recognized for originated MSR is measured at fair value. The fair value of MSR is estimated by reference to current market values of similar loans sold with servicing released. MSR are amortized in proportion to and over the period of estimated net servicing income. We apply the amortization method for measurements of our MSR. MSR are assessed for impairment based on fair value at each reporting date. MSR impairment, if any, is recognized in a valuation allowance through charges to earnings as a component of fees and service charges. Subsequent increases in the fair value of impaired MSR are recognized only up to the amount of the previously recognized valuation allowance.
The estimated fair value of the MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market's perception of future interest rate movements. The valuation allowance is then adjusted in subsequent periods to reflect changes in the measurement of impairment. All assumptions are reviewed for reasonableness on a quarterly basis to ensure they reflect current and anticipated market conditions.
The fair value of MSR is highly sensitive to changes in assumptions. Changes in prepayment speed assumptions generally have the most significant impact on the fair value of our MSR. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSR. As interest rates rise, mortgage loan prepayments slow down, which results in an increase in the fair value of MSR. Thus, any measurement of the fair value of our MSR is limited by the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different point in time.
Stock-Based Compensation. We recognize the cost of employee services received in exchange for awards of equity
instruments based on the grant-date fair value of those awards in accordance with ASC 718, “Compensation-Stock Compensation”.
We estimate the per share fair value of option grants on the date of grant using the Black-Scholes option pricing model using assumptions for the expected dividend yield, expected stock price volatility, risk-free interest rate and expected option term. These assumptions are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. The Black-ScholesBlack- Scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets.


45


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 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 fundamental business strategytransformation 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 be a well-capitalized, full service community bank that provides high qualitybuild and develop profitable customer servicerelationships across all lines of business, both consumer and competitively priced products and services to individuals and businesses in the communities we serve.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 mortgage loans and investment securities, and the interest we pay on our interest-bearing liabilities, primarily interest-bearing transaction accounts, time deposits, and borrowed funds. Net interest income is affected by the level of interest rates, the shape of the market yield curve, the timing of the placement and the repricing of interest-earning assets and interest-bearing liabilities on our balance sheet, and the prepayment rate on our mortgage-related assets.
While an increase in intermediate-term treasury yields earlier in the year provided an opportunity to increase loan rates, theThe persistent low interest rate environment over the last year, coupled with an increase in short-term interest rates in December 2015, has resulted in a significant portion ofsustained pressure on our interest-earningnet interest income.  Interest-earning assets beingcontinue to be originated or re-priced at yields lower than the overall portfolio. However,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 athe potential risefor additional increases in short-term interest rates beginning atbefore the end of 2015.2016.  If short-term interest rates increase, and the yield 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 has benefitedcontinues to benefit from lower energy costs and nationalimproved housing and regional unemployment rates have improved,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 $1.56 billion,$301.3 million, or 8.3%1.4%, to $20.33$21.19 billion at September 30, 2015March 31, 2016, from $18.77$20.89 billion at December 31, 2014.2015. Net loans increased $1.27 billion$261.6 million, or 1.6%, to $16.15$16.92 billion at September 30, 2015, whileMarch 31, 2016, and securities increased by $332.8$49.6 million, or 12.0%1.6%, to $3.10$3.20 billion at September 30, 2015March 31, 2016 from $2.76$3.15 billion at December 31, 2014.2015. During the ninethree months ended September 30, 2015,March 31, 2016, we originated $1.50 billion$466.3 million in multi-family loans, $797.2$178.1 million in commercial real estate loans, $575.3$164.2 million in commercial and industrial loans, $505.6$97.7 million in residential loans, $172.1$80.4 million in consumer and other loans and $45.6$53.5 million in construction loans. This increase in loans reflects our continued focus on generating multi-family loans, commercial real estate loans and commercial and industrial loans, which was partially offset by pay downs and payoffs of loans. The multi-familyOur loans are primarily on properties and commercial real estate loans we originate are secured by propertiesbusinesses located primarily in New Jersey and New York. 
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 customary closing conditions.
Capital management is a key component of our business strategy. With the completion of the second step conversion in May 2014, we raised net proceeds of $2.15 billion in equity. We plan to manage our capital through a combination of organic growth, acquisitions, stock repurchases and cash dividends. Effective capital management and prudent growth allowed us to effectively leverage the capital from the Company’s initial public offering, while being mindful of tangible book value for stockholders. OurWe continue to leverage our capital, resulting in our capital to total assets ratio has decreased to 16.54%15.18% at September 30, 2015March 31, 2016 from 19.90%15.85% at September 30, 2014.December 31, 2015. In March 2015, we commenced the first stock repurchase plan for 5% of our outstanding shares of common stock, or approximately 17.9 million shares. This repurchase plan was completed in June 2015 when we announced our second share repurchase program which authorizes the repurchase of an additional 10% of outstanding shares of common stock, or approximately 34.8 million shares. 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 million shares. Stockholders' equity has been impacted for the ninethree months ended September 30, 2015March 31, 2016 by the repurchase of 25.312.2 million shares of common stock for $304.2$140.2 million as well as cash dividends of $0.20$0.06 per share totaling $70.5$19.8 million.

46


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, additionalenhanced product offerings, investments in staffour people and opportunistic acquisitions in our market area. We will continueIn August 2015, we completed the conversion of the Bank's core operating system. In 2016, we plan 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. In August 2015, we completed the conversion of the Bank's core operating system. This conversion will allow us to provide an additional level of service to our customers and bring efficiencies to current processes. We will continue to enhance stockholder value through our strategic capital initiatives, including growth both organically and through acquisitions, stock buybacks and cash dividend payments.

Comparison of Financial Condition at September 30, 2015March 31, 2016 and December 31, 20142015

Total Assets. Total assets increased by $1.56 billion,$301.3 million, or 8.3%1.4%, to $20.33$21.19 billion at September 30, 2015March 31, 2016 from $18.77$20.89 billion at December 31, 2014.2015. Net loans increased $1.27 billion$261.6 million to $16.15$16.92 billion at September 30, 2015,March 31, 2016, while securities increased by $332.8$49.6 million, or 12.0%1.6%, to $3.10$3.20 billion at September 30, 2015March 31, 2016 from $2.76$3.15 billion at December 31, 2014.2015.

Net Loans. Net loans increased by $1.27 billion,$261.6 million, or 8.5%1.6%, to $16.15$16.92 billion at September 30, 2015March 31, 2016 from $14.89$16.66 billion at December 31, 2014.2015. At September 30, 2015,March 31, 2016, total loans were $16.38$17.15 billion, which included $5.88$6.52 billion in multi-family loans, $5.12$4.92 billion in residential loans, $3.78$3.90 billion in commercial real estate loans, $922.4 million$1.05 billion in commercial and industrial loans, $479.0$512.0 million in consumer and other loans and $207.4$238.7 million in construction loans. During the ninethree months ended September 30, 2015,March 31, 2016, we originated $1.50 billion$466.3 million in multi-family loans, $797.2$178.1 million in commercial real estate loans, $575.3$164.2 million in commercial and industrial loans, $505.6$97.7 million in residential loans, $172.1$80.4 million in consumer and other loans and $45.6$53.5 million in construction loans. In addition, during the three months ended September 30, 2015, we purchased $144.4 million of commercial real estate loans and sold $347.3 million in residential loans. This increase in loans reflects our continued focus on generating multi-family loans, commercial real estate loans and commercial and industrial loans, which was partially offset by pay downs and payoffs of loans. Our loans are primarily on properties and businesses located in New Jersey and New York.

In addition to the loans originated for our portfolio, our mortgage subsidiary, Investors Home Mortgage Co., originated $187.0$30.0 million for the ninethree months ended September 30, 2015March 31, 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 September 30, 2015March 31, 2016 and December 31, 20142015 was $199.0$164.0 million and $288.0$172.0 million, respectively. From time to time and for competitive purposes, we originate commercial loans with limited interest only periods. As of September 30, 2015,March 31, 2016, we had $866.3$777.4 million commercial real estate interest only loans in our loan portfolio.portfolio, of which $644.8 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.
    Our past due loans and non-accrual loans discussed below exclude certain purchased credit impaired (PCI) loans, primarily consisting of loans recorded in the acquisitions of Gateway, Roma Financial Corporation and Marathon Bank. For the period ending September 30, 2015,March 31, 2016, PCI loans totaled $12.8$11.3 million. Under U.S. GAAP, the PCI loans (acquired at a discount that is due, in part, to credit quality) are not subject to delinquency classification in the same manner as loans originated by the Bank. The following table sets forth non-accrual loans and accruing past due loans (excluding PCI loans and loans held-for-sale) on the dates indicated as well as certain asset quality ratios.

47


 
September 30, 2015 June 30, 2015 March 31, 2015 December 31, 2014 September 30, 2014March 31, 2016 December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015
# of LoansAmount # of LoansAmount # of LoansAmount # of LoansAmount # of LoansAmount# of LoansAmount # of LoansAmount # of LoansAmount # of LoansAmount # of LoansAmount
(dollars in millions)(dollars in millions)
                            
Multi-family4
$3.0
 6
$4.1
 5
$3.9
 2
$3.0
 1
$1.9
3
$2.9
 4
$3.5
 4
$3.0
 6
$4.1
 5
$3.9
Commercial real estate40
13.8
 36
12.9
 35
11.6
 36
13.9
 29
14.6
35
10.3
 37
10.8
 40
13.8
 36
12.9
 35
11.6
Commercial and industrial9
6.5
 7
2.2
 8
2.3
 11
2.9
 4
0.8
10
5.6
 17
9.2
 9
6.5
 7
2.2
 8
2.3
Construction5
1.0
 3
0.9
 7
4.3
 7
4.4
 6
12.8
3
0.5
 4
0.8
 5
1.0
 3
0.9
 7
4.3
Total commercial loans58
24.3
 52
20.1
 55
22.1
 56
24.2
 40
30.1
51
19.3
 62
24.3
 58
24.3
 52
20.1
 55
22.1
Residential and consumer506
99.8
 422
86.6
 423
88.0
 406
84.2
 383
85.9
488
85.9
 500
91.1
 506
99.8
 422
86.6
 423
88.0
Total non-accrual loans564
$124.1
 474
$106.7
 478
$110.1
 462
$108.4
 423
$116.0
539
$105.2
 562
$115.4
 564
$124.1
 474
$106.7
 478
$110.1
Accruing troubled debt restructured loans38
$25.2
 48
$29.6
 50
$31.5
 55
$35.6
 55
$32.3
30
$10.7
 39
$22.5
 38
$25.2
 48
$29.6
 50
$31.5
Non-accrual loans to total loans 0.76%  0.68%  0.70%  0.72%  0.81% 0.61%  0.68%  0.76%  0.68%  0.70%
Allowance for loan loss as a percent of non-accrual loans 175.97%  200.51%  189.02%  184.83%  164.68% 205.83%  189.30%  175.97%  200.51%  189.02%
Allowance for loan loss as a percent of total loans 1.33%  1.36%  1.33%  1.33%  1.33% 1.26%  1.29%  1.33%  1.36%  1.33%
Total non-accrual loans increaseddecreased to $124.1$105.2 million at September 30, 2015March 31, 2016 compared to $108.4$110.1 million at DecemberMarch 31, 2014, which is primarily related to an increase in residential non accrual loans.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 September 30, 2015, our allowance for loan loss as a percent of total loans is 1.33%. At September 30, 2015,March 31, 2016, there were $47.7$34.3 million of loans deemed as troubled debt restructurings, of which $24.2$23.3 million were residential and consumer loans, $19.4$7.2 million were commercial real estate loans, $1.4 million were construction loans, $1.6$1.0 million were multi-family loans, and $1.1$2.6 million were commercial and industrial loans and $132,000 construction loans. Troubled debt restructured loans in the amount of $25.2$10.7 million were classified as accruing and $22.5$23.6 million were classified as non-accrual at September 30, 2015.March 31, 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 September 30, 2015,March 31, 2016, the Company has deemed potential problem loans excluding PCI loans, totaling $22.6$3.9 million, which comprised of 9 multi-family loans totaling $11.2 million, 143 commercial real estate loans totaling $7.6 million$700,000 and 122 commercial and industrial loans totaling $3.8$3.2 million. Management is actively monitoring these loans.
The ratio of non-accrual loans to total loans was 0.76%0.61% at September 30, 2015March 31, 2016 compared to 0.72%0.68% at December 31, 2014.2015. The allowance for loan losses as a percentage of non-accrual loans was 175.97%205.83% at September 30, 2015March 31, 2016 compared to 184.83%189.30% at December 31, 2014.2015. At September 30, 2015 and DecemberMarch 31, 2014,2016, our allowance for loan losses as a percentage of total loans was 1.33% for both periods.1.26% compared to 1.29% at December 31, 2015.
At September 30,March 31, 2016, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans totaling $40.9 million, of which $13.7 million of impaired loans had a specific allowance for credit losses of $1.4 million and $27.3 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 $57.4$57.0 million, of which $20.7 million of impaired loans had a specific allowance for credit losses of $4.4 million and $36.7 million of impaired loans had no specific allowance for credit losses. At December 31, 2014, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans totaling $60.5 million, of which $19.6$19.1 million had a related allowance for credit losses of $2.1$4.2 million and $40.9$37.8 million had no related allowance for credit losses.

48


The allowance for loan losses increaseddecreased by $18.2$1.9 million to $218.5$216.6 million at September 30, 2015March 31, 2016 from $200.3$218.5 million at December 31, 2014.2015. The increasedecrease in our allowance for loan losses is due to the improvement in the level of non-performing loans offset by growth of the loan portfolio and the credit risk in our overall portfolio, particularly the inherent credit risk associated with commercial real estate lending andas 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 March 31, 2016, our allowance for loan loss as a percent of total loans was 1.26%.
The following table sets forth the allowance for loan losses at September 30, 2015March 31, 2016 and December 31, 20142015 allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
 
September 30, 2015 December 31, 2014March 31, 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
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)(Dollars in thousands)
End of period allocated to:              
Multi-family loans$78,866
 35.88% $71,147
 33.44%$90,602
 38.02% $88,223
 37.04%
Commercial real estate loans48,410
 23.07% 44,030
 20.84%48,850
 22.73% 46,999
 22.67%
Commercial and industrial loans32,897
 5.63% 20,759
 3.61%39,204
 6.13% 40,585
 6.18%
Construction loans8,194
 1.28% 6,488
 0.98%5,619
 1.39% 6,794
 1.34%
Residential mortgage loans43,583
 31.22% 47,936
 38.21%28,624
 28.74% 31,443
 29.83%
Consumer and other loans3,705
 2.92% 3,347
 2.92%2,607
 2.99% 3,155
 2.94%
Unallocated2,803
 
 6,577
 
1,107
 
 1,306
 
Total allowance$218,458
 100.00% $200,284
 100.00%$216,613
 100.00% $218,505
 100.00%

Securities. Securities, in the aggregate, increased by $332.8$49.6 million, or 12.0%1.6%, to $3.10$3.20 billion at September 30, 2015March 31, 2016 from $2.76$3.15 billion at December 31, 2014.2015. This increase was a result of purchases partially offset by paydowns.
Stock in the Federal Home Loan Bank, Bank Owned Life Insurance and Other Assets. The amount of stock we own in the FHLB increased by $31.6$11.8 million, or 20.9%6.6%, to $182.9$190.2 million at September 30, 2015March 31, 2016 from $151.3$178.4 million at December 31, 2014.2015. 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 $158.2$159.2 million at September 30, 2015March 31, 2016 and $161.6$159.2 million at December 31, 2014.2015. Other assets were $2.2$5.6 million at September 30, 2015March 31, 2016 and $10.3$4.7 million at December 31, 2014.2015.
Deposits. Deposits increased by $1.17 billion,$137.7 million, or 9.6%1.0%, from $12.17$14.06 billion at December 31, 20142015 to $13.34$14.20 billion at September 30, 2015. Certificates of depositMarch 31, 2016. Checking accounts increased $791.5$221.9 million to $3.36$4.86 billion at September 30, 2015March 31, 2016 from $2.57$4.64 billion at December 31, 2014.2015. Core deposits represent approximately 75%76% of our total deposit portfolio.portfolio at March 31, 2016.
Borrowed Funds. Borrowed funds increased by $592.5$264.5 million, or 21.4%8.1%, to $3.36$3.53 billion at September 30, 2015March 31, 2016 from $2.77$3.26 billion at December 31, 20142015 to help fund the continued growth of the loan portfolio.
Stockholders’ Equity. Stockholders' equity decreased by $215.7$95.9 million to $3.36$3.22 billion at September 30, 2015March 31, 2016 from $3.58$3.31 billion at December 31, 2014.2015. The decrease is primarily attributed to the repurchase of 25.312.2 million shares of common stock for $304.2$140.2 million as well as cash dividends of $0.20$0.06 per share totaling $70.5$19.8 million for the ninethree months ended September 30, 2015.March 31, 2016. These decreases are offset by an increase related to net income of $137.1$43.6 million for the ninethree months ended September 30, 2015.March 31, 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.

49



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.


50


 Three Months Ended September 30, Three Months Ended March 31,
 2015 2014 2016 2015
 
Average
Outstanding
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate
 
Average
Outstanding
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate
 
Average
Outstanding
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate
 
Average
Outstanding
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate
 (Dollars in thousands) (Dollars in thousands)
Interest-earning assets:                        
Interest-bearing deposits $224,276
 $68
 0.12% $253,280
 $70
 0.11% $157,877
 $104
 0.26% $188,307
 $29
 0.06%
Securities available-for-sale 1,274,256
 5,759
 1.81% 1,069,550
 4,715
 1.76% 1,291,137
 6,080
 1.88% 1,196,842
 5,343
 1.79%
Securities held-to-maturity 1,772,043
 9,983
 2.25% 1,449,443
 8,364
 2.31% 1,877,548
 11,031
 2.35% 1,571,551
 9,101
 2.32%
Net loans 15,843,434
 169,216
 4.27% 13,931,314
 152,397
 4.38% 16,769,132
 172,832
 4.12% 15,051,363
 159,052
 4.23%
Stock in FHLB 177,616
 1,871
 4.21% 141,283
 1,512
 4.28% 180,725
 2,060
 4.56% 152,573
 1,634
 4.28%
Total interest-earning assets 19,291,625
 186,897
 3.88% 16,844,870
 167,058
 3.97% 20,276,419
 192,107
 3.79% 18,160,636
 175,159
 3.86%
Non-interest-earning assets 773,225
     729,113
     776,029
     764,992
    
Total assets $20,064,850
     $17,573,983
     $21,052,448
     $18,925,628
    
Interest-bearing liabilities:                        
Savings deposits $2,178,877
 $1,732
 0.32% $2,219,351
 $1,679
 0.30% $2,119,189
 $2,379
 0.45% $2,367,705
 $1,686
 0.28%
Interest-bearing checking 2,632,445
 2,255
 0.34% 2,596,455
 2,364
 0.36% 3,000,051
 3,135
 0.42% 2,733,989
 2,434
 0.36%
Money market accounts 3,571,504
 5,602
 0.63% 2,255,112
 3,059
 0.54% 3,826,756
 5,449
 0.57% 3,434,604
 6,143
 0.72%
Certificates of deposit 3,283,262
 9,075
 1.11% 3,084,715
 7,387
 0.96% 3,393,174
 9,762
 1.15% 2,496,351
 5,756
 0.92%
Total interest-bearing deposits 11,666,088
 18,664
 0.64% 10,155,633
 14,489
 0.57% 12,339,170
 20,725
 0.67% 11,032,649
 16,019
 0.58%
Borrowed funds 3,245,751
 16,959
 2.09% 2,489,116
 14,724
 2.37% 3,314,563
 16,819
 2.03% 2,794,676
 14,699
 2.10%
Total interest-bearing liabilities 14,911,839
 35,623
 0.96% 12,644,749
 29,213
 0.92% 15,653,733
 37,544
 0.96% 13,827,325
 30,718
 0.89%
Non-interest-bearing liabilities 1,766,491
     1,388,052
     2,125,420
     1,492,785
    
Total liabilities 16,678,330
     14,032,801
     17,779,153
     15,320,110
    
Stockholders’ equity 3,386,520
     3,541,182
     3,273,295
     3,605,518
    
Total liabilities and stockholders’ equity $20,064,850
     $17,573,983
     $21,052,448
     $18,925,628
    
Net interest income   $151,274
     $137,845
     $154,563
     $144,441
  
Net interest rate spread(1)     2.92%     3.05%     2.83%     2.97%
Net interest-earning assets(2) $4,379,786
     $4,200,121
     $4,622,686
     $4,333,311
    
Net interest margin(3)     3.14%     3.27%     3.05%     3.18%
Ratio of interest-earning assets to total interest-bearing liabilities 1.29x
     1.33x
     1.30x
     1.31x
    

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

51


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


52


Comparison of Operating Results for the Three and Nine Months Ended September 30,March 31, 2016 and 2015 and 2014
Net Income. Net income for the for the three and nine months ended September 30, 2015March 31, 2016 was $48.8$43.6 million and $137.1 million, respectively, compared to net income of $39.0 million and $88.6$41.9 million for the three and nine months ended September 30, 2014.March 31, 2015.
Net Interest Income. Net interest income increased by $13.4$10.1 million, or 9.7%,7.0% year over year, to $151.3$154.6 million for the three months ended September 30, 2015March 31, 2016. The net interest margin decreased 13 basis points to 3.05% for the three months
ended March 31, 2016 from $137.8 million3.18% for the three months ended September 30, 2014. The increase was primarily due to the average balance of interest earning assets increasing $2.45 billion to $19.29 billion at September 30, 2015 compared to $16.84 billion at September 30, 2014. This was partially offset by the average balance of our interest bearing liabilities increasing $2.27 billion to $14.91 billion at September 30, 2015 compared to $12.64 billion at September 30, 2014. In addition, the weighted average yield on our interest-earning assets decreased 9 basis points to 3.88% for the three months ended September 30, 2015 from 3.97% for the three months ended September 30, 2014 and the weighted average cost of our interest bearing liabilities increased 4 basis points to 0.96% for the three months ended September 30, 2015 from 0.92% at September 30, 2014. The net interest spread decreased by 13 basis points to 2.92% for the three months ended September 30, 2015 from 3.05% for the three months ended September 30, 2014 as the weighted average yield on interest earning assets declined 9 basis points and the weighted average cost of interest bearing liabilities increased 4 basis points.March 31, 2015.
Net interest income increased by $42.5 million, or 10.6%, to $444.3 million for the nine months ended September 30, 2015 from $401.8 million for the nine months ended September 30, 2014. The increase was primarily due to the average balance of interest earning assets increasing $2.58 billion to $18.79 billion at September 30, 2015 compared to $16.21 billion at September 30, 2014. This was partially offset by the average balance of our interest bearing liabilities increasing $1.57 billion to $14.44 billion at September 30, 2015 compared to $12.87 billion at September 30, 2014, as well as the weighted average yield on our interest-earning assets decreasing 17 basis points to 3.86% for the nine months ended September 30, 2015 from 4.03% for the nine months ended September 30, 2014. The net interest spread decreased by 18 basis points to 2.94% for the nine months ended September 30, 2015 from 3.12% for the nine months ended September 30, 2014 as the weighted average yield on interest earning assets declined 17 basis points and cost of interest bearing liabilities increased one basis point.
Interest and Dividend Income. Total interest and dividend income increased by $19.8$16.9 million, or 11.9%,9.7% year over year to $186.9$192.1 million for the three months ended September 30, 2015 from $167.1March 31, 2016. Interest income on loans increased by $13.8 million, or 8.7% year over year to $172.8 million for the three months ended September 30, 2014. This increase is attributed to the average balance of interest-earning assets increasing $2.45 billion, or 14.5%, to $19.29 billion for the three months ended September 30, 2015 from $16.84 billion for the three months ended September 30, 2014 as a result of organic growth. This was partially offset by the weighted average yield on interest-earning assets decreasing 9 basis points to 3.88% for the three months ended September 30, 2015 compared to 3.97% for the three months ended September 30, 2014.
Interest income on loans increased by $16.8 million, or 11.0%, to $169.2 million for the three months ended September 30, 2015 from $152.4 million for the three months ended September 30, 2014March 31, 2016 as a result of a $1.91$1.72 billion or 13.7%, increase in the average balance of net loans to $15.84$16.77 billion for the three months ended September 30, 2015 from $13.93 billion for the three months ended September 30, 2014. The increase is primarily attributed to growth in the average balance of multi-family loans, commercial real estate loans and commercial and industrial loans increasing $1.25 billion, $728.3 million and $503.2 million, respectively, partially offset by the average balance of residential loans decreasing $591.5 million for the three months ended September 30, 2015.loan portfolio. The weighted average yield on net loans decreased 11 basis points to 4.27% for the three months ended September 30, 2015 from 4.38% for the three months ended September 30, 2014. The decrease in the weighted average yield on net loans reflects lower rates on new and refinanced loans due to the current interest rate environment and the sale of $347.3 million of residential loans for the three months ended September 30, 2015.4.12%. Prepayment penalties, which are included in interest income, increased to $6.4totaled $4.7 million for the three months ended September 30, 2015 from $4.3March 31, 2016 compared to $4.6 million for the three months ended September 30, 2014.
March 31, 2015. Interest income on all other interest-earning assets, excluding loans, increased by $3.0$3.2 million, or 20.6%,19.7% year over year, to $17.7$19.3 million for the three months ended September 30, 2015 from $14.7 million for the three months ended September 30, 2014. The increaseMarch 31, 2016 which is attributed to a $534.6$398.0 million increase in the average balance of all other interest-earning assets, excluding loans, to $3.45$3.51 billion for the three months ended September 30, 2015 from $2.91 billion for the three months ended September 30, 2014. In addition, theMarch 31, 2016. The weighted average yield on interest-earning assets, excluding loans, increased 413 basis points to 2.05% for the three months ended September 30, 2015 compared to 2.01% for the three months ended September 30, 2014.2.20%.
Total interest and dividend income increased by $53.8 million, or 11.0%, to $543.6 million for the nine months ended September 30, 2015 from $489.8 million for the nine months ended September 30, 2014. This increase is attributed to the average balance of interest-earning assets increasing $2.58 billion, or 15.9%, to $18.79 billion for the nine months ended September 30, 2015 from $16.21 billion for the nine months ended September 30, 2014. This was partially offset by the weighted average yield on interest-earning assets decreasing 17 basis points to 3.86% for the nine months ended September 30, 2015 compared to 4.03% for the nine months ended September 30, 2014.

53


Interest income on loans increased by $45.9 million, or 10.2%, to $493.8 million for the nine months ended September 30, 2015 from $447.9 million for the nine months ended September 30, 2014, reflecting a $1.97 billion, or 14.5%, increase in the average balance of net loans to $15.52 billion for the nine months ended September 30, 2015 from $13.55 billion for the nine months ended September 30, 2014. The increase is primarily attributed to the average balance of multi-family loans, commercial real estate loans and commercial and industrial loans increasing $1.20 billion, $696.2 million and $407.9 million, respectively, partially offset by the average balance of residential loans decreasing $324.4 million for the nine months ended September 30, 2015. The weighted average yield on net loans decreased 17 basis points to 4.24% for the nine months ended September 30, 2015 from 4.41% for the nine months ended September 30, 2014. The decrease in the weighted average yield on net loans reflects lower rates on new and refinanced loans due to the current interest rate environment. Prepayment penalties, which are included in interest income, increased to $16.6 million for the nine months ended September 30, 2015 from $13.2 million for the nine months ended September 30, 2014.
Interest income on all other interest-earning assets, excluding loans, increased by $7.9 million, or 18.9%, to $49.8 million for the nine months ended September 30, 2015 from $41.9 million for the nine months ended September 30, 2014. The average balance of all other interest-earning assets, excluding loans, increased by $614.8 million to $3.28 billion for the nine months ended September 30, 2015 from $2.66 billion for the nine months ended September 30, 2014. This was partially offset by the weighted average yield on interest-earning assets, excluding loans, decreasing by 8 basis points to 2.02% for the nine months ended September 30, 2015 compared to 2.10% for the nine months ended September 30, 2014.
Interest Expense.Total interest expense increased by $6.4$6.8 million, or 21.9%,22.2% year over year, to $35.6$37.5 million for the three months ended September 30, 2015 from $29.2March 31, 2016. Interest expense on interest-bearing deposits increased $4.7 million, or 29.4% year over year, to $20.7 million for the three months ended September 30, 2014. This increase is due to theMarch 31, 2016. The average balance of total interest-bearing liabilities increasing by $2.27deposits increased $1.31 billion, or 17.9%,11.8% year over year, to $14.91$12.34 billion for the three months ended September 30, 2015 from $12.64 billion for the three months ended September 30, 2014. In addition, the weighted average cost of total interest-bearing liabilities increased 4 basis points to 0.96% for the three months ended September 30, 2015 compared to 0.92% for the three months ended September 30, 2014.
Interest expense on interest-bearing deposits increased $4.2 million, or 28.8% to $18.7 million for the three months ended September 30, 2015 from $14.5 million for the three months ended September 30, 2014. This increase is attributed to the average balance of total interest-bearing deposits increasing $1.51 billion, or 14.9% to $11.67 billion for the three months ended September 30, 2015 from $10.16 billion for the three months ended September 30, 2014.March 31, 2016. In addition, the weighted average cost of interest-bearing deposits increased by 79 basis pointpoints to 0.64%0.67% for the three months ended September 30, 2015 from 0.57% for the three months ended September 30, 2014.

March 31, 2016. Interest expense on borrowed funds increased by $2.2$2.1 million, or 15.2%,14.4% year over year to $17.0$16.8 million for the three months ended September 30, 2015 from $14.7 million for the three months ended September 30, 2014.March 31, 2016. The average balance of borrowed funds increased $756.6$519.9 million, or 30.4%18.6%, to $3.25$3.31 billion for the three months ended September 30, 2015 from $2.49 billion for the three months ended September 30, 2014.March 31, 2016. This increase was offset by a decrease toof 7 basis points in the weighted average cost of borrowings to 2.09%2.03% for the three months ended September 30, 2015 from 2.37%March 31, 2016.

Non-Interest Income. Total non-interest income increased $174,000, or 2.0% year over year, to $8.7 million for the three months ended September 30, 2014.
Total interest expenseMarch 31, 2016. Gain on securities transactions increased by $11.3 million, or 12.9%, to $99.3$1.3 million for the ninethree months ended September 30, 2015 from $88.0March 31, 2016 primarily due to the sale of available for sale securities totaling $31.7 million, resulting in a gain of $1.4 million. Gain on loans decreased $782,000 for the three months ended March 31, 2016 primarily as a result of lower loan sales through our mortgage subsidiary as well as the Bank. Other income decreased $464,000 for the three months ended March 31, 2016 attributed to non-depository investment products.

Non-Interest Expenses. Total non-interest expenses increased by $10.2 million, or 13.3% year over year, to $87.1 million for the ninethree months ended September 30, 2014. This increase is attributed to the average balance of total interest-bearing liabilities increasing by $1.57 billion, or 12.2%, to $14.44 billion for the nine months ended September 30, 2015 from $12.87 billion for the nine months ended September 30, 2014. In addition, the weighted average cost of total interest-bearing liabilitiesMarch 31, 2016. Compensation and fringe benefits increased 1 basis point to 0.92% for the nine months ended September 30, 2015 from 0.91% at September 30, 2014.
Interest expense on interest-bearing deposits increased $7.9 million, or 18.2%, to $51.1$8.5 million for the ninethree months ended September 30,March 31, 2016 compared to March 31, 2015 primarily due to equity incentive expense of $4.3 million resulting from $43.2the restricted stock and stock option grants to certain employees, officers and directors of the Company, pursuant to the Investors Bancorp, Inc. 2015 Equity Incentive Plan in the second quarter of 2015; normal merit increases; and additions to our staff to support continued growth. Office occupancy and equipment expense increased $1.3 million for the ninethree months ended September 30, 2014. This increase is attributedMarch 31, 2016 compared to the average balance of total interest-bearing deposits increasing $1.24 billion, or 12.3%March 31, 2015 primarily due to $11.30 billionnew branch openings. Advertising and promotional expense decreased $841,000 for the ninethree months ended September 30, 2015 from $10.06 billion for the nine months ended September 30, 2014. In addition, the average cost of interest-bearing deposits increased 3 basis pointMarch 31, 2016 compared to 0.60% for the nine months ended September 30, 2015 from 0.57% for the nine months ended September 30, 2014.March 31, 2015.

InterestIncome Taxes. Income tax expense on borrowed funds increased by $3.5 million, or 7.8%, to $48.2was $27.5 million for the the ninethree months ended September 30, 2015 from $44.7March 31, 2016, representing a 38.7%
effective tax rate compared to income tax expense of $25.1 million for the ninethree months ended September 30, 2014. The average balance of borrowed funds increased $329.8 million or 11.7%, to $3.14 billion for the nine months ended September 30,March 31, 2015 from $2.81 billion for the nine months ended September 30, 2014. This was partially offset by the weighted average cost of borrowings decreasing 7 basis points to 2.05% for the nine months ended September 30, 2015 from 2.12% for the nine months ended September 30, 2014.representing a 37.5% effective tax rate.

Provision for Loan Losses. Our provision for loan losses was $5.0 million for the three months ended September 30, 2015March 31, 2016 compared to $9.0 million for the three months ended September 30, 2014.March 31, 2015. For the three months ended September 30, 2015,March 31, 2016, net charge-offschargeoffs were $504,000$6.9 million compared to $4.0$1.1 million for the three months ended September 30, 2014. For the nine months ended September 30, 2015, our provision for loan losses was $21.0 million compared to $26.0 million for the nine months ended

54


September 30, 2014. For the nine months ended September 30, 2015, net charge-offs were $2.8 million compared to $8.8 million for the nine months ended September 30, 2014.March 31, 2015. Our provision for the three and nine months ended September 30, 2015March 31, 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.
Non-Interest Income. Total non-interest income increased by $1.4 million, or 14.5% to $11.3 million for the three months ended September 30, 2015 from $9.9 million for the three months ended September 30, 2014. For the three months ended September 30, 2015 the Company recognized gain on security transactions of $933,000, resulting in an increase of $904,000 compared to the three months ended September 30, 2014. In addition, gain on loans increased $1.3 million which includes $611,000 attributable to the sale of $347.3 million of residential loans. Gains on other real estate owned increased $560,000 for the three months ended September 30, 2015. These increases were partially offset by decreases to fees and service charges and income on bank owned life insurance of $826,000 and $683,000, respectively, for the three months ended September 30, 2015.
Total non-interest income decreased by $562,000, or 1.8% to $31.4 million for the nine months ended September 30, 2015 from $32.0 million for the nine months ended September 30, 2014. The reduction is mainly attributed to decreases in fees and service charges and other income of $2.4 million and $1.0 million, respectively, for the nine months ended September 30, 2015. Included in other income for the nine months ended September 30, 2014 was a bargain purchase gain of $1.5 million, net of tax, relating to the acquisition of Gateway Community Financial Corp, the federally-chartered holding company for GCF Bank ("Gateway"), which was completed in January 2014. These decreases were partially offset by an increase in the gain on loans to $6.5 million for the nine months ended September 30, 2015 compared to $3.8 million for the nine months ended September 30, 2014.
Non-Interest Expenses. Total non-interest expenses increased by $9.3 million, or 12.2%, to $85.9 million for the three months ended September 30, 2015 from $76.6 million for the three months ended September 30, 2014. Compensation and fringe benefits increased $8.9 million for the three months ended September 30, 2015. This increase is primarily related to equity incentive expense of $4.5 million for the three months ended September 30, 2015. On June 23, 2015, the compensation committee of the Board of Directors approved restricted stock and stock option grants to employees, officers and directors of the Company, pursuant to the Investors Bancorp, Inc. 2015 Equity Incentive Plan. The remaining increase to compensation and fringe benefits relate to staff additions to support our continued growth as well as normal merit increases. Office occupancy and stationary, printing, supplies and telephone expense increased $816,000 and $803,000, respectively, for the three months ended September 30, 2015. For the three months ended September 30, 2015, stationary, printing, supplies and telephone expense included expenses for supplies to support our core conversion as well as mailings to customers in preparation of the conversion. These increases were offset by a decrease in FDIC insurance premium of $550,000 for the three months ended September 30, 2015 due to the continued improvement in asset quality and additional capital raised in the second step offering in May 2014.
Total non-interest expenses decreased by $23.3 million, or 8.8%, to $242.7 million for the nine months ended September 30, 2015 from $265.9 million for the nine months ended September 30, 2014. Compensation and fringe benefits increased $4.5 million for the nine months ended September 30, 2015, which included $4.8 million related to the 2015 Equity Incentive Plan. For the 2014 period, compensation expense includes a charge of $13.0 million related to the accelerated vesting of all stock option and restricted stock awards upon the completion of the second step capital offering in May 2014. Absent the acceleration in 2014 and the $4.8 in equity incentive expense for 2015, compensation and fringe benefits increased $12.7 million for the nine months ended September 30, 2015 related to staff additions to support our continued growth as well as normal merit increases. Contribution to charitable foundation represents the Company's contribution of $20.0 million to the Investors Charitable Foundation in conjunction with the second step capital offering in 2014. FDIC insurance premium decreased $4.8 million for the nine months ended September 30, 2015 due to the continued improvement in asset quality and additional capital raised in the second step offering. Data processing service fees decreased $2.9 million for the nine months ended September 30, 2015 to $16.8 million. Included in the nine months ended September 30, 2014 was $1.7 million of one time expense items related to acquisitions.
Income Tax Expense. Income tax expense was $22.9 million for the three months ended September 30, 2015, representing a 31.91% effective tax rate compared to income tax expense of $23.1 million for the three months ended September 30, 2014 representing a 37.17% effective tax rate. For the three months ended September 30, 2015, income tax expense includes a one time discrete item related to a NOL carryforward of $4.1 million. Excluding this discrete item, the effective tax rate for the three months ended September 30, 2015 would be 37.60%.
Income tax expense was $74.9 million for the nine months ended September 30, 2015, representing a 35.34% effective tax rate compared to income tax expense of $53.2 million for the nine months ended September 30, 2014 representing a 37.99% effective tax rate. Excluding this discrete item referenced above, the effective tax rate for the nine months ended September 30, 2015 would be 37.26%.
In April 2015, New York City changed their tax law to conform with that of New York State. As a result, the Company analyzed the impact of this change relative to its deferred tax positions. Based on that analysis, the Company revalued the deferred

55


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

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

At September 30, 2015,March 31, 2016, the Company had overnight borrowings outstanding of $270.0$465.0 million with FHLB as compared to $265.0$175.0 million at December 31, 2014.2015. The Company utilizes overnight borrowings from time to time to fund short-term liquidity needs. The Company had total borrowings of $3.36$3.53 billion at September 30, 2015,March 31, 2016, an increase of $592.5$264.5 million from $2.77$3.26 billion at December 31, 2014.2015.

In the normal course of business, the Company routinely enters into various commitments, primarily relating to the origination of loans. At September 30, 2015,March 31, 2016, outstanding commitments to originate loans totaled $660.3$782.9 million; outstanding unused lines of credit totaled $876.5$970.1 million; standby letters of credit totaled $22.2$24.0 million and outstanding commitments to sell loans totaled $22.0$25.0 million. The Company expects to have sufficient funds available to meet current commitments in the normal course of business. Time deposits scheduled to mature in one year or less totaled $2.44$2.64 billion at September 30, 2015.March 31, 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 insuranceInsurance 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.

56

Table As of ContentsMarch 31, 2016 the Company and the Bank met the currently applicable Conservation Buffer of 0.625%.


As of September 30, 2015,March 31, 2016, the Bank and the Company exceeded all regulatory capital requirements as follows:
September 30, 2015March 31, 2016
Actual Minimum Capital Requirement To be Well Capitalized under Prompt Corrective Action Provisions (1)Actual Minimum Capital Requirement To be Well Capitalized under Prompt Corrective Action Provisions (1)
Amount Ratio Amount Ratio Amount RatioAmount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)(Dollars in thousands)
Bank:                      
Tier 1 Leverage Ratio$2,503,988
 12.57% $796,785
 4.00% $995,982
 5.00%$2,607,334
 12.37% $843,434
 4.000% $1,054,292
 5.00%
Common equity tier 1 risk-based2,503,988
 16.08% 700,629
 4.50% 1,012,020
 6.50%2,607,334
 15.78% 846,579
 5.125% 1,073,711
 6.50%
Tier 1 Risk Based Capital2,503,988
 16.08% 934,172
 6.00% 1,245,563
 8.00%2,607,334
 15.78% 1,094,359
 6.625% 1,321,490
 8.00%
Total Risk-Based Capital2,698,909
 17.33% 1,245,563
 8.00% 1,556,953
 10.00%2,813,944
 17.03% 1,424,731
 8.625% 1,651,862
 10.00%
                      
Company:                      
Tier 1 Leverage Ratio$3,300,019
 16.55% $797,456
 4.00% n/a n/a$3,151,003
 14.94% $843,842
 4.000% n/a n/a
Common equity tier 1 risk-based3,300,019
 21.17% 701,320
 4.50% n/a n/a3,151,003
 19.07% 846,986
 5.125% n/a n/a
Tier 1 Risk Based Capital3,300,019
 21.17% 935,093
 6.00% n/a n/a3,151,003
 19.07% 1,094,885
 6.625% n/a n/a
Total Risk-Based Capital3,495,128
 22.43% 1,246,791
 8.00% n/a n/a3,357,515
 20.32% 1,425,416
 8.625% n/a n/a
(1) Prompt corrective action provisions do not apply to the Bankbank holding company.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in the financial statements. These transactions primarily relate to debt obligations and lending commitments.
The following table shows the contractual obligations of the Company by expected payment period as of September 30, 2015:March 31, 2016:
Contractual Obligations Total Less than One Year One-Two Years Two-Three Years More than Three Years Total Less than One Year One-Two Years Two-Three Years More than Three Years
 (In thousands) (In thousands)
Debt obligations (excluding capitalized leases) $3,358,553
 495,000
 931,676
 1,325,835
 606,042
 $3,527,630
 740,000
 1,086,938
 1,269,728
 430,964
Commitments to originate and purchase loans $660,256
 660,256
 
 
 
 $782,900
 782,900
 
 
 
Commitments to sell loans $22,000
 22,000
 
 
 
 $25,000
 25,000
 
 
 

Debt obligations include borrowings from the FHLB and other borrowings. The borrowings have defined terms and, under certain circumstances, $29.6$29.2 million of the borrowings are callable at the option of the lender. Additionally, at September 30, 2015,March 31, 2016, the Company’s commitments to fund unused lines of credit totaled $876.5$970.1 million. Commitments to originate loans and commitments to fund unused lines of credit are agreements to lend additional funds to customers as long as there have been no violations of any of the conditions established in the agreements. Commitments generally have a fixed expiration or other termination clauses which may or may not require a payment of a fee. Since some of these loan commitments are expected to expire without being drawn upon, total commitments do not necessarily represent future cash requirements.
In addition to the contractual obligations previously discussed, we have other liabilities which include capitalized and operating lease obligations. These contractual obligations as of September 30, 2015March 31, 2016 have not changed significantly from December 31, 2014.2015.
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, 20142015 Annual Report on Form 10-K.

57

Table of Contents

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Qualitative Analysis. We believe one significant form of market risk is interest rate risk. Interest rate risk results from timing differences in the maturity or re-pricing of our assets, liabilities and off-balance sheet contracts (i.e., loan commitments); the effect of loan prepayments, deposits and withdrawals; the difference in the behavior of lending and funding rates arising from the uses of different indices; and “yield curve risk” arising from changing interest rate relationships across the spectrum of maturities for constant or variable credit risk investments. Besides directly affecting our net interest income, changes in market interest rates can also affect the amount of new loan originations, the ability of borrowers to repay variable rate loans, the volume of loan prepayments and refinancings, the carrying value of securities classified as available for sale and the mix and flow of deposits.
The general objective of our interest rate risk management is to determine the appropriate level of risk given our business model and then manage that risk in a manner consistent with our policy to reduce, to the extent possible, the exposure of our net interest income to changes in market interest rates. Our Asset Liability Committee, which consists of senior management and executives, evaluates the interest rate risk inherent in certain assets and liabilities, our operating environment and capital and liquidity requirements and modifies our lending, investing and deposit gathering strategies accordingly. On a quarterly basis, our Board of Directors reviews the Asset Liability Committee report, the aforementioned activities and strategies, the estimated effect of those strategies on our net interest margin and the estimated effect that changes in market interest rates may have on the economic value of our loan and securities portfolios, as well as the intrinsic value of our deposits and borrowings.
We actively evaluate interest rate risk in connection with our lending, investing and deposit activities. Historically, our lending activities have emphasized one- to four-family fixed- and variable-rate first mortgages. At September 30, 2015March 31, 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 reducemanage interest rate risk.
We retain an independent, nationally recognized consulting firm that specializes in asset and liability management to complete our quarterly interest rate risk reports. We also retain a second nationally recognized consulting firm to prepare independently comparable interest rate risk reports for the purpose of validation. Both firms use a combination of analyses to monitor our exposure to changes in interest rates. The economic value of equity analysis is a model that estimates the change in net portfolio value (“NPV”) over a range of immediately changed interest rate scenarios. NPV is the discounted present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. In calculating changes in NPV, assumptions estimating loan prepayment rates, reinvestment rates and deposit decay rates that seem most likely based on historical experience during prior interest rate changes are used.
The net interest income analysis uses data derived from an asset and liability analysis, described below, and applies several additional elements, including actual interest rate indices and margins, contractual limitations and the U.S. Treasury yield curve as of the balance sheet date. In addition we apply consistent parallel yield curve shifts (in both directions) to determine possible changes in net interest income if the theoretical yield curve shifts occurred gradually over a one year period. Net interest income analysis also adjusts the asset and liability repricing analysis based on changes in prepayment rates resulting from the parallel yield curve shifts.
Our asset and liability analysis determines the relative balance between the repricing of assets and liabilities over multiple periods of time (ranging from overnight to five years). This asset and liability analysis includes expected cash flows from loans and mortgage-backed securities, applying prepayment rates based on the differential between the current interest rate and the

market interest rate for each loan and security type. This analysis identifies mismatches in the timing of asset and liability cash flows but does not necessarily provide an accurate indicator of interest rate risk because the assumptions used in the analysis may not reflect the actual response to market changes.
Quantitative Analysis. The table below sets forth, as of September 30, 2015,March 31, 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

58

Table of Contents

on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. The following table reflects management's expectations of the changes in NPV or net interest income for an interest rate decrease of 100 basis points or increase of 200 basis points.
 Net Portfolio Value (1) (2) Net Interest Income (3) 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) 
Estimated
NPV
 Estimated Increase (Decrease) 
Estimated  Net
Interest
Income
 Estimated Increase (Decrease)
Amount Percent Amount PercentAmount Percent Amount Percent
 (Dollars in thousands) (Dollars in thousands)
+ 200bp $4,358,927
 (228,414) (5.0)% $541,555
 (31,907) (5.6)% $3,746,462
 (333,478) (8.2)% $556,688
 (42,575) (7.1)%
0bp $4,587,341
 
 
 $573,462
 
 
 $4,079,940
 
 
 $599,263
 
 
-100bp $4,412,460
 (174,881) (3.8)% $576,181
 2,719
 0.47 % $3,845,783
 (234,157) (5.7)% $603,159
 3,896
 0.65 %
(1)Assumes an instantaneous and parallel shift in interest rates at all maturities.
(2)NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3)Assumes a gradual change in interest rates over a one year period at all maturities.
The table set forth above indicates at September 30, 2015,March 31, 2016, in the event of a 200 basis points increase in interest rates, we would be expected to experience a 5.0%8.2% decrease in NPV and a $31.9$42.6 million, or 5.6%7.1%, decrease in net interest income. In the event of a 100 basis points decrease in interest rates, we would be expected to experience a 3.8%5.7% decrease in NPV and a $2.7$3.9 million, or 0.47%0.65%, increase in net interest income. These data do not reflect any future actions we may take in response to changes in interest rates, such as changing the mix in or growth of our assets and liabilities, which could change the results of the NPV and net interest income calculations.
As mentioned above, we retain two nationally recognized firms to compute our quarterly interest rate risk reports. Certain shortcomings are inherent in any methodology used in the above interest rate risk measurements. Modeling changes in NPV and net interest income require certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The NPV and net interest income table presented above assumes the composition of our interest-rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions we may take in response to changes in interest rates. The table also assumes a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing characteristics of specific assets and liabilities. Accordingly, although the NPV and net interest income table provide an indication of our sensitivity to interest rate changes at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effects of changes in market interest rates on our NPV and net interest income.
ITEM 4.CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2015March 31, 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.


59


ITEM 1A.RISK FACTORS
There have been no material changes in the “Risk Factors” disclosed in the Company’s December 31, 20142015 Annual Report on Form 10-K filed with the Securities and Exchange Commission.


ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
The following table reports information regarding repurchases of our common stock during the quarter ended September 30, 2015March 31, 2016 and the stock repurchase plans approved by our Board of Directors.
PeriodTotal Number of Shares Purchased (1) (2) Average Price paid Per Share As part of Publicly Announced Plans or Programs Yet to be Purchased under the Plans or Programs (1) (2)
July 1, 2015 through July 31, 20152,200,000
 $12.35
 $27,173,960
 32,539,310
August 1, 2015 through August 31, 20152,661,385
 12.00
 31,933,918
 29,877,925
September 1, 2015 through September 30, 20152,500,000
 12.03
 30,064,355
 27,377,925
Total7,361,385
 $12.11
 $89,172,233
 27,377,925
PeriodTotal 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)
January 1, 2016 through January 31, 20163,700,000
 $11.63
 $43,015,715
 17,414,351
February 1, 2016 through February 29, 20164,050,000
 11.45
 46,367,050
 13,364,351
March 1, 2016 through March 31, 20164,400,000
 11.55
 50,809,660
 8,964,351
Total12,150,000
 $11.54
 $140,192,425
 8,964,351
(1) On March 16, 2015, the Company announced it had received approval from the Board of Governors of the Federal Reserve System to commence a 5% buyback program prior to the one-year anniversary of the completion of its second step conversion. Accordingly, the Board of Directors authorized the repurchase of up to 17,911,561 shares.
(2) On June 9, 2015, the Board of Directors authorized the repurchase of an additional 10% of the Company's outstanding shares of common stock or 34,779,211 million shares which commenced upon the completion of the first repurchase plan on June 30, 2015. This program has no expiration date and has 27,377,9258,964,351 shares yet to be repurchased as of September 30, 2015.March 31, 2016.
(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 million shares. The new repurchase program will commence upon completion of the second repurchase plan.


ITEM 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.


ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.


ITEM 5.OTHER INFORMATION
Not applicable.



60

Table of Contents


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. (1)(2)
   
3.2
  Bylaws of Investors Bancorp, Inc. (1)(2)
10.1
Amendment Number One to the Employment Agreement between Investors Bancorp, Inc. and Richard S. Spengler
10.2
Amendment Number One to the Employment Agreement between Investors Bancorp, Inc. and Paul Kalamaras
10.3
Amendment Number One Employment Agreement between Investors Bancorp, Inc. and Sean Burke
   
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.


61


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
     
    INVESTORS BANCORP, INC.
   
Date: November 9, 2015May 10, 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)



6254