Investors Bancorp (ISBC) 10-Q 2018 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2018

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	þ		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o
			Emerging growth company	o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of May 4, 2018, the registrant had 359,070,852 shares of common stock, par value $0.01 per share, issued and 301,592,938 outstanding. 

INVESTORS BANCORP, INC.

FORM 10-Q

Index

Part I. Financial Information
		Page
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017	1
	Consolidated Statements of Income for the Three Months Ended March 31, 2018 and 2017 (unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017 (unaudited)	3
	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2018 and 2017 (unaudited)	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited)	5
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	53
Part II. Other Information
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	55
	Signature Page	56

Part IFinancial Information

ITEM 1. FINANCIAL STATEMENTS

INVESTORS BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

March 31, 2018 (Unaudited) and December 31, 2017

	March 31, 2018			December 31, 2017
	(In thousands)
ASSETS
Cash and cash equivalents	$	153,439		618,394
Equity securities	5,677			5,701
Debt securities available-for-sale, at estimated fair value	1,940,588			1,982,026
Debt securities held-to-maturity, net (estimated fair value of $1,717,381 and $1,820,125 at March 31, 2018 and December 31, 2017, respectively)	1,715,531			1,796,621
Loans receivable, net	20,351,232			19,852,101
Loans held-for-sale	1,011			5,185
Federal Home Loan Bank stock	264,919			231,544
Accrued interest receivable	74,200			72,855
Other real estate owned	4,873			5,830
Office properties and equipment, net	177,368			180,231
Net deferred tax asset	130,250			121,663
Bank owned life insurance	207,274			155,635
Goodwill and intangible assets	101,609			97,665
Other assets	97,706			3,793
Total assets	$	25,225,677		25,129,244
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits	$	16,546,325		17,357,697
Borrowed funds	5,361,260			4,461,533
Advance payments by borrowers for taxes and insurance	128,745			104,308
Other liabilities	97,266			80,255
Total liabilities	22,133,596			22,003,793
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 March 31, 2018 and December 31, 2017; 301,796,438 and 306,126,087 outstanding at March 31, 2018 and December 31, 2017, respectively	3,591			3,591
Additional paid-in capital	2,789,102			2,784,390
Retained earnings	1,115,153			1,084,177
Treasury stock, at cost; 57,274,414 and 52,944,765 shares at March 31, 2018 and December 31, 2017, respectively	(692,516		)	(633,110	)
Unallocated common stock held by the employee stock ownership plan	(83,509		)	(84,258	)
Accumulated other comprehensive loss	(39,740		)	(29,339	)
Total stockholders’ equity	3,092,081			3,125,451
Total liabilities and stockholders’ equity	$	25,225,677		25,129,244

See accompanying notes to consolidated financial statements.

1

INVESTORS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

(Unaudited)

	Three Months Ended March 31,
	2018			2017
	(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable and loans held-for-sale	$	204,722		185,961
Securities:
Equity	35			48
Government-sponsored enterprise obligations	274			8
Mortgage-backed securities	20,022			16,709
Municipal bonds and other debt	2,258			4,068
Interest-bearing deposits	455			107
Federal Home Loan Bank stock	3,801			3,193
Total interest and dividend income	231,567			210,094
Interest expense:
Deposits	36,376			22,184
Borrowed funds	22,707			20,791
Total interest expense	59,083			42,975
Net interest income	172,484			167,119
Provision for loan losses	2,500			4,000
Net interest income after provision for loan losses	169,984			163,119
Non-interest income
Fees and service charges	5,458			4,928
Income on bank owned life insurance	1,286			725
Gain on loans, net	257			992
(Loss) gain on securities, net	(46		)	1,227
Gain on sale of other real estate owned, net	153			174
Other income	2,002			1,657
Total non-interest income	9,110			9,703
Non-interest expense
Compensation and fringe benefits	59,061			57,274
Advertising and promotional expense	2,087			2,085
Office occupancy and equipment expense	16,578			14,847
Federal deposit insurance premiums	4,500			3,710
General and administrative	500			734
Professional fees	4,402			7,421
Data processing and communication	6,123			5,860
Other operating expenses	7,834			7,627
Total non-interest expenses	101,085			99,558
Income before income tax expense	78,009			73,264
Income tax expense	20,084			27,244
Net income	$	57,925		46,020
Basic earnings per share	$	0.20		0.16
Diluted earnings per share	$	0.20		0.16
Weighted average shares outstanding
Basic	287,685,531			291,185,408
Diluted	289,131,916			293,407,422

See accompanying notes to consolidated financial statements.

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INVESTORS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

(Unaudited)

	For the Three Months Ended March 31,
	2018			2017
	(In thousands)
Net income	$	57,925		46,020
Other comprehensive (loss) income, net of tax:
Change in funded status of retirement obligations	103			83
Unrealized (losses) gains on debt securities available-for-sale	(22,723		)	2,679
Accretion of loss on debt securities reclassified to held to maturity	167			208
Reclassification adjustment for security gains included in net income	—			(736	)
Other-than-temporary impairment accretion on debt securities	216			399
Net gains on derivatives arising during the period	12,442			1,220
Total other comprehensive (loss) income	(9,795		)	3,853
Total comprehensive income	$	48,130		49,873

See accompanying notes to consolidated financial statements.

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INVESTORS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2018 and 2017

(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, 2016	$	3,591	2,765,732		1,053,750		(587,974	)	(87,254	)	(24,600	)	3,123,245
Net income	—		—		46,020		—		—		—		46,020
Other comprehensive income, net of tax	—		—		—		—		—		3,853		3,853
Purchase of treasury stock (4,270 shares)	—		—		—		(61	)	—		—		(61	)
Treasury stock allocated to restricted stock plan (350,000 shares)	—		(5,137	)	919		4,218		—		—		—
Compensation cost for stock options and restricted stock	—		4,857		—		—		—		—		4,857
Option exercise	—		(3,286	)	—		6,952		—		—		3,666
Restricted stock forfeitures (9,019 shares)	—		102		6		(108	)	—		—		—
Cash dividend paid ($0.08 per common share)	—		—		(24,786	)	—		—		—		(24,786	)
ESOP shares allocated or committed to be released	—		949		—		—		749		—		1,698
Balance at March 31, 2017	$	3,591	2,763,217		1,075,909		(576,973	)	(86,505	)	(20,747	)	3,158,492
Balance at December 31, 2017	$	3,591	2,784,390		1,084,177		(633,110	)	(84,258	)	(29,339	)	3,125,451
Net income	—		—		57,925		—		—		—		57,925
Other comprehensive loss, net of tax	—		—		—		—		—		(9,795	)	(9,795	)
Reclassification due to the adoption of ASU No. 2016-01	—		—		606		—		—		(606	)	—
Purchase of treasury stock (4,525,023 shares)	—		—		—		(61,859	)	—		—		(61,859	)
Treasury stock allocated to restricted stock plan (18,947 shares)	—		(257	)	27		230		—		—		—
Compensation cost for stock options and restricted stock	—		3,370		—		—		—		—		3,370
Option exercise	—		(2,428	)	—		5,142		—		—		2,714
Restricted stock forfeitures (250,000 shares)	—		3,135		(216	)	(2,919	)	—		—		—
Cash dividend paid ($0.09 per common share)	—		—		(27,366	)	—		—		—		(27,366	)
ESOP shares allocated or committed to be released	—		892		—		—		749		—		1,641
Balance at March 31, 2018	$	3,591	2,789,102		1,115,153		(692,516	)	(83,509	)	(39,740	)	3,092,081

See accompanying notes to consolidated financial statements.

4

INVESTORS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2018			2017
	(In thousands)
Cash flows from operating activities:
Net income	$	57,925		46,020
Adjustments to reconcile net income to net cash provided by operating activities:
ESOP and stock-based compensation expense	5,012			6,555
Amortization of premiums and accretion of discounts on securities, net	2,971			5,503
Amortization of premiums and accretion of fees and costs on loans, net	(2,126		)	(1,242	)
Amortization of other intangible assets	513			626
Provision for loan losses	2,500			4,000
Depreciation and amortization of office properties and equipment	4,569			4,084
Loss (gain) on securities, net	46			(1,227	)
Mortgage loans originated for sale	(5,271		)	(41,244	)
Proceeds from mortgage loan sales	9,690			75,511
Gain on sales of mortgage loans, net	(245		)	(877	)
Gain on sale of other real estate owned	(153		)	(174	)
Income on bank owned life insurance	(1,286		)	(725	)
Increase in accrued interest receivable	(1,345		)	(2,953	)
Deferred tax (benefit) expense	(1,379		)	3,654
(Increase) decrease in other assets	(3,866		)	6,543
Increase in other liabilities	15,994			14,971
Total adjustments	25,624			73,005
Net cash provided by operating activities	83,549			119,025
Cash flows from investing activities:
Purchases of loans receivable	(86,198		)	(102,457	)
Net originations of loans receivable	(83,095		)	(592,766	)
Proceeds from disposition of loans held for investment	12			115
Loss on disposition of loans held for investment	(12		)	(115	)
Net proceeds from sale of other real estate owned	1,620			887
Proceeds from principal repayments/calls/maturities of debt securities available for sale	85,522			79,867
Proceeds from sales of debt securities available for sale	—			47,359
Proceeds from principal repayments/calls/maturities of debt securities held to maturity	85,983			84,596
Purchases of equity securities	(22		)	—
Purchases of debt securities available for sale	(77,065		)	(231,995	)
Purchases of debt securities held to maturity	(4,885		)	(35,690	)
Proceeds from redemptions of Federal Home Loan Bank stock	55,016			47,771
Purchases of Federal Home Loan Bank stock	(88,391		)	(61,698	)
Purchases of office properties and equipment	(1,706		)	(5,863	)
Death benefit proceeds from bank owned life insurance	3,619			9,602
Purchases of bank owned life insurance	(125,000		)	—
Cash paid for acquisition	(340,183		)	—
Net cash used in investing activities	(574,785		)	(760,387	)

5

Cash flows from financing activities:
Net (decrease) increase in deposits	(811,372		)	95,190
Net increase in other borrowings	899,727			547,539
Net increase in advance payments by borrowers for taxes and insurance	24,437			21,550
Dividends paid	(27,366		)	(24,786	)
Exercise of stock options	2,714			3,666
Purchase of treasury stock	(61,859		)	(61	)
Net cash provided by financing activities	26,281			643,098
Net (decrease) increase in cash and cash equivalents	(464,955		)	1,736
Cash and cash equivalents at beginning of period	618,394			164,178
Cash and cash equivalents at end of period	$	153,439		165,914
Supplemental cash flow information:
Non-cash investing activities:
Real estate acquired through foreclosure	$	564		1,048
Cash paid during the year for:
Interest	57,022			41,922
Income taxes	—			—
Acquisitions:
Non-cash assets acquired:
Loans	330,777			—
Goodwill and other intangible assets, net	4,955			—
Total non-cash assets acquired	335,732			—

See accompanying notes to consolidated financial statements.

6

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

1.     Basis of Presentation

The consolidated financial statements are comprised of the accounts of Investors Bancorp, Inc. and its wholly owned subsidiary, Investors Bank (the “Bank”) and the Bank’s wholly-owned subsidiaries (collectively, the “Company”). In the opinion of management, all the adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the three months ended March 31, 2018 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, 2017 Annual Report on Form 10-K. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.

2.     Stock Transactions

Stock Repurchase Programs

On March 16, 2015, the Company announced it had received approval from the Board of Governors of the Federal Reserve System to commence a 5% buyback program prior to the one-year anniversary of the completion of its second step conversion. Accordingly, the Board of Directors authorized the repurchase of 17,911,561 shares. The first program was completed on June 30, 2015.

On June 9, 2015, the Company announced its second share repurchase program, which authorized the purchase of an additional 10% of its publicly-held outstanding shares of common stock, or 34,779,211 shares. The second repurchase program commenced immediately upon completion of the first repurchase plan on June 30, 2015. The second program was completed on June 17, 2016.

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

During the three months ended March 31, 2018, the Company purchased 4,525,023 shares at a cost of $61.9 million, or approximately $13.67 per share. During the three months ended March 31, 2018, shares repurchased included 128,719 shares withheld to cover income taxes related to restricted stock vesting under our 2015 Equity Incentive Plan. Shares withheld to pay income taxes are repurchased pursuant to the terms of the 2015 Equity Incentive Plan.

3.     Business Combinations

On February 2, 2018, the Company completed the acquisition of a $345.8 million equipment finance portfolio. The acquisition included a seven person team of financing professionals to lead the Company’s Equipment Finance Group, which is a part of the Company’s business lending group and is classified within our commercial and industrial loan portfolio. The purchase price paid of $340.2 million was paid using available cash.

The acquisition was accounted for under the acquisition method of accounting as prescribed by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”, as amended. Under this method of accounting, the purchase price has been allocated to the respective assets acquired based on their estimated fair values, net of applicable income tax effects. The excess cost over fair value of assets acquired, or $5.0 million, has been recorded as goodwill.

The acquired portfolio was fair valued on the date of 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. The valuation methods utilized took into consideration adjustments for interest rate risk, funding cost, servicing cost, residual risk, credit and liquidity risk.

7

The calculation of goodwill is subject to change for up to one year after closing date of the transaction as additional information relative to closing date estimates and uncertainties becomes available. As the Company finalizes its analysis of these assets, there may be adjustments to the recorded carrying values.

4.     Earnings Per Share

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

	For the Three Months Ended March 31,
	2018		2017
	(Dollars in thousands, except per share data)
Earnings for basic and diluted earnings per common share
Earnings applicable to common stockholders	$	57,925	$	46,020
Shares
Weighted-average common shares outstanding - basic	287,685,531		291,185,408
Effect of dilutive common stock equivalents (1)	1,446,385		2,222,014
Weighted-average common shares outstanding - diluted	289,131,916		293,407,422
Earnings per common share
Basic	$	0.20	$	0.16
Diluted	$	0.20	$	0.16

(1) For the three months ended March 31, 2018 and 2017, there were 9,673,423 and 10,861,826 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.

8

5.     Securities

Debt Securities

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

	At March 31, 2018
	Carrying value		Gross unrealized gains	Gross unrealized losses	Estimated fair value
	(In thousands)
Available-for-sale:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	$	695,185	126	18,721	676,590
Federal National Mortgage Association	1,267,196		24	39,183	1,228,037
Government National Mortgage Association	37,608		—	1,647	35,961
Total debt securities available-for-sale	$	1,999,989	150	59,551	1,940,588

	At March 31, 2018
	Amortized cost		Net unrealized losses (1)	Carrying value	Gross unrecognized gains (2)	Gross unrecognized losses (2)	Estimated fair value
	(In thousands)
Held-to-maturity:
Debt securities:
Government-sponsored enterprises	$	43,259	—	43,259	—	1,422	41,837
Municipal bonds	14,856		—	14,856	1,144	—	16,000
Corporate and other debt securities	68,768		19,845	48,923	42,181	—	91,104
Total debt securities held-to-maturity	126,883		19,845	107,038	43,325	1,422	148,941
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	456,516		862	455,654	169	11,376	444,447
Federal National Mortgage Association	1,065,518		1,023	1,064,495	763	27,451	1,037,807
Government National Mortgage Association	88,344		—	88,344	—	2,158	86,186
Total mortgage-backed securities held-to-maturity	1,610,378		1,885	1,608,493	932	40,985	1,568,440
Total debt securities held-to-maturity	$	1,737,261	21,730	1,715,531	44,257	42,407	1,717,381

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

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

9

	At December 31, 2017
	Carrying value		Gross unrealized gains	Gross unrealized losses	Estimated fair value
	(In thousands)
Available-for-sale:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	$	649,060	382	9,200	640,242
Federal National Mortgage Association	1,322,255		700	19,379	1,303,576
Government National Mortgage Association	39,577		—	1,369	38,208
Total debt securities available-for-sale	$	2,010,892	1,082	29,948	1,982,026

	At December 31, 2017
	Amortized cost		Net unrealized losses (1)	Carrying Value	Gross unrecognized gains (2)	Gross unrecognized losses (2)	Estimated fair value
	(In thousands)
Held-to-maturity:
Debt securities:
Government-sponsored enterprises	$	43,281	—	43,281	—	685	42,596
Municipal bonds	40,595		—	40,595	1,251	—	41,846
Corporate and other debt securities	68,232		20,145	48,087	38,207	—	86,294
Total debt securities held-to-maturity	152,108		20,145	131,963	39,458	685	170,736
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	474,314		969	473,345	530	5,439	468,436
Federal National Mortgage Association	1,102,242		1,149	1,101,093	2,787	12,280	1,091,600
Government National Mortgage Association	90,220		—	90,220	—	867	89,353
Total mortgage-backed securities held-to-maturity	1,666,776		2,118	1,664,658	3,317	18,586	1,649,389
Total debt securities held-to-maturity	$	1,818,884	22,263	1,796,621	42,775	19,271	1,820,125

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

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

At March 31, 2018, corporate and other debt securities include a portfolio of collateralized debt obligations backed by pooled trust preferred securities (“TruPS”), principally issued by banks and to a lesser extent insurance companies, real estate investment trusts, and collateralized debt obligations. At March 31, 2018, the TruPS had a carrying value and estimated fair value of $43.9 million and $86.0 million, respectively. While all were investment grade at purchase, securities classified as non-investment grade at March 31, 2018 had a carrying value and estimated fair value of $41.9 million and $79.7 million, respectively. Fair value is derived from considering specific assumptions, including terms of the TruPS structure, events of deferrals, defaults and liquidations, the projected cash flow for principal and interest payments, and discounted cash flow modeling.

Investment securities with a carrying value of $1.08 billion and an estimated fair value of $1.04 billion are pledged to secure borrowings and municipal deposits. The contractual maturities of the Bank’s mortgage-backed securities are generally less than 20 years with effective lives expected to be shorter due to prepayments. Expected maturities may differ from contractual maturities due to underlying loan prepayments 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 March 31, 2018, by contractual maturity, are shown below.

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	March 31, 2018
	Carrying Value		Estimated fair value
	(In thousands)
Due in one year or less	$	12,568	12,567
Due after one year through five years	—		—
Due after five years through ten years	50,547		50,389
Due after ten years	43,923		85,985
Total	$	107,038	148,941

Gross unrealized losses on debt 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 March 31, 2018 and December 31, 2017, was as follows:

	March 31, 2018
	Less than 12 months			12 months or more		Total
	Estimated fair value		Unrealized losses	Estimated fair value	Unrealized losses	Estimated fair value	Unrealized losses
	(In thousands)
Available-for-sale:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	$	421,910	9,653	207,643	9,068	629,553	18,721
Federal National Mortgage Association	799,657		19,409	421,705	19,774	1,221,362	39,183
Government National Mortgage Association	13,954		460	22,007	1,187	35,961	1,647
Total debt securities available-for-sale	1,235,521		29,522	651,355	30,029	1,886,876	59,551
Held-to-maturity:
Debt securities:
Government-sponsored enterprises	41,837		1,422	—	—	41,837	1,422
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	337,705		7,624	104,662	3,752	442,367	11,376
Federal National Mortgage Association	567,967		10,845	409,287	16,606	977,254	27,451
Government National Mortgage Association	86,186		2,158	—	—	86,186	2,158
Total mortgage-backed securities held-to-maturity	991,858		20,627	513,949	20,358	1,505,807	40,985
Total debt securities held-to-maturity	1,033,695		22,049	513,949	20,358	1,547,644	42,407
Total	$	2,269,216	51,571	1,165,304	50,387	3,434,520	101,958

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	December 31, 2017
	Less than 12 months			12 months or more		Total
	Estimated fair value		Unrealized losses	Estimated fair value	Unrealized losses	Estimated fair value	Unrealized losses
	(In thousands)
Available-for-sale:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	$	365,078	3,115	220,744	6,085	585,822	9,200
Federal National Mortgage Association	684,327		6,276	447,310	13,103	1,131,637	19,379
Government National Mortgage Association	14,981		283	23,227	1,086	38,208	1,369
Total debt securities available-for-sale	1,064,386		9,674	691,281	20,274	1,755,667	29,948
Held-to-maturity:
Debt securities:
Government-sponsored enterprises	$	42,596	685	—	—	42,596	685
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	290,340		2,946	111,849	2,493	402,189	5,439
Federal National Mortgage Association	369,484		2,380	430,955	9,900	800,439	12,280
Government National Mortgage Association	51,126		867	—	—	51,126	867
Total mortgage-backed securities held-to-maturity	710,950		6,193	542,804	12,393	1,253,754	18,586
Total debt securities held-to-maturity	753,546		6,878	542,804	12,393	1,296,350	19,271
Total	$	1,817,932	16,552	1,234,085	32,667	3,052,017	49,219

At March 31, 2018, the majority of gross unrealized losses primarily relate to our mortgage-backed-security portfolio which is comprised of debt securities issued by U.S. Government Sponsored Enterprises. The fair values of these securities have been negatively impacted by the increase in intermediate-term market interest rates.

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 issuer underlying our pooled trust preferred securities. Cash flows for each security are forecasted using assumptions for defaults, recoveries, pre-payments and amortization. At March 31, 2018 and 2017, 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 three months ended March 31, 2018 and 2017. At March 31, 2018, non-credit related OTTI recorded on the previously impaired TruPS was $19.8 million ($14.3 million after-tax). This amount is being accreted into income over the estimated remaining life of the securities.

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

	For the Three Months Ended March 31,
	2018			2017
	(In thousands)
Balance of credit related OTTI, beginning of period	$	85,768		95,743
Additions:
Initial credit impairments	—			—
Subsequent credit impairments	—			—
Reductions:
Accretion of credit loss impairment due to an increase in expected cash flows	(923		)	(2,935	)
Reductions for securities sold or paid off during the period	—			(3,811	)
Balance of credit related OTTI, end of period	$	84,845		88,997

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 OTTI occurred prior to the period presented. If OTTI is recognized in earnings for credit impaired debt securities, they would be presented as additions based upon whether the current period is the first time a debt security was credit impaired (initial credit impairment) or is not the first time a debt security was credit impaired (subsequent credit impairments). The credit loss component is reduced if the Company sells, intends to sell or believes it will be required to sell previously credit impaired debt securities. Additionally, the credit loss component is reduced if (i) the Company receives cash flows in excess of what it expected to receive over the remaining life of the credit impaired debt security, (ii) the security matures or (iii) the security is fully written down.

Equity Securities

Equity securities are reported at fair value on the Company’s Consolidated Balance Sheets. The Company’s portfolio of equity securities had an estimated fair value of $5.7 million as of March 31, 2018 and December 31, 2017. Realized gains and losses from sales of securities as well as changes in fair value of equity securities still held at the reporting date are recognized in the Consolidated Statements of Income. The Company adopted FASB Accounting Standards Update (“ASU”) 2016-01 on January 1, 2018 resulting in the cumulative-effect adjustment of $606,000 reflected in the consolidated statement of stockholders’ equity. The update supersedes the guidance to classify equity securities with readily determinable fair values into different categories and requires equity securities to be measured at fair value with changes in the fair value recognized through net income rather than other comprehensive income.

The following table presents the disaggregated net gains and losses on equity securities reported in the Consolidated Statements of Income:

	For the Three Months Ended March 31, 2018
Net losses recognized during the period on equity securities	$	(46	)
Less: Net gains (losses) recognized during the period on equity securities sold	—
Unrealized (losses) recognized during the period on equity securities	$	(46	)

Realized Gains and Losses

Gains and losses on the sale of all securities are determined using the specific identification method. For the three months ended March 31, 2018, there were no proceeds of sales from the debt securities available-for-sale portfolio. There were no proceeds of sales from the debt securities held-to-maturity portfolio for the three months ended March 31, 2018. There were no proceeds of sales from the equity securities portfolio for the three months ended March 31, 2018.

For the three months ended March 31, 2017, the Company received proceeds of $47.4 million on pools of mortgage-backed securities sold from the debt securities available-for-sale portfolio resulting in gross realized gains of $1.2 million. There were no proceeds of sales from the debt securities held-to-maturity portfolio for the three months ended March 31, 2017; however, the Company received proceeds of $3.1 million from the liquidation of a TruP security. As a result, $1.9 million was recognized as interest income

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from securities in the Consolidated Statements of Income. There were no proceeds of sales from the equity securities portfolio for the three months ended March 31, 2017.

6.    Loans Receivable, Net

The detail of the loan portfolio as of March 31, 2018 and December 31, 2017 was as follows:

	March 31, 2018			December 31, 2017
	(In thousands)
Multi-family loans	$	7,844,123		7,802,835
Commercial real estate loans	4,586,917			4,541,347
Commercial and industrial loans	2,024,903			1,625,375
Construction loans	390,853			416,883
Total commercial loans	14,846,796			14,386,440
Residential mortgage loans	5,082,584			5,025,266
Consumer and other loans	665,420			670,820
Total loans excluding PCI loans	20,594,800			20,082,526
PCI loans	8,082			8,322
Deferred fees and premiums on purchased loans, net (1)	(20,506		)	(7,778	)
Allowance for loan losses	(231,144		)	(230,969	)
Net loans	$	20,351,232		19,852,101

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

Allowance for Loan Losses

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

	Three Months Ended March 31,
	2018			2017
	(Dollars in thousands)
Balance at beginning of the period	$	230,969		228,373
Loans charged off	(7,107		)	(3,005	)
Recoveries	4,782			1,544
Net charge-offs	(2,325		)	(1,461	)
Provision for loan losses	2,500			4,000
Balance at end of the period	$	231,144		230,912

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 losses, the Company performs an analysis on acquired loans to determine whether or not an allowance should be ascribed to those 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. For the three months ended March 31, 2018 and 2017, the Company recorded charge-offs of $88,000 and $33,000, respectively, related to PCI loans acquired.

Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. The analysis of the allowance for loan losses has two components: specific and general allocations. Specific allocations are made for loans determined to be impaired. A loan is deemed to be impaired if it is a commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, loans modified in a troubled debt restructuring (“TDR”), and other commercial loans greater than $1.0 million if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of loan, risk rating (if applicable) and payment history. In addition, the Company’s residential portfolio is subdivided between fixed and adjustable rate loans as adjustable rate loans are deemed to be subject to more credit risk if interest rates rise. Reserves for each loan segment or the loss factors are generally determined 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, credit concentrations, industry trends and lending and credit management policies and procedures, but is inherently subjective as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be different than the allowance for loan losses we have established which could have a material negative effect on our financial results.

On a quarterly basis, management reviews the current status of various loan assets in order to evaluate the adequacy of the allowance for loan losses. In this evaluation process, specific loans are analyzed to determine their potential risk of loss. Loans determined to be impaired are evaluated for potential loss exposure. Any shortfall results in a recommendation of a 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. The 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 provide for the imprecision and the uncertainty that is inherent in estimates of probable credit losses.

Our lending emphasis has been the origination of multi-family loans, commercial real estate loans, commercial and industrial loans, one- to four-family residential mortgage loans secured by one- to four-family residential real estate, construction loans and consumer loans, the majority of which are home equity loans, home equity lines of credit and cash surrender value lending on life insurance contracts. 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 to our loan portfolio are increases in interest rates, a decline in the general economy, and declines in real estate market values in New Jersey, New York and surrounding states. Any one or combination of these events may adversely affect our loan portfolio resulting in increased delinquencies, loan losses and future levels of loan loss provisions. As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisal valuations are instrumental in determining the value of properties. Negative changes to appraisal assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals are carefully reviewed to determine that the resulting values reasonably reflect amounts realizable on the related loans.

The Company obtains an appraisal for all commercial loans that are collateral dependent upon origination. An updated appraisal is obtained annually for loans rated substandard or worse with a balance of $500,000 or greater. An updated appraisal is obtained biennially for loans rated special mention with a balance of $2.0 million or greater. This is done in order to determine the specific reserve or charge off needed. As part of the allowance for loan losses process, the Company reviews each collateral dependent commercial 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 special assets 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.

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For homogeneous residential mortgage loans, the Company’s policy is to obtain an appraisal upon the origination of the loan and an updated appraisal in the event a loan becomes 90 days delinquent. Thereafter, the appraisal is updated every two years if the loan remains in non-performing status and the foreclosure process has not been completed. Management adjusts the appraised value of residential loans to reflect estimated selling costs and declines in the real estate market.

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

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

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The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2018 and December 31, 2017:

	March 31, 2018
	Multi- Family Loans			Commercial Real Estate Loans		Commercial and Industrial Loans		Construction Loans		Residential Mortgage Loans		Consumer and Other Loans		Unallocated		Total
	(Dollars in thousands)
Allowance for loan losses:
Beginning balance-December 31, 2017	$	81,469		56,137		54,563		11,609		21,835		3,099		2,257		230,969
Charge-offs	(326		)	(2,463	)	(1,611	)	—		(2,046	)	(661	)	—		(7,107	)
Recoveries	—			570		3,706		—		505		1		—		4,782
Provision	(980		)	1,576		149		(804	)	1,995		718		(154	)	2,500
Ending balance-March 31, 2018	$	80,163		55,820		56,807		10,805		22,289		3,157		2,103		231,144
Individually evaluated for impairment	$	—		—		—		—		1,665		70		—		1,735
Collectively evaluated for impairment	80,163			55,820		56,807		10,805		20,624		3,087		2,103		229,409
Loans acquired with deteriorated credit quality	—			—		—		—		—		—		—		—
Balance at March 31, 2018	$	80,163		55,820		56,807		10,805		22,289		3,157		2,103		231,144
Loans:
Individually evaluated for impairment	$	19,997		14,745		21,886		—		26,251		833		—		83,712
Collectively evaluated for impairment	7,824,126			4,572,172		2,003,017		390,853		5,056,333		664,587		—		20,511,088
Loans acquired with deteriorated credit quality	—			6,660		—		—		1,195		227		—		8,082
Balance at March 31, 2018	$	7,844,123		4,593,577		2,024,903		390,853		5,083,779		665,647		—		20,602,882

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	December 31, 2017
	Multi- Family Loans			Commercial Real Estate Loans		Commercial and Industrial Loans		Construction Loans		Residential Mortgage Loans		Consumer and Other Loans		Unallocated	Total
	(Dollars in thousands)
Allowance for loan losses:
Beginning balance-December 31, 2016	$	95,561		52,796		43,492		11,653		19,831		2,850		2,190	228,373
Charge-offs	(6		)	(8,072	)	(5,656	)	(100	)	(4,875	)	(500	)	—	(19,209	)
Recoveries	1,677			549		200		—		2,816		313		—	5,555
Provision	(15,763		)	10,864		16,527		56		4,063		436		67	16,250
Ending balance-December 31, 2017	$	81,469		56,137		54,563		11,609		21,835		3,099		2,257	230,969
Individually evaluated for impairment	$	—		—		—		—		1,678		97		—	1,775
Collectively evaluated for impairment	81,469			56,137		54,563		11,609		20,157		3,002		2,257	229,194
Loans acquired with deteriorated credit quality	—			—		—		—		—		—		—	—
Balance at December 31, 2017	$	81,469		56,137		54,563		11,609		21,835		3,099		2,257	230,969
Loans:
Individually evaluated for impairment	$	14,776		29,736		8,989		—		26,376		879		—	80,756
Collectively evaluated for impairment	7,788,059			4,511,611		1,616,386		416,883		4,998,890		669,941		—	20,001,770
Loans acquired with deteriorated credit quality	—			6,754		—		—		1,251		317		—	8,322
Balance at December 31, 2017	$	7,802,835		4,548,101		1,625,375		416,883		5,026,517		671,137		—	20,090,848

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

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

Watch - A “Watch” asset has all the characteristics of a Pass asset but warrants 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 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 and consumer loans delinquent 30-59 days are considered watch if not already identified as impaired.

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

17

warrant adverse classification. Residential and consumer loans delinquent 60-89 days are considered special mention if not already identified as impaired.

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

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

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

The following tables present the risk category of loans as of March 31, 2018 and December 31, 2017 by class of loans, excluding PCI loans:

	March 31, 2018
	Pass		Watch	Special Mention	Substandard	Doubtful	Loss	Total
	(In thousands)
Commercial loans:
Multi-family	$	6,884,198	694,140	151,553	114,232	—	—	7,844,123
Commercial real estate	3,830,281		517,269	99,962	139,405	—	—	4,586,917
Commercial and industrial	1,314,011		595,067	47,460	68,365	—	—	2,024,903
Construction	279,945		77,846	32,786	276	—	—	390,853
Total commercial loans	12,308,435		1,884,322	331,761	322,278	—	—	14,846,796
Residential mortgage	4,987,593		13,836	6,749	74,406	—	—	5,082,584
Consumer and other	654,871		3,348	1,459	5,742	—	—	665,420
Total	$	17,950,899	1,901,506	339,969	402,426	—	—	20,594,800

	December 31, 2017
	Pass		Watch	Special Mention	Substandard	Doubtful	Loss	Total
	(In thousands)
Commercial loans:
Multi-family	$	6,791,999	702,384	154,125	154,327	—	—	7,802,835
Commercial real estate	3,751,790		528,179	105,089	156,289	—	—	4,541,347
Commercial and industrial	1,102,304		443,669	37,944	41,458	—	—	1,625,375
Construction	272,882		109,252	34,454	295	—	—	416,883
Total commercial loans	11,918,975		1,783,484	331,612	352,369	—	—	14,386,440
Residential mortgage	4,926,002		14,272	7,749	77,243	—	—	5,025,266
Consumer and other	657,515		6,270	521	6,514	—	—	670,820
Total	$	17,502,492	1,804,026	339,882	436,126	—	—	20,082,526

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The following tables present the payment status of the recorded investment in past due loans as of March 31, 2018 and December 31, 2017 by class of loans, excluding PCI loans:

	March 31, 2018
	30-59 Days		60-89 Days	Greater than 90 Days	Total Past Due	Current	Total Loans Receivable
	(In thousands)
Commercial loans:
Multi-family	$	6,464	—	4,939	11,403	7,832,720	7,844,123
Commercial real estate	6,456		408	12,539	19,403	4,567,514	4,586,917
Commercial and industrial	3,890		12,706	1,054	17,650	2,007,253	2,024,903
Construction	—		—	276	276	390,577	390,853
Total commercial loans	16,810		13,114	18,808	48,732	14,798,064	14,846,796
Residential mortgage	14,707		7,390	52,701	74,798	5,007,786	5,082,584
Consumer and other	3,349		1,459	5,029	9,837	655,583	665,420
Total	$	34,866	21,963	76,538	133,367	20,461,433	20,594,800

	December 31, 2017
	30-59 Days		60-89 Days	Greater than 90 Days	Total Past Due	Current	Total Loans Receivable
	(In thousands)
Commercial loans:
Multi-family	$	7,263	7,652	203	15,118	7,787,717	7,802,835
Commercial real estate	19,355		778	11,519	31,652	4,509,695	4,541,347
Commercial and industrial	4,855		—	75	4,930	1,620,445	1,625,375
Construction	—		295	—	295	416,588	416,883
Total commercial loans	31,473		8,725	11,797	51,995	14,334,445	14,386,440
Residential mortgage	15,191		8,739	54,900	78,830	4,946,436	5,025,266
Consumer and other	6,357		521	5,755	12,633	658,187	670,820
Total	$	53,021	17,985	72,452	143,458	19,939,068	20,082,526

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

	March 31, 2018			December 31, 2017
	# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
Non-accrual:
Multi-family	8	$	20,192	5	$	14,978
Commercial real estate	38	19,732		37	34,043
Commercial and industrial	19	23,259		11	9,989
Construction	1	276		1	295
Total commercial loans	66	63,459		54	59,305
Residential mortgage and consumer	390	72,529		427	76,422
Total non-accrual loans	456	$	135,988	481	$	135,727

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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 March 31, 2018 and December 31, 2017, these loans are comprised of the following:

	March 31, 2018			December 31, 2017
	# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
TDR with payment status current classified as non-accrual:
Commercial real estate	—	$	—	1	$	10
Residential mortgage and consumer	26	3,310		24	4,103
Total TDR with payment status current classified as non-accrual	26	$	3,310	25	$	4,113

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

	March 31, 2018			December 31, 2017
	# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
TDR 30-89 days delinquent classified as non-accrual:
Multi-family	1	$	52	1	$	918
Commercial real estate	—	—		2	14,321
Total commercial loans	1	52		3	15,239
Residential mortgage and consumer	7	1,507		13	1,995
Total TDR 30-89 days delinquent classified as non-accrual	8	$	1,559	16	$	17,234

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 March 31, 2018, PCI loans with a carrying value of $8.1 million included $7.1 million of which were current, $52,000 of which were 30-89 days delinquent and $905,000 of which were 90 days or more delinquent. As of December 31, 2017, PCI loans with a carrying value of $8.3 million included $7.1 million of which were current, $203,000 of which were 30-89 days delinquent and $1.0 million of which were 90 days or more delinquent.

At March 31, 2018 and December 31, 2017, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans which totaled $83.7 million and $80.8 million, respectively, with allocations of the allowance for loan losses of $1.7 million and $1.8 million for the periods ending March 31, 2018 and December 31, 2017, respectively. During the three months ended March 31, 2018 and 2017, interest income received and recognized on these loans totaled $242,000 and $367,000, respectively.

20

The following tables present loans individually evaluated for impairment by portfolio segment as of March 31, 2018 and December 31, 2017:

	March 31, 2018
	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
	(In thousands)
With no related allowance:
Multi-family	$	19,997	20,281	—	20,287	139
Commercial real estate	14,745		19,527	—	14,946	14
Commercial and industrial	21,886		26,463	—	21,997	—
Construction	—		—	—	—	—
Total commercial loans	56,628		66,271	—	57,230	153
Residential mortgage and consumer	11,982		15,987	—	12,291	34
With an allowance recorded:
Multi-family	—		—	—	—	—
Commercial real estate	—		—	—	—	—
Commercial and industrial	—		—	—	—	—
Construction	—		—	—	—	—
Total commercial loans	—		—	—	—	—
Residential mortgage and consumer	15,102		15,684	1,735	15,029	55
Total:
Multi-family	19,997		20,281	—	20,287	139
Commercial real estate	14,745		19,527	—	14,946	14
Commercial and industrial	21,886		26,463	—	21,997	—
Construction	—		—	—	—	—
Total commercial loans	56,628		66,271	—	57,230	153
Residential mortgage and consumer	27,084		31,671	1,735	27,320	89
Total impaired loans	$	83,712	97,942	1,735	84,550	242

21

	December 31, 2017
	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
	(In thousands)
With no related allowance:
Multi-family	$	14,776	14,819	—	14,365	249
Commercial real estate	29,736		37,288	—	29,974	404
Commercial and industrial	8,989		12,008	—	8,681	28
Construction	—		—	—	—	—
Total commercial loans	53,501		64,115	—	53,020	681
Residential mortgage and consumer	12,357		16,236	—	12,100	430
With an allowance recorded:
Multi-family	—		—	—	—	—
Commercial real estate	—		—	—	—	—
Commercial and industrial	—		—	—	—	—
Construction	—		—	—	—	—
Total commercial loans	—		—	—	—	—
Residential mortgage and consumer	14,898		15,461	1,775	14,767	386
Total:
Multi-family	14,776		14,819	—	14,365	249
Commercial real estate	29,736		37,288	—	29,974	404
Commercial and industrial	8,989		12,008	—	8,681	28
Construction	—		—	—	—	—
Total commercial loans	53,501		64,115	—	53,020	681
Residential mortgage and consumer	27,255		31,697	1,775	26,867	816
Total impaired loans	$	80,756	95,812	1,775	79,887	1,497

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

Troubled Debt Restructurings

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

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

22

The following tables present the total TDR loans at March 31, 2018 and December 31, 2017. There were five residential PCI loans that were classified as TDRs for the period ended March 31, 2018. There were four residential PCI loans that were classified as TDRs for the period ended December 31, 2017.

	March 31, 2018
	Accrual			Non-accrual			Total
	# of loans	Amount		# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
Commercial loans:
Multi-family	—	$	—	1	$	911	1	$	911
Commercial real estate	1	6		3	654		4	660
Commercial and industrial	1	495		1	1,256		2	1,751
Total commercial loans	2	501		5	2,821		7	3,322
Residential mortgage and consumer	52	11,855		72	15,229		124	27,084
Total	54	$	12,356	77	$	18,050	131	$	30,406

	December 31, 2017
	Accrual			Non-accrual			Total
	# of loans	Amount		# of loans	Amount		# of loans	Amount
	(Dollars in thousands)
Commercial loans:
Multi-family	—	$	—	1	$	918	1	$	918
Commercial real estate	—	—		4	14,489		4	14,489
Commercial and industrial	—	—		1	1,287		1	1,287
Total commercial loans	—	—		6	16,694		6	16,694
Residential mortgage and consumer	49	10,957		71	16,298		120	27,255
Total	49	$	10,957	77	$	32,992	126	$	43,949

The following tables present information about TDRs that occurred during the three months ended March 31, 2018 and 2017:

	Three Months Ended March 31,
	2018					2017
	Number of Loans	Pre-modification Recorded Investment		Post- modification Recorded Investment		Number of Loans	Pre-modification Recorded Investment		Post- modification Recorded Investment
	(Dollars in thousands)
Troubled Debt Restructurings:
Commercial real estate	2	$	788	$	616	1	$	166	$	166
Commercial and industrial	1	435		435		—	—		—
Residential mortgage and consumer	6	712		712		13	2,879		2,779

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

All TDRs are impaired loans, which are individually evaluated for impairment, as discussed above. Collateral dependent impaired loans classified as TDRs were written down to the estimated fair value of the collateral. There were charge-offs of $172,000 and $100,000 for collateral dependent TDRs during the three months ended March 31, 2018 and March 31, 2017, respectively. The allowance for loan losses associated with the TDRs presented in the above tables totaled $1.7 million and $1.8 million at March 31, 2018 and December 31, 2017, respectively.

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Residential mortgage loan modifications generally involve the reduction in loan interest rate and extension of loan maturity dates and also may include step up interest rates in their modified terms which will impact their weighted average yield in the future. All residential loans deemed to be TDRs were modified to reflect a reduction in interest rates to current market rates. The commercial loan modifications which qualified as TDRs had their maturity extended as well as the reduction in loan interest rate.

The following tables present information about pre and post modification interest yield for troubled debt restructurings which occurred during the three months ended March 31, 2018 and 2017:

	Three Months Ended March 31,
	2018					2017
	Number of Loans	Pre-modification Interest Yield		Post- modification Interest Yield		Number of Loans	Pre-modification Interest Yield		Post- modification Interest Yield
Troubled Debt Restructurings:
Commercial real estate	2	4.68	%	4.68	%	1	5.50	%	5.50	%
Commercial and industrial	1	4.75	%	4.50	%	—	—	%	—	%
Residential mortgage and consumer	6	4.70	%	3.28	%	13	4.27	%	3.54	%

Payment defaults for loans modified as a TDR in the previous 12 months to March 31, 2018 consisted of 6 residential loans and 1 multi-family loan with a recorded investment of $436,000 and $918,000, respectively, at March 31, 2018. Payment defaults for loans modified as a TDR in the previous 12 months to March 31, 2017 consisted of 9 residential loans and 2 commercial real estate loans with a recorded investment of $1.6 million and $498,000, respectively, at March 31, 2017.

7.     Deposits

Deposits are summarized as follows:

	March 31, 2018		December 31, 2017
	(In thousands)
Non-interest bearing:
Checking accounts	$	2,292,940	2,424,608
Interest bearing:
Checking accounts	4,382,528		4,909,054
Money market deposits	3,864,519		4,243,545
Savings	2,374,624		2,320,228
Certificates of deposit	3,631,714		3,460,262
Total deposits	$	16,546,325	17,357,697

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8.    Goodwill and Other Intangible Assets

The following table summarizes goodwill and intangible assets at March 31, 2018 and December 31, 2017:

	March 31, 2018		December 31, 2017
	(In thousands)
Mortgage servicing rights	$	12,751	13,228
Core deposit premiums	5,512		6,024
Other	820		842
Total other intangible assets	19,083		20,094
Goodwill	82,526		77,571
Goodwill and intangible assets	$	101,609	97,665

For the period ending March 31, 2018, the increase in goodwill reflects the acquisition of the equipment finance portfolio.

The following table summarizes other intangible assets as of March 31, 2018 and December 31, 2017:

	Gross Intangible Asset		Accumulated Amortization		Valuation Allowance		Net Intangible Assets
	(In thousands)
March 31, 2018
Mortgage servicing rights	$	19,797	(6,924	)	(122	)	12,751
Core deposit premiums	25,058		(19,546	)	—		5,512
Other	1,150		(330	)	—		820
Total other intangible assets	$	46,005	(26,800	)	(122	)	19,083
December 31, 2017
Mortgage servicing rights	$	20,236	(6,886	)	(122	)	13,228
Core deposit premiums	25,058		(19,034	)	—		6,024
Other	1,150		(308	)	—		842
Total other intangible assets	$	46,444	(26,228	)	(122	)	20,094

Mortgage servicing rights are accounted for using the amortization method. Under this method, the Company amortizes the loan servicing asset in proportion to, and over the period of, estimated net servicing revenues. The Company sells loans on a servicing-retained basis. Loans that were sold on this basis had an unpaid principal balance of $1.72 billion and $1.77 billion at March 31, 2018 and December 31, 2017, respectively, all of which relate to residential mortgage loans. At March 31, 2018 and December 31, 2017, the servicing asset, included in intangible assets, had an estimated fair value of $15.2 million and $15.0 million, respectively. At March 31, 2018, fair value was based on expected future cash flows considering a weighted average discount rate of 13.19%, a weighted average constant prepayment rate on mortgages of 8.28% and a weighted average life of 7.4 years. See Note 13 for additional details.

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

9.     Equity Incentive Plan

At the annual meeting held on June 9, 2015, stockholders of the Company approved the Investors Bancorp, Inc. 2015 Equity Incentive Plan (“2015 Plan”) which provides for the issuance or delivery of up to 30,881,296 shares (13,234,841 restricted stock awards and 17,646,455 stock options) of Investors Bancorp, Inc. common stock.

25

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 determines 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, 2018 and March 31, 2017, the Company granted 18,947 and 350,000 shares of restricted stock awards under the 2015 Plan, respectively. During the three months ended March 31, 2018, it was determined that the performance-based stock awards granted during 2015 were achieved at 70% of target based upon the performance criteria. This resulted in 70% of these performance-based stock awards being deemed earned and converted to time-based stock awards that vest over a service period and the balance being forfeited.

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, 2018, the Company granted 15,000 stock options under the 2015 Plan. For the three months ended March 31, 2017, no stock options were granted under the 2015 Plan.

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

	Three Months Ended March 31,
	2018
Weighted average expected life (in years)	6.50
Weighted average risk-free rate of return	2.74		%
Weighted average volatility	18.29		%
Dividend yield	2.64		%
Weighted average fair value of options granted	$	2.15
Total stock options granted	15,000

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. Upon exercise of vested options, management expects to draw on treasury stock as the source for shares.

The following table presents the share based compensation expense for the three months ended March 31, 2018 and 2017:

	Three Months Ended March 31,
	2018		2017
	(In thousands)
Stock option expense	$	1,430	1,426
Restricted stock expense	1,940		3,431
Total share based compensation expense	$	3,370	4,857

26

The following is a summary of the Company’s stock option activity and related information for the three months ended March 31, 2018:

	Number of Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2017	11,469,417			$12.00	7.0		$21,587
Granted	15,000		13.62		10.0
Exercised	(426,429	)	6.37		1.2
Forfeited	(28,142	)	12.54
Expired	(20,002	)	12.54
Outstanding at March 31, 2018	11,009,844			$12.22	7.0		$15,683
Exercisable at March 31, 2018	4,076,360			$11.68	6.5		$8,000

Expected future expense relating to the non-vested options outstanding as of March 31, 2018 is $19.3 million over a weighted average period of 3.47 years.

The following is a summary of the status of the Company’s restricted shares as of March 31, 2018 and changes therein during the three months ended:

	Number of Shares Awarded		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2017	4,940,335		$	12.67
Granted	18,947		13.60
Vested	(275,896	)	13.03
Forfeited	(250,000	)	12.54
Outstanding and non vested at March 31, 2018	4,433,386		$	12.66

Expected future expense relating to the non-vested restricted shares outstanding as of March 31, 2018 is $46.4 million over a weighted average period of 3.72 years.

10.     Net Periodic Benefit Plan Expense

The Company has an Executive Supplemental Retirement Wage Replacement Plan (“Wage Replacement Plan”) and the Supplemental Retirement Plan (“SERP I”) (collectively, the “SERPs”). The Wage Replacement Plan is a nonqualified, defined benefit plan which provides benefits to certain executives as designated by the Compensation Committee of the Board of Directors. More specifically, the Wage Replacement Plan was 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 incentive (over a consecutive 36-month period within the participant’s credited service period) reduced by the sum of the benefits provided under the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”) and SERP I.

Effective as of the close of business of December 31, 2016, the Wage Replacement Plan was amended to freeze future benefit accruals, and for certain participants, structure the benefits payable attributable solely to the participants’ 2016 year of service to vest over a two-year period such that the participants had a right to 50% of their accrued benefits attributable to their 2016 year of service as of December 31, 2016, which became 100% vested as of December 31, 2017.

The Supplemental ESOP compensates certain executives (as designated by the Compensation Committee of the Board of Directors) participating in the ESOP whose contributions are limited by the Internal Revenue Code. The Company also maintains the Amended and Restated Director Retirement Plan (“Directors’ Plan”) for certain directors, which is a nonqualified, defined benefit plan. The Directors’ Plan was frozen on November 21, 2006 such that no new benefits accrued under, and no new directors were eligible to participate in the plan. The Wage Replacement Plan, Supplemental ESOP and the Directors’ Plan are unfunded and the costs of the plans are recognized over the period that services are provided.

The components of net periodic benefit cost for the Directors’ Plan and the Wage Replacement Plan are as follows:

	Three Months Ended March 31,
	2018		2017
	(In thousands)
Service cost	$	—	371
Interest cost	355		378
Amortization of:
Net loss	126		115
Total net periodic benefit cost	$	481	864

Due to the unfunded nature of the SERPs and the Directors’ Plan, no contributions have been made or were expected to be made during the three months ended March 31, 2018.

The Company also maintains the Pentegra DB Plan. Since it is a multiemployer plan, costs of the pension plan are based on contributions required to be made to the pension plan. As of December 31, 2016, the annual benefit provided under the Pentegra DB plan was frozen by an amendment to the plan. Freezing the plan eliminates all future benefit accruals and each participant’s frozen accrued benefit was determined as of December 31, 2016 and no further benefits will accrue beyond such date. There was no contribution required during the three months ended March 31, 2018. We anticipate contributing funds to the plan to meet any minimum funding requirements for the remainder of 2018.

11.    Derivatives and Hedging Activities

The Company uses various financial instruments, including derivatives, to manage its exposure to interest rate risk. Certain derivatives are designated as hedging instruments in a qualifying hedge accounting relationship (fair value or cash flow hedge). As of March 31, 2018 and December 31, 2017, the Company has cash flow hedges with aggregate notional amounts of $1.10 billion and $900.0 million, respectively.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are primarily to reduce cost and add stability to interest expense in an effort to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of amounts subject to variability caused by changes in interest rates from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.  The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is initially recorded in other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

During the three months ended March 31, 2018 and 2017, such derivatives were used to hedge the variability in cash flows associated with certain short term wholesale funding transactions. Since entering into the derivatives in the third quarter of 2016, the Company has not recorded any hedge ineffectiveness. The ineffective portion of the change in fair value of the derivatives would be recognized directly in earnings.

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate borrowings. During the next twelve months, the Company estimates that an additional $4.7 million will be reclassified as a decrease to interest expense.

27

Fair Values of Derivative Instruments on the Balance Sheet

The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017:

	Asset Derivatives						Liability Derivatives
	March 31, 2018			December 31, 2017			March 31, 2018			December 31, 2017
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In thousands)
Derivatives designated as hedging instruments:
Interest Rate Swaps	Other assets	$	—	Other assets	$	—	Other liabilities	$	1,159	Other liabilities	$	613
Total derivatives designated as hedging instruments		$	—		$	—		$	1,159		$	613

Effective January 3, 2017, the Chicago Mercantile Exchange (“CME”) amended their rules to legally characterize the variation margin posted between counterparties to be classified as settlements of the outstanding derivative contracts instead of cash collateral. The Company adopted the new rule on a prospective basis to include the accrued interest and variation margin posted by the CME in the fair value.

Effect of Derivative Instruments on the Income Statement

The following table presents the effect of the Company’s derivative financial instruments on the Consolidated Statement of Income as of March 31, 2018 and 2017.

	Three Months Ended March 31,
	2018			2017
Cash Flow Hedges - Interest rate swaps	(In thousands)
Amount of gain recognized in other comprehensive income	$	16,938		1,256
Amount of loss reclassified from accumulated other comprehensive loss to interest expense	(369		)	(807	)

Offsetting Derivatives

The following table presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives in the Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017. The net amounts of derivative liabilities and assets can be reconciled to the tabular disclosure of the fair value hierarchy, see Note 13, Fair Value Measurements. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Company’s Consolidated Balance Sheets.

					Gross Amounts Not Offset
	Gross Amounts Recognized		Gross Amounts Offset	Net Amounts Presented	Financial Instruments	Cash Collateral Posted	Net Amount
	(In thousands)
March 31, 2018
Liabilities:
Interest Rate Swaps	$	1,159	—	1,159	—	—	1,159
Total	$	1,159	—	1,159	—	—	1,159
December 31, 2017
Liabilities:
Interest Rate Swaps	$	613	—	613	—	—	613
Total	$	613	—	613	—	—	613

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Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty. The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well capitalized institution, then the Company could be required to terminate its derivative positions with the counterparty.

The Company has minimum collateral posting thresholds with certain of its derivative counterparties and posts collateral on a daily basis as required by the clearing house against the Company’s obligations, as required by these agreements.

12.    Comprehensive Income

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

	Three Months Ended March 31,
	2018							2017
	Gross			Tax		Net		Gross		Tax		Net
	(Dollars in thousands)
Net income	$	78,009		(20,084	)	57,925		73,264		(27,244	)	46,020
Other comprehensive (loss) income:
Change in funded status of retirement obligations	143			(40	)	103		141		(58	)	83
Unrealized (losses) gains on debt securities available-for-sale	(30,535		)	7,812		(22,723	)	4,291		(1,612	)	2,679
Accretion of loss on debt securities reclassified to held-to-maturity from available-for-sale	233			(66	)	167		352		(144	)	208
Reclassification adjustment for security gains included in net income	—			—		—		(1,227	)	491		(736	)
Other-than-temporary impairment accretion on debt securities	300			(84	)	216		673		(274	)	399
Net gains on derivatives arising during the period	17,307			(4,865	)	12,442		2,063		(843	)	1,220
Total other comprehensive (loss) income	(12,552		)	2,757		(9,795	)	6,293		(2,440	)	3,853
Total comprehensive income	$	65,457		(17,327	)	48,130		79,557		(29,684	)	49,873

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The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the three months ended March 31, 2018 and 2017:

	Change in funded status of retirement obligations			Accretion of loss on debt securities reclassified to held-to-maturity		Unrealized (losses) gains on debt securities available-for-sale and gains included in net income		Other-than- temporary impairment accretion on  debt securities		Unrealized gains on derivatives	Total accumulated other comprehensive loss
	(Dollars in thousands)
Balance - December 31, 2017	$	(5,640	)	(1,520	)	(21,184	)	(14,482	)	13,487	(29,339	)
Net change	103			167		(22,723	)	216		12,442	(9,795	)
Reclassification due to the adoption of ASU No. 2016-01	—			—		(606	)	—		—	(606	)
Balance - March 31, 2018	$	(5,537	)	(1,353	)	(44,513	)	(14,266	)	25,929	(39,740	)
Balance - December 31, 2016	$	(4,895	)	(1,988	)	(12,271	)	(12,870	)	7,424	(24,600	)
Net change	83			208		1,943		399		1,220	3,853
Balance - March 31, 2017	$	(4,812	)	(1,780	)	(10,328	)	(12,471	)	8,644	(20,747	)

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 March 31,
	2018			2017
	(In thousands)
Reclassification adjustment for gains included in net income
Gain on securities transactions, net	$	—		(1,227	)
Change in funded status of retirement obligations
Amortization of net loss	129			120
Interest expense
Reclassification adjustment for unrealized losses on derivatives	369			807
Total before tax	498			(300	)
Income tax (expense) benefit	(128		)	133
Net of tax	$	370		(167	)

13.    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 and derivatives 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 other real estate owned. 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.

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

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

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

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

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

Assets Measured at Fair Value on a Recurring Basis

Debt 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 debt securities available-for-sale are based upon quoted prices for similar instruments in active markets (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.

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Equity securities

Our equity securities portfolio is carried at estimated fair value on a recurring basis, with any gains and losses reported in the Consolidated Statements of Income. The fair values of equity securities are based on quoted market prices (Level 1). The Company adopted FASB ASU 2016-01 on January 1, 2018.

Derivatives

Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of interest rate swap agreements are based on a valuation model that uses primarily observable inputs, such as benchmark yield curves and interest rate spreads.

The following tables provide the level of valuation assumptions used to determine the carrying value of our assets and liabilities measured at fair value on a recurring basis at March 31, 2018 and December 31, 2017.

	Carrying Value at March 31, 2018
	Total		Level 1	Level 2	Level 3
	(In thousands)
Assets:
Equity securities	$	5,677	5,677	—	—
Debt securities available for sale:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	676,590		—	676,590	—
Federal National Mortgage Association	1,228,037		—	1,228,037	—
Government National Mortgage Association	35,961		—	35,961	—
Total debt securities available-for-sale	$	1,940,588	—	1,940,588	—
Liabilities:
Derivative financial instruments	$	1,159	—	1,159	—

	Carrying Value at December 31, 2017
	Total		Level 1	Level 2	Level 3
	(In thousands)
Assets:
Equity securities	$	5,701	5,701	—	—
Debt securities available for sale:
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation	640,242		—	640,242	—
Federal National Mortgage Association	1,303,576		—	1,303,576	—
Government National Mortgage Association	38,208		—	38,208	—
Total debt securities available-for-sale	$	1,982,026	—	1,982,026	—
Liabilities:
Derivative financial instruments	$	613	—	613	—

There have been no changes in the methodologies used at March 31, 2018 from December 31, 2017, and there were no transfers between Level 1 and Level 2 during the three months ended March 31, 2018.

There were no Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2018 and December 31, 2017.

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Assets Measured at Fair Value on a Non-Recurring Basis

Mortgage Servicing Rights, Net

Mortgage servicing rights are carried at the lower of cost or estimated fair value. The estimated fair value of MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating 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 March 31, 2018, the fair value model used prepayment speeds ranging from 6.00% to 19.68% and a discount rate of 13.19% for the valuation of the mortgage servicing rights. At December 31, 2017, the fair value model used prepayment speeds ranging from 5.56% to 23.22% and a discount rate of 13.20% for the valuation of the mortgage servicing rights. A significant degree of judgment is involved in valuing the mortgage servicing rights using Level 3 inputs. The use of different assumptions could have a significant positive or negative effect on the fair value estimate.

Impaired Loans Receivable

Loans which meet certain criteria are evaluated individually for impairment. A loan is deemed to be impaired if it is a commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, loans modified in a troubled debt restructuring, and other commercial loans with $1.0 million in outstanding principal if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. Our impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling costs. Estimated fair value is calculated using an independent third-party appraiser for collateral-dependent loans. 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 March 31, 2018, appraisals were discounted in a range of 0%-25%. For non collateral-dependent loans, management estimates the fair value using discounted cash flows based on inputs that are largely unobservable and instead reflect management’s own estimates of the assumptions as a market participant would in pricing such loans.

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 further declines in the estimated fair value of the asset occur, 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.

Loans Held For Sale

Residential mortgage loans held for sale are recorded at the lower of cost or fair value and are therefore measured at fair value on a non-recurring basis. When available, the Company uses observable secondary market data, including pricing on recent closed market transactions for loans with similar characteristics.

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The following tables provide the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis at March 31, 2018 and December 31, 2017. For the three months ended March 31, 2018 there was no change to the carrying value of MSR or loans held for sale. At December 31, 2017 there was no change to carrying value of MSR or loans held for sale measured at fair value on a non-recurring basis.

					Carrying Value at March 31, 2018
Security Type	Valuation Technique	Unobservable Input	Range	Weighted Average	Total		Level 1	Level 2	Level 3
					(In thousands)
Impaired loans	Market comparable	Lack of marketability	1.0% - 45.0%	24.24%	$	12,191	—	—	12,191
Other real estate owned	Market comparable	Lack of marketability	0% - 25.0%	23.10%	99		—	—	99
					$	12,290	—	—	12,290

					Carrying Value at December 31, 2017
Security Type	Valuation Technique	Unobservable Input	Range	Weighted Average	Total		Level 1	Level 2	Level 3
					(In thousands)
Impaired loans	Market comparable and estimated cash flow	Lack of marketability and probability of default	1.0% - 45.0%	21.00%	$	30,445	—	—	30,445
Other real estate owned	Market comparable	Lack of marketability	0.0% - 25.0%	21.65%	263		—	—	263
					$	30,708	—	—	30,708

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.

Debt Securities Held-to-Maturity

Our debt securities 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 forecasted cash flows, discount rates, rate of return, adjustments for nonperformance and liquidity, and liquidation values. As the Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in adjustment in the prices obtained from the pricing service.

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FHLB Stock

The fair value of the Federal Home Loan Bank of New York (“FHLB”) stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock and the Bank is required to hold a minimum investment based upon the balance of mortgage related assets held by the member and or FHLB advances outstanding.

Loans

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

The fair value estimates are made at a specific point in time based on relevant market information. They do not reflect any premium or discount that could result from offering for sale a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties, and cannot be determined with precision.

Deposit Liabilities

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

Borrowings

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

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Commitments to Extend Credit

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

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

	March 31, 2018
	Carrying		Estimated Fair Value
	value		Total	Level 1	Level 2	Level 3
	(In thousands)
Financial assets:
Cash and cash equivalents	$	153,439	153,439	153,439	—	—
Equity securities	5,677		5,677	5,677	—	—
Debt securities available-for-sale	1,940,588		1,940,588	—	1,940,588	—
Debt securities held-to-maturity	1,715,531		1,717,381	—	1,631,396	85,985
Stock in FHLB	264,919		264,919	264,919	—	—
Loans held for sale	1,011		1,011	—	1,011	—
Net loans	20,351,232		20,224,446	—	—	20,224,446
Financial liabilities:
Deposits, other than time deposits	$	12,914,611	12,914,611	12,914,611	—	—
Time deposits	3,631,714		3,604,507	—	3,604,507	—
Borrowed funds	5,361,260		5,312,201	—	5,312,201	—
Derivative financial instruments	1,159		1,159	—	1,159	—

	December 31, 2017
	Carrying		Estimated Fair Value
	value		Total	Level 1	Level 2	Level 3
	(In thousands)
Financial assets:
Cash and cash equivalents	$	618,394	618,394	618,394	—	—
Equity securities	5,701		5,701	5,701	—	—
Securities available-for-sale	1,982,026		1,982,026	—	1,982,026	—
Securities held-to-maturity	1,796,621		1,820,125	—	1,738,906	81,219
Stock in FHLB	231,544		231,544	231,544	—	—
Loans held for sale	5,185		5,185	—	5,185	—
Net loans	19,852,101		20,003,717	—	—	20,003,717
Financial liabilities:
Deposits, other than time deposits	$	13,897,435	13,897,435	13,897,435	—	—
Time deposits	3,460,262		3,438,673	—	3,438,673	—
Borrowed funds	4,461,533		4,437,346	—	4,437,346	—
Derivative financial instruments	613		613	—	613	—

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 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

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involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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.

14.    Recent Accounting Pronouncements

Accounting Pronouncements Adopted

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 718): Targeted Improvements to Accounting for Hedging Activities”. The purpose of this guidance is to better align a company’s financial reporting for hedging relationships with the company’s risk management activities by expanding strategies that qualify for hedge accounting, modifying the presentation of certain hedging relationships in the financial statements and simplifying the application of hedge accounting in certain situations. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted in any interim or annual period before the effective date. ASU 2017-12 will be applied using a modified retrospective approach through a cumulative-effect adjustment related to the elimination of the separate measurement of ineffectiveness to the balance of accumulated other comprehensive income with a corresponding adjustment to retained earnings as of the beginning of the fiscal year in which the amendments in this update are adopted. The amended presentation and disclosure guidance is required only prospectively. The Company early adopted ASU 2017-12 on January 1, 2018 which did not have any impact on the Company’s consolidated financial position, results of operations or cash flows.

In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting”. This update provides guidance about changes to terms or conditions of a share-based payment award which would require modification accounting. In particular, an entity is required to account for the effects of a modification if the fair value, vesting condition or the equity/liability classification of the modified award is not the same immediately before and after a change to the terms and conditions of the award. The update is to be applied prospectively for awards modified on or after the adoption date. The Company adopted ASU 2017-09 on January 1, 2018, which did not have any impact on the Company’s Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, which requires that companies disaggregate the service cost component from other components of net benefit cost. This update calls for companies that offer postretirement benefits to present the service cost, which is the amount an employer has to set aside each quarter or fiscal year to cover the benefits, in the same line item with other current employee compensation costs. Other components of net benefit cost will be presented in the income statement separately from the service cost component and outside the subtotal of income from operations, if one is presented. The Company adopted ASU 2017-07 on January 1, 2018, which did not have a material impact on the Company’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments in this ASU provide a practical way to determine when a set of assets and activities is not a business. The screen provided in this ASU requires that when all or substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. The amendments also provide other considerations to determine whether a set is a business if the screen is not met. The update is to be applied prospectively. The Company adopted ASU 2017-01 on January 1, 2018. The adoption of this new guidance is not expected to have a material impact on the determination of whether future acquisitions are considered a business combination and the resulting impact on the consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” This ASU addresses the recognition of current and deferred taxes for an intra-entity asset transfer and amends current U.S. GAAP by eliminating the exception for intra-entity transfers of assets other than inventory to defer such recognition until sale to an outside party. The Company adopted ASU 2016-16 on January 1, 2018, which did not have an impact on the Company’s Consolidated Financial Statements.

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In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”, a new standard which addresses diversity in practice related to eight specific cash flow issues: debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. Entities will apply the standard’s provisions using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company adopted ASU 2016-15 on January 1, 2018, which did not have a material impact on the Company’s Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This amendment supersedes the guidance to classify equity securities with readily determinable fair values into different categories, requires equity securities to be measured at fair value with changes in the fair value recognized through net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The amendment requires public business entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The amendment requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. The amendment requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. The amendment reduces diversity in current practice by clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. 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. Subsequently, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which targets specific areas of improvement such as discontinuation of and adjustments to equity securities without a readily determinable fair value, forward contracts and purchased options. Similarly, the FASB issued ASU 2018-04, “Investments-Debt Securities (Topic 320) and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273”, which supersedes and adds various SEC paragraphs pursuant to the issuance of SAB 117. The Company adopted ASU 2016-01, 2018-03 and 2018-04 on January 1, 2018, which did not have a material impact on the Company’s results of operations, financial position, and liquidity.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are in the scope of other standards. The ASU was effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2017, and early adoption is permitted. Subsequently, the FASB issued the following standards related to ASU 2014-09: ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” ; ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”; ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”; ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”; and ASU 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” These amendments are intended to improve and clarify the implementation guidance of ASU 2014-09 and have the same effective date as the original standard. The Company adopted ASU 2014-09 on January 1, 2018. As the guidance does not apply to revenue associated with financial instruments, including loans, leases, securities and derivatives that are accounted for under other U.S. GAAP, the new revenue recognition standard did not have a material impact on the Company’s Consolidated Financial Statements. See Footnote 15, Revenue Recognition, for further details.

In January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update)”, which amends certain paragraphs in the ASC to give effect to announcements made by the SEC observer at two recent Emerging Issues Task Force meetings. SEC registrants are required to reasonably estimate the impact that adoption of the standards on revenue recognition, leases, and measurement of credit losses on financial instruments is expected to have on financial statements. If such estimate is indeterminate, registrants

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should consider providing additional qualitative disclosures to assess the effect on financial statements as a result of adopting of these new standards. There is no effective date or transition requirements for this standard.

Accounting Pronouncements Not Yet Adopted

In March 2017, the FASB issued ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”. The amendments in this update require the premium on callable debt securities to be amortized to the earliest call date rather than the maturity date; however, securities held at a discount continue to be amortized to maturity. The amendments apply only to debt securities purchased at a premium that are callable at fixed prices and on preset dates. The amendments more closely align interest income recorded on debt securities held at a premium or discount with the economics of the underlying instrument. ASU No. 2017-08 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating its provisions to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This ASU simplifies subsequent measurement of goodwill by eliminating Step 2 of the impairment test while retaining the option to perform the qualitative assessment for a reporting unit to determine whether the quantitative impairment test is necessary. The ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment testing dates beginning after January 1, 2017. The update is to be applied prospectively. The Company does not expect ASU No. 2017-04 to have a material impact on the Company’s Consolidated Financial Statements.

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

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 for leases classified as operating leases as well as finance leases. The update also requires new quantitative disclosures related to leases in the Consolidated Financial Statements. There are practical expedients in this update that relate to leases that commenced before the effective date, initial direct costs and the use of hindsight to extend or terminate a lease or purchase the leased asset. Subsequently, the FASB issued ASU 2018-01, “Leases (Topic 842) - Land Easement Practical Expedient for Transition to Topic 842”, which provides an optional practical expedient to not evaluate land easements which were existing or expired before the adoption of Topic 842 that were not accounted for as leases under Topic 840. 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 continues to evaluate the impact of the guidance, including determining whether other contracts exist that are deemed to be in scope. As such, no conclusions have yet been reached regarding the potential impact on adoption on the Company’s

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Consolidated Financial Statements and regulatory capital and risk-weighted assets; however, the Company does not expect the amendment to have a material impact on its results of operations.

15.    Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).”  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.  Revenue associated with financial instruments, including loans, leases, securities and derivatives, that are accounted for under other U.S. GAAP are specifically excluded from Topic 606.

The Company’s contracts with customers in the scope of Topic 606 are contracts for deposit accounts and contracts for non-deposit investment accounts through a third party service provider.  Both types of contracts result in non-interest income being recognized.  The revenue resulting from deposit accounts, which includes fees such as insufficient funds fees, wire transfer fees and out-of-network ATM transaction fees, is included as a component of fees and service charges on the consolidated statements of income.  The revenue resulting from non-deposit investment accounts is included as a component of other income on the consolidated statements of income. 

Revenue from contracts with customers included in fees and service charges was $3.1 million for both the three months ended March 31, 2018 and the three months ended March 31, 2017.  Revenue from contracts with customers included in other income was $1.8 million for the three months ended March 31, 2018 and $1.3 million for the three months ended March 31, 2017.

For our contracts with customers, we satisfy our performance obligations each day as services are rendered.  For our deposit account revenue, we receive payment on a daily basis as services are rendered and for our non-deposit investment account revenue, we receive payment on a monthly basis from our third party service provider as services are rendered.

16.    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 U.S. GAAP.

On April 26, 2018, the Company declared a cash dividend of $0.09 per share. The $0.09 dividend per share will be paid to stockholders on May 25, 2018, with a record date of May 10, 2018.

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

Forward Looking Statements

Certain statements contained herein are not based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the economic environment, particularly in the market areas in which Investors Bancorp, Inc. (the “Company”) operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations or interpretations of regulations affecting financial institutions, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity. Reference is made to Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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 losses, the Company performs an analysis on acquired loans to determine whether or not an allowance has been ascribed to those loans.

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 it will not collect all amounts due under the contractual terms of the loan agreement. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of loan, risk rating (if applicable) and payment history. In addition, the Company’s residential portfolio is subdivided between fixed and adjustable rate loans as adjustable rate loans are deemed to be subject to more credit risk if interest rates rise. Reserves for each loan segment or the loss factors are generally determined 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

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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, credit concentrations, industry trends and lending and credit management policies and procedures, but is inherently subjective as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be different than the allowance for loan losses we have established which could have a material negative effect on our financial results.

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

On a quarterly basis, management reviews the current status of various loan assets in order to evaluate the adequacy of the allowance for loan losses. In this evaluation process, specific loans are analyzed to determine their potential risk of loss. Loans determined to be impaired are evaluated for potential loss exposure. Any shortfall results in a recommendation of a 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 provide for the imprecision and the uncertainty that is inherent in estimates of probable credit losses.

Our lending emphasis has been the origination of multi-family loans; commercial real estate loans; commercial and industrial loans; one- to four-family residential mortgage loans secured by one- to four-family residential real estate; construction loans; and consumer loans, the majority of which are home equity loans, home equity lines of credit and cash surrender value lending on life insurance contracts. 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 to our loan portfolio are increases in interest rates, a decline in the general economy, and declines in real estate market values in New Jersey, New York and surrounding states. Any one or combination of these events may adversely affect our loan portfolio resulting in increased delinquencies, loan losses and future levels of loan loss provisions. As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisal valuations are instrumental in determining the value of properties. Negative changes to appraisal assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals are carefully reviewed to determine that the resulting values reasonably reflect amounts realizable on the related loans.

The Company obtains an appraisal for all commercial loans that are collateral dependent upon origination. An updated appraisal is obtained annually for loans rated substandard or worse with a balance of $500,000 or greater. An updated appraisal is obtained biennially for loans rated special mention with a balance of $2.0 million or greater. This is done in order to determine the specific reserve or charge off needed. As part of the allowance for loan losses process, the Company reviews each collateral dependent commercial 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 special assets 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

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adjustments to the existing appraised value is used in assessing if additional specific reserves are necessary until the updated appraisal is received.

For homogeneous residential mortgage loans, the Company’s policy is to obtain an appraisal upon the origination of the loan and an updated appraisal in the event a loan becomes 90 days delinquent. Thereafter, the appraisal is updated every two years if the loan remains in non-performing status and the foreclosure process has not been completed. Management adjusts the appraised value of residential loans to reflect estimated selling costs and declines in the real estate market.

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

Although we believe we have established and maintained the allowance for loan losses at adequate levels, additions may be necessary if the current economic environment deteriorates. Management uses relevant 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.

Deferred Income Taxes. The Company records income taxes in accordance with Accounting Standards Codification (“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.

Investment 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 debt securities available-for-sale are 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 debt securities held-to-maturity, consisting primarily of mortgage-backed securities and other debt securities for which we have a positive intent and ability to hold to maturity, is carried at carrying value. We conduct a periodic review and evaluation of the securities portfolio to determine if the value of any security has declined below its cost or amortized cost, and whether such decline is other-than-temporary. Management utilizes various inputs to determine the fair value of the portfolio.  The use of different assumptions could have a positive or negative effect on our consolidated financial condition or results of operations.

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

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 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

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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.

Derivative Financial Instruments. As part of our interest rate risk management, we may utilize, from time-to-time, derivative financial instruments which are recorded as either assets or liabilities in the consolidated balance sheets at fair value.  The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is initially recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives, if any, would be recognized directly in earnings.

Executive Summary

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

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

A flattening of the yield curve, caused primarily by rising short-term interest rates, combined with competitive pricing in both the loan and deposit markets continues to create a challenging net interest margin environment.  We continue to actively manage our interest rate risk against a backdrop of rising interest rates.  If short-term interest rates increase, we may be subject to near-term net interest margin compression.  Should the yield curve steepen, we may experience an improvement in net interest income, particularly if short-term interest rates do not increase further.

Our results of operations are also significantly affected by general economic conditions.  In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted which reduced our federal tax rate from 35% to 21%, effective for tax years beginning after December 31, 2017.   While the consumer continues to benefit from improved housing and employment metrics, the velocity of economic growth, domestically and internationally, while recently improving may be negatively impacted by rising interest rates.

Total assets increased by $96.4 million, or 0.4%, to $25.23 billion at March 31, 2018 from $25.13 billion at December 31, 2017. Net loans increased by $499.1 million, or 2.5%, to $20.35 billion at March 31, 2018 from $19.85 billion at December 31, 2017, while securities decreased by $122.6 million, or 3.2%, to $3.66 billion at March 31, 2018 from $3.78 billion at December 31, 2017 and cash decreased by $465.0 million to $153.4 million at March 31, 2018 from $618.4 million at December 31, 2017. In February 2018, we completed the acquisition of a $345.8 million equipment finance portfolio, comprised of both loans and leases, which is classified within our C&I loan portfolio. Our ongoing strategy is to continue to work towards becoming more commercial bank-like and maintain a well-diversified loan portfolio. We understand the heightened regulatory sensitivity around commercial real estate and multi-family concentration and continue to be diligent in our underwriting and credit risk monitoring of these portfolios.  The overall level of non-performing loans remains low compared to our national and regional peers; however, our commercial real estate concentration is above 300% of regulatory capital and therefore subjects us to heightened regulatory scrutiny.

Capital management is a key component of our business strategy. We continue to manage our capital through a combination of organic growth, stock repurchases and cash dividends. Effective capital management and prudent growth allows us to effectively leverage the capital from the Company’s public offerings, while being mindful of tangible book value for stockholders. Our capital to total assets ratio has decreased to 12.26% at March 31, 2018 from 12.44% at December 31, 2017. Since the commencement of our first stock repurchase plan in March 2015 through March 31, 2018, the Company has repurchased a total of 71.9 million shares at an average cost of $12.06 per share totaling $867.3 million. For the three months ended March 31, 2018, stockholders’ equity was impacted by the repurchase of 4.5 million shares of common stock for $61.9 million and cash dividends of $0.09 per share totaling $27.4 million. These decreases were partially offset by net income of $57.9 million and $7.7 million of share-based plan activity.

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We will continue to execute our business strategies with a focus on prudent and opportunistic growth while striving to produce financial results that will create value for our stockholders. We intend to continue to grow our business by successfully attracting deposits, identifying favorable loan and investment opportunities, acquiring other banks and non-bank entities, enhancing our market presence and product offerings as well as continuing investments in our people. We continue to enhance our employee training and development programs, build additional risk management and operational infrastructure and add personnel as our Company grows and our business changes. In August 2016 we entered into an informal agreement with the FDIC and NJDOBI with regard to Bank Secrecy Act (“BSA”) and Anti-Money Laundering (“AML”) compliance matters. Our BSA/AML team continues to work diligently to enhance the risk infrastructure procedures and technology, while ensuring its long term sustainability for the Company.

Comparison of Financial Condition at March 31, 2018 and December 31, 2017

Total Assets. Total assets increased by $96.4 million, or 0.4%, to $25.23 billion at March 31, 2018 from $25.13 billion at December 31, 2017. Net loans increased by $499.1 million, or 2.5%, to $20.35 billion at March 31, 2018 from $19.85 billion at December 31, 2017, while securities decreased by $122.6 million, or 3.2%, to $3.66 billion at March 31, 2018 from $3.78 billion at December 31, 2017 and cash decreased by $465.0 million to $153.4 million at March 31, 2018 from $618.4 million at December 31, 2017.

Net Loans. Net loans increased by $499.1 million, or 2.5%, to $20.35 billion at March 31, 2018 from $19.85 billion at December 31, 2017. The detail of the loan portfolio (including PCI loans) is below:

	March 31, 2018			December 31, 2017
	(Dollars in thousands)
Commercial loans:
Multi-family loans	$	7,844,123		7,802,835
Commercial real estate loans	4,593,577			4,548,101
Commercial and industrial loans	2,024,903			1,625,375
Construction loans	390,853			416,883
Total commercial loans	14,853,456			14,393,194
Residential mortgage loans	5,083,779			5,026,517
Consumer and other	665,647			671,137
Total loans	20,602,882			20,090,848
Deferred fees and premiums on purchased loans, net	(20,506		)	(7,778	)
Allowance for loan losses	(231,144		)	(230,969	)
Net loans	$	20,351,232		19,852,101

During February, we completed the acquisition of a $345.8 million equipment finance portfolio, comprised of both loans and leases, which is classified within our C&I loan portfolio. During the three months ended March 31, 2018, we originated $344.1 million in multi-family loans, $182.7 million in commercial real estate loans, $175.1 million in commercial and industrial loans, $140.0 million in residential loans, $62.3 million in construction loans and $15.4 million in consumer and other 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. A significant portion of our commercial loan portfolio, including commercial and industrial loans, are secured by commercial real estate and are primarily on properties and businesses located in New Jersey and New York.

Our loan portfolio contains interest-only residential and consumer 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 residential and consumer loans at March 31, 2018 and December 31, 2017 was $67.5 million and $77.8 million, respectively. From time to time and for competitive purposes, we originate commercial loans with limited interest-only periods. As of March 31, 2018, we had $159.0 million commercial real estate interest-only loans in our loan portfolio, of which $73.0 million have twenty-four months or less remaining on the interest-only term. We maintain 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.

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We also purchased mortgage loans from correspondent entities including other banks and mortgage bankers. During the three months ended March 31, 2018, we purchased loans totaling $85.8 million from these entities. In addition to the loans originated for our portfolio, our mortgage subsidiary, Investors Home Mortgage Co., originated residential mortgage loans for sale to third parties totaling $5.3 million during the three months ended March 31, 2018.

    The following table sets forth non-accrual loans (excluding PCI loans and loans held-for-sale) on the dates indicated as well as certain asset quality ratios:

	March 31, 2018				December 31, 2017				September 30, 2017				June 30, 2017				March 31, 2017
	# of Loans	Amount			# of Loans	Amount			# of Loans	Amount			# of Loans	Amount			# of Loans	Amount
	(dollars in millions)
Multi-family	8	$	20.2		5	$	15.0		4	$	14.2		6	$	19.0		2	$	0.5
Commercial real estate	38	19.7			37	34.0			31	35.3			36	75.6			24	8.2
Commercial and industrial	19	23.3			11	10.0			6	1.9			5	1.8			4	2.2
Construction	1	0.3			1	0.3			—	—			—	—			—	—
Total commercial loans	66	63.5			54	59.3			41	51.4			47	96.4			30	10.9
Residential and consumer	390	72.5			427	76.4			417	74.3			447	81.0			470	76.2
Total non-accrual loans	456	$	136.0		481	$	135.7		458	$	125.7		494	$	177.4		500	$	87.1
Accruing troubled debt restructured loans	54	$	12.4		49	$	11.0		58	$	13.4		45	$	11.7		47	$	12.2
Non-accrual loans to total loans		0.66		%		0.68		%		0.63		%		0.89		%		0.45		%
Allowance for loan losses as a percent of non-accrual loans		169.97		%		170.17		%		183.09		%		129.68		%		265.16		%
Allowance for loan losses as a percent of total loans		1.12		%		1.15		%		1.15		%		1.16		%		1.18		%

Total non-accrual loans were $136.0 million at March 31, 2018 compared to $135.7 million at December 31, 2017 and $87.1 million at March 31, 2017. Included in non-accrual loans at March 31, 2018 were $21.3 million of loans that were classified as non-accrual which were performing in accordance with their contractual terms. Classified loans as a percent of total loans decreased to 1.95% at March 31, 2018 from 2.17% at December 31, 2017. We continue to proactively and diligently work to resolve our troubled loans.

At March 31, 2018, there were $30.4 million of loans deemed as TDRs, of which $27.1 million were residential and consumer loans, $1.8 million were commercial and industrial loans, $911,000 were multi-family loans and $659,000 were commercial real estate loans. TDRs of $12.4 million were classified as accruing and $18.0 million were classified as non-accrual at March 31, 2018.

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 March 31, 2018, the Company has deemed potential problem loans, excluding PCI loans, totaling $23.2 million, which is comprised of 6 commercial real estate loans totaling $6.0 million, 3 multi-family loans totaling $5.0 million and 8 commercial and industrial loans totaling $12.2 million. Management is actively monitoring all of these loans.

The ratio of non-accrual loans to total loans was 0.66% at March 31, 2018 compared to 0.68% at December 31, 2017. The allowance for loan losses as a percentage of non-accrual loans was 169.97% at March 31, 2018 compared to 170.17% at December 31, 2017. At March 31, 2018, our allowance for loan losses as a percentage of total loans was 1.12% compared to 1.15% at December 31, 2017.

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At March 31, 2018, loans meeting the Company’s definition of an impaired loan totaled $83.7 million, of which $15.1 million of impaired loans had a specific allowance for credit losses of $1.7 million and $68.6 million of impaired loans had no specific allowance for credit losses. At December 31, 2017, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans totaling $80.8 million, of which $14.9 million had a related allowance for credit losses of $1.8 million and $65.9 million had no related allowance for credit losses.

The allowance for loan losses increased by $175,000 to $231.1 million at March 31, 2018 from $231.0 million at December 31, 2017. The increase in our allowance for loan losses from December 31, 2017 was due to the inherent credit risk in our overall portfolio, the growth and composition of the loan portfolio, and the level of non-accrual loans and charge-offs. Future increases in the allowance for loan losses may be necessary based on the growth and composition of the loan portfolio, the level of loan delinquency and the economic conditions in our lending area.

The following table sets forth the allowance for loan losses at March 31, 2018 and December 31, 2017 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.

	March 31, 2018				December 31, 2017
	Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans		Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
End of period allocated to:
Multi-family loans	$	80,163	38.1	%	$	81,469	38.9	%
Commercial real estate loans	55,820		22.3	%	56,137		22.6	%
Commercial and industrial loans	56,807		9.8	%	54,563		8.1	%
Construction loans	10,805		1.9	%	11,609		2.1	%
Residential mortgage loans	22,289		24.7	%	21,835		25.0	%
Consumer and other loans	3,157		3.2	%	3,099		3.3	%
Unallocated	2,103		—		2,257		—
Total allowance	$	231,144	100.0	%	$	230,969	100.0	%

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

At March 31, 2018, our securities portfolio represented 14.5% of our total assets. Securities, in the aggregate, decreased by $122.6 million, or 3.2%, to $3.66 billion at March 31, 2018 from $3.78 billion at December 31, 2017. This decrease was a result of paydowns, partially offset by purchases.

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 $33.4 million, or 14.4%, to $264.9 million at March 31, 2018 from $231.5 million at December 31, 2017. The amount of stock we own in the FHLB is primarily related to the balance of our outstanding borrowings from the FHLB. Bank owned life insurance was $207.3 million at March 31, 2018 and $155.6 million at December 31, 2017. Other assets were $97.7 million at March 31, 2018 and $3.8 million at December 31, 2017. During the quarter, we purchased $125.0 million of bank owned life insurance and surrendered $71.1 of an older policy. The proceeds from the surrendered policy are included in other assets.

Deposits.  At March 31, 2018, deposits totaled $16.55 billion, representing 74.8% of our total liabilities. Our deposit strategy is focused on attracting core deposits (savings, checking and money market accounts), resulting in a deposit mix of lower cost

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core products. We remain committed to our plan of attracting more core deposits because core deposits represent a more stable source of low cost funds and may be less sensitive to changes in market interest rates.

We have a suite of commercial deposit products, designed to appeal to small and mid-sized business owners and non-profit organizations. The interest rates we pay, our maturity terms, service fees and withdrawal penalties are all reviewed on a periodic basis. Deposit rates and terms are based primarily on our current operating strategies, market rates, liquidity requirements, rates paid by competitors and growth goals. We also rely on personalized customer service, long-standing relationships with customers and an active marketing program to attract and retain deposits.

Deposits decreased by $811.4 million, or 4.7%, from $17.36 billion at December 31, 2017 to $16.55 billion at March 31, 2018 with approximately 65% of the decrease driven by government and municipal deposits. The decrease reflects seasonality, the timing and impact of tax reform on government and municipal deposits, and rising interest rates. Checking accounts decreased $658.2 million to $6.68 billion at March 31, 2018 from $7.33 billion at December 31, 2017. Core deposits represented approximately 78% of our total deposit portfolio at March 31, 2018 compared to 80% of our total deposit portfolio at December 31, 2017.

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

	March 31, 2018				December 31, 2017
	Balance		Percent of Total Deposit		Balance		Percent of Total Deposit
	(Dollars in thousands)
Non-interest bearing:
Checking accounts	$	2,292,940	13.9	%	$	2,424,608	14.0	%
Interest-bearing:
Checking accounts	4,382,528		26.5	%	4,909,054		28.3	%
Money market deposits	3,864,519		23.4	%	4,243,545		24.4	%
Savings	2,374,624		14.3	%	2,320,228		13.4	%
Certificates of deposit	3,631,714		21.9	%	3,460,262		19.9	%
Total Deposits	$	16,546,325	100.0	%	$	17,357,697	100.0	%

Borrowed Funds.  Our FHLB borrowings, frequently referred to as advances, are collateralized by our residential and commercial mortgage portfolios. Borrowed funds increased by $899.7 million, or 20.2%, to $5.36 billion at March 31, 2018 from $4.46 billion at December 31, 2017. Short-term borrowings increased as a result of the decline in deposits.

Stockholders’ Equity. Stockholders’ equity decreased by $33.4 million to $3.09 billion at March 31, 2018 from $3.13 billion at December 31, 2017. The decrease was primarily attributed to the repurchase of 4.5 million shares of common stock for $61.9 million and cash dividends of $0.09 per share totaling $27.4 million during the three months ended March 31, 2018. These decreases were partially offset by net income of $57.9 million and share-based plan activity of $7.7 million for the three months ended March 31, 2018.

Analysis of Net Interest Income

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

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

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	Three Months Ended March 31,
	2018						2017
	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	$	199,283	$	455	0.91	%	$	144,142	$	107	0.30	%
Equity securities	5,702		35		2.46	%	6,031		48		3.18	%
Debt securities available-for-sale	2,020,833		10,852		2.15	%	1,715,487		8,248		1.92	%
Debt securities held-to-maturity	1,759,737		11,702		2.66	%	1,724,751		12,537		2.91	%
Net loans	20,011,353		204,722		4.09	%	18,825,615		185,961		3.95	%
Stock in FHLB	239,100		3,801		6.36	%	241,156		3,193		5.30	%
Total interest-earning assets	24,236,008		231,567		3.82	%	22,657,182		210,094		3.71	%
Non-interest-earning assets	697,486						755,164
Total assets	$	24,933,494					$	23,412,346
Interest-bearing liabilities:
Savings deposits	$	2,331,475	$	3,290	0.56	%	$	2,106,087	$	1,834	0.35	%
Interest-bearing checking	4,812,897		13,579		1.13	%	4,104,085		6,483		0.63	%
Money market accounts	4,091,149		9,292		0.91	%	4,179,321		7,190		0.69	%
Certificates of deposit	3,398,732		10,215		1.20	%	2,885,079		6,677		0.93	%
Total interest-bearing deposits	14,634,253		36,376		0.99	%	13,274,572		22,184		0.67	%
Borrowed funds	4,667,160		22,707		1.95	%	4,619,618		20,791		1.80	%
Total interest-bearing liabilities	19,301,413		59,083		1.22	%	17,894,190		42,975		0.96	%
Non-interest-bearing liabilities	2,508,888						2,365,481
Total liabilities	21,810,301						20,259,671
Stockholders’ equity	3,123,193						3,152,675
Total liabilities and stockholders’ equity	$	24,933,494					$	23,412,346
Net interest income			$	172,484					$	167,119
Net interest rate spread(1)					2.60	%					2.75	%
Net interest-earning assets(2)	$	4,934,595					$	4,762,992
Net interest margin(3)					2.85	%					2.95	%
Ratio of interest-earning assets to total interest-bearing liabilities	1.26						1.27

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

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

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

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Comparison of Operating Results for the Three Months Ended March 31, 2018 and 2017

Net Income. Net income for the three months ended March 31, 2018 was $57.9 million compared to net income of $46.0 million for the three months ended March 31, 2017.

Net Interest Income. Net interest income increased by $5.4 million, or 3.2%, to $172.5 million for the three months ended March 31, 2018 from $167.1 million for the three months ended March 31, 2017. The net interest margin decreased 10 basis points to 2.85% for the three months ended March 31, 2018 from 2.95% for the three months ended March 31, 2017.

Total interest and dividend income increased by $21.5 million, or 10.2%, to $231.6 million for the three months ended March 31, 2018. Interest income on loans increased by $18.8 million, or 10.1%, to $204.7 million for the three months ended March 31, 2018 as a result of a $1.19 billion increase in the average balance of net loans to $20.01 billion, primarily attributed to continued loan origination growth as well as the acquired equipment finance portfolio. The weighted average yield on net loans increased 14 basis points to 4.09%. Prepayment penalties, which are included in interest income, totaled $5.2 million for the three months ended March 31, 2018 compared to $3.2 million for the three months ended March 31, 2017. Interest income on all other interest-earning assets, excluding loans, increased by $2.7 million, or 11.2%, to $26.8 million for the three months ended March 31, 2018 which is attributed to a $393.1 million increase in the average balance of all other interest-earning assets, excluding loans, to $4.22 billion for the three months ended March 31, 2018. The weighted average yield on interest-earning assets, excluding loans, increased 2 basis points to 2.54%.

Total interest expense increased by $16.1 million, or 37.5%, to $59.1 million for the three months ended March 31, 2018. Interest expense on interest-bearing deposits increased $14.2 million, or 64.0%, to $36.4 million for the three months ended March 31, 2018. The average balance of total interest-bearing deposits increased $1.36 billion, or 10.2%, to $14.63 billion for the three months ended March 31, 2018. In addition, the weighted average cost of interest-bearing deposits increased 32 basis points to 0.99% for the three months ended March 31, 2018. Interest expense on borrowed funds increased by $1.9 million, or 9.2%, to $22.7 million for the three months ended March 31, 2018. The average balance of borrowed funds increased $47.5 million, or 1.0%, to $4.67 billion for the three months ended March 31, 2018. In addition, the weighted average cost of borrowings increased 15 basis points to 1.95% for the three months ended March 31, 2018.

Provision for Loan Losses. Our provision is primarily a result of the inherent credit risk in our overall portfolio, the growth and composition of the loan portfolio, and the level of non-accrual loans and charge-offs. For the three months ended March 31, 2018, our provision for loan losses was $2.5 million, compared to $4.0 million for the three months ended March 31, 2017. For the three months ended March 31, 2018, net charge-offs were $2.3 million, compared to $1.5 million for the three months ended March 31, 2017.

Non-Interest Income. Total non-interest income decreased $593,000, or 6.1%, to $9.1 million for the three months ended March 31, 2018. Gain on securities and gain on loans decreased $1.3 million and $735,000, respectively, for the three months ended March 31, 2018. These decreases were partially offset by increases to income on bank owned life insurance and fees and service charges of $561,000 and $530,000, respectively.

Non-Interest Expenses. Compared to the first quarter of 2017, total non-interest expenses increased $1.5 million, or 1.5%. For the three months ended March 31, 2018, compensation and fringe benefits increased $1.8 million due to normal merit and benefit increases. Additionally, occupancy expense increased $1.7 million and federal insurance premiums increased $790,000 for the three months ended March 31, 2018. Partially offsetting these increases, professional fees decreased $3.0 million largely attributable to lower consulting fees associated with risk management and compliance efforts.

Income Taxes. Income tax expense for the first quarter of 2018 was $20.1 million compared to $27.2 million for the first quarter 2017.  The effective tax rate was 25.7% for the three months ended March 31, 2018 and 37.2% for the three months ended March 31, 2017. The decrease in effective tax rate is primarily driven by the enactment of the Tax Act. Additionally, income tax expense includes the excess tax benefits related to our stock plans of $811,000 for the three months ended March 31, 2018 as compared to $1.3 million for the three months ended March 31, 2017.

The effective tax rate is affected by the level of income earned that is exempt from tax relative to the overall level of pre-tax income, the level of expenses not deductible for tax purposes relative to the overall level of pre-tax income, the level of income allocated to the various state and local jurisdictions where the Company operates, because tax rates differ among such jurisdictions, and the impact of any large but infrequently occurring items.

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Liquidity and Capital Resources

The Company’s primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, FHLB and other borrowings and, to a lesser extent, proceeds from the sale of loans and 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. Our Asset Liability Committee is responsible for establishing and monitoring our liquidity targets and strategies to ensure that sufficient liquidity exists for meeting the needs of our customers as well as unanticipated contingencies. 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 March 31, 2018, the Company had $750.0 million of overnight borrowings outstanding. The Company had no overnight borrowings outstanding at December 31, 2017. The Company borrows directly from the FHLB and various financial institutions. The Company had total borrowings of $5.36 billion at March 31, 2018, an increase of $899.7 million from $4.46 billion at December 31, 2017.

In the normal course of business, the Company routinely enters into various commitments, primarily relating to the origination of loans. At March 31, 2018, outstanding commitments to originate loans totaled $443.3 million; outstanding unused lines of credit totaled $1.25 billion; standby letters of credit totaled $31.0 million and outstanding commitments to sell loans totaled $5.5 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 $3.00 billion at March 31, 2018. Based upon historical experience management estimates that a significant portion of such deposits will remain with the Company.

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

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

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

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

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

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

The new minimum regulatory capital ratios and changes to the calculation of risk-weighted assets became effective for the Bank and Company on January 1, 2015. The required minimum Conservation Buffer was phased in incrementally, starting at 0.625% on January 1, 2016, increased to 1.25% on January 1, 2017 and further increased to 1.875% on January 1, 2018. The Conservation Buffer will increase to 2.5% on January 1, 2019. The rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the minimum Conservation Buffer is not met. As of March 31, 2018 the Company and the Bank met the currently applicable Conservation Buffer of 1.875%.

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As of March 31, 2018, the Bank and the Company were considered “well capitalized” under applicable regulations and exceeded all regulatory capital requirements as follows:

	As of March 31, 2018 (1)
	Actual				Minimum Capital Requirement				To be Well Capitalized under Prompt Corrective Action Provisions (2)
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Bank:
Tier 1 Leverage Ratio	$	2,757,327	11.09	%	$	994,756	4.000	%	$	1,243,445	5.00	%
Common Equity Tier 1 Risk-Based Capital	2,757,327		13.58	%	1,294,234		6.375	%	1,319,612		6.50	%
Tier 1 Risk Based Capital	2,757,327		13.58	%	1,598,760		7.875	%	1,624,137		8.00	%
Total Risk-Based Capital	2,989,464		14.73	%	2,004,794		9.875	%	2,030,172		10.00	%
Investors Bancorp, Inc.:
Tier 1 Leverage Ratio	$	3,044,288	12.24	%	$	995,110	4.000	%	n/a		n/a
Common Equity Tier 1 Risk-Based Capital	3,044,288		14.99	%	1,294,960		6.375	%	n/a		n/a
Tier 1 Risk Based Capital	3,044,288		14.99	%	1,599,657		7.875	%	n/a		n/a
Total Risk-Based Capital	3,276,425		16.13	%	2,005,919		9.875	%	n/a		n/a

(1) For purposes of calculating Tier 1 leverage ratio, assets are based on adjusted total average assets. In calculating Tier 1 risk-based capital and Total risk-based capital, assets are based on total risk-weighted assets.

(2) Prompt corrective action provisions do not apply to the bank holding company.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

In the ordinary course of its 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 March 31, 2018:

Contractual Obligations	Total		Less than One Year	One-Two Years	Two-Three Years	More than Three Years
	(In thousands)
Debt obligations (excluding capitalized leases)	$	5,361,260	1,611,300	1,044,294	900,000	1,805,666
Commitments to originate and purchase loans	$	474,332	474,332	—	—	—
Commitments to sell loans	$	5,500	5,500	—	—	—

Debt obligations include borrowings from the FHLB and other borrowings. The borrowings have defined terms and, under certain circumstances, $5.0 million of the borrowings are callable at the option of the lender. Additionally, at March 31, 2018, the Company’s commitments to fund unused lines of credit totaled $1.25 billion. Commitments to originate loans, commitments to fund unused lines of credit and standby letters 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 March 31, 2018 have not changed significantly from December 31, 2017.

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.

The Company has entered into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the

52

Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings. During the three months ended March 31, 2018, such derivatives were used to hedge the variability in cash flows associated with certain short term wholesale funding transactions. These derivatives had an aggregate notional amount of $1.10 billion as of March 31, 2018. The fair value of the derivatives as of March 31, 2018 was a liability of $1.2 million, inclusive of accrued interest and variation margin posted in accordance with the Chicago Mercantile Exchange.

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, 2017 Annual Report on Form 10-K.

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 cash flow or re-pricing of our assets, liabilities and off-balance sheet contracts (i.e., loan commitments); the effect of loan prepayments, deposit activity; 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 term structure of interest rates. Changes in market interest rates can affect net interest income by influencing the amount and rate of new loan originations, the ability of borrowers to repay variable rate loans, the volume of loan prepayments and the mix and flow of deposits.

The general objective of our interest rate risk management process 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 our balance sheet, our operating environment and capital and liquidity requirements and may modify 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 use various financial instruments, including derivatives, to manage our exposure to interest rate risk. Certain derivatives are designated as hedging instruments in a qualifying hedge accounting relationship (fair value or cash flow hedge). As of March 31, 2018 and December 31, 2017 the Company has cash flow hedges with aggregate notional amounts of $1.10 billion and $900.0 million, respectively.

We actively evaluate interest rate risk in connection with our lending, investing and deposit activities. At March 31, 2018, 25% of our total loan portfolio was comprised of residential mortgages, of which approximately 33% was in variable rate products, while 67% was in fixed rate products. Our variable rate and short term fixed rate mortgage related assets have helped to reduce our exposure to interest rate fluctuations. Long term fixed-rate products may adversely impact our net interest income in a rising rate environment. The origination of commercial real estate loans, particularly multi-family loans and commercial and industrial loans, which have outpaced the growth in the residential portfolio in recent years, generally help reduce our interest rate risk due to their shorter term compared to fixed rate residential mortgage loans. In addition, we primarily invest in securities which display relatively conservative interest rate risk characteristics.

We use an internally managed and implemented industry standard asset/liability model to complete our quarterly interest rate risk reports. The model projects net interest income based on various interest rate scenarios and horizons. We use a combination of analyses to monitor our exposure to changes in interest rates.

Our net interest income sensitivity analysis determines the relative balance between the repricing of assets and liabilities over various horizons. This asset and liability analysis includes expected cash flows from loans and securities, using forecasted prepayment rates, reinvestment rates, as well as contractual and forecasted liability cash flows. 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 rate forecasts and assumptions used in the analysis may not reflect actual experiences. The economic value of equity (“EVE”) analysis estimates the change in the net present value (“NPV”) of assets and liabilities and off-balance sheet contracts over a range of immediately changed interest rate scenarios. In calculating changes in EVE, for the various scenarios we forecast loan and securities prepayment rates, reinvestment rates and deposit decay rates.

Quantitative Analysis. The table below sets forth, as of March 31, 2018, the estimated changes in our EVE 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 EVE and a gradual change over a one-year period for the purposes of computing net interest income. Computations of prospective effects of hypothetical interest rate changes are based on numerous 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 EVE and net interest income for an interest rate decrease of 100 basis points and increase of 200 basis points.

	EVE (1) (2)						Net Interest Income (3)
Change in Interest Rates (basis points)	Estimated EVE		Estimated Increase (Decrease)				Estimated Net Interest Income		Estimated Increase (Decrease)
			Amount		Percent				Amount		Percent
	(Dollars in thousands)
+ 200bp	$	3,846,203	(583,204	)	(13.2	)%	$	608,306	(49,703	)	(7.6	)%
0bp	$	4,429,407	—		—		$	658,009	—		—
-100bp	$	4,732,972	303,565		6.9	%	$	682,189	24,180		3.7	%

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

(2) EVE 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 March 31, 2018, in the event of a 200 basis points increase in interest rates, we would be expected to experience a 13.2% decrease in EVE and a $49.7 million, or 7.6%, decrease in net interest income. In the event of a 100 basis points decrease in interest rates, we would be expected to experience a 6.9% increase in EVE and a $24.2 million, or 3.7%, increase in net interest income. This data does 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 EVE and net interest income calculations.

As mentioned above, we use an internally developed asset liability model 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 EVE 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 EVE and net interest income table presented above assumes no growth and that generally 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. Accordingly, although the EVE 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 EVE 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 March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part IIOther Information

ITEM 1. LEGAL PROCEEDINGS

The Company, the Bank 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.

ITEM 1A. RISK FACTORS

There have been no material changes in the “Risk Factors” disclosed in the Company’s December 31, 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

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

(a) Not applicable.

(b) Not applicable.

(c) The following table reports information regarding repurchases of our common stock during the quarter ended March 31, 2018 and the stock repurchase plans approved by our Board of Directors.

Period	Total Number of Shares Purchased (1)(2)	Average Price paid Per Share		As part of Publicly Announced Plans or Programs	Yet to be Purchased Under the Plans or Programs (1)
January 1, 2018 through January 31, 2018	2,936	$	14.18	—	17,365,176
February 1, 2018 through February 28, 2018	2,802,625	13.60		2,682,752	14,682,424
March 1, 2018 through March 31, 2018	1,719,462	13.78		1,713,552	12,968,872
Total	4,525,023	$	13.67	4,396,304	12,968,872

(1) On April 28, 2016, the Company announced its third share repurchase program, which authorized the purchase of 10% of its publicly-held outstanding shares of common stock, or approximately 31,481,189 million shares. The plan commenced upon the completion of the second repurchase plan on June 17, 2016. This program has no expiration date and has 12,968,872 shares yet to be repurchased as of March 31, 2018.

(2) 128,719 shares were withheld to cover income taxes related to restricted stock vesting under our 2015 Equity Incentive Plan. Shares withheld to pay income taxes are repurchased pursuant to the terms of the 2015 Equity Incentive Plan and not under our share repurchase program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

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

3.1	Certificate of Incorporation of Investors Bancorp, Inc.(1)
3.2	Bylaws of Investors Bancorp, Inc.(1)
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document

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

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SIGNATURES

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

		INVESTORS BANCORP, INC.
Date: May 10, 2018	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)

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