10-K 1 isbc-12312015x10k.htm 10-K 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2015 or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission File No. 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)
Securities Registered Pursuant to Section 12(b) of the Act:
 
 
 
Common Stock, par value $0.01 per share
 
The NASDAQ Stock Market LLC
(Title of Class)
 
(Name of each exchange on which registered)
Securities Registered Pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
 
 
 
 
 
 
 
Large accelerated filer
 
þ
 
 
  
Accelerated filer
 
 
Non-accelerated filer
 
 
 
(Do not check if a smaller reporting company)
  
Smaller reporting company
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
As of February 23, 2016, the registrant had 359,070,852 shares of common stock, par value $0.01 per share, issued and 328,014,181 shares outstanding.
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the last sale price on June 30, 2015, as reported by the NASDAQ Global Select Market, was approximately $3.94 billion.
 
DOCUMENTS INCORPORATED BY REFERENCE
1. Proxy Statement for the 2016 Annual Meeting of Stockholders of the registrant (Part III).



INVESTORS BANCORP, INC.
2015 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 
 
 
 
 
Page
Part I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
Part II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
Part III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
Part IV.
Item 15.
 
 
 
 



PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Annual Report on Form 10-K contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements may be identified by the use of the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar terms and phrases, including references to assumptions.
Forward-looking statements are based on various assumptions and analyses made by us in light of our management’s experience and its perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond our control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These factors are outlined in Item 1A herein and include, without limitation, the following:

•
the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control;
•
there may be increases in competitive pressure among financial institutions or from non-financial institutions;
•
changes in the interest rate environment may reduce interest margins or affect the value of our investments;
•
changes in deposit flows, loan demand or real estate values may adversely affect our business;
•
changes in accounting principles, policies or guidelines may cause our financial condition to be perceived differently;
•
general economic conditions, either nationally or locally in some or all areas in which we do business, or conditions in the real estate or securities markets or the banking industry may be less favorable than we currently anticipate;
•
legislative or regulatory changes may adversely affect our business;
•
technological changes may be more difficult or expensive than we anticipate;
•
success or consummation of new business initiatives may be more difficult or expensive than we anticipate;
•
litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may be determined adverse to us or may delay the occurrence or non-occurrence of events longer than we anticipate;
•
the risks associated with continued diversification and growth of assets and adverse changes to credit quality;
•
difficulties associated with achieving expected future financial results;
•
impact on our financial performance associated with the effective deployment of capital raised in our second step conversion offering; and
•
the risk of continued economic slowdown that would adversely affect credit quality and loan originations.
We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.
As used in this Form 10-K, “we,” “us” and “our” refer to Investors Bancorp, Inc. and its consolidated subsidiaries, principally Investors Bank.


PART I


ITEM 1.
BUSINESS
Investors Bancorp, Inc. (the “Company”) is a Delaware corporation incorporated in December 2013 to be the successor to Investors Bancorp, Inc. (“Old Investors Bancorp”) upon the completion of the mutual-to-stock conversion of Investors Bancorp, MHC in May 2014. Old Investors Bancorp was a Delaware corporation organized in January 1997 for the purpose of being a holding company for Investors Bank (the “Bank”), a New Jersey chartered savings bank. On October 11, 2005, Old Investors Bancorp completed its initial public stock offering in which it sold 131,649,089 shares, or 43.74% of its outstanding common stock, to subscribers in the offering, including 10,847,883 shares purchased by the Investors Bank Employee Stock Ownership Plan (the “ESOP”). Upon completion of the initial public offering, Investors Bancorp, MHC (the “MHC”), Old Investors Bancorp's New Jersey chartered mutual holding company parent, held 165,353,151 shares, or 54.94% of Old Investors Bancorp’s outstanding common stock (shares restated to include shares issued in a business combination subsequent to initial public offering). Additionally, Old Investors Bancorp contributed $5,163,000 in cash and issued 3,949,473 shares of common stock, or 1.32% of its outstanding shares, to the Investors Bank Charitable Foundation.

1

In conjunction with the second step conversion, Investors Bancorp, MHC merged into Old Investors Bancorp (and ceased to exist), and Old Investors Bancorp subsequently merged into the Company and the Company became its successor under the name Investors Bancorp, Inc. The second step conversion was completed on May 7, 2014. The Company raised net proceeds of $2.15 billion by selling a total of 219,580,695 shares of common stock at $10.00 per share in the second step stock offering and issued 1,000,000 shares of common stock to the Investors Charitable Foundation. Concurrent with the completion of the stock offering, each share of Old Investors Bancorp common stock owned by public stockholders (stockholders other than Investors Bancorp, MHC) was exchanged for 2.55 shares of Company common stock. As a result of the conversion, all share information has been revised to reflect the 2.55- to- one exchange ratio. A total of 137,560,968 shares of Company common stock were issued in the exchange. The conversion was accounted for as a capital raising transaction by entities under common control. The historical financial results of Investors Bancorp, MHC are immaterial to the results of the Company and therefore upon completion of the conversion, the net assets of Investors Bancorp, MHC were merged into the Company and are reflected as an increase to stockholders' equity. In addition, the second step conversion resulted in the accelerated vesting of all outstanding stock awards as of the conversion date. The withholding of shares for payment of taxes with respect to these awards resulted in treasury stock of 1,101,694 shares.
The Company is subject to regulation as a bank holding company by the Federal Reserve Board. Our primary business has been that of owning the common stock of the Bank and a loan to the ESOP. Investors Bancorp, Inc., as the holding company of Investors Bank, is authorized to pursue other business activities permitted by applicable laws and regulations for bank holding companies. At December 31, 2015, our consolidated assets totaled $20.89 billion and our consolidated deposits totaled $14.06 billion.
Investors Bancorp neither owns nor leases any property, but instead uses the premises, equipment and furniture of the Bank. At the present time, the Company employs as officers only certain persons who are also officers of the Bank and uses the support staff of the Bank from time to time. These persons are not separately compensated by Investors Bancorp. Investors Bancorp may hire additional employees, as appropriate, to the extent it expands its business in the future.    
Investors Bank is a New Jersey-chartered savings bank headquartered in Short Hills, New Jersey. Originally founded in 1926 as a New Jersey-chartered mutual savings and loan association, it has grown through acquisitions and internal growth, including de novo branching. In 1992, the charter was converted to a mutual savings bank and in 1997 the charter was converted to a New Jersey-chartered stock savings bank.
The Bank is in the business of attracting deposits from the public through its branch network and borrowing funds in the wholesale markets to originate loans and to invest in securities. The Bank originates multi-family loans, commercial real estate loans, commercial and industrial ("C&I") 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 and home equity lines of credit. Securities, primarily mortgage-backed securities, U.S. Government and Federal Agency obligations, and other securities represented 15% of consolidated assets at December 31, 2015. The Bank offers a variety of deposit accounts and emphasizes quality customer service. The Bank is subject to comprehensive regulation and examination by the New Jersey Department of Banking and Insurance ("NJDBI"), the Federal Deposit Insurance Corporation ("FDIC") and the Consumer Financial Protection Bureau ("CFPB").
The Company’s results of operations are dependent primarily on its net interest income, which is the difference between the interest earned on assets, primarily loans and securities portfolios, and the interest paid on deposits and borrowings. Earnings are significantly affected by general economic and competitive conditions, particularly changes in market interest rates and U.S. Treasury yield curves, the impact of real estate in the Company's lending area, government policies and actions of regulatory authorities. Net income is also affected by provision for loan losses, non-interest income, non-interest expense and income tax expense. Non-interest income includes fees and service charges; income on bank owned life insurance, or BOLI; net gain on loan transactions; net gain on securities transactions; impairment losses on investment securities; net gain on sale of other real estate owned and other income. Non-interest expense consists of compensation and fringe benefits; advertising and promotional expense; office occupancy and equipment expense; federal deposit insurance premiums; stationary, printing, supplies and telephone expense; professional fees; data processing fees service and other operating expenses.
Investors Bancorp, Inc.'s electronic filings with the SEC, including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act, as amended, are made available at no cost in the Investor Relations section of the Company's website, www.myinvestorsbank.com, as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC. The Company's SEC filings are also available through the SEC's website at www.sec.gov.

2

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

Opportunities through Our Attractive Markets
The markets we operate in are considered attractive banking markets within the United States, and we believe they will continue to provide us with opportunities to grow. We have expanded our franchise to include the suburbs of Philadelphia and the boroughs of New York City as well as Nassau and Suffolk Counties on Long Island. Additionally, we have strengthened our presence in our historic markets throughout New Jersey. We accomplished this expansion through de novo growth and select bank and branch acquisitions. As a result of this growth, Investors Bank is one of the largest New Jersey headquartered banking institutions as measured by both assets and deposits. The markets we operate in are desirable from an economic and demographic perspective as they are characterized by large and dense population centers, areas of high income households and centers of robust business and commercial activity. Our competition in these markets tends to be from out-of-state headquartered money centers and super-regional financial institutions and much smaller local community banks. We believe that as a locally headquartered institution, situated between these extremes, we can compete and capitalize on opportunities that exist in our market area.
Many of the counties we serve are projected to experience moderate to strong population and household income growth through 2021. Though slower population growth is projected for some of the counties we serve, it is important to note that these counties are densely populated. All of the counties we serve have a strong mature market with median household incomes greater than $49,000. The household incomes in the counties we serve are all expected to increase in a range from 3.43% to11.22% through 2021. The December 2015 unemployment rates for New Jersey and New York were 5.1% and 4.8%, respectively, while the national rate was 5.0%.
We face intense competition in making loans as well as attracting deposits in our market area. Our competition for loans and deposits comes principally from commercial banks, savings institutions, mortgage banking firms, credit unions and insurance companies. We face additional competition for deposits from short-term money market funds, brokerage firms and mutual funds. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. As of June 30, 2015, the latest date for which statistics are available, our market share of deposits was 3.96% of total deposits in the State of New Jersey.
    
Growing and Diversifying the Loan Portfolio
Our business plan has been, and will continue to be, to grow and diversify our loan portfolio. We have accomplished the majority of this growth by focusing on originating more multi-family and commercial real estate loans in our market area through our New York City and New Jersey loan production offices. For the year ended December 31, 2015, we originated $2.08 billion in multi-family loans and $936.9 million in commercial real estate loans. We are focusing on growing our commercial loan portfolio because it helps to diversify the loan portfolio and reduces our credit and interest rate exposure to mortgage-backed securities and one- to four-family mortgages.
To further diversify our loan portfolio we have increased commercial and industrial (“C&I”) lending by building relationships with small to medium sized companies in our market area. We have hired a number of experienced C&I lending teams, including a team specializing in the healthcare industry and a team of experienced lenders specializing in asset based lending. For the year ended December 31, 2015, we originated $930.8 million of C&I loans. We have diversified our loan portfolio, as evidenced by the fact that commercial loans (including commercial real estate, multi-family, C&I and construction loans) represent approximately 67% of our loan portfolio at December 31, 2015 as compared to December 31, 2011, when commercial loans were approximately 35% of total loans. Growing and diversifying our loan portfolio will continue to be a major focus of our business strategy going forward.


3

Changing the Mix of Deposits
We have focused on changing our deposit mix from certificates of deposit to core deposits (savings, checking and money market accounts). Core deposits are an attractive funding alternative because they are a more stable source of low cost funding and are less sensitive to changes in market interest rates. As of December 31, 2015, we had core deposits of $10.65 billion, representing approximately 76% of total deposits, compared to December 31, 2011 when core deposits were $4.02 billion, representing 55% of total deposits. In order to maintain these favorable results and trends, we will continue to invest in additional de novo branches, branch staff training and product development. Over the past few years we have developed a suite of commercial deposit and cash management products, designed to appeal to small business owners and non-profit organizations including electronic deposit services such as remote deposit capture. Mobile banking services have also been developed to serve our customers’ needs and adapt to a changing environment. We will continue to enhance our web site and use social media as a way to stay connected to our customers.
Our deposit business has become more diversified over the past few years as we attract more deposits from commercial entities, including most of the businesses that borrow from us. Investors Bank has become one of the largest depositories for government and municipal deposits in New Jersey, which provides us with an additional funding source. Our branch network, concentrated in markets with attractive demographics and a high density population will continue to provide us with opportunities to grow and improve our deposit base.

Acquisitions
A significant portion of our historic growth can be attributed to our acquisition strategy. Over the past several years we have completed eight bank or branch acquisitions. Although management evaluates a number of factors when considering an acquisition, we have maintained a fundamental focus on preserving tangible book value per share. Some of our most recent transactions have included the following acquisitions:
•
Gateway Community Financial Corp., completed January 2014 ($254.7 million of deposits and 4 branches in Gloucester County, New Jersey)
•
Roma Financial Corporation, completed December 2013 ($1.34 billion of deposits and 26 branches in the Philadelphia suburbs of New Jersey)
•
Marathon Banking Corporation, completed October 2012 ($777.5 million in deposits and 13 branches in Brooklyn, Queens, Staten Island, Manhattan and Long Island)
•
Brooklyn Federal Bancorp, completed January 2012 ($385.9 million in deposits and 5 branches in Brooklyn and Long Island)
These acquisitions have provided us with the opportunity to grow our business, expand our geographic footprint and improve our financial performance. We intend to continue to evaluate potential acquisition opportunities that may present themselves in the future while maintaining the financial and pricing discipline that we have adhered to in the past.

Capital Management
Capital management is a key component of our business strategy. With the completion of the second step conversion, we raised net proceeds of $2.15 billion in equity. As of December 31, 2015 our tangible equity to asset ratio was 15.43% and our tangible book value per share was $9.97. We manage our capital through a combination of organic growth, acquisitions and stock repurchases and dividends. In March 2015 we 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 our second step conversion and announced our first share repurchase program. Our second share repurchase program authorized an additional 10% buyback program. For the year ended December 31, 2015 we purchased 31.6 million shares.
On September 28, 2012, we declared our first quarterly cash dividend of $0.02 per share as part of a dividend program for stockholders and have paid a dividend in every subsequent quarter. Our dividend payout ratio for the year ending December 31, 2015 was 45.45% which includes a special cash dividend of $.05 paid in February 2015.

Involvement in Our Communities
Investors Bank proudly promotes a higher quality of life in the communities it serves in New Jersey and New York through employee volunteer efforts and the Investors Charitable Foundation. Employees are continually encouraged to become leaders in their communities and use Investors Bank’s support to help others. Through the Charitable Foundation, established in 2005, Investors Bank has contributed or committed $20.3 million in donations to enrich the lives of New Jersey and New York citizens by supporting initiatives in the arts, education, youth development, affordable housing, and health and human services.

4

Community involvement is one of the principal values of Investors Bank and provides our staff with a meaningful ability to help others. We believe these efforts contribute to creating a culture at Investors Bank that promotes high employee morale while enhancing the presence of Investors Bank in our local markets.
Lending Activities
Our loan portfolio is comprised of multi-family loans, commercial real estate loans, construction loans, commercial and industrial loans, residential mortgage loans and consumer and other loans. At December 31, 2015, multi-family loans totaled $6.26 billion, or 37.0% of our total loan portfolio, commercial real estate loans totaled $3.83 billion, or 22.7% of our total loan portfolio, commercial and industrial loans totaled $1.04 billion, or 6.2% of our total loan portfolio and construction loans totaled $225.8 million, or 1.3% of our total loan portfolio. Residential mortgage loans represented $5.04 billion, or 29.8% of our total loans at December 31, 2015. We also offer consumer loans, which consist primarily of home equity loans, home equity lines of credit and to a lesser degree, cash surrender value lending on life insurance contracts. At December 31, 2015, consumer and other loans totaled $496.6 million, or 2.9% of our total loan portfolio.

5

Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan, including Purchased Credit-Impaired ("PCI") loans at the dates indicated. PCI loans are loans acquired at a discount that is due, in part, to credit quality 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. Included in total loans below are PCI loans of $11.1 million, $17.8 million, $36.0 million, $6.7 million $0.9 million, respectively for the year ended December 31, 2015, 2014, 2013, 2012 and 2011. Commercial loans are comprised of multi-family loans, commercial real estate loans, commercial and industrial loans and construction loans. Our primary focus over recent years has been on the origination of commercial loans.

 
December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
Amount
%
 
Amount
%
 
Amount
%
 
Amount
%
 
Amount
%
 
(Dollars in thousands )
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multi-family loans
$
6,255,904

37.04
%
 
$
5,049,114

33.44
%
 
$
3,986,208

30.51
%
 
$
2,995,471

28.70
%
 
$
1,816,118

20.42
%
Commercial real estate loans
3,829,099

22.67

 
3,147,153

20.84

 
2,505,327

19.18

 
1,971,689

18.89

 
1,418,636

15.95

Commercial and industrial loans
1,044,385

6.18

 
544,458

3.61

 
268,422

2.05

 
169,258

1.62

 
106,299

1.20

Construction loans
225,843

1.34

 
148,396

0.98

 
202,261

1.55

 
224,816

2.15

 
277,625

3.12

Total commercial loans
11,355,231

67.23

 
8,889,121

58.87

 
6,962,218

53.29

 
5,361,234

40.69

 
3,618,678

34.94

Residential mortgage loans
5,039,543

29.83
 
5,769,477

38.21

 
5,698,351

43.62

 
4,838,315

46.35

 
5,034,161

56.59

Consumer and other loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity loans
201,063

1.19

 
222,871

1.48

 
245,653

1.88

 
101,163

0.97

 
121,134

1.36

Home equity credit lines
220,357

1.30

 
200,066

1.32

 
150,796

1.15

 
131,808

1.26

 
117,445

1.32

Other
75,136

0.45

 
18,017

0.12

 
7,600

0.06

 
5,951

0.06

 
3,648

0.04

Total consumer and other loans
496,556

2.94

 
440,954

2.92

 
404,049

3.09

 
238,922

2.29

 
242,227

2.72

Total loans
$
16,891,330

100.00
%
 
$
15,099,552

100.00
%
 
$
13,064,618

100.00
%
 
$
10,438,471

100.00
%
 
$
8,895,066

100.00
%
Premiums on purchased loans and deferred loan fees, net
(11,692
)
 
 
(11,698
)
 
 
(8,146
)
 
 
10,487

 
 
16,387

 
Allowance for loan losses
(218,505
)
 
 
(200,284
)
 
 
(173,928
)
 
 
(142,172
)
 
 
(117,242
)
 
Net loans
$
16,661,133

 
 
$
14,887,570

 
 
$
12,882,544

 
 
$
10,306,786

 
 
$
8,794,211

 




6

    Portfolio Maturities. The following table summarizes the scheduled repayments of our loan portfolio based on contractual maturity, including PCI loans at December 31, 2015. Overdraft loans are reported as being due in one year or less.
 
 
At December 31, 2015
 
Multi-Family Loans
 
Commercial
Real Estate Loans
 
Commercial  and
Industrial Loans
 
Construction
Loans
 
Residential
Mortgage Loans
 
Consumer  and
Other Loans
 
Total
 
(In thousands)
Amounts Due:
 
 
 
 
 
 
 
 
 
 
 
 
 
One year or less
$
57,791

 
$
175,859

 
$
244,421

 
$
139,183

 
$
95,943

 
$
168,576

 
$
881,773

After one year:
 
 
 
 
 
 
 
 
 
 
 
 
 
One to three years
285,766

 
370,073

 
91,911

 
86,416

 
107,647

 
33,729

 
975,542

Three to five years
935,307

 
587,299

 
103,183

 
—

 
201,256

 
83,323

 
1,910,368

Five to ten years
3,489,535

 
1,902,597

 
474,054

 
244

 
326,639

 
72,089

 
6,265,158

Ten to twenty years
1,485,316

 
758,429

 
99,496

 
—

 
1,244,549

 
104,960

 
3,692,750

Over twenty years
2,189

 
34,842

 
31,320

 
—

 
3,063,509

 
33,879

 
3,165,739

Total due after one year
6,198,113

 
3,653,240

 
799,964

 
86,660

 
4,943,600

 
327,980

 
16,009,557

Total loans
$
6,255,904

 
$
3,829,099

 
$
1,044,385

 
$
225,843

 
$
5,039,543

 
$
496,556

 
$
16,891,330

Premiums on purchased loans and deferred loan fees, net
 
 
 
 
 
 
 
 
 
 
 
 
(11,692
)
Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
(218,505
)
Net loans
 
 
 
 
 
 
 
 
 
 
 
 
$
16,661,133


The following table sets forth fixed- and adjustable-rate loans at December 31, 2015 that are contractually due after December 31, 2016.
 
 
Due After December 31, 2016
 
Fixed
 
Adjustable
 
Total
 
(In thousands)
Commercial loans:
 
 
 
 
 
Multi-family loans
$
2,193,377

 
$
4,004,736

 
$
6,198,113

Commercial real estate loans
1,417,761

 
2,235,479

 
3,653,240

Commercial and industrial loans
551,361

 
248,603

 
799,964

Construction loans
10,744

 
75,916

 
86,660

Total commercial loans
4,173,243

 
6,564,734

 
10,737,977

Residential mortgage loans
3,348,003

 
1,595,597

 
4,943,600

Consumer and other loans:
 
 
 
 
 
Home equity loans
192,914

 
—

 
192,914

Home equity credit lines
—

 
58,979

 
58,979

Other
76,087

 
—

 
76,087

Total consumer and other loans
269,001

 
58,979

 
327,980

Total loans
$
7,790,247

 
$
8,219,310

 
$
16,009,557

Multi-family Loans. At December 31, 2015, $6.26 billion, or 37.0% of our total loan portfolio was comprised of multi-family loans. Our policy generally has been to originate multi-family loans in New York, New Jersey and surrounding states. The multi-family loans in our portfolio consist of both fixed-rate and adjustable-rate loans, which were originated at prevailing market rates. Multi-family loans are generally five to fifteen year term balloon loans amortized over fifteen to thirty years. The maximum loan-to-value ratio is 75% for multi-family loans. At December 31, 2015, our largest multi-family loan was $49.5 million, which consists of an apartment building with 395 units and was performing in accordance with its contractual terms.
We consider a number of factors when we originate multi-family loans. During the underwriting process we evaluate the business qualifications and financial condition of the borrower, including credit history, profitability of the property being financed, as well as the value and condition of the mortgaged property securing the loan. When evaluating the business qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property

7

and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, we consider the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service) to ensure it is at least 120% of the monthly debt service for apartment buildings. All multi-family loans are appraised by outside independent appraisers who have been approved by our Board of Directors. All borrowers are required to obtain title, fire and casualty insurance and, if warranted, flood insurance.
Multi-family loans are generally lower credit risk than other types of commercial real estate lending due to the diversification of cash flows from multiple tenants to service the debt. However, loans secured by multi-family generally are larger than residential mortgage loans and can involve greater credit risk. Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, management annually reviews the performance of all multi-family loans in excess of $2.0 million.
Commercial Real Estate Loans. At December 31, 2015, $3.83 billion, or 22.7% of our total loan portfolio was commercial real estate loans. We originate commercial real estate loans in New Jersey, New York and surrounding states, which are secured by industrial properties, retail buildings, office buildings and other commercial properties. Commercial real estate loans in our portfolio consist of both fixed-rate and adjustable-rate loans which were originated at prevailing market rates. Commercial real estate loans are generally five to fifteen year term balloon loans amortized over fifteen to thirty years. The maximum loan-to-value ratio is 70% for our commercial real estate loans. Included in commercial real estate loans are owner occupied commercial mortgage loans which totaled $625.7 million at December 31, 2015. At December 31, 2015, our largest commercial real estate loan was $39.6 million loan secured by a commercial retail property located in New Jersey and is performing in accordance with its contractual terms.
We consider a number of factors when we originate commercial real estate loans. During the underwriting process we evaluate the business qualifications and financial condition of the borrower, including credit history, profitability of the property being financed, as well as the value and condition of the mortgaged property securing the loan. When evaluating the business qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, we consider the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service) to ensure it is at least 130% for commercial income-producing properties. All commercial real estate loans are appraised by outside independent appraisers who have been approved by our Board of Directors. Personal guarantees are obtained from commercial real estate borrowers although we will consider waiving this requirement based upon the loan-to-value ratio of the proposed loan and other factors. All borrowers are required to obtain title, fire and casualty insurance and, if warranted, flood insurance.
Loans secured by commercial real estate generally are larger than residential mortgage loans and can involve greater credit risk than residential and multi-family loans. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, management annually reviews the performance of all commercial real estate loans in excess of $1.0 million.
Commercial and Industrial Loans. At December 31, 2015, $1.04 billion, or 6.2% of our total loan portfolio was commercial and industrial loans. We offer a wide range of credit facilities to commercial and industrial clients throughout our geographic footprint. Our credit offerings are lines of credit, term loans and letters of credit. The collateral for these types of loans can be comprised of real estate and/or a lien on the general assets, including inventory and receivables of the business and in many cases are further supported by a personal guarantee of the owner. For a real estate backed loan, the maximum loan to value limit is 75% and the underlying businesses will typically have at least a two year history. Other C&I loans are collateralized by accounts receivable and inventory. As of December 31, 2015 asset based lending loans totaled $64.9 million. Included in the Company's commercial and industrial loans were $110.1 million of loans to Co-operative housing corporations and groups ("Co-Op loans"). At December 31, 2015, our largest commercial and industrial loan was a $31.3 million loan to a large educational organization with the collateral representing a pledge of certain revenues. This loan is performing in accordance with its contractual terms.
As the Company and its footprint have grown it has broadened its product offerings to create certain commercial and industrial lending subspecialties, including expanded lending to the healthcare industry.
Construction Loans.  At December 31, 2015, we held $225.8 million in construction loans representing 1.3% of our total loan portfolio. We offer loans directly to builders and developers on income-producing properties and residential for-sale housing

8

units. Generally, construction loans are structured to be repaid over a three-year period and generally are made in amounts of up to 70% of the appraised value of the completed property, or the actual cost of the improvements. Funds are disbursed based on inspections in accordance with a schedule reflecting the completion of portions of the project. Construction financing for sold units requires an executed sales contract.
At December 31, 2015, the Bank’s largest construction loan was a $40.0 million note with an outstanding balance of $24.2 million on a 5-story multi unit apartment building located in New Jersey which was performing in accordance with contractual terms.
Construction loans generally involve a greater degree of credit risk than either residential mortgage loans or other commercial loans. The risk of loss on a construction loan depends on the accuracy of the initial estimate of the property’s value when the construction is completed compared to the estimated cost of construction. For all loans, we use outside independent appraisers approved by our Board of Directors. We require all borrowers to obtain title insurance, fire and casualty insurance and, if warranted, flood insurance. A detailed plan and cost review by an outside engineering firm is required on loans in excess of $2.5 million.
Residential Mortgage Loans. At December 31, 2015, $5.04 billion or 29.8%, of our loan portfolio consisted of residential mortgage loans. Residential mortgage loans are originated by our mortgage subsidiary, Investors Home Mortgage, for our loan portfolio and for sale to third parties. We also purchase mortgage loans from correspondent entities including other banks and mortgage bankers. Our agreements call for these correspondent entities to originate loans that adhere to our underwriting standards. In most cases, we acquire the loans with servicing rights. In addition, we occasionally purchase pools of mortgage loans in the secondary market on a “bulk purchase” basis from several well-established financial institutions after appropriate due diligence. While some of these financial institutions retain the servicing rights for loans they sell to us, when presented with the opportunity to purchase the servicing rights as part of the loan, we may decide to purchase the servicing rights. This decision is generally based on the price and other relevant factors.
Generally, residential mortgage loans are originated in amounts up to 80% of the lesser of the appraised value or purchase price of the property to a maximum loan amount of $1,250,000. Loans over $1,250,000 require a lower loan-to-value ratio. Loans in excess of 80% of value require private mortgage insurance and cannot exceed $500,000. We will not make loans with a loan-to-value ratio in excess of 95% or 97% for programs to low or moderate-income borrowers. Fixed-rate mortgage loans are originated for terms of up to 30 years. Generally, all fixed-rate residential mortgage loans are underwritten according to Fannie Mae guidelines, policies and procedures. At December 31, 2015, we held $3.22 billion in fixed-rate residential mortgage loans which represented 64% of our residential mortgage loan portfolio.
We also offer adjustable-rate residential mortgage loans, which adjust annually after three, five, seven or ten year initial fixed-rate periods. Our adjustable rate loans usually adjust to an index plus a margin, based on the weekly average yield on U.S. Treasuries adjusted to a constant maturity of one year. Annual caps of 2% per adjustment apply, with a lifetime maximum adjustment of 5% on most loans. Our adjustable-rate mortgage loans amortize over terms of up to 30 years. In addition, we hold in our loan portfolio interest-only, one-to four-family mortgage loans in which the borrower makes only interest payments for the first five, seven or ten years of the mortgage loan term. This feature results in future increases in the borrower’s contractually required payments due to the required amortization of the principal amount after the interest-only period. Borrowers were qualified using the loan rate at the date of origination and the fully amortized payment amount. While we hold these in our loan portfolio, we no longer originate interest only, residential mortgages.
Adjustable-rate mortgage loans decrease the Bank’s risk associated with changes in market interest rates by periodically re-pricing, but involve other risks because, as interest rates increase, the underlying payments by the borrower increase, which increases the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates or a decline in housing values. The maximum periodic and lifetime interest rate adjustments may limit the effectiveness of adjustable-rate mortgages during periods of rapidly rising interest rates. At December 31, 2015, we held $1.82 billion in adjustable-rate, residential mortgage loans, of which $172.2 million were interest-only, one- to four-family mortgages. Adjustable-rate residential mortgage loans represented 36% of our residential mortgage loan portfolio.
To provide financing for low-and moderate-income home buyers, we also offer various loan programs, some of which include down payment assistance for home purchases. Through these programs, qualified individuals receive a reduced rate of interest on most of our loan programs and have their application fee refunded at closing, as well as other incentives if certain conditions are met.
All residential mortgage loans we originate include a “due-on-sale” clause, which gives us the right to declare a loan immediately due and payable if the borrower sells or otherwise disposes of the real property that is subject to the mortgage and the loan is not repaid. All borrowers are required to obtain title insurance, fire and casualty insurance and, if warranted, flood insurance on properties securing real estate loans.

9

Consumer and Other Loans. At December 31, 2015, consumer and other loans totaled $496.6 million, or 2.9% of our total loan portfolio. We offer consumer loans, most of which consist of home equity loans and home equity lines of credit. Home equity loans and home equity lines of credit are secured by residences primarily located in New Jersey and New York. The underwriting standards we use for home equity loans and home equity lines of credit include a determination of the applicant’s credit history, an assessment of the applicant’s ability to meet existing credit obligations, the payment on the proposed loan and the value of the collateral securing the loan. The combined (first and second mortgage liens) loan-to-value ratio for home equity loans and home equity lines of credit is generally limited to a maximum of 80%. Home equity loans are offered with fixed rates of interest, terms up to 30 years and to a maximum of $500,000. Home equity lines of credit have adjustable rates of interest, indexed to the prime rate, as reported in The Wall Street Journal.
During 2014, we started to offer cash surrender value lending on life insurance contracts. At December 31, 2015, cash surrender value loans totaled $76.0 million, or 15% of consumer and other loans. The underwriting on these loans allows a policy owner to borrow a minimum credit line of $65,000 up to $3,000,000. Acceptable credit history and FICO scores are reviewed along with the evaluation of the financial rating of the insurance carrier.

10

Loan Originations and Purchases. The following table shows our loan originations, loan purchases and repayment activities with respect to our portfolio of loans receivable for the periods indicated. Origination, sale and repayment activities with respect to our loans-held-for-sale are excluded from the table.
 
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Loan originations and purchases
 
 
 
 
 
Loan originations:
 
 
 
 
 
Commercial loans:
 
 
 
 
 
Multi-family loans
$
2,079,201

 
$
1,671,514

 
$
1,592,509

Commercial real estate loans
936,889

 
869,705

 
454,152

Commercial and industrial loans
930,777

 
445,360

 
250,981

Construction loans
82,455

 
44,817

 
57,524

Total commercial loans
4,029,322

 
3,031,396

 
2,355,166

Residential mortgage loans
646,521

 
608,076

 
1,069,518

Consumer and other loans:
 
 
 
 
 
Home equity loans
23,177

 
19,742

 
19,197

Home equity credit lines
131,533

 
103,689

 
58,936

Other
93,081

 
842

 
1,440

Total consumer and other loans
247,791

 
124,273

 
79,573

Total loan originations
4,923,634

 
3,763,745

 
3,504,257

Loan purchases:
 
 
 
 
 
Commercial loans:
 
 
 
 
 
Multi-family loans
2,760

 
—

 
—

Commercial real estate loans
141,564

 
—

 
—

Commercial and industrial loans
—

 
—

 
—

Construction loans
—

 
—

 
—

Total commercial loans
144,324

 
—

 
—

Residential mortgage loans
54,300

 
233,856

 
1,054,395

Consumer and other loans:
 
 
 
 
 
Home equity loans
—

 
—

 
—

Home equity credit lines
—

 
—

 
—

Other
—

 
—

 
—

Total consumer and other loans
—

 
—

 
—

Total loan purchases
198,624

 
233,856

 
1,054,395

Loans sold and principal repayments
(3,340,595
)
 
(2,172,088
)
 
(2,931,593
)
Other items, net(1)
(8,100
)
 
(24,562
)
 
(42,271
)
Net loans acquired in acquisition
—

 
204,075

 
990,970

Net increase in loan portfolio
$
1,773,563

 
$
2,005,026

 
$
2,575,758

 
(1)Other items include charge-offs, loan loss provisions, loans transferred to other real estate owned, and amortization and accretion of deferred fees and costs, discounts and premiums, and purchase accounting adjustments.
Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures approved by our Board of Directors. In the approval process for residential loans, we assess the borrower’s ability to repay the loan and the value of the property securing the loan. To assess the borrower’s ability to repay, we review the borrower’s income and expenses and employment and credit history. In the case of commercial loans we also review projected income, expenses and the viability of the project being financed. We generally require appraisals of all real property securing loans, except for home equity loans and home equity lines of credit, in which case we may use the tax-assessed value of the property securing such loan or a lesser form of valuation, such as a home value estimator or by a drive-by value estimated performed by an approved appraisal company. Appraisals are performed by independent licensed appraisers who are approved by

11

our Board of Directors. We require borrowers, except for home equity loans and home equity lines of credit, to obtain title insurance. All real estate secured loans require fire and casualty insurance and, if warranted, flood insurance in amounts at least equals to the principal amount of the loan or the maximum amount available.
Our loan approval policies and limits are reviewed periodically and submitted to our Board of Directors for approval. Approval limits are set based on the risk associated with each loan type, loan amount and aggregate loan balances of a borrower. The commercial loan committee consists of our Chief Executive Officer, Chief Operating Officer, Chief Lending Officer, Chief Financial Officer, Chief Retail Banking Officer, Senior Vice President -CRE, Senior Vice President- Business Lending and Senior Vice President, Senior Business Lending Operations Manager. All residential mortgage loans, including home equity loans and home equity lines of credit require approval by authorized members of management. Residential mortgage loans which exceed certain dollar thresholds are required to be approved by three authorized members of management, one of whom must be an Executive Officer.
Loans to One Borrower. The Bank’s regulatory limit on total loans to any one borrower or attributed to any one borrower is 15% of unimpaired capital and surplus. As of December 31, 2015, the regulatory lending limit was $414.0 million. The Bank’s internal policy limit is $150.0 million, with the option to exceed that limit with the Board of Directors’ ratification on total loans to a borrower or related borrowers. The Bank reviews these group exposures on a monthly basis. The Bank also sets additional limits on size of loans by loan type. At December 31, 2015, the Bank’s largest relationship with an individual borrower and its related entities was $121.5 million commercial loans consisting of six shopping centers and one retail store.
Asset Quality
One of the Bank’s key operating objectives has been, and continues to be, maintaining a high level of asset quality. The Bank maintains sound credit standards for new loan originations and purchases. We do not originate or purchase sub-prime loans, negative amortization loans or option ARM loans. While our portfolio contains interest only and no income verification residential mortgage loans, we no longer originate or purchase these types of residential loan products. Included in residential and consumer loans for the period ended December 31, 2015 are $175.6 million interest only and $299.5 million in no income verification loans. The Bank does, however from time to time and for competitive purposes, originate commercial loans with limited interest only periods. Included in total commercial loans for the period ended December 31, 2015 are $843.3 million in interest only loans. In addition, the Bank uses proactive collection and workout processes in dealing with delinquent and problem loans.

The underlying credit quality of our loan portfolio is dependent primarily on each borrower’s ability to continue to make required loan payments and, in the event a borrower is unable to continue to do so, the value of the collateral securing the loan, if any. A borrower’s ability to pay typically is dependent; in the case of one-to four-family mortgage loans and consumer loans, primarily on employment and other sources of income; in the case of multi-family and commercial real estate loans, on the cash flow generated by the property; in the case of C&I loans, on the cash flows generated by the business, which in turn is impacted by general economic conditions. Other factors, such as unanticipated expenditures or changes in the financial markets, may also impact a borrower’s ability to pay. Collateral values, particularly real estate values, are also impacted by a variety of factors including general economic conditions, demographics, maintenance and collection or foreclosure delays.
Purchased Credit-Impaired Loans. Purchased Credit-Impaired ("PCI") loans are loans acquired through acquisition or purchased 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 (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 covered 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 results in an increase in yield on a prospective basis.
Collection Procedures. We send system-generated reminder notices to start collection efforts when a loan becomes fifteen days past due. Subsequent late charge and delinquency notices are sent and the account is monitored on a regular basis thereafter. Direct contact with the borrower is attempted early in the collection process as a courtesy reminder and later to determine the reason for the delinquency and to safeguard our collateral. We provide the Board of Directors with a summary report of loans 30 days or more past due on a monthly basis. When a loan is more than 90 days past due, the credit file is reviewed and, if deemed necessary, information is updated or confirmed and collateral re-evaluated. We make every effort to contact the borrower and develop a plan of repayment to cure the delinquency. Loans are placed on non-accrual status when they are 90 days delinquent, but may be placed on non-accrual status earlier if the timely collection of principal and/or income is doubtful. When loans are placed on non-accrual status, unpaid accrued interest is fully reserved, and additional income is recognized in the period collected unless the ultimate collection of principal is considered doubtful. If our effort to cure the delinquency fails and a repayment plan

12

is not in place, the file is referred to counsel for commencement of foreclosure or other collection efforts. We also own loans serviced by other entities and we monitor delinquencies on such loans using reports the servicers send to us. When we receive these past due reports, we review the data and contact the servicer to discuss the specific loans and the status of the collection process. We add the information from the servicer’s delinquent loan reports to our own delinquent reports.
Our collection procedures for non mortgage related consumer and other loans include sending periodic late notices to a borrower once a loan is past due. We attempt to make direct contact with the borrower once a loan becomes 30 days past due. The Collection Manager reviews loans 60 days or more delinquent on a regular basis. If collection activity is unsuccessful after 90 days, we may refer the matter to our legal counsel for further collection efforts and/or we may charge-off the loan.


13

Delinquent Loans. The following table sets forth our loan delinquencies by type and by amount at the dates indicated, excluding loans classified as PCI.
 
 
Loans Delinquent For
 
 
 
 
 
60-89 Days
 
90 Days and Over
 
Total
 
Number
 
Amount
 
Number
 
Amount
 
Number
 
Amount
 
(Dollars in thousands)
At December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
Multi-family loans
—

 
$
—

 
2

 
$
1,886

 
2

 
$
1,886

Commercial real estate loans
3

 
352

 
18

 
6,429

 
21

 
6,781

Commercial and industrial loans
2

 
—

 
13

 
4,386

 
15

 
4,386

Construction loans
—

 
—

 
4

 
792

 
4

 
792

Total commercial loans
5

 
352

 
37

 
13,493

 
42

 
13,845

Residential mortgage loans
60

 
14,956

 
301

 
68,560

 
361

 
83,516

Consumer and other loans
31

 
427

 
137

 
8,976

 
168

 
9,403

Total
96

 
$
15,735

 
475

 
$
91,029

 
571

 
$
106,764

 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
Multi-family loans
1

 
$
239

 
2

 
$
2,989

 
3

 
$
3,228

Commercial real estate loans
4

 
778

 
36

 
13,940

 
40

 
14,718

Commercial and industrial loans
2

 
395

 
11

 
2,903

 
13

 
3,298

Construction loans
0

 
—

 
7

 
4,345

 
7

 
4,345

Total commercial loans
7

 
1,412

 
56

 
24,177

 
63

 
25,589

Residential mortgage loans
36

 
8,900

 
311

 
75,610

 
347

 
84,510

Consumer and other loans
21

 
1,006

 
80

 
4,211

 
101

 
5,217

Total
64

 
$
11,318

 
447

 
$
103,998

 
511

 
$
115,316

Non-Performing Assets. Non-performing assets include non-accrual loans, loans delinquent 90 days or more and still accruing interest, performing troubled debt restructurings and real estate owned, or REO, and excludes PCI loans. We did not have any loans delinquent 90 days or more and still accruing interest at December 31, 2015 and 2014. At December 31, 2015, we had REO of $6.3 million consisting of 33 residential properties and 9 commercial properties. Non-accrual loans increased by $7.0 million to $115.4 million at December 31, 2015 from $108.4 million at December 31, 2014. During 2015, the Company sold a pool of non-performing loans (including PCI loans) totaling $20.9 million on a bulk basis. During 2014, the Company sold a $26.0 million pool of non-performing and PCI loans on a bulk basis as well as a $6.4 million non performing loan on a stand alone basis.
The ratio of non-accrual loans to total loans decreased to 0.68% at December 31, 2015 from 0.72% at December 31, 2014. Our ratio of non-performing assets to total assets decreased to 0.69% at December 31, 2015 from 0.81% at December 31, 2014. The allowance for loan losses as a percentage of total non-accrual loans increased to 189.30% at December 31, 2015 from 184.83% at December 31, 2014. For further discussion of our non-performing assets and non-performing loans and the allowance for loan losses, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The table below sets forth the amounts and categories of our non-performing assets excluding PCI loans at the dates indicated.
 

14

 
December 31,
 
2015 (1)
 
2014 (2)
 
2013 (3)
 
2012(4)
 
2011 (5)
 
 
 
(Dollars in thousands)
Non-accrual loans:
 
 
 
 
 
 
 
 
 
Multi-family and commercial real estate loans
$
14,287

 
$
16,929

 
$
8,616

 
$
11,896

 
$
73

Commercial and industrial loans
9,225

 
2,903

 
1,281

 
375

 
—

Construction loans
792

 
4,345

 
16,181

 
25,764

 
57,070

Total commercial loans
24,304

 
24,177

 
26,078

 
38,035

 
57,143

Residential mortgage loans
81,816

 
79,971

 
72,309

 
81,295

 
84,056

Consumer and other loans
9,306

 
4,211

 
1,973

 
1,238

 
1,009

Total non-accrual loans
115,426

 
108,359

 
100,360

 
120,568

 
142,208

Real estate owned
6,283

 
7,839

 
8,516

 
8,093

 
3,081

Performing troubled debt restructurings
22,489

 
35,624

 
39,570

 
15,756

 
10,465

Total non-performing assets
$
144,198

 
$
151,822

 
$
148,446

 
$
144,417

 
$
155,754

Total non-accrual loans to total loans
0.68
%
 
0.72
%
 
0.77
%
 
1.16
%
 
1.60
%
Total non-performing assets to total assets
0.69
%
 
0.81
%
 
0.95
%
 
1.14
%
 
1.48
%
 
(1)
Non-accrual loans include troubled debt restructurings that are current but classified as non-accrual. These loans are comprised of 15 residential and consumer TDR loans totaling $3.4 million, 2 C&I TDR loans for $2.2 million, 1 multi-family TDR loan for $1.0 million and 2 commercial real estate TDR loans totaling $240,000. In addition, there were 11 residential TDR loans totaling $3.3 million, 5 commercial real estate TDR loans totaling $2.3 million and 1 commercial and industrial TDR loans totaling $360,000 that were classified as non-accrual which were 30-89 days delinquent.
(2)
Non-accrual loans include troubled debt restructurings that are current but classified as non-accrual. These loans are comprised of 5 residential TDR loans totaling $1.5 million. In addition, there were 10 TDR residential loans totaling $2.9 million that were classified as non-accrual which were 30-89 days delinquent.
(3)
Non-accrual loans include troubled debt restructurings which are current but classified as non-accrual. Included in TDR loans, there was one multi-family loan for $2.3 million, 1 commercial loan for $620,000, one C&I loan for $506,000 and 14 residential loans totaling $4.6 million. There were five TDR residential loans totaling $1.6 million which were 30-89 days delinquent classified as non-accrual.
(4)
There were 3 construction troubled debt restructuring loans totaling $6.9 million and 21 residential and consumer loans totaling $5.1 million which were current but classified as non-accrual as of December 31, 2012.
(5)
An $8.1 million construction loan that was 60-89 days delinquent at December 31, 2011 was classified as non-accrual. There were also 6 residential troubled debt restructurings totaling $3.0 million and 2 construction troubled debt restructurings totaling $8.6 million that were current as of December 31, 2011 but classified as non-accrual.
At December 31, 2015, there were $47.4 million of loans deemed trouble debt restructurings, of which $22.5 million were classified as accruing and $24.9 million were classified as non-accrual. For the year ended December 31, 2015, interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms amounted to $8.5 million. We recognized interest income of $2.7 million on such loans for the year ended December 31, 2015.
Real Estate Owned. Real estate we acquire as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned ("REO") until sold. When property is acquired it is recorded at fair value at the date of foreclosure less estimated costs to sell the property. Holding costs and declines in fair value result in charges to expense after acquisition. At December 31, 2015, we had REO of $6.3 million consisting of 33 residential properties and 9 commercial properties.
Classified Assets. Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” we will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value their continuance as assets without the establishment of a specific loss reserve is not warranted. We classify an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention. While such assets are not impaired, management has concluded that if the potential weakness in the asset is not addressed, the value of the asset may deteriorate, adversely affecting the repayment of the asset.
We are required to establish an allowance for loan losses in an amount that management considers prudent for loans classified substandard or doubtful, as well as for other problem loans. General allowances represent loss allowances, which have been

15

established to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When we classify problem assets as “loss,” we are required either to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation, which can require that we establish additional general or specific loss allowances.
We review the loan portfolio on a quarterly basis to determine whether any loans require classification in accordance with applicable regulations. Not all classified assets constitute non-performing assets.
Impaired Loans. The Company defines an impaired loan as a loan for which it is probable, based on current information, that the lender will not collect all amounts due under the contractual terms of the loan agreement. The Company evaluates commercial loans with an outstanding balance greater than $1.0 million and on non-accrual status, loans modified in a troubled debt restructuring (“TDR”), and other commercial loans with an outstanding balance greater than $1.0 million if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement for impairment. Impaired loans are individually evaluated to determine that the loan’s carrying value is not in excess of the fair value of the collateral or the present value of the expected future cash flows. Smaller balance homogeneous loans are evaluated for impairment collectively unless they are modified in a troubled debt restructure. Such loans include residential mortgage loans, consumer loans, and loans not meeting the Company’s definition of impaired, and are specifically excluded from impaired loans. At December 31, 2015, loans meeting the Company’s definition of an impaired loan totaled $57.0 million. The allowance for loan losses related to loans classified as impaired at December 31, 2015, amounted to $4.2 million. Interest income received during the year ended December 31, 2015 on loans classified as impaired totaled $2.8 million. For further detail on our impaired loans, see Note 1 and Note 5 of Notes to Consolidated Financial Statements in Item 15, “Financial Statements and Supplementary Data.”
Allowance for Loan Losses
Our allowance for loan losses is maintained at a level necessary to absorb loan losses that are both probable and reasonably estimable. In determining the allowance for loan losses, management considers the losses inherent in our loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. A description of our methodology in establishing our allowance for loan losses is set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Allowance for Loan Losses.” The allowance for loan losses as of December 31, 2015 is maintained at a level that represents management’s best estimate of losses inherent in the loan portfolio. However, this analysis process is subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe we have established the allowance at levels to absorb probable and estimable losses, future additions may be necessary if economic or other conditions in the future differ from the current environment.
As an integral part of their examination processes, the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation will periodically review our allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

16

Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the periods indicated.
 
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(Dollars in thousands)
Allowance balance (beginning of period)
$
200,284

 
$
173,928

 
$
142,172

 
$
117,242

 
$
90,931

Provision for loan losses
26,000

 
37,500

 
50,500

 
65,000

 
75,500

Charge-offs:
 
 
 
 
 
 
 
 
 
Multi-family loans
(284
)
 
(323
)
 
(1,266
)
 
(9,058
)
 
(363
)
Commercial real estate loans
(1,021
)
 
(6,147
)
 
(1,101
)
 
(479
)
 
(7,637
)
Commercial and industrial loans
(516
)
 
(2,447
)
 
(516
)
 
(99
)
 
(1,621
)
Construction loans
(466
)
 
(640
)
 
(3,424
)
 
(13,227
)
 
(30,548
)
Residential mortgage loans
(9,526
)
 
(7,715
)
 
(15,508
)
 
(20,180
)
 
(9,304
)
Consumer and other loans
(403
)
 
(972
)
 
(795
)
 
(1,107
)
 
(714
)
Total charge-offs
(12,216
)
 
(18,244
)
 
(22,610
)
 
(44,150
)
 
(50,187
)
Recoveries:
 
 
 
 
 
 
 
 
 
Multi-family loans
445

 
3,784

 
219

 
—

 
19

Commercial real estate loans
807

 
201

 
65

 
43

 
—

Commercial and industrial loans
295

 
516

 
604

 
23

 
13

Construction loans
317

 
799

 
315

 
3,387

 
576

Residential mortgage loans
2,295

 
1,783

 
2,528

 
593

 
388

Consumer and other loans
278

 
17

 
135

 
34

 
2

Total recoveries
4,437

 
7,100

 
3,866

 
4,080

 
998

Net charge-offs
(7,779
)
 
(11,144
)
 
(18,744
)
 
(40,070
)
 
(49,189
)
Allowance balance (end of period)
$
218,505

 
$
200,284

 
$
173,928

 
$
142,172

 
$
117,242

Total loans outstanding
$
16,891,330

 
$
15,099,552

 
$
13,064,618

 
$
10,438,471

 
$
8,895,066

Average loans outstanding
15,716,010

 
13,776,250

 
11,065,190

 
9,271,550

 
8,461,031

Allowance for loan losses as a percent of total loans outstanding
1.29
%
 
1.33
%
 
1.33
%
 
1.36
%
 
1.32
%
Net loans charged off as a percent of average loans outstanding
0.05
%
 
0.08
%
 
0.17
%
 
0.43
%
 
0.58
%
Allowance for loan losses to non-performing loans (1)
158.43
%
 
139.10
%
 
124.30
%
 
104.29
%
 
76.79
%
(1) Non performing loans include non-accrual loans and performing troubled debt restructured loans.

17

Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses 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.
 
 
December 31,
 
2015
2014
2013
2012
2011
 
Allowance
for Loan
Losses
Percent of
Loans in
Each
Category to
Total  Loans
Allowance
for Loan
Losses
Percent of
Loans in
Each
Category to
Total  Loans
Allowance
for Loan
Losses
Percent of
Loans in
Each
Category to
Total Loans
Allowance
for Loan
Losses
Percent of
Loans in
Each
Category to
Total Loans
Allowance
for Loan
Losses
Percent of
Loans in
Each
Category to
Total  Loans
 
(Dollars in thousands)
End of period allocated to:
 
 
 
 
 
 
 
 
 
 
Multi-family loans
$
88,223

37.0
%
$
71,147

33.4
%
$
42,103

30.5
%
$
29,853

28.7
%
$
13,863

20.42
%
Commercial real estate loans
46,999

22.7

44,030

20.8

46,657

19.2

33,347

18.9

30,947

15.95

Commercial and industrial loans
40,585

6.2

20,759

3.6

9,273

2.1

4,094

1.6

3,677

1.20

Construction loans
6,794

1.3

6,488

1.0

8,947

1.6

16,062

2.2

22,839

3.12

Residential mortgage loans
31,443

29.8

47,936

38.2

51,760

43.6

45,369

46.4

32,447

56.59

Consumer and other loans
3,155

2.9

3,347

2.9

2,161

3.1

2,086

2.3

1,335

2.72

Unallocated
1,306

 
6,577

 
13,027

 
11,361

 
12,134

 
Total allowance
$
218,505

100.0
%
$
200,284

100.0
%
$
173,928

100.0
%
$
142,172

100.0
%
$
117,242

100.00
%
 
Security Investments
The Board of Directors has adopted our Investment Policy. This policy determines the types of securities in which we may invest. The Investment Policy is reviewed annually by management and changes to the policy are recommended to and subject to approval by the Board of Directors. The Board of Directors delegates operational responsibility for the implementation of the Investment Policy to the Asset Liability Committee, which is primarily comprised of senior officers. While general investment strategies are developed by the Asset Liability Committee, the execution of specific actions rests primarily with our Treasurer. The Treasurer is responsible for ensuring the guidelines and requirements included in the Investment Policy are followed and all securities are considered prudent for investment. Investment transactions are reviewed and ratified by the Board of Directors at their regularly scheduled meetings.
Our Investment Policy requires that investment transactions conform to Federal and New Jersey State investment regulations. Our investments purchased may include, but are not limited to, U.S. Treasury obligations, securities issued by various Federal Agencies, State and Municipal subdivisions, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, investment grade corporate debt instruments, and mutual funds. In addition, Investors Bancorp may invest in equity securities subject to certain limitations.
The Investment Policy requires that securities transactions be conducted in a safe and sound manner. Purchase and sale decisions are based upon a thorough pre-purchase analysis of each security to determine it conforms to our overall asset/liability management objectives. The analysis must consider its effect on our risk-based capital measurement, prospects for yield and/or appreciation and other risk factors.
At December 31, 2015, our securities portfolio totaled $3.15 billion representing 15.1% of our total assets. Securities are classified as held-to-maturity or available-for-sale when purchased. At December 31, 2015, $1.84 billion of our securities were classified as held-to-maturity and reported at amortized cost and $1.30 billion were classified as available-for-sale and reported at fair value.

18

Mortgage-Backed Securities. We purchase mortgage-backed pass through and collateralized mortgage obligation (“CMO”) securities insured or guaranteed by Fannie Mae, Freddie Mac (government-sponsored enterprises) and Ginnie Mae (government agency), and to a lesser extent, a variety of federal and state housing authorities (collectively referred to below as “agency-issued mortgage-backed securities”). At December 31, 2015, agency-issued mortgage-backed securities including CMOs, totaled $3.06 billion, or 97.2%, of our total securities portfolio.
Mortgage-backed pass through securities are created by pooling mortgages and issuing a security with an interest rate less than the interest rate on the underlying mortgages. Mortgage-backed pass through securities represent a participation interest in a pool of single-family or multi-family mortgages. As loan payments are made by the borrowers, the principal and interest portion of the payment is passed through to the investor as received. CMOs are also backed by mortgages; however, they differ from mortgage-backed pass through securities because the principal and interest payments of the underlying mortgages are financially engineered to be paid to the security holders of pre-determined classes or tranches of these securities at a faster or slower pace. The receipt of these principal and interest payments, which depends on the proposed average life for each class, is contingent on a prepayment speed assumption assigned to the underlying mortgages. Variances between the assumed payment speed and actual payments can significantly alter the average lives of such securities. To quantify and mitigate this risk, we undertake a payment analysis before purchasing these securities. We primarily invest in CMO classes or tranches in which the payments on the underlying mortgages are passed along at a pace fast enough to provide an average life of three to five years with no change in market interest rates. The issuers of such securities, as noted above, pool and sell participation interests in security form to investors such as Investors Bank and guarantee the payment of principal and interest. Mortgage-backed securities and CMOs generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. However, mortgage-backed securities are usually more liquid than individual mortgage loans and may be used to collateralize borrowings and other liabilities.
Mortgage-backed securities present a risk that actual prepayments may differ from estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments that can change the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or if such securities are redeemed by the issuer. In addition, the fair value of such securities may be adversely affected by changes in interest rates.
Our mortgage-backed securities portfolio had a weighted average yield of 1.91% for the year ended December 31, 2015. The estimated fair value of our mortgage-backed securities at December 31, 2015 was $3.06 billion, which is $2.3 million more than the carrying value. The increase to the fair value is attributed to a decline to interest rates during 2015.
We also may invest in securities issued by non-agency or private mortgage originators, provided those securities are rated AAA by nationally recognized rating agencies and satisfactorily pass an internal credit review at the time of purchase. The Company currently has no non-agency mortgage-backed securities in its portfolio.
Corporate and Other Debt Securities. Our corporate and other debt securities portfolio consists of collateralized debt obligations (CDOs) 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. The interest rates on these securities reset quarterly in relation to 3 month Libor rate. These securities have been classified in the held-to-maturity portfolio since their purchase.
At December 31, 2015, the trust preferred securities portfolio have an amortized cost of $35.1 million, or 1.12% of our total securities portfolio, and a fair value of $77.8 million with none of the securities in an unrealized loss position. Throughout the year we engage an independent valuation firm to assist us in valuing our TruPS portfolio and prepare our other-than temporary impairment, or OTTI, analysis. At December 31, 2015, management deemed that the present value of projected cash flows for each security was greater than the book value and did not recognize any OTTI charges for the periods ended December 31, 2015 and 2014. At December 31, 2013, the discounted cash flow projected for one of the Company's pooled trust preferred securities fell below its adjusted book value. Based on the review of underlying collateral, the credit of this security has continued to deteriorate and therefore the Company recorded net other-than-temporary impairment ("OTTI") charge of $977,000 for the year ended December 31, 2013. For the year ended December 31, 2015 the Company recognized a loss of $646,000 on a TruPS security which was entirely liquidated by its Trustee.
In December 2013, regulatory agencies adopted a rule on the treatment of certain collateralized debt obligations backed by trust preferred securities to implement sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker Rule. One of our securities backed by trust preferred securities issued by insurance companies was deemed to be a "covered fund" under the Volker Rule and the Company sold the security during 2014. The Company has no intent to sell the remaining securities, nor is it more likely than not that it would be required to sell these securities.

19

We continue to closely monitor the performance of the securities we own as well as the events surrounding this segment of the market. We will continue to evaluate for other-than-temporary impairment, which could result in a future non-cash charge to earnings.
Municipal Bonds.  At December 31, 2015, we had $43.1 million in municipal bonds which represents 1.4% of our total securities portfolio. These bonds are comprised of $38.3 million in short-term Bond Anticipation or Tax Anticipation notes and $4.8 million of longer term New Jersey Revenue Bonds. These purchases were made to diversify the securities portfolio and are designated as held to maturity.

Government Sponsored Enterprises. At December 31, 2015, debt securities issued by Government Sponsored Enterprises held in our security portfolio totaled $4.2 million representing less than 0.2% of our total securities portfolio. While these securities may generally provide lower yields than other securities in our securities portfolio; they are held for liquidity purposes, as collateral for certain borrowings, to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by these issuers.
Marketable Equity Securities. At December 31, 2015, we had $6.5 million in equity securities representing 0.2% of our total securities portfolio. Equity securities are not insured or guaranteed investments and are affected by market interest rates and stock market fluctuations. Such investments (when held) are carried at their fair value and fluctuations in the fair value of such investments, including temporary declines in value, directly affect our net capital position.

20

Securities Portfolios. The following table sets forth the composition of our investment securities portfolios at the dates indicated.
 
 
At December 31,
 
 
2015
 
2014
 
2013
 
 
 
Carrying Value
 
Estimated
Fair Value
 
Carrying Value
 
Estimated
Fair Value
 
Carrying Value
 
Estimated
Fair Value
 
 
 
(In thousands)
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
$
5,778

 
$
6,495

 
$
6,887

 
$
8,523

 
$
7,148

 
$
8,444

 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Government sponsored enterprises
 
—

 
—

 
—

 
—

 
3,004

 
3,004

 
Corporate and other debt securities
 
—

 
—

 
—

 
—

 
670

 
670

 
Total debt securities
 
—

 
—

 
—

 
—

 
3,674

 
3,674

 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal National Mortgage Association
 
724,851

 
726,072

 
675,535

 
681,992

 
408,794

 
409,559

 
Federal Home Loan Mortgage Corporation
 
546,652

 
547,451

 
503,268

 
507,283

 
362,876

 
363,088

 
Government National Mortgage Association
 
24,841

 
24,679

 
125

 
126

 
267

 
267

 
Total mortgage-backed securities available for sale
 
1,296,344

 
1,298,202

 
1,178,928

 
1,189,401

 
771,937

 
772,914

 
Total available-for-sale securities
 
$
1,302,122

 
$
1,304,697

 
$
1,185,815

 
$
1,197,924

 
$
782,759

 
$
785,032

 
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Government sponsored enterprises
 
$
4,232

 
$
4,243

 
$
4,388

 
$
4,403

 
$
4,542

 
$
4,524

 
Municipal bonds
 
43,058

 
44,365

 
24,320

 
25,321

 
14,992

 
15,479

 
Corporate and other debt securities
 
35,113

 
77,817

 
33,440

 
65,236

 
29,681

 
48,604

 
Total debt securities
 
82,403

 
126,425

 
62,148

 
94,960

 
49,215

 
68,607

 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal National Mortgage Association
 
1,226,140

 
1,227,325

 
974,376

 
984,787

 
478,616

 
472,214

 
Federal Home Loan Mortgage Corporation
 
514,339

 
513,470

 
500,637

 
502,320

 
303,617

 
297,872

 
Government National Mortgage Association
 
21,330

 
21,455

 
27,136

 
27,116

 
—

 
—

 
Federal housing authorities
 
11

 
11

 
182

 
182

 
371

 
371

 
Total mortgage-backed securities held-to-maturity
 
1,761,820

 
1,762,261

 
1,502,331

 
1,514,405

 
782,604

 
770,457

 
Total held-to-maturity securities
 
$
1,844,223

 
$
1,888,686

 
$
1,564,479

 
$
1,609,365

 
$
831,819

 
$
839,064

 
Total securities
 
$
3,146,345

 
$
3,193,383

 
$
2,750,294

 
$
2,807,289

 
$
1,614,578

 
$
1,624,096

 

At December 31, 2015, except for our investments in Fannie Mae and Freddie Mac securities, we had no investment in the securities of any issuer that had an aggregate book value in excess of 10% of our equity.

21

Portfolio Maturities and Coupon. The composition, maturities and coupon rate of the securities portfolio at December 31, 2015 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Municipal securities coupons have not been adjusted to a tax-equivalent basis.
 
 
One Year or Less
 
More than One Year
through Five Years
 
More than Five Years
through Ten Years
 
More than Ten Years
 
Total Securities
 
 
Carrying Value
 
Weighted
Average
Coupon
 
Carrying Value
 
Weighted
Average
Coupon
 
Carrying Value
 
Weighted
Average
Coupon
 
Carrying Value
 
Weighted
Average
Coupon
 
Carrying Value
 
Fair
Value
 
Weighted
Average
Coupon
 
 
(Dollars in thousands)
Available-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
$
—

 
—

 
$
—

 
—

 
$
—

 
—

 
$
5,778

 
—

 
$
5,778

 
$
6,495

 
—

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
 
—

 
—

 
5,793

 
3.70
%
 
67,680

 
2.75
%
 
473,179

 
2.04
%
 
546,652

 
547,451

 
2.15
%
Federal National Mortgage Association
 
—

 
—

 
41,745

 
3.15
%
 
136,446

 
2.01
%
 
546,660

 
2.03
%
 
724,851

 
726,072

 
2.09
%
Government National Mortgage Association
 
—

 
—

 
—

 
—

 
26

 
1.05
%
 
24,815

 
1.79
%
 
24,841

 
24,679

 
1.79
%
Total mortgage-backed securities
 
—

 
—

 
47,538

 
3.22
%
 
204,152

 
2.26
%
 
1,044,654

 
1.99
%
 
1,296,344

 
1,298,202

 
2.11
%
Total available-for- sale securities
 
$
—

 
—

 
$
47,538

 
3.22
%
 
$
204,152

 
2.26
%
 
$
1,050,432

 
1.98
%
 
$
1,302,122

 
$
1,304,697

 
2.10
%
Held-to-Maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government sponsored enterprises
 
$
2,014

 
0.49
%
 
$
2,218

 
1.54
%
 
$
—

 
—

 
$
—

 
—

 
$
4,232

 
$
4,243

 
1.04
%
Municipal bonds
 
38,123

 
1.10
%
 
145

 
3.63
%
 
—

 
—

 
4,790

 
9.13
%
 
43,058

 
44,365

 
2.00
%
Corporate and other debt securities
 
—

 
—

 
—

 
—

 
—

 
—

 
35,113

 
2.84
%
 
35,113

 
77,817

 
2.84
%
 
 
40,137

 
1.07
%
 
2,363

 
1.67
%
 
—

 
—

 
39,903

 
3.60
%
 
82,403

 
126,425

 
2.31
%
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
 
—

 
—

 
924

 
4.54
%
 
22,325

 
2.07
%
 
491,090

 
2.16
%
 
514,339

 
513,470

 
2.16
%
Federal National Mortgage Association
 
—

 
—

 
25,996

 
1.97
%
 
36,877

 
2.14
%
 
1,163,267

 
2.33
%
 
1,226,140

 
1,227,325

 
2.31
%
Government National Mortgage Association
 
—

 
—

 
—

 
—

 
—

 
—

 
21,330

 
2.18
%
 
21,330

 
21,455

 
2.18
%
Federal Housing Authorities
 
11

 
8.90
%
 
—

 
—

 
—

 
—

 
—

 
—

 
11

 
11

 
8.90
%
Total mortgage-backed securities
 
11

 
8.90
%
 
26,920

 
2.06
%
 
59,202

 
2.11
%
 
1,675,687

 
2.28
%
 
1,761,820


1,762,261

 
2.27
%
Total held-to-maturity securities
 
$
40,148

 
1.07
%
 
$
29,283

 
2.03
%
 
$
59,202

 
2.11
%
 
$
1,715,590

 
2.25
%
 
$
1,844,223


$
1,888,686

 
2.19
%

22

Sources of Funds
General. Deposits are the primary source of funds used for our lending and investment activities. Our strategy is to increase core deposit growth to fund these activities. In addition, we use a significant amount of borrowings, primarily advances from the Federal Home Loan Bank of New York (“FHLB”); to supplement cash flow needs, to lengthen the maturities of liabilities for interest rate risk management and to manage our cost of funds. Additional sources of funds include principal and interest payments from loans and securities, loan and security prepayments and maturities, repurchase agreements, brokered deposits, income on other earning assets and retained earnings. While cash flows from loans and securities payments can be relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.
Deposits. At December 31, 2015, we held $14.06 billion in total deposits, representing 80% of our total liabilities. For several years, we revised our deposit strategy from one focused on attracting certificates of deposit to one focused on core deposits (savings, checking and money market accounts). The impact of these efforts has been a continuing shift in deposit mix to lower cost core products. We remain committed to our plan of attracting more core deposits because core deposits represent a more stable source of low cost funds and may be less sensitive to changes in market interest rates. At December 31, 2015, we held $10.65 billion in core deposits, representing 75.7% of total deposits, of which $614.2 million are brokered money market deposits. At December 31, 2015, $3.42 billion, or 24.3%, of our total deposit balances were certificates of deposit, which included $417.4 million of brokered certificates of deposits.
We have a suite of commercial deposit products, designed to appeal to small business owners and non-profit organizations. The interest rates we pay, our maturity terms, service fees and withdrawal penalties are all reviewed on a periodic basis. Deposit 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.
The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition. The variety of deposit accounts we offer allows us to respond to changes in consumer demands and to be competitive in obtaining deposit funds. Our ability to attract and maintain deposits and the rates we pay on deposits will continue to be significantly affected by market conditions.
We intend to continue to invest in de novo branches and technology platforms, branch staff training and to aggressively market and advertise our core deposit products and will attempt to generate our deposits from a diverse client group within our primary market area. We remain focused on attracting deposits from consumers, businesses and municipalities which operate in our marketplace.
The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated.
 
 
At December 31,
 
2015
 
2014
 
2013
 
Balance
Percent
of Total
Deposits
Weighted
Average
Rate
 
Balance
Percent
of Total
Deposits
Weighted
Average
Rate
 
Balance
Percent
of Total
Deposits
Weighted
Average
Rate
 
(Dollars in thousands)
Checking accounts
$
4,636,025

32.96
%
0.17
%
 
$
3,892,839

31.98
%
0.20
%
 
$
3,163,250

29.50
%
0.17
%
Money market deposits
3,861,317

27.46

0.67

 
3,390,238

27.85

0.71

 
1,958,982

18.28

0.34

Savings
2,150,004

15.29

0.29

 
2,318,911

19.05

0.27

 
2,212,034

20.64

0.28

Total core deposits
10,647,346

75.71

0.38

 
9,601,988

78.88

0.40

 
7,334,266

68.42

0.25

Certificates of deposit
3,416,310

24.29

1.14

 
2,570,338

21.12

1.00

 
3,384,545

31.58

0.83

Total deposits
$
14,063,656

100.00
%
0.56
%
 
$
12,172,326

100.00
%
0.53
%
 
$
10,718,811

100.00
%
0.43
%


23

The following table sets forth, by rate category, the amount of certificates of deposit outstanding as of the dates indicated.
 
 
At December 31,
 
2015
 
2014
 
2013
 
(Dollars in thousands)
Certificates of Deposits
 
 
 
 
 
0.00% - 0.25%
$
606,970

 
$
703,630

 
$
880,344

0.26% - 0.50%
304,458

 
511,058

 
482,603

0.51% - 1.00%
384,941

 
389,815

 
525,751

1.01% - 2.00%
1,791,549

 
512,383

 
941,224

2.01% - 3.00%
301,930

 
386,775

 
420,101

Over 3.00%
26,462

 
66,677

 
134,522

Total
$
3,416,310

 
$
2,570,338

 
$
3,384,545

The following table sets forth, by rate category, the remaining period to maturity of certificates of deposit outstanding at December 31, 2015.
 
 
 
Within
Three
Months
 
Over
Three to
Six Months
 
Over
Six Months to
One Year
 
Over
One Year to
Two Years
 
Over
Two Years to
Three Years
 
Over
Three
Years
 
Total
 
 
(Dollars in thousands)
Certificates of Deposits
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0.00% - 0.25%
 
$
266,551

 
$
136,978

 
$
153,227

 
$
474

 
$
24,610

 
$
25,130

 
$
606,970

0.26% - 0.50%
 
58,772

 
99,584

 
58,563

 
87,090

 
157

 
292

 
304,458

0.51% - 1.00%
 
54,256

 
23,544

 
77,159

 
119,004

 
56,057

 
54,921

 
384,941

1.01% - 2.00%
 
10,595

 
424,426

 
936,814

 
266,081

 
84,923

 
68,710

 
1,791,549

2.01% - 3.00%
 
43,046

 
105,342

 
120,623

 
15,149

 
641

 
17,129

 
301,930

Over 3.00%
 
5,591

 
6,426

 
4,580

 
8,489

 
641

 
735

 
26,462

Total
 
$
438,811

 
$
796,300

 
$
1,350,966

 
$
496,287

 
$
167,029

 
$
166,917

 
$
3,416,310

The following table sets forth the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 and the respective maturity of those certificates as of December 31, 2015.
 
 
 
 
At December 31, 2015
 
(In thousands)
Three months or less
$265,306
Over three months through six months
258,588
Over six months through one year
478,400
Over one year
318,374
Total
$1,320,668

24


Borrowings. We borrow directly from the FHLB and various financial institutions. Our FHLB borrowings, frequently referred to as advances, are over collateralized by our residential and non-residential mortgage portfolios as well as qualified investment securities. The following table sets forth information concerning balances and interest rates on our advances from the FHLB and other financial instruments at the dates and for the periods indicated.
 
 
At or for the Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(Dollars in thousands)
Balance at end of period
$
3,106,783

 
$
2,598,186

 
$
3,099,593

 
$
2,650,652

 
$
2,005,486

Average balance during period
2,997,873

 
2,548,744

 
3,015,058

 
2,068,006

 
1,793,958

Maximum outstanding at any month end
3,548,000

 
3,230,000

 
3,586,000

 
2,650,652

 
2,167,000

Weighted average interest rate at end of period
2.12
%
 
2.24
%
 
1.83
%
 
2.14
%
 
2.68
%
Average interest rate during period
2.06
%
 
2.19
%
 
1.90
%
 
2.60
%
 
2.88
%
We also borrow funds under repurchase agreements with the FHLB and various brokers. These agreements are recorded as financing transactions as we maintain effective control over the transferred or pledged securities. The dollar amount of the securities underlying the agreements continues to be carried in our securities portfolio while the obligations to repurchase the securities are reported as liabilities. The securities underlying the agreements are delivered to the party with whom each transaction is executed. Those parties agree to resell to us the identical securities we delivered to them at the maturity or call period of the agreement. The following table sets forth information concerning balances and interest rate on our securities sold under agreements to repurchase at the dates and for the periods indicated:
 

 
At or for the Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(Dollars in thousands)
Balance at end of period
$
156,307

 
$
167,918

 
$
267,681

 
$
55,000

 
$
250,000

Average balance during period
159,438

 
192,865

 
164,415

 
156,120

 
347,300

Maximum outstanding at any month end
163,000

 
261,205

 
267,681

 
250,000

 
500,000

Weighted average interest rate at end of period
2.21
%
 
2.28
%
 
1.60
%
 
3.94
%
 
3.90
%
Average interest rate during period
2.25
%
 
2.02
%
 
1.50
%
 
3.93
%
 
4.26
%
Subsidiary Activities
Investors Bancorp, Inc. has two direct subsidiaries: Marathon Statutory Trust II and Investors Bank.
Marathon Statutory Trust II. Marathon Statutory Trust II is a Delaware statutory trust incorporated in December 2006 and acquired in the merger with Marathon Banking Corporation in October 2012. The purpose of this subsidiary was to issue and sell trust preferred securities. At December 31, 2015, the balance of securities issued was $5.0 million.
Investors Bank. Investors Bank is a New Jersey chartered savings bank headquartered in Short Hills, New Jersey. Originally founded in 1926, the bank is in the business of attracting deposits from the public through its branch network and borrowing funds in the wholesale markets to originate loans and to invest in securities. Investors Bank has the following direct and indirect subsidiaries: Investors Home Mortgage, American Savings Investment Corp., Investors Commercial, Inc., Investors Financial Group, Inc., My Way Development LLC, MNBNY Holdings Inc., Marathon Realty Investors Inc., Roma Capital Investment Corp., Roma Service Corporation and 84 Hopewell, LLC. In addition, Investors Bank also acquired additional subsidiaries in 2012 as a result of the merger with Brooklyn Federal Bancorp, Inc. These subsidiaries were inactive and substantially all assets held by the subsidiaries were cash. We are currently in the process of liquidating and dissolving those subsidiaries.

25

•Investors Home Mortgage. Investors Home Mortgage is a New Jersey limited liability company that was formed in 2001 for the purpose of originating loans for sale to both Investors Bank and third parties. During 2011, in conjunction with the rebranding of Investors Bank, this subsidiary changed the name it does business under from ISB Mortgage Co., LLC to Investors Home Mortgage. Investors Home Mortgage serves as Investors Bank’s retail lending production arm throughout the branch network. Investors Home Mortgage sells all loans that it originates to either Investors Bank or third parties.
•American Savings Investment Corp. American Savings Investment Corp. is a New Jersey corporation that was formed in 2004 as an investment company subsidiary. The purpose of this subsidiary is to invest in securities such as, but not limited to, U.S. Treasury obligations, mortgage-backed securities, certificates of deposit, mutual funds, and equity securities, subject to certain limitations. This subsidiary was obtained in the acquisition of American Bancorp in May 2009.
•Investors Commercial, Inc. Investors Commercial, Inc. is a New Jersey corporation that was formed in 2010 as an operating subsidiary of Investors Bank. The purpose of this subsidiary is to originate and purchase residential mortgage loans, commercial real estate and multi-family mortgage loans primarily in New York State.
•Investors Financial Group, Inc. Investors Financial Group, Inc. is a New Jersey corporation that was formed in 2011 as an operating subsidiary of Investors Bank. The primary purpose of this subsidiary is to process sales of non-deposit investment products through third party service providers to customers and consumers as may be referred by Investors Bank.
•My Way Development LLC. My Way Development LLC is a New Jersey single-member limited liability company formed in 2001 as a real estate holding company.
•MNBNY Holdings Inc. MNBNY Holdings, Inc. is a New York corporation that was formed in 2006 and acquired in the merger with Marathon Banking Corporation in October 2012. MNBNY Holdings, Inc. serves as a holding company and is the 100% owner of Marathon Realty Investors Inc.
•Marathon Realty Investors Inc. Marathon Realty Investors Inc. is a New York corporation established in 2006 and acquired in the merger with Marathon Banking Corporation in October 2012. Marathon Realty Investors Inc. operates, and is taxed, in a manner that enables it to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended. As a result of this election, Marathon Realty Investors Inc. is not taxed at the corporate level on taxable income distributed to stockholders, provided that certain REIT qualification tests are met.
•Roma Capital Investment Corp. Roma Capital Investment Corp. is a New Jersey corporation formed in 2004 to hold bank-eligible securities, including U.S. government agency securities, municipal securities, GSE securities and collateralized mortgage obligations. This subsidiary was obtained in the acquisition of Roma Financial Corporation in December 2013.
•Roma Service Corporation. Roma Service Corporation is a New Jersey corporation formed in 2011 for the sole purpose of holding a 50% interest in 84 Hopewell, LLC. This subsidiary was obtained in the acquisition of Roma Financial Corporation in December 2013.
•84 Hopewell, LLC. 84 Hopewell, LLC is a New Jersey limited liability company formed in 2006 which owns an office property. This subsidiary was obtained in the acquisition of Roma Financial Corporation in December 2013 and is held 50% by Roma Service Corporation with the remaining 50% held by an unrelated third-party.
Investors Bank has two additional subsidiaries which are inactive. The subsidiaries are Investors Financial Services, Inc. and Investors Real Estate Corporation.
Personnel
As of December 31, 2015, we had 1,712 full-time employees and 56 part-time employees. The employees are not represented by a collective bargaining unit and we consider our relationship with our employees to be good.



26

Supervision and Regulation
General
Investors Bank is a New Jersey-chartered savings bank, and its deposit accounts are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”) under the Deposit Insurance Fund (“DIF”). Investors Bank is subject to extensive regulation, examination and supervision by the Commissioner of the New Jersey Department of Banking and Insurance (the “Commissioner”) as the issuer of its charter, and, as a non-member state chartered savings bank, by the FDIC as the deposit insurer and its primary federal regulator. Investors Bank must file reports with the Commissioner and the FDIC concerning its activities and financial condition, and it must obtain regulatory approval prior to entering into certain transactions, such as mergers with, or acquisitions of, other depository institutions and opening or acquiring branch offices. The Commissioner and the FDIC each conduct periodic examinations to assess Investors Bank’s compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which a savings bank may engage and is intended primarily for the protection of the DIF and its depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
As a bank holding company controlling Investors Bank, Investors Bancorp, Inc. is subject to the Bank Holding Company Act of 1956, as amended (“BHCA”), and the rules and regulations of the Federal Reserve Board under the BHCA and to the provisions of the New Jersey Banking Act of 1948 (the “New Jersey Banking Act”) and the regulations of the Commissioner under the New Jersey Banking Act applicable to bank holding companies. Investors Bancorp, Inc. is required to file reports with, and otherwise comply with the rules and regulations of, the Federal Reserve Board, the Commissioner and the FDIC. The Federal Reserve Board and the Commissioner conduct periodic examinations to assess the Company’s compliance with various regulatory requirements. Investors Bancorp, Inc. files certain reports with, and otherwise complies with, the rules and regulations of the Securities and Exchange Commission under the federal securities laws and the listing requirements of NASDAQ.
Any change in such laws and regulations, whether by the Commissioner, the FDIC, the Federal Reserve Board or through legislation, could have a material adverse impact on Investors Bank and Investors Bancorp, Inc. and their operations and stockholders.
We are unable to predict these future changes or the effects, if any, that these changes could have on the business, revenues, and results of Investors Bank and its subsidiaries.
The federal government has recently implemented and announced programs designed to bolster the capital of U.S. banks. Some of these programs have, and any future programs may, impose additional rules and regulations on us, some of which may affect the way we conduct our business and/or limit our ability to compete effectively.
Federal and state banking laws also require us to take steps to protect consumers. Bank regulatory agencies are increasingly focusing attention on compliance with consumer protection laws and regulations. These laws include disclosures regarding truth in lending, truth in savings, funds availability, privacy protection under the Gramm-Leach-Bliley Act of 1999, and prohibitions on discrimination in the provision of banking services. In addition, the Consumer Financial Protection Bureau (“CFPB”) is responsible for interpreting and enforcing a broad range of consumer protection laws governing the provision of deposit accounts and the making of loans, including the regulation of mortgage lending and servicing. For further discussion on consumer protection and the role of the CFPB, see “- Dodd-Frank Act.”
We have incurred and may in the future incur additional costs in complying with these requirements.
Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), signed into law on July 21, 2010, made extensive changes to the laws regulating financial services firms. The Dodd-Frank Act also required significant rulemaking and mandates multiple studies that have resulted and are likely to continue to result in additional legislative and regulatory actions that will impact the operations of the Bank. Under the Dodd-Frank Act, federal bank regulatory agencies are required to draft and implement enhanced supervision, examination and capital and liquidity standards for depository institutions. The capital provisions of the Dodd-Frank Act include, among other things, changes to capital, leverage limits and limitations on the use of hybrid capital instruments. The Dodd-Frank Act also imposed new restrictions on investments and other activities by depository institutions, particularly with respect to derivatives activities and proprietary trading. The Dodd-Frank Act also gave federal bank regulatory agencies, such as the Federal Reserve and the FDIC, additional latitude to monitor the systemic safety of the financial system and take responsive action, which could include imposing restrictions on the business activities of the Bank. In addition, the Dodd-Frank Act authorized the federal regulators to impose various new assessments and fees, which could increase the Bank’s operational costs.

27

The Dodd-Frank Act required banks with total consolidated assets of more than $10 billion to conduct annual stress tests. The Dodd-Frank Act also required the FDIC, in coordination with federal financial regulatory agencies, to issue regulations establishing methodologies for stress testing that provide for at least three different sets of conditions, including baseline, adverse, and severely adverse. The regulations must also require banks to publish a summary of the results of the stress tests. In October 2012, the FDIC issued a final rule regarding annual stress tests requiring a bank subject to the rule to assess the quarterly impact of stress scenarios on the bank’s capital over a horizon of nine quarters. For institutions, such as Investors Bank, with total consolidated assets of more than $10 billion but less than $50 billion, the final rule delayed the implementation of stress testing until September 2013, with initial results to be submitted by March 31, 2014. The final rule also delayed the initial public disclosure requirement of stress test results until 2015 (disclosing the 2014 stress test results).
The Bank has developed a process to comply with the stress testing requirements, which involves Senior Management, Risk Management, along with third-party consultants who assist in this process. The Risk Committee of the Board of Directors receives quarterly updates as to the progress and challenges in complying with this new regulatory requirement. We submitted our stress tests results by March 31, 2014, as required and published updated stress test results on June 26, 2015. The stress testing results affirmed the adequacy of the Bank’s capital, even under severe economic conditions. As the related methodologies and best practices for banks of Investors’ size continue to evolve, the stress testing process requires significant investment and we continue to seek ways to maximize shareholder value from the process while complying with regulatory requirements.
In addition, in December 2013 federal regulators adopted a final rule implementing the “Volcker Rule” enacted as part of the Dodd-Frank Act. The Volcker Rule prohibits (subject to certain exceptions) banks and their affiliates from engaging in short-term proprietary trading in securities and derivatives and from investing in and sponsoring certain unregistered investment companies (including not only such things as hedge funds, commodity pools and private equity funds, but also a range of asset securitization structures that do not meet exemptive criteria in the final rules). The rules also require banks to develop compliance and control programs, including board of directors' oversight, appropriate for the size of the bank and the types and complexity of its activities.  Investors Bank has complied with the provisions of the Volcker Rule and has developed a governance and control program to ensure appropriate oversight and on-going compliance.
All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the Dodd-Frank Act. As a result, beginning on July 21, 2011, financial institutions could commence offering interest on demand deposits to compete for clients.
Our interest expense will increase and our net interest margin will decrease if we have to offer higher rates of interest than we currently offer on demand deposits to attract additional clients or maintain current clients, which could have a material adverse effect on our business, financial condition and results of operations. Thus far, the change has not had a meaningful effect on our business.
The Dodd-Frank Act also established the new federal CFPB. This agency is responsible for interpreting and enforcing a broad range of consumer protection laws (“Federal Consumer Financial Laws”) that govern the provision of deposit accounts and the making of loans, including the regulation of mortgage lending and servicing. This includes laws such as the Equal Credit Opportunity Act, the Truth in Lending Act, the Truth in Savings Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, and the Fair Credit Reporting Act. In 2012, the CFPB proposed an integrated disclosure in connection with mortgage origination that incorporates disclosure requirements under the Real Estate Settlement Procedures Act and the Truth-in-Lending Act. The CFPB issued a final rule regarding the integrated disclosure in December 2013, and the disclosure requirement became effective in October 2015.
In accordance with deadlines set by the Dodd-Frank Act, the CFPB issued final rules in January 2013 related to new mortgage servicing standards, and mortgage lending requirements that establish a “qualified mortgage” which will fulfill the Dodd-Frank Act requirement that mortgages be provided to borrowers with an ability to repay. These mortgage servicing and lending rules became effective in January 2014. These and other CFPB regulations will increase the Bank’s compliance expenses, and limit the terms under which the Bank can provide consumer financial products.
Additionally the CFPB has the authority to take enforcement action against banks and other financial services companies that fail to satisfy the standards imposed by it. As an insured depository institution with total assets of more than $10 billion, the Bank is subject to CFPB supervision and examination of compliance with Federal Consumer Financial Laws. The Dodd-Frank Act also permits states to adopt stricter consumer protection laws and state attorneys general to enforce consumer protection rules issued by the CFPB. As a result of these aspects of the Dodd-Frank Act, the Bank is operating in a consumer compliance environment that will be far less certain. Therefore, the Bank is likely to incur additional costs related to consumer protection compliance, including but not limited to potential costs associated with CFPB examinations, regulatory and enforcement actions and consumer-oriented litigation, which is likely to increase as a result of the consumer protection provisions of the Dodd-Frank Act.

28

In addition to creating the CFPB, the Dodd-Frank Act, among other things, directed changes in the way that institutions are assessed for deposit insurance, mandated the imposition of tougher consolidated capital requirements on holding companies, required originators of securitized loans to retain a percentage of the risk for the transferred loans, imposed regulatory rate-setting for certain debit card interchange fees, repealed restrictions on the payment of interest on commercial demand deposits and required reforms related to mortgage originations. At this time, it is difficult to predict the full extent to which the Dodd-Frank Act or the resulting regulations will impact the Bank’s business. However, compliance with certain of these new laws and regulations could result in restraints on, and additional costs to, our business. It is also difficult to predict the impact the Dodd-Frank Act will have on our competitors and on the financial services industry as a whole. In addition to the recent legislative and regulatory initiatives described above, competitive and industry factors could also adversely impact our results, the cost of our operations, our financial condition and our liquidity.
New Jersey Banking Regulation
Activity Powers. Investors Bank derives its lending, investment and other powers primarily from the applicable provisions of the New Jersey Banking Act and its related regulations. Under these laws and regulations, savings banks, including Investors Bank, generally may invest in:

•
real estate mortgages;
•
consumer and commercial loans;
•
specific types of debt securities, including certain corporate debt securities and obligations of federal, state and local governments and agencies;
•
certain types of corporate equity securities; and
•
certain other assets.
A savings bank may also make investments pursuant to a “leeway” power, which permits investments not otherwise permitted by the New Jersey Banking Act, subject to certain restrictions imposed by the FDIC. “Leeway” investments must comply with a number of limitations on the individual and aggregate amounts of “leeway” investments. A savings bank may also exercise trust powers upon approval of the Commissioner. Lastly, New Jersey savings banks may exercise those powers, rights, benefits or privileges authorized for national banks or out-of-state banks or for federal or out-of-state savings banks or savings associations, provided that before exercising any such power, right, benefit or privilege, prior approval by the Commissioner by regulation or by specific authorization is required. The exercise of these lending, investment and activity powers are limited by federal law and the related regulations. See “Federal Banking Regulation — Activity Restrictions on State-Chartered Banks” below.
Loans-to-One-Borrower Limitations. With certain specified exceptions, a New Jersey-chartered savings bank may not make loans or extend credit to a single borrower or to entities related to the borrower in an aggregate amount that would exceed 15% of the bank’s capital funds. A savings bank may lend an additional 10% of the bank’s capital funds if secured by collateral meeting the requirements of the New Jersey Banking Act and the National Bank Act. Investors Bank currently complies with applicable loans-to-one-borrower limitations.
Dividends. Under the New Jersey Banking Act, a stock savings bank may declare and pay a dividend on its capital stock only to the extent that the payment of the dividend would not impair the capital stock of the savings bank. In addition, a stock savings bank may not pay a dividend unless the savings bank would, after the payment of the dividend, have a surplus of not less than 50% of its capital stock, or alternatively, the payment of the dividend would not reduce the surplus. Federal law may also limit the amount of dividends that may be paid by Investors Bank. See “— Federal Banking Regulation — Prompt Corrective Action” below.
Minimum Capital Requirements. Regulations of the Commissioner impose on New Jersey-chartered depository institutions, including Investors Bank, minimum capital requirements similar to those imposed by the FDIC on insured state banks. See “— Federal Banking Regulation — Capital Requirements” below.

Examination and Enforcement. The New Jersey Department of Banking and Insurance may examine Investors Bank whenever it deems an examination advisable. The Department examines Investors Bank at least once every two years. The Commissioner may order any savings bank to discontinue any violation of law or unsafe or unsound business practice, and may direct any director, officer, attorney or employee of a savings bank engaged in an objectionable activity, after the Commissioner has ordered the activity to be terminated, to show cause at a hearing before the Commissioner why such person should not be removed. The Commissioner may also seek the appointment of receiver or conservator for a New Jersey saving bank under certain conditions.

29

Federal Banking Regulation
Capital Requirements. Federal regulations require FDIC-insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8%, and a 4% Tier 1 capital to total assets leverage ratio. The existing capital requirements were effective January 1, 2015 and are the result of a final rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act.
For the purposes of the capital standards, common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one to four- family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement is being phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented at 2.5% on January 1, 2019.
In assessing an institution’s capital adequacy, the FDIC takes into consideration, not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.
The federal banking agencies, including the FDIC, have also adopted regulations to require an assessment of an institution’s exposure to declines in the economic value of a bank’s capital due to changes in interest rates when assessing the bank’s capital adequacy. Under such a risk assessment, examiners evaluate a bank’s capital for interest rate risk on a case-by-case basis, with consideration of both quantitative and qualitative factors. Institutions with significant interest rate risk may be required to hold additional capital. According to the agencies, applicable considerations include:

•
the quality of the bank’s interest rate risk management process;
•
the overall financial condition of the bank; and
•
the level of other risks at the bank for which capital is needed.

30

The following table shows the Bank and the Company's Tier 1 leverage ratio, Common Equity Tier 1 risk-based capital, Tier 1 risk-based capital and Total risk-based capital ratios as of December 31, 2015:
 
 
 
As of December 31, 2015 (1)
 
 
Amount
 
Ratio
 
 
(Dollars in thousands)
Bank:
 
 
 
 
Tier 1 Leverage Ratio
 
$
2,558,334

 
12.41
%
Common Equity Tier 1 Risk-Based Capital
 
2,558,334

 
15.87

Tier 1 Risk-Based Capital
 
2,558,334

 
15.87

Total Risk-Based Capital
 
2,760,081

 
17.12

 
 
 
 
 
Investors Bancorp, Inc.:
 
 
 
 
Tier 1 Leverage Ratio
 
$
3,259,928

 
15.80
%
Common Equity Tier 1 Risk-Based Capital
 
3,259,928

 
20.20

Tier 1 Risk-Based Capital
 
3,259,928

 
20.20

Total Risk-Based Capital
 
3,461,649

 
21.45

 
(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.
As of December 31, 2015, both the Bank and the Company were considered “well capitalized” under applicable regulations.
Activity Restrictions on State-Chartered Banks. Federal law and FDIC regulations generally limit the activities and investments of state-chartered FDIC insured banks and their subsidiaries to those permissible for national banks and their subsidiaries, unless such activities and investments are specifically exempted by law or consented to by the FDIC.
Before making a new investment or engaging in a new activity that is not permissible for a national bank or otherwise permissible under federal law or FDIC regulations, an insured bank must seek approval from the FDIC to make such investment or engage in such activity. The FDIC will not approve the activity unless the bank meets its minimum capital requirements and the FDIC determines that the activity does not present a significant risk to the FDIC insurance funds. Certain activities of subsidiaries that are engaged in activities permitted for national banks only through a “financial subsidiary” are subject to additional restrictions.
Federal law permits a state-chartered savings bank to engage, through financial subsidiaries, in any activity in which a national bank may engage through a financial subsidiary and on substantially the same terms and conditions. In general, the law permits a national bank that is well-capitalized and well-managed to conduct, through a financial subsidiary, any activity permitted for a financial holding company other than insurance underwriting, insurance investments or real estate development or merchant banking. The total assets of all such financial subsidiaries may not exceed the lesser of 45% of the bank’s total assets or $50 billion. The bank must have policies and procedures to assess the financial subsidiary’s risk and protect the bank from such risk and potential liability, must not consolidate the financial subsidiary’s assets with the bank’s and must exclude from its own assets and equity all equity investments, including retained earnings, in the financial subsidiary. State-chartered savings banks may retain subsidiaries in existence as of March 11, 2000 and may engage in activities that are not authorized under federal law. Although Investors Bank meets all conditions necessary to establish and engage in permitted activities through financial subsidiaries, it has not chosen to engage in such activities.

Federal Home Loan Bank System. Investors Bank is a member of the Federal Home Loan Bank system, which consists of the regional Federal Home Loan Banks, each subject to supervision and regulation by the Federal Housing Finance Agency (“FHFA”). The Federal Home Loan Banks provide a central credit facility primarily for member thrift institutions as well as other entities involved in home mortgage lending. It is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Banks. The Federal Home Loan Banks make loans to members (i.e., advances) in accordance with policies and procedures, including collateral requirements, established by the respective Boards of Directors of the Federal Home Loan Banks. These policies and procedures are subject to the regulation and oversight of the FHFA. All long-term advances are required to provide funds for residential home financing. The FHFA has also established standards of community or investment service that members must meet to maintain access to such long-term advances.

31

Investors Bank, as a member of the FHLB of New York is currently required to acquire and hold shares of FHLB Class B stock. The Class B stock has a par value of $100 per share and is redeemable upon five years notice, subject to certain conditions. The Class B stock has two subclasses, one for membership stock purchase requirements and the other for activity-based stock purchase requirements. The minimum stock investment requirement in the FHLB Class B stock is the sum of the membership stock purchase requirement, determined on an annual basis at the end of each calendar year, and the activity-based stock purchase requirement, determined on a daily basis. For Investors Bank, the membership stock purchase requirement is 0.15% of Mortgage-Related Assets, as defined by the FHLB, which consists principally of residential mortgage loans and mortgage-backed securities, including CMOs, held by Investors Bank. The activity-based stock purchase requirement for Investors Bank is equal to the sum of: (1) 4.50% of outstanding borrowing from the FHLB; (2) 4.50% of the outstanding principal balance of Acquired Member Assets, as defined by the FHLB, and delivery commitments for Acquired Member Assets; (3) a specified dollar amount related to certain off-balance sheet items, for which Investors Bank is zero; and (4) a specified percentage ranging from 0 to 5% of the carrying value on the FHLB balance sheet of derivative contracts between the FHLB and its members, which for Investors Bank is also zero. The FHLB can adjust the specified percentages and dollar amount from time to time within the ranges established by the FHLB capital plan. At December 31, 2015, the amount of FHLB stock held by us satisfies these requirements.
Safety and Soundness Standards. Pursuant to the requirements of FDICIA, as amended by the Riegle Community Development and Regulatory Improvement Act of 1994, each federal banking agency, including the FDIC, has adopted guidelines establishing general standards relating to matters such as internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal stockholder.
In addition, the FDIC adopted regulations to require a savings bank that is given notice by the FDIC that it is not satisfying any of such safety and soundness standards to submit a compliance plan to the FDIC. If, after being so notified, a savings bank fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the FDIC may issue an order directing corrective and other actions of the types to which a significantly undercapitalized institution is subject under the “prompt corrective action” provisions of FDICIA. If a savings bank fails to comply with such an order, the FDIC may seek to enforce such an order in judicial proceedings and to impose civil monetary penalties.
Enforcement. The FDIC has extensive enforcement authority over insured savings banks, including Investors Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders and to remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and to unsafe or unsound practices.

Prompt Corrective Action. Federal law establishes a system of prompt corrective action to resolve the problems of undercapitalized institutions. The FDIC has adopted regulations to implement the prompt corrective action legislation. Those regulations were amended effective January 1, 2015 to incorporate the previously mentioned increased regulatory capital standards that were effective on the same date. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

Generally a receiver or conservator must be appointed for an institution that is “critically "undercapitalized” within specific time frames. The regulations also provide that a capital restoration plan must be filed with the FDIC within 45 days of the date a savings bank receives notice that it is undercapitalized,” “significantly "undercapitalized” or “critically undercapitalized.” Various restrictions, such as restrictions on capital distributions and growth, also apply to “undercapitalized” institutions. The FDIC may also take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

Investors Bank was classified as “well-capitalized” under the prompt corrective action framework as of December 31, 2015.

32

Liquidity. Investors Bank maintains sufficient liquidity to ensure its safe and sound operation, in accordance with FDIC regulations.
Deposit Insurance. Investors Bank is a member of the Deposit Insurance Fund, which is administered by the FDIC. Deposit accounts in Investors Bank are insured by the FDIC, up to a maximum of $250,000 for each separately insured depositor.
The FDIC imposes an assessment for deposit insurance against all insured depository institutions. Each institution’s assessment is based on the perceived risk to the insurance fund of the institution, with institutions deemed riskiest paying higher assessments. The Dodd-Frank Act required the FDIC to revise its procedures to base assessments on average total assets less tangible capital, rather than deposits. The FDIC issued a final rule which implemented that directive effective April 1, 2011 and adjusted its assessment schedule so that it now ranges from 2.5 basis points to 45 basis points of average total assets less tangible capital. At the same time, the FDIC adopted a more comprehensive approach to evaluating, for assessment purposes, the risk presented by larger institutions such as Investors Bank. Small banks are assessed based on a risk classification determined by examination ratings, financial ratios and certain specified adjustments. However, beginning in 2011, large institutions (i.e., $10 billion more in assets) became subject to assessment based upon a more detailed scorecard approach involving (i) a performance score determined using forward-looking risk measures, including certain stress testing, and (ii) a loss severity score, which is designed to measure, based on modeling, potential loss to the FDIC insurance fund if the institution failed. The total score is converted to an assessment rate, subject to certain adjustments, with institutions deemed riskier paying higher assessments. In October 2012, the FDIC issued a final rule, effective March 1, 2013, which clarified and refined its large bank assessment formula. In October 2015, the FDIC issued a proposed rule that would impose an annual 4.5 basis point surcharge on institutions with assets of $10 billion or more. The surcharge would exist until the Deposit Insurance Fund ratio reaches 1.35% (which the FDIC estimates as eight calendar quarters). The proposed rule would implement a requirement of the Dodd-Frank Act that institutions with assets of $10 billion or more be responsible for increasing the Deposit Insurance Fund reserve ratio from 1.15% to 1.35%.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not currently know of any practice, condition or violation that may lead to termination of our deposit insurance.
In addition to the FDIC assessments, the Financing Corporation is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended December 31, 2015, the annualized Financing Corporation assessment was equal to 0.60 basis points of total assets less tangible capital.

Transactions with Affiliates of Investors Bank. Transactions between an insured bank, such as Investors Bank, and any of its affiliates are governed by Sections 23A and 23B of the Federal Reserve Act and implementing regulations. An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. Generally, a subsidiary of a bank that is not also a depository institution or financial subsidiary is not treated as an affiliate of the bank for purposes of Sections 23A and 23B.
Section 23A:
•
limits the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital stock and retained earnings, and limits all such transactions with all affiliates to an amount equal to 20% of such capital stock and retained earnings; and
•
requires that all such transactions be on terms that are consistent with safe and sound banking practices.
The term “covered transaction” includes the making of loans, purchase of assets, issuance of guarantees and other similar types of transactions. Further, most loans by a bank to any of its affiliates must be secured by collateral in amounts ranging from 100% to 130% of the loan amounts. In addition, any covered transaction by a bank with an affiliate and any purchase of assets or services by a bank from an affiliate must be on terms that are substantially the same, or at least as favorable to the bank, as those that would be provided to a non-affiliate.
Prohibitions Against Tying Arrangements. Banks are subject to the prohibitions of 12 U.S.C. Section 1972 on certain tying arrangements. A depository institution is prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

33

Privacy Standards. FDIC regulations require Investors Bank to disclose their privacy policy, including identifying with whom they share “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter.
Investors Bank is also required to provide its customers with the ability to “opt-out” of having Investors Bank share their non-public personal information with unaffiliated third parties before they can disclose such information, subject to certain exceptions.
In addition, in accordance with the Fair Credit Reporting Act, Investors Bank must provide its customers with the ability to “opt-out” of having Investors Bank share their non-public personal information for marketing purposes with an affiliate or subsidiary before they can disclose such information.
The FDIC and other federal banking agencies adopted guidelines establishing standards for safeguarding customer information. The guidelines describe the agencies’ expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to insure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.
Community Reinvestment Act and Fair Lending Laws. All FDIC insured institutions have a responsibility under the Community Reinvestment Act (CRA) and related regulations to help meet the credit needs of their communities, including low- and moderate-income individuals and neighborhoods. In connection with its examination of a state chartered savings bank, the FDIC is required to assess the institution’s record of compliance with the CRA. Among other things, the current CRA regulations rates an institution based on its actual performance in meeting community needs. In particular, the current evaluation system focuses on three tests:
•
a lending test, to evaluate the institution’s record of making loans in its service areas;
•
an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and/or census tracts and businesses; and
•
a service test, to evaluate the institution’s delivery of services through its branches, ATMs and other offices.
An institution’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities. Investors Bank received a “satisfactory” CRA rating in our most recent publicly-available federal evaluation, which was conducted by the FDIC in August 2011.
In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and the Department of Justice.
Loans to a Bank’s Insiders
Federal Regulation. A bank’s loans to its insiders — executive officers, directors, principal shareholders (any owner of 10% or more of its stock) and any of certain entities affiliated with any such persons (an insider’s related interest) are subject to the conditions and limitations imposed by Section 22(h) of the Federal Reserve Act and its implementing regulations. Under these restrictions, the aggregate amount of the loans to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to national banks, which is comparable to the loans-to-one-borrower limit applicable to Investors Bank. See “— New Jersey Banking Regulation — Loans-to-One Borrower Limitations.” All loans by a bank to all insiders and insiders’ related interests in the aggregate may not exceed the bank’s unimpaired capital and unimpaired surplus. With certain exceptions, loans to an executive officer, other than loans for the education of the officer’s children and certain loans secured by the officer’s residence, may not exceed the lesser of (1) $100,000 or (2) the greater of $25,000 or 2.5% of the bank’s unimpaired capital and surplus. Federal regulation also requires that any proposed loan to an insider or a related interest of that insider be approved in advance by a majority of the board of directors of the bank, with any interested directors not participating in the voting, if such loan, when aggregated with any existing loans to that insider and the insider’s related interests, would exceed either (1) $500,000 or (2) the greater of $25,000 or 5% of the bank’s unimpaired capital and surplus.
Generally, loans to insiders must be made on substantially the same terms as, and follow credit underwriting procedures that are not less stringent than, those that are prevailing at the time for comparable transactions with other persons. An exception is made for extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely available to employees of the bank and that does not give any preference to insiders of the bank over other employees of the bank.

34

In addition, federal law prohibits extensions of credit to a bank’s insiders and their related interests by any other institution that has a correspondent banking relationship with the bank, unless such extension of credit is on substantially the same terms as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features.
Extensions of credit to a savings bank’s executive officers are subject to specific limits based on the type of loans involved. Generally, loans are limited to $100,000, except for a mortgage loan secured by the officer’s residence and education loans for the officer’s children.
New Jersey Regulation. The New Jersey Banking Act imposes conditions and limitations on loans and extensions of credit to directors and executive officers of a savings bank and to corporations and partnerships controlled by such persons, which are comparable in many respects to the conditions and limitations imposed on the loans and extensions of credit to insiders and their related interests under federal law, as discussed above. The New Jersey Banking Act also provides that a savings bank that is in compliance with federal law is deemed to be in compliance with such provisions of the New Jersey Banking Act.

Federal Reserve System

Under Federal Reserve Board regulations, Investors Bank is required to maintain non-interest earning reserves against its transaction accounts. The Federal Reserve Board regulations generally require that reserves of 3% must be maintained against aggregate transaction accounts over $15.2 million and up to $110.2 million, and 10% against that portion of total transaction accounts in excess of up to $110.2 million. The first $15.2 million of otherwise reservable balances are exempted from the reserve requirements. Investors Bank is in compliance with these requirements. These requirements are adjusted annually by the Federal Reserve Board. Required reserves must be maintained in the form of vault cash and/or an interest bearing account at a Federal Reserve Bank; or a pass-through account as defined by the Federal Reserve Board.
Anti-Money Laundering and Customer Identification

Investors Bank is subject to FDIC regulations implementing the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act. The USA PATRIOT Act gives the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act, Title III of the USA PATRIOT Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act.
Title III of the USA PATRIOT Act and the related FDIC regulations require the:
•
Establishment of anti-money laundering compliance programs that includes policies, procedures, and internal controls; the appointment of an anti-money laundering compliance officer; an training program; and independent testing;

•
Make certain reports to FinCEN and law enforcement that are designated to assist in the detection and prevention of money laundering and terrorist financing activities;

•
Establishment of a program specifying procedures for obtaining and maintaining certain records from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time;

•
Establishment of enhanced due diligence policies, procedures and controls designed to detect and report money-laundering, terrorist financing and other suspicious activity;

•
Monitoring account activity for suspicious transactions; and

•
Impose a heightened level of review for certain high risk customers or accounts.

The USA PATRIOT Act also includes prohibitions on correspondent accounts for foreign shell banks and requires compliance with record keeping obligations with respect to correspondent accounts of foreign banks. Bank regulators are directed to consider a holding company’s effectiveness in combating money laundering when ruling on Federal Reserve Act and Bank Merger Act applications.

35

The bank regulatory agencies have increased the regulatory scrutiny of the Bank Secrecy Act and anti-money laundering programs maintained by financial institutions. Significant penalties and fines, as well as other supervisory orders may be imposed on a financial institution for non-compliance with these requirements. In addition, the federal bank regulatory agencies must consider the effectiveness of financial institutions engaging in a merger transaction in combating money laundering activities. Investors Bank has adopted policies and procedures to comply with these requirements.
Holding Company Regulation
Federal Regulation. Bank holding companies, like Investors Bancorp, Inc. are subject to examination, regulation and periodic reporting under the Bank Holding Company Act, as administered by the Federal Reserve Board. Federal Reserve Board regulations imposed consolidated capital adequacy requirements on bank holding companies. The Dodd-Frank Act required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. Among other things, that eliminated the inclusion of certain instruments from tier 1 capital, such as trust preferred securities, that were previously includable for bank holding companies. The Dodd-Frank Act grandfathered instruments issued prior to May 19, 2010 by mutual holding companies and all bank holding companies of less than $15 billion in assets. The previously referenced final rules on regulatory capital, effective January 1, 2015, implemented the Dodd-Frank Act directive. The capital requirements applicable to Investors Bancorp, Inc. are now identical to those applying to the Bank. As of December 31, 2015, Investors Bancorp, Inc.’s regulatory capital ratios exceeded these minimum capital requirements. See “Regulatory Capital Compliance.”
Regulations of the Federal Reserve Board provide that a bank holding company must serve as a source of strength to any of its subsidiary banks and must not conduct its activities in an unsafe or unsound manner. The Dodd-Frank Act codified the source of strength policy. Under the prompt corrective action provisions of the Federal Deposit Insurance Act, a bank holding company parent of an undercapitalized subsidiary bank would be directed to guarantee, within limitations, the capital restoration plan that is required of an undercapitalized bank. See “— Federal Banking Regulation — Prompt Corrective Action.” If an undercapitalized bank fails to file an acceptable capital restoration plan or fails to implement an accepted plan, the Federal Reserve Board may prohibit the bank holding company parent of the undercapitalized bank from paying any dividend or making any other form of capital distribution without the prior approval of the Federal Reserve Board.
In addition, Federal Reserve Board guidance sets forth the supervisory expectation that bank holding companies will inform and consult with Federal Reserve Board staff in advance of issuing a dividend that exceeds earnings for the quarter and should inform the Federal Reserve Board and should eliminate, defer or significantly reduce dividends if (i) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (ii) prospective rate of earnings retention is not consistent with the bank holding company's capital needs and overall current and prospective financial condition, or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
A bank holding company is required to give the Federal Reserve Board prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, will be equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. Such notice and approval is not required for a bank holding company that is as “well capitalized” under applicable regulations of the Federal Reserve Board, that has received a composite “1” or “2” rating, as well as a “satisfactory” rating for management, at its most recent bank holding company examination by the Federal Reserve Board, and that is not the subject of any unresolved supervisory issues.
As a bank holding company, Investors Bancorp is required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior Federal Reserve Board approval is also required for Investors Bancorp to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after giving effect to such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of such bank or bank holding company.
In addition, a bank holding company that does not elect to be a financial holding company under federal regulations, is generally prohibited from engaging in, or acquiring direct or indirect control of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks. Some of the principal activities that the Federal Reserve Board has determined by regulation to be closely related to banking are:

36


•
making or servicing loans;
•
performing certain data processing services;
•
providing discount brokerage services; or acting as fiduciary, investment or financial advisor;
•
leasing personal or real property;
•
making investments in corporations or projects designed primarily to promote community welfare; and
•
acquiring a savings and loan association.
A bank holding company that elects to be a financial holding company may engage in activities that are financial in nature or incident to activities which are financial in nature. Investors Bancorp, Inc. has not elected to be a financial holding company, although it may seek to do so in the future. A bank holding company may elect to become a financial holding company if:

•
each of its depository institution subsidiaries is “well capitalized”;
•
each of its depository institution subsidiaries is “well managed”;
•
each of its depository institution subsidiaries has at least a “satisfactory” Community Reinvestment Act rating at its most recent examination; and
•
the bank holding company has filed a certification with the Federal Reserve Board stating that it elects to become a financial holding company.
Under federal law, depository institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution, or for any assistance provided by the FDIC to such an institution in danger of default. This law would potentially be applicable to Investors Bancorp, Inc. if it ever acquired as a separate subsidiary a depository institution in addition to Investors Bank.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended by Section 613 of the Dodd-Frank Act, regulates interstate banking activities by establishing a framework for nationwide interstate banking and branching. As amended, this interstate banking and branching authority generally permits a bank in one state to establish a de novo branch at a location in another host state if state banks chartered in such host state would also be permitted to establish a branch at that location in the state. Under these amendments, Investors Bank is permitted to establish branch offices in other states in addition to our existing New Jersey and New York branch offices.
The Gramm-Leach-Bliley Act of 1999 eliminated most of the barriers to affiliations among banks, securities firms, insurance companies, and other financial companies previously imposed under federal banking laws if certain criteria are satisfied. Certain subsidiaries of well-capitalized and well-managed banks may be treated as “financial subsidiaries,” which are generally permitted to engage in activities that are financial in nature, including securities underwriting, dealing, and market making; sponsoring mutual funds and investment companies; and activities that the Federal Reserve has determined to be closely related to banking.
New Jersey Regulation. Under the New Jersey Banking Act, a company owning or controlling a savings bank is regulated as a bank holding company. The New Jersey Banking Act defines the terms “company” and “bank holding company” as such terms are defined under the BHCA. Each bank holding company controlling a New Jersey-chartered bank or savings bank must file certain reports with the Commissioner and is subject to examination by the Commissioner.
Acquisition of Investors Bancorp, Inc. Under federal law and under the New Jersey Banking Act, no person may acquire control of Investors Bancorp, Inc. or Investors Bank without first obtaining approval of such acquisition of control by the Federal Reserve Board and the Commissioner. See “Restrictions on the Acquisition of Investors Bancorp, Inc. and Investors Bank.”
Federal Securities Laws. Investors Bancorp, Inc.’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Investors Bancorp, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.
Investors Bancorp, Inc. common stock held by persons who are affiliates (generally officers, directors and principal stockholders) of Investors Bancorp, Inc. may not be resold without registration or unless sold in accordance with certain resale restrictions. If Investors Bancorp, Inc. meets specified current public information requirements, each affiliate of Investors Bancorp, Inc. is able to sell in the public market, without registration, a limited number of shares in any three-month period.
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 was enacted to address, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information.

37

As directed by the Sarbanes-Oxley Act, our Chief Executive Officer and Chief Financial Officer are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the SEC under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting.
We have existing policies, procedures and systems designed to comply with these regulations.
Taxation
Federal Taxation
General. Investors Bancorp, Inc. and its subsidiaries are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. Investors Bancorp, Inc. and its subsidiaries file a consolidated federal income tax return. Investors Bancorp, Inc.’s 2013 federal tax return is currently under audit by the IRS. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to Investors Bancorp, Inc. or its subsidiaries.
Method of Accounting. For federal income tax purposes, Investors Bancorp, Inc. currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income tax returns.
Bad Debt Reserves. Historically, Investors Bank was subject to special provisions in the tax law regarding allowable bad debt tax deductions and related reserves. Tax law changes were enacted in 1996 pursuant to the Small Business Protection Act of 1996 (the “1996 Act”), which eliminated the use of the percentage of taxable income method for tax years after 1995 and required recapture into taxable income over a six-year period of all bad debt reserves accumulated after 1987. Investors Bank has fully recaptured its post-1987 reserve balance. Currently, Investors Bank uses the specific charge off method to account for bad debt deductions for income tax purposes.
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to January 1, 1988 (pre-base year reserves) were subject to recapture into taxable income if Investors Bank failed to meet certain thrift asset and definitional tests. As a result of the 1996 Act, bad debt reserves accumulated after 1987 are required to be recaptured into income over a six-year period. However, all pre-base year reserves are subject to recapture if Investors Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter. At December 31, 2015, our total federal pre-base year reserve was approximately $45.2 million.
Alternative Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax (“AMT”) at a rate of 20% on a base of regular taxable income plus certain tax preferences (“alternative minimum taxable income” or “AMTI”). The AMT is payable to the extent such AMTI is in excess of an exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than 90% of AMTI. Certain payments of AMT may be used as credits against regular tax liabilities in future years. Investors Bancorp, Inc. and its subsidiaries have not been subject to the AMT and have no such amounts available as credits for carryover.
Net Operating Loss Carryovers. A corporation may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. On May 7, 2014, the second step conversion was completed. The new consolidated group resulting from the second step has the ability to carry back claims normally allowed under federal tax law to the old consolidated group. As of December 31, 2015, the Company had total federal net operating loss carryforwards of $8.8 million related to prior acquisitions.
Corporate Dividends-Received Deduction. Investors Bancorp, Inc. may exclude from its federal taxable income 100% of dividends received from Investors Bank as a wholly owned subsidiary. The corporate dividends-received deduction is 80% when the dividend is received from a corporation having at least 20% of its stock owned by the recipient corporation. A 70% dividends-received deduction is available for dividends received from a corporation having less than 20% of its stock owned by the recipient corporation.
 

38

State Taxation
New Jersey State Taxation. Investors Bancorp, Inc. and its subsidiaries file separate New Jersey corporate business tax returns on an unconsolidated basis. Generally, the income of savings institutions in New Jersey, which is calculated based on federal taxable income, subject to certain adjustments, is subject to New Jersey tax.
Investors Bancorp, Inc. is required to file a New Jersey income tax return and is generally subject to a state income tax at a 9% rate. If Investors Bancorp, Inc. meets certain requirements, it may be eligible to elect to be taxed as a New Jersey Investment Company, which would allow it to be taxed at a rate of 3.6%. At December 31, 2015, Investors Bancorp, Inc. did not meet the eligibility requirements to be taxed as a New Jersey Investment Company.
New Jersey tax law does not and has not allowed for a taxpayer to file a tax return on a combined or consolidated basis with another member of the affiliated group where there is common ownership. However, under tax legislation, if the taxpayer cannot demonstrate by clear and convincing evidence that the tax filing discloses the true earnings of the taxpayer on its business carried on in the State of New Jersey, the New Jersey Director of the Division of Taxation may, at the director’s discretion, require the taxpayer to file a consolidated return for the entire operations of the affiliated group or controlled group, including its own operations and income.
In connection with the Company’s second step conversion, a $20.0 million charitable contribution was made to the Investors Charitable Foundation, $10.0 million of which was made by Investors Bank and the remaining $10.0 million by Investors Bancorp, Inc. For Investors Bancorp, Inc., the excess contribution over the allowable deduction limit for the standalone entity may be carried forward to the succeeding 5 taxable years. Based on the entity’s standalone future state taxable income, a valuation allowance was established for the portion of the state tax benefit related to the contribution that is not more likely than not to be realized.
New York State Taxation. In 2014, New York State enacted significant and comprehensive reforms to its corporate tax system that went into effect January 1, 2015. The new legislation resulted in significant changes to the method of calculating income taxes for banks, including changes to future period tax rates, rules relating to the sourcing of income, and the elimination of the banking corporation tax so that banking corporations will now be taxed under the State’s corporate franchise tax. The corporate franchise tax is based on the combined entire net income of the Company and its affiliates allocable and apportionable to New York State and taxed at a rate of 7.1%. At this time, the changes to the New York tax code has caused our effective tax rate to increase. The amount of such increase will depend on the amount of revenues that are sourced to New York State under the new legislation, which can be expected to fluctuate over time. In addition, the Company and its affiliates are subject to the Metropolitan Transportation Authority (“MTA”) Surcharge allocable to business activities carried on in the Metropolitan Commuter Transportation District. The MTA surcharge for 2015 was 25.6% of a recomputed New York State franchise tax, calculated using a 9% tax rate on allocated and apportioned entire net income. Investors Bank is currently under audit with respect to its New York State combined franchise tax return for tax years 2013 and 2014.
New York City Taxation. In 2015, New York City enacted provisions to its tax law to conform its corporate and banking tax laws to those of New York State, retroactive to January 1, 2015. The Company and its affiliates are subject to the new combined corporate tax for New York City calculated on a similar basis as the New York State franchise tax, subject to the New York City apportionment rules. While the majority of the Company’s entire net income is derived from outside of the New York City jurisdiction, the new sourcing rules enacted by the tax law provisions have increased the income apportioned to New York City and in turn, caused an increase to our effective tax rate.
Delaware State Taxation. As a Delaware holding company not earning income in Delaware, Investors Bancorp, Inc. is exempted from Delaware corporate income tax but is required to file annual returns and pay annual fees and an annual franchise tax to the State of Delaware.

ITEM 1A.
RISK FACTORS
The risks set forth below, in addition to the other risks described in this Annual Report on Form 10-K, may adversely affect our business, financial condition and operating results. In addition to the risks set forth below and the other risks described in this annual report, there may also be additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial that could materially and adversely affect our business, financial condition or operating results. As a result, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

39

Because we intend to continue to increase our commercial originations, our credit risk will increase.
At December 31, 2015, our portfolio of multi-family, commercial real estate, C&I and construction loans totaled $11.36 billion, or 67.2% of our total loans. We intend to continue to increase our originations of multi-family, commercial real estate and C&I loans, which generally have more risk than one- to four-family residential mortgage loans. Since repayment of commercial loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the real estate market, local economy or the management of the business or property. In addition, our commercial borrowers may have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. Because we plan to continue to increase our originations of these loans, it may be necessary to increase the level of our allowance for loan losses because of the increased risk characteristics associated with these types of loans. Any such increase to our allowance for loan losses would adversely affect our earnings.
If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.
We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If actual results differ significantly from our assumptions, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our allowance. Material additions to our allowance would materially decrease our net income. Our allowance for loan losses at December 31, 2015 of $218.5 million was 1.29% of total loans and 158.43% of non-performing loans at such date.
In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. A material increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities would have a material adverse effect on our financial condition and results of operations.
A significant portion of our multi-family loan portfolio, commercial real estate portfolio and nearly all of our C&I loan portfolio is unseasoned. It is difficult to judge the future performance of unseasoned loans.
Our multi-family loan portfolio has increased to $6.26 billion at December 31, 2015 from $1.82 billion at December 31, 2011. Our commercial real estate portfolio has increased to $3.83 billion at December 31, 2015 from $1.42 billion at December 31, 2011. Our C&I loan portfolio has increased to $1.04 billion at December 31, 2015 from $106.3 million at December 31, 2011. Consequently, a large portion of our multi-family loans, commercial real estate loans and nearly all of our C&I loans are unseasoned. It is difficult to assess the future performance of these recently originated loans because of their relatively limited payment history from which to judge future collectability, especially in the economic environment since 2011. These loans may experience higher delinquency or charge-off levels than our historical loan portfolio experience, which could adversely affect our future performance.
 
Our liabilities reprice faster than our assets and future increases in interest rates will reduce our profits.
Our ability to make a profit largely depends on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities; and the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings.
The interest income we earn on our assets and the interest expense we pay on our liabilities are generally fixed for a contractual period of time. Our liabilities generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility, because market interest rates change over time. In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Management of Market Risk.”
In addition, changes in interest rates can affect the average life of loans and mortgage-backed and related securities. A reduction in interest rates causes increased prepayments of loans and mortgage-backed and related securities as borrowers refinance their debt to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest the funds from faster prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities. Conversely, an increase in interest rates generally reduces prepayments. Additionally, increases in interest rates may decrease loan demand and/or make it more difficult for borrowers to repay adjustable-rate loans.
Changes in interest rates also affect the current market value of our interest-earning securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. At December 31, 2015, the fair value of our total securities

40

portfolio was $3.19 billion. Unrealized net losses on securities available-for-sale are reported as a separate component of equity. To the extent interest rates increase and the value of our available-for-sale portfolio decreases, our stockholders’ equity will be adversely affected.
We evaluate interest rate sensitivity using models that estimate the change in our net portfolio value over a range of interest rate scenarios. Net portfolio value is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts. At December 31, 2015, in the event of a 200 basis point increase in interest rates, whereby rates increase evenly over a twelve-month period, and assuming management took no action to mitigate the effect of such change, the model projects that we would experience a 7.1% or $42.3 million decrease in net interest income and 8.7% or $381.2 million decrease in net portfolio value.
 
Historically low interest rates may adversely affect our net interest income and profitability.
During the past several years it has been the policy of the Federal Reserve Board to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities. As a result, market rates on the loans we have originated and the yields on securities we have purchased have been at lower levels than available prior to 2008. As a general matter, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets, over the past several years, this has been one factor contributing to the increase in our interest rate spread as interest rates decreased. However, our ability to lower our interest expense will be limited at these interest rate levels while the average yield on our interest-earning assets may continue to decrease. Accordingly, our net interest income may be adversely affected and may decrease, which may have an adverse effect on our future profitability.
We may not be able to continue to grow our business, which may adversely impact our results of operations.
Our total assets have grown from approximately $10.70 billion at December 31, 2011 to $20.89 billion at December 31, 2015. Our business strategy calls for continued growth. Our ability to continue to grow depends, in part, upon our ability to open new branch locations, successfully attract deposits, identify favorable loan and investment opportunities, and acquire other banks and non-bank entities. In the event that we do not continue to grow, our results of operations could be adversely impacted.
Our ability to grow successfully will depend on whether we can continue to fund this growth while maintaining cost controls and asset quality, as well as on factors beyond our control, such as national and regional economic conditions and interest rate trends. If we are not able to control costs and maintain asset quality, such growth could adversely impact our earnings and financial condition.
Public funds deposits are an important source of funds for us and a reduced level of those deposits may hurt our profits.
Public funds deposits are a significant source of funds for our lending and investment activities. At December 31, 2015, $2.75 billion, or 19.6% of our total deposits, consisted of public funds deposits from local government entities, primarily domiciled in the state of New Jersey, such as school districts, hospital districts, sheriff departments and other municipalities, which are collateralized by letters of credit from the FHLB and investment securities. Given our use of these high-average balance public funds deposits as a source of funds, our inability to retain such funds could adversely affect our liquidity. Further, our public funds deposits are primarily demand deposit accounts or short-term time deposits and are therefore more sensitive to interest rate risks. If we are forced to pay higher rates on our public funds accounts to retain those funds, or if we are unable to retain such funds and we are forced to resort to other sources of funds for our lending and investment activities, such as borrowings from the FHLB, the interest expense associated with these other funding sources may be higher than the rates we are currently paying on our public funds deposits, which would adversely affect our net income.
We could be required to repurchase mortgage loans or indemnify mortgage loan purchasers due to breaches of representations and warranties, borrower fraud, or certain borrower defaults, which could have an adverse impact on our liquidity, results of operations and financial condition.
We sell into the secondary market a portion of the residential mortgage loans that we originate through our mortgage subsidiary, Investors Home Mortgage. The whole loan sale agreements we enter into in connection with such loan sales require us to repurchase or substitute mortgage loans in the event there is a breach of any of representations or warranties. In addition, we may be required to repurchase mortgage loans as a result of borrower fraud or in the event of early payment default of the borrower on a mortgage loan. We have established a reserve for estimated repurchase and indemnification obligations on the residential mortgage loans that we sell. We make various assumptions and judgments in determining this reserve. If our assumptions are incorrect, our reserve may not be sufficient to cover losses from repurchase and indemnification obligations related to our residential loans sold. Such event would have an adverse effect on our earnings.

41

We may incur impairments to goodwill.
At December 31, 2015, we had approximately $77.6 million recorded as goodwill. We evaluate goodwill for impairment, at least annually. Significant negative industry or economic trends, including declines in the market price of our common stock, reduced estimates of future cash flows or disruptions to our business, could result in impairments to goodwill. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely on projections of future operating performance. We operate in competitive environments and projections of future operating results and cash flows may vary significantly from actual results. If our analysis results in impairment to goodwill, we would be required to record an impairment charge to earnings in our financial statements during the period in which such impairment is determined to exist. Any such change could have an adverse effect on our results of operations.
 
We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.
Investors Bank is subject to extensive regulation, supervision and examination by the NJDBI, our chartering authority, by the FDIC, as insurer of our deposits, and by the CFPB, with respect to consumer protection laws. As a bank holding company, Investors Bancorp is subject to regulation and oversight by the Federal Reserve Board. Such regulation and supervision govern the activities in which a bank and its holding company may engage and are intended primarily for the protection of the insurance fund and depositors. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the requirement for additional capital, the imposition of restrictions on our operations, restrictions on our ability to pay dividends and make other capital distributions to shareholders, the classification of our assets and the adequacy of our allowance for loan losses, compliance and privacy issues (including anti-money laundering and Bank Secrecy Act Compliance) and approval of merger transactions. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, could have a material impact on Investors Bank, Investors Bancorp and our operations.
The potential exists for additional Federal or state laws and regulations regarding capital requirements, lending and funding practices and liquidity standards, and bank regulatory agencies are expected to remain active in responding to concerns and trends identified in examinations, including the potential issuance of formal enforcement orders. New laws, regulations, and other regulatory changes could increase our costs of regulatory compliance and of doing business, and otherwise affect our operations. New laws, regulations, and other regulatory changes, along with negative developments in the financial industry and the domestic and international credit markets, may significantly affect the markets in which we do business, the markets for and value of our loans and investments, and our on-going operations, costs and profitability.
A continuation or worsening of economic conditions could adversely affect our financial condition and results of operations.
Although the U.S. economy has emerged from the severe recession that occurred in 2008 and 2009, economic growth has been slow despite the Federal Reserve Board’s unprecedented efforts to maintain low market interest rates and encourage economic growth. A return to prolonged deteriorating economic conditions could significantly affect the markets in which we do business, the value of our loans and investments, and our on-going operations, costs and profitability. Declines in real estate values and sales volumes and unemployment levels may result in greater loan delinquencies, increases in our nonperforming, criticized and classified assets and a decline in demand for our products and services. These events may cause us to incur losses and may adversely affect our financial condition and results of operations.
Our inability to achieve profitability on new branches may negatively affect our earnings.
We have expanded our presence throughout our market area and we intend to pursue further expansion through de novo branching or the purchase of branches from other financial institutions. The profitability of our expansion strategy will depend on whether the income that we generate from the new branches will offset the increased expenses resulting from operating these branches. We expect that it may take a period of time before these branches can become profitable, especially in areas in which we do not have an established presence. During this period, the expense of operating these branches may negatively affect our net income.
Growing by acquisition entails integration and certain other risks.
Although we have successfully integrated business acquisitions in recent years, failure to successfully integrate systems subsequent to the completion of any future acquisitions could have a material impact on the operations of Investors Bank.
 

42

Future acquisition activity could dilute book value.
Both nationally and in our region, the banking industry is undergoing consolidation marked by numerous mergers and acquisitions. From time to time we may be presented with opportunities to acquire institutions and/or bank branches and we may engage in discussions and negotiations. Acquisitions typically involve the payment of a premium over book and trading values, and therefore, may result in the dilution of our book value per share.
The Dodd-Frank Act, among other things, created the CFPB, tightened capital standards and will continue to result in new laws and regulations that are expected to increase our costs of operations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has significantly changed the current bank regulatory structure and affecting the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many years. However, it is expected that the legislation and implementing regulations will materially increase our operating and compliance costs.
The Dodd-Frank Act created the CFPB with broad powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over all banks with more than $10 billion in assets, such as Investors Bank. Banks with $10 billion or less in assets will continue to be examined for compliance with the consumer laws by their primary bank regulators. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations, and gives state attorneys general the ability to enforce federal consumer protection laws.
The Dodd-Frank Act required minimum leverage (Tier 1) and risk-based capital requirements for bank and savings and loan holding companies that are no less than those applicable to banks, which excludes (subject to certain grandfathering rules) certain instruments that previously have been eligible for inclusion by bank holding companies as Tier 1 capital, such as trust preferred securities. Regulations implementing this requirement were effective January 1, 2015.
Effective July 21, 2011, the Dodd-Frank Act eliminated the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts, which could result in an increase in our interest expense.
The Dodd-Frank Act also broadened the base for FDIC deposit insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution, rather than deposits. The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2009. The legislation also increased the required minimum reserve ratio for the Deposit Insurance Fund from 1.15% to 1.35% of insured deposits, and directed the FDIC to offset the effects of increased assessments on depository institutions with less than $10 billion in assets.
The Dodd-Frank Act required publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. It also provided that the listing standards of the national securities exchanges shall require listed companies to implement and disclose “clawback” policies mandating the recovery of incentive compensation paid to executive officers in connection with accounting restatements. The legislation also directed the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives.
Effective December 10, 2013, pursuant to the Dodd-Frank Act, federal banking and securities regulators issued final rules to implement Section 619 of the Dodd-Frank Act (the “Volcker Rule”). Generally, subject to a transition period and certain exceptions, the Volcker Rule restricts insured depository institutions and their affiliated companies from engaging in short-term proprietary trading of certain securities, investing in funds with collateral comprised of less than 100% loans that are not registered with the Securities and Exchange Commission (“SEC”) and from engaging in hedging activities that do not hedge a specific identified risk. After the transition period, the Volcker Rule prohibitions and restrictions will apply to banking entities, including Investors Bancorp, unless an exception applies.

43

We have become subject to more stringent capital requirements, which may adversely impact our return on equity, or constrain us from paying dividends or repurchasing shares.
In July 2013, the FDIC and the Federal Reserve Board approved a new rule, effective January 1, 2015, that substantially amended the regulatory risk-based capital rules applicable to Investors Bank and Investors Bancorp. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.
The final rule includes new minimum risk-based capital and leverage ratios, which became effective for Investors Bank and Investors Bancorp on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier 1 to risk-based capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4% under prior rules); (iii) a total capital to risk-based assets ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer” of 2.5% of common equity Tier 1 capital, and will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital to risk-based assets ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.
The application of more stringent capital requirements for Investors Bank and Investors Bancorp could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining us from paying dividends or repurchasing shares if we were to be unable to comply with such requirements.
New regulations could restrict our ability to originate and sell mortgage loans.
The CFPB has issued a final rule which implements certain provisions of the Dodd-Frank Act, which requires lenders to make a reasonable, good faith determination of a borrower's ability to repay a mortgage loan. Loans that meet this “qualified mortgage” definition will be presumed to have complied with the new ability-to-repay standard. Under the CFPB’s rule, a “qualified mortgage” loan must not contain certain specified features, including:
 
•
excessive upfront points and fees (those exceeding 3% of the total loan amount, less "bona fide discount points" for prime loans);
•interest-only payments;
•negative-amortization; and
•terms longer than 30 years.
Also, to qualify as a “qualified mortgage,” a borrower’s total debt-to-income ratio may not exceed 43%. Lenders must also verify and document the income and financial resources relied upon to qualify the borrower for the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes, insurance and assessments. The CFPB’s rule on qualified mortgages could limit our ability or desire to make certain types of loans or loans to certain borrowers, or could make it more expensive and/or time consuming to make these loans, which could limit our growth or profitability.
 
Strong competition within our market area may limit our growth and profitability.
Competition in the banking and financial services industry is intense. In our market area, we compete with numerous commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Some of our competitors have substantially greater resources and lending limits than we have, have greater name recognition and market presence that benefit them in attracting business, and offer certain services that we do not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we can. Our profitability depends upon our continued ability to successfully compete in our market area. The greater resources and deposit and loan products offered by some of our competitors may limit our ability to increase our interest-earning assets. For additional information see “Business of Investors Bank-Competition.”

44

Any future increase in FDIC insurance premiums will adversely impact our earnings.
As a “large institution” within the meaning of FDIC regulations (i.e., greater than $10 billion in assets), Investors Bank’s deposit insurance premium is determined differently than smaller banks. Small banks are assessed based on a risk classification determined by examination ratings, financial ratios and certain specified adjustments. However, beginning in 2011, large institutions became subject to assessment based upon a more detailed scorecard approach involving (i) a performance score determined using forward-looking risk measures, including certain stress testing, and (ii) a loss severity score, which is designed to measure, based on modeling, potential loss to the FDIC insurance fund if the institution failed. The total score is converted to an assessment rate, subject to certain adjustments, with institutions deemed riskier paying higher assessments. In October 2012, the FDIC issued a final rule, effective March 1, 2013, which clarifies and refines its large bank assessment formula. Since the large institution assessment procedure is still relatively unknown, the long term effect on Investors Bank’s deposit insurance assessment is uncertain.
We may eliminate dividends on our common stock.
On September 28, 2012, we declared our first quarterly cash dividend and we have paid quarterly cash dividend since then. Although we have begun paying quarterly cash dividends to our stockholders, stockholders are not entitled to receive dividends. Downturns in domestic and global economies and other factors could cause our board of directors to consider, among other things, the elimination of or reduction in the amount and/or frequency of cash dividends paid on our common stock.
We could be adversely affected by failure in our internal controls.
A failure in our internal controls could have a significant negative impact not only on our earnings, but also on the perception that customers, regulators and investors may have of us. We continue to devote a significant amount of effort, time and resources to continually strengthening our controls and ensuring compliance with complex accounting standards and banking regulations.
 
Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings.
Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger, securities investments, deposits, and loans. We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches (including privacy breaches and cyber-attacks), but such events may still occur or may not be adequately addressed if they do occur. In addition, any compromise of our systems could deter customers from using our products and services. Although we take protective measures, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber attacks that could have an impact on information security.
                In addition, we outsource a majority of our data processing to certain third-party providers. If these third-party providers encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.
There have been increasing efforts on the part of third parties, including through cyber attacks, to breach data security at financial institutions or with respect to financial transactions. There have been several recent instances involving financial services and consumer-based companies reporting the unauthorized disclosure of client or customer information or the destruction or theft of corporate data. In addition, because the techniques used to cause such security breaches change frequently, often are not recognized until launched against a target and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures. The ability of our customers to bank remotely, including online and through mobile devices, requires secure transmission of confidential information and increases the risk of data security breaches.
                The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers and business thereby subjecting us to additional regulatory scrutiny, or could expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

45

Our failure to effectively deploy the capital raised in our second step conversion offering may have an adverse effect on our financial performance.
We invested 50% of the net proceeds from our second step conversion offering in Investors Bank; provided funding to our Employee Stock Ownership Plan for the purchase of 6,617,421 shares of common stock sold in the offering; and contributed $20.0 million to Investors Charitable foundation through issuing 1,000,000 shares as well as a $10.0 million cash contribution.  A substantial portion of the net proceeds were used to pay off short-term borrowings as they matured and invest in securities. We will use the remainder of the net proceeds for general corporate purposes, including, among other items, paying cash dividends and repurchasing shares of our common stock, subject to applicable regulatory approval.  Our failure to utilize these funds effectively may reduce our profitability and may adversely affect the value of our common stock.
Our recruitment efforts may not be sufficient to implement our business strategy and execute successful operations.
As we continue to grow, we may find our recruitment efforts more challenging. If we do not succeed in attracting, hiring, and integrating experienced or qualified personnel, we may not be able to continue to successfully implement our business strategy.
We have hired an asset based lending team and expanded our business lending into the healthcare market, both of which may expose us to increased lending risks and may have a negative effect on our results of operations.
In an effort to diversify our loan portfolio, we recently hired an asset based lending team and a healthcare lending team. These types of loans generally have a higher risk of loss compared to our one- to four-family residential real estate loans and multi-family loans, which could have a negative effect on our results of operations. In addition, because we are not as experienced with these new loan products, we may require additional time and resources for offering and managing such products effectively or may be unsuccessful in offering such products at a profit.
 
Severe weather, acts of terrorism and other external events could impact our ability to conduct business.
Recent weather-related events have adversely impacted our market area, especially areas located near coastal waters and flood prone areas. Such events that may cause significant flooding and other storm-related damage may become more common events in the future. Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems and the metropolitan New York area and Northern New Jersey remain central targets for potential acts of terrorism. Such events could cause significant damage, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing repayment of our loans, and result in the loss of revenue. While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition.


ITEM 1B.
UNRESOLVED STAFF COMMENTS
None. 

ITEM 2.
PROPERTIES
At December 31, 2015, the Company and the Bank conducted business from their corporate headquarters in Short Hills, New Jersey, with an operation center located in Iselin, New Jersey as well as lending offices in Short Hills, Robbinsville, Mount Laurel, Spring Lake, Newark, Sewell, Manhattan, Queens, Brooklyn, as well as a full-service branch network of 140 offices.

ITEM 3.
LEGAL PROCEEDINGS
We and our 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 our financial condition or results of operations.
 
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.

Part II


46

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our shares of common stock are traded on the NASDAQ Global Select Market under the symbol “ISBC”. The approximate number of holders of record of Investors Bancorp, Inc.’s common stock as of February 23, 2016 was approximately 10,500. Certain shares of Investors Bancorp, Inc. are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. The following table presents quarterly market information for Investors Bancorp, Inc.’s common stock for the periods indicated. As a result of the second step conversion, all per share information prior to the completion of the second step conversion on May 7, 2014 has been revised to reflect the 2.55- to- one exchange ratio.
The following information was provided by the NASDAQ Global Select Market.
 
 
 
Year Ended
December 31, 2015
 
Year Ended
December 31, 2014
 
 
High
 
Low
Dividends Declared
 
High
 
Low
Dividends Declared
First Quarter
 
$
11.98

 
$
10.70

$
0.10

 
$
11.26

 
$
9.68

$
0.02

Second Quarter
 
12.72

 
11.55

0.05

 
11.19

 
10.18

0.02

Third Quarter
 
12.59

 
11.27

0.05

 
11.21

 
10.00

0.04

Fourth Quarter
 
13.13

 
11.99

0.05

 
11.36

 
9.80

0.04


On September 28, 2012, we declared our first quarterly cash dividend of $0.02 per share since completing our initial public offering in October 2005. Since declaring this dividend, we have paid a dividend to stockholders in each subsequent quarter, with the most recent paid in February 2016. The timing and amount of cash dividends paid depend on our earnings, capital requirements, financial condition and other relevant factors.  Although we have begun paying quarterly cash dividends to our stockholders, stockholders are not entitled to receive dividends. Downturns in domestic and global economies and other factors could cause our board of directors to consider, among other things, the elimination of or reduction in the amount and/or frequency of cash dividends paid on our common stock. In addition, Federal Reserve Board guidance sets forth the supervisory expectation that bank holding companies will inform and consult with Federal Reserve Board staff in advance of issuing a dividend that exceeds earnings for the quarter and should inform the Federal Reserve Board and should eliminate, defer or significantly reduce dividends if (i) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (ii) prospective rate of earnings retention is not consistent with the bank holding company's capital needs and overall current and prospective financial condition, or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
In the future, dividends from Investors Bancorp, Inc. may depend, in part, upon the receipt of dividends from Investors Bank, because Investors Bancorp, Inc. has no source of income other than earnings from the investment of net proceeds retained from the sale of shares of common stock, investment income, and interest earned on its loan to the employee stock ownership plan. Under New Jersey law, Investors Bank may not pay a cash dividend unless, after the payment of such dividend, its capital stock will not be impaired and either it will have a statutory surplus of not less than 50% of its capital stock, or the payment of such dividend will not reduce its statutory surplus.
Stock Performance Graph
Set forth below is a stock performance graph comparing (a) the cumulative total return on the Company’s common stock for the period beginning December 31, 2010 through December 31, 2015, (b) the cumulative total return of publicly traded thrifts over such period, and, (c) the cumulative total return of all publicly traded banks and thrifts over such period. Cumulative return assumes the reinvestment of dividends, and is expressed in dollars based on an assumed investment of $100.

47

 
 
Index
12/31/2010

 
12/31/2011

 
12/31/2012

 
12/31/2013

 
12/31/2014

 
12/31/2015

Investors Bancorp, Inc.
100.00

 
102.74

 
135.88

 
197.38

 
223.41

 
252.79

SNL U.S. Bank and Thrift
100.00

 
77.76

 
104.42

 
142.97

 
159.60

 
162.83

SNL U.S. Thrift
100.00

 
84.12

 
102.32

 
131.30

 
141.22

 
158.80

Source: SNL Financial LC, Charlottesville, VA
Stock Repurchases
    
In connection with the second step conversion completed on May 7, 2014, the existing stock repurchase plan was terminated. Under applicable federal regulations, the Company was not permitted to implement a stock repurchase program during the first year following completion of the second-step conversion without prior notice to, and the receipt of a non-objection from the Federal Reserve Board. On March 16, 2015, the Company received approval from the Board of Governors of the Federal Reserve System to commence a buyback program prior to the one-year anniversary of the completion of its second step conversion.

The following table reports information regarding repurchases of our common stock during the quarter ended December 31, 2015 and the stock repurchase plans approved by our Board of Directors.


48

Period
 
Total Number of Shares Purchased (1)
 
Average Price paid Per Share
 
As part of Publicly Announced Plans or Programs
 
Yet to be Purchased Under the Plans or Programs
October 1, 2015 through October 31, 2015
 
2,030,000

 
$
12.53

 
2,030,000

 
25,347,925

November 1, 2015 through November 30, 2015
 
1,553,494

 
12.63

 
1,553,494

 
23,794,431

December 1, 2015 through December 31, 2015
 
2,680,080

 
12.55

 
2,680,080

 
21,114,351

Total
 
6,263,574

 

 
6,263,574

 
 
(1) On March 16, 2015, the Company announced a 5% buyback program, which authorized the repurchase of 17,911,561 shares of its publicly-held outstanding shares of common stock. On June 9, 2015, the Company announced its second share repurchase program, which authorized the purchase of an additional 10% of its publicly-held outstanding shares of common stock, or approximately 34,779,211 shares. The new repurchase program commenced immediately upon completion of the first repurchase plan on June 30, 2015. This program has no expiration date and has 21,114,351 shares yet to be purchased as of December 31, 2015.
Equity Compensation Plan Information
The information set forth in Item 12 of Part III of this Annual Report under the heading “Equity Compensation Plan Information” is incorporated by reference herein.


49

ITEM 6.
SELECTED FINANCIAL DATA
The following information is derived in part from the consolidated financial statements of Investors Bancorp, Inc. As a result of the completion of the second step conversion on May 7, 2014, all share information prior to that date has been revised to reflect the 2.55- to- one exchange ratio. For additional information, reference is made to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements of Investors Bancorp, Inc. and related notes included elsewhere in this Annual Report.
 
 
At December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(In thousands)
Selected Financial Condition Data:
 
 
 
 
 
 
 
 
 
Total assets
$
20,888,684

 
$
18,773,639

 
$
15,623,070

 
$
12,722,574

 
$
10,701,585

Loans receivable, net
16,661,133

 
14,887,570

 
12,882,544

 
10,306,786

 
8,794,211

Loans held-for-sale
7,431

 
6,868

 
8,273

 
28,233

 
18,847

Securities held to maturity
1,844,223

 
1,564,479

 
831,819

 
179,922

 
287,671

Securities available for sale, at estimated fair value
1,304,697

 
1,197,924

 
785,032

 
1,385,328

 
983,715

Bank owned life insurance
159,152

 
161,609

 
152,788

 
113,941

 
112,990

Deposits
14,063,656

 
12,172,326

 
10,718,811

 
8,768,857

 
7,362,003

Borrowed funds
3,263,090

 
2,766,104

 
3,367,274

 
2,705,652

 
2,255,486

Goodwill
77,571

 
77,571

 
77,571

 
77,063

 
21,972

Stockholders’ equity
3,311,647

 
3,577,855

 
1,334,327

 
1,066,817

 
967,440

 
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(In thousands)
Selected Operating Data:
 
 
 
 
 
 
 
 
 
Interest and dividend income
$
731,723

 
$
660,862

 
$
545,068

 
$
496,189

 
$
473,572

Interest expense
136,639

 
118,891

 
109,642

 
123,444

 
144,488

Net interest income
595,084

 
541,971

 
435,426

 
372,745

 
329,084

Provision for loan losses
26,000

 
37,500

 
50,500

 
65,000

 
75,500

Net interest income after provision for loan losses
569,084

 
504,471

 
384,926

 
307,745

 
253,584

Non-interest income
40,125

 
41,861

 
36,571

 
44,112

 
29,170

Non-interest expenses
328,332

 
339,860

 
245,711

 
207,007

 
157,587

Income before income tax expense
280,877

 
206,472

 
175,786

 
144,850

 
125,167

Income tax expense
99,372

 
74,751

 
63,755

 
56,083

 
46,281

Net income
$
181,505

 
$
131,721

 
$
112,031

 
$
88,767

 
$
78,886

Earnings per share — basic and diluted
$
0.55

 
$
0.38

 
$
0.40

 
$
0.32

 
$
0.29

 


50

 
 
At or for the Year Ended
December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
Selected Financial Ratios and Other Data:
 
 
 
 
 
 
 
 
 
 
Performance Ratios:
 
 
 
 
 
 
 
 
 
 
Return on assets (ratio of net income to average total assets)
 
0.92
%
 
0.76
%
 
0.83
%
 
0.77
%
 
0.78
%
Return on equity (ratio of net income to average equity)
 
5.26
%
 
4.71
%
 
10.00
%
 
8.68
%
 
8.43
%
Net interest rate spread(1)
 
2.91
%
 
3.08
%
 
3.24
%
 
3.26
%
 
3.22
%
Net interest margin(2)
 
3.12
%
 
3.27
%
 
3.37
%
 
3.40
%
 
3.39
%
Efficiency ratio(3)
 
51.69
%
 
58.21
%
 
52.06
%
 
49.66
%
 
43.68
%
Efficiency ratio - Adjusted (4)
 
51.48
%
 
52.45
%
 
50.66
%
 
46.47
%
 
43.68
%
Non-interest expenses to average total assets
 
1.66
%
 
1.96
%
 
1.82
%
 
1.81
%
 
1.54
%
Average interest-earning assets to average interest-bearing liabilities
 
1.30x

 
1.28x

 
1.15x

 
1.13x

 
1.11x

Dividend payout ratio (5)
 
45.45
%
 
31.58
%
 
19.61
%
 
6.02
%
 
—

Asset Quality Ratios:
 
 
 
 
 
 
 
 
 
 
Non-performing assets to total assets
 
0.69
%
 
0.81
%
 
0.95
%
 
1.14
%
 
1.48
%
Non-accrual loans to total loans
 
0.68
%
 
0.72
%
 
0.77
%
 
1.16
%
 
1.60
%
Allowance for loan losses to non-performing loans (6)
 
158.43
%
 
139.10
%
 
124.30
%
 
104.29
%
 
76.79
%
Allowance for loan losses to total loans
 
1.29
%
 
1.33
%
 
1.33
%
 
1.36
%
 
1.32
%
Capital Ratios:
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage ratio (7)
 
12.41
%
 
12.79
%
 
8.20
%
 
7.59
%
 
8.21
%
Common equity tier 1 risk-based (7)
 
15.87
%
 
n/a

 
n/a

 
n/a

 
n/a

Tier 1 risk-based capital (7)
 
15.87
%
 
17.01
%
 
10.14
%
 
9.98
%
 
11.65
%
Total-risk-based capital (7)
 
17.12
%
 
18.26
%
 
11.39
%
 
11.24
%
 
12.91
%
Equity to total assets
 
15.85
%
 
19.06
%
 
8.54
%
 
8.39
%
 
9.04
%
Tangible equity to tangible assets (8)
 
15.43
%
 
18.60
%
 
7.90
%
 
7.67
%
 
8.71
%
Average equity to average assets
 
17.41
%
 
16.16
%
 
8.32
%
 
8.92
%
 
9.26
%
Other Data:
 
 
 
 
 
 
 
 
 
 
Book value per common share
 
$
10.30

 
$
10.39

 
$
9.85

 
$
9.81

 
$
8.98

Tangible book value per common share (8)
 
$
9.97

 
$
10.08

 
$
9.04

 
$
8.89

 
$
8.62

Number of full service offices
 
140

 
132

 
129

 
101

 
81

Full time equivalent employees
 
1,734

 
1,682

 
1,541

 
1,193

 
959

 
(1)
The net interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted- average cost of interest-bearing liabilities for the period.
(2)
The net interest margin represents net interest income as a percent of average interest-earning assets for the period.
(3)
The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income.
(4)
The efficiency ratio- adjusted represents non-interest expense divided by the sum of net interest income and non-interest income adjusted; For the year ended December 31, 2015, excludes a one time item related to a payout under an employment agreement with a former executive. For the year ended December 31, 2014, excludes $13.0 million of compensation expense related to the accelerated vesting of all stock option and restricted stock plans upon the completion of the second step capital transaction, the contribution of $20 million to the Investors Charitable Foundation and one-time items related to the acquisition of Gateway, completed in January 2014. For the year ended December 31, 2013, excludes pre-tax acquisition charges related to Roma Financial of $5.6 million and a non-cash OTTI charge of

51

$977,000. Excludes pre-tax acquisition charges related to Marathon and BFSB of $13.3 million for the year ended December 31, 2012.
(5)
The dividend payout ratio represents dividends paid per share divided by net income per share.
(6)
Non performing loans include non-accrual loans and performing troubled debt restructured loans.
(7)
Ratios are for Investors Bank and do not include capital retained at the holding company level. The information presented prior to December 31, 2015 reflect the requirements in effect at that time, as the Basel III requirements became effective on January 1, 2015, see Supervision and Regulation, Part I, Item 1.
(8)
Excludes goodwill and intangible assets.


52



ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our fundamental business strategy is to be a well-capitalized, full service, community bank that provides high quality customer service and competitively priced products and services to individuals and businesses in the communities we serve.
Our results of operations depend primarily on net interest income, which is directly impacted by the market interest rate environment. Net interest income is the difference between the interest income we earn on our interest-earning assets, primarily mortgage loans and investment securities, and the interest we pay on our interest-bearing liabilities, primarily interest-bearing transaction accounts, time deposits, and borrowed funds. Net interest income is affected by the level of interest rates, the shape of the market yield curve, the timing of the placement and the repricing of interest-earning assets and interest-bearing liabilities on our balance sheet, and the prepayment rate on our mortgage-related assets.
While an increase in intermediate-term treasury yields earlier in the year provided an opportunity to increase loan rates, the persistent low interest rate environment has resulted in a significant portion of our interest-earning assets being originated or re-priced at yields lower than the overall portfolio. However, we have been able to generally offset net interest income compression through interest earning asset growth. We continue to actively manage our interest rate risk against a backdrop of slow but positive economic growth and the increase in short-term interest rates at the end of 2015. If short-term interest rates increase, and the yield curve flattens, we may be subject to near-term net interest margin compression. Should the treasury yield curve steepen, we may experience an improvement in net interest income, particularly if short-term interest rates remain unchanged.
Our results of operations are also significantly affected by general economic conditions. While the consumer has benefited from lower energy costs and national and regional unemployment rates have improved, the velocity of economic growth remains sluggish. The overall level of non-performing loans remains low compared to our national and regional peers. We attribute this to our conservative underwriting standards, our diligence in resolving our problem loans as well as the unseasoned nature of our loan portfolio.
We continue to grow and transform the composition of our balance sheet. Total assets increased by $2.12 billion, or 11.3%, to $20.89 billion at December 31, 2015 from $18.77 billion at December 31, 2014. Net loans increased $1.77 billion to $16.66 billion at December 31, 2015, while securities increased by $386.5 million, or 14.0%, to $3.15 billion at December 31, 2015 from $2.76 billion at December 31, 2014. During the year ended December 31, 2015, we originated $2.08 billion in multi-family loans, $936.9 million in commercial real estate loans, $930.8 million in commercial and industrial loans, $646.5 million in residential loans, $247.8 million in consumer and other loans and $82.5 million in construction loans. This increase in loans reflects our continued focus on generating multi-family loans, commercial real estate loans and commercial and industrial loans, which was partially offset by pay downs and payoffs of loans. The multi-family and commercial real estate loans we originate are secured by properties located primarily in New Jersey and New York.
Capital management is a key component of our business strategy. With the completion of the second step conversion in May 2014, we raised $2.15 billion in equity. We plan to manage our capital through a combination of organic growth, acquisitions, stock repurchases and cash dividends. Effective capital management and prudent growth allowed us to effectively leverage the capital from the Company’s initial public offering, while being mindful of tangible book value for stockholders. We continue to leverage our capital, resulting in our capital to total assets ratio decreasing to 15.85% at December 31, 2015 from 19.06% at December 31, 2014. In March 2015, we commenced the first stock repurchase plan for 5% of our outstanding shares of common stock, or approximately 17.9 million shares. This repurchase plan was completed in June 2015 when we announced our second share repurchase program which authorizes the repurchase of an additional 10% of outstanding shares of common stock, or approximately 34.8 million shares. Stockholders' equity has been impacted for the year ended December 31, 2015 by the repurchase of 31.6 million shares of common stock for $382.9 million as well as cash dividends of $0.25 per share totaling $87.4 million.
We will continue to execute our business strategies with a focus on prudent and opportunistic growth while producing financial results that will create value for our stockholders. We intend to continue to grow our business and strengthen our market share through planned de novo branching, enhanced product offerings, investments in our people and opportunistic acquisitions in our market area. In August 2015, we completed the conversion of the Bank's core operating system. In 2016 we plan to enhance our employee training and development programs, build additional risk management and operational infrastructure and add key personnel as our company grows and our business changes. We will continue to enhance stockholder value through our strategic capital initiatives, including growth both organically and through acquisitions, stock buybacks and dividend payments.

53


Critical Accounting Policies
We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the following to be our critical accounting policies.
Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses that is charged against income. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.
The allowance for loan losses has been determined in accordance with U.S. generally accepted accounting principles, under which we are required to maintain an allowance for probable losses at the balance sheet date. We are responsible for the timely and periodic determination of the amount of the allowance required. We believe that our allowance for loan losses is adequate to cover specifically identifiable losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable. Loans acquired are marked to fair value on the date of acquisition with no valuation allowance reflected in the allowance for loan losses. In conjunction with the quarterly evaluation of the adequacy of the allowance for loan loss, the Company performs an analysis on acquired loans to determine whether or not there has been subsequent deterioration in relation to those loans. If deterioration has occurred, the Company will include these loans in their calculation of the allowance for loan loss.
Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. The analysis of the allowance for loan losses has two components: specific and general allocations. Specific allocations are made for loans determined to be impaired. A loan is deemed to be impaired if it is a commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, loans modified in a troubled debt restructuring ("TDR"), and other commercial loans greater than $1.0 million if management has specific information that it is probable we will not collect all amounts due under the contractual terms of the loan agreement. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans, including those loans not meeting the Company's definition of an impaired loan, by type of loan, risk rating (if applicable) and payment history. In addition, the Company's residential portfolio is subdivided between fixed and adjustable rate loans as adjustable rate loans are deemed to be subject to more credit risk if interest rates rise. We also analyze historical loss experience using the appropriate look-back and loss emergence period. The loss factors used are based on the Company's historical loss experience over a look-back period determined to provide the appropriate amount of data to accurately estimate expected losses as of period end. Additionally, management assesses the loss emergence period for the expected losses of each loan segment and adjusts each historical loss factor accordingly. The loss emergence period is the estimated time from the date of a loss event (such as a personal bankruptcy) to the actual recognition of the loss (typically via the first full or partial loan charge-off), and is determined based upon a study of the Company's past loss experience by loan segment. The loss factors may also be adjusted to account for qualitative or environmental factors that are likely to cause estimated credit losses inherent in the portfolio to differ from historical loss experience. This evaluation is based on among other things, loan and delinquency trends, general economic conditions, geographic concentrations, lending policies and procedures and industry and peer comparisons, but is inherently subjective as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be significantly more than the allowance for loan losses we have established, which could have a material negative effect on our financial results.
Purchased Credit-Impaired ("PCI") loans, are loans acquired at a discount due, in part, to credit quality. PCI loans are accounted for in accordance with ASC Subtopic 310-30 and are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses). The difference between the undiscounted cash flows expected at acquisition and the initial carrying amount (fair value) of the PCI loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of the loans. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment, as a loss accrual or a valuation allowance. Reclassifications of the non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to increases in expected cash flows of the loans and would result in an increase in yield on a prospective basis. The Company analyzes the actual cash flow versus the forecasts and any adjustments to credit loss expectations are made based on actual loss recognized as well as changes in the probability of default. For a period in which cash flows aren't reforecasted, prior period's estimated cash flows are adjusted to reflect the actual cash received and credit events that occurred during the current reporting period.

54

On a quarterly basis, management reviews the current status of various loan assets in order to evaluate the adequacy of the allowance for loan losses. In this evaluation process, specific loans are analyzed to determine their potential risk of loss. Loans determined to be impaired are evaluated for potential loss. Any shortfall results in a recommendation of a charge-off or specific allowance if the likelihood of loss is evaluated as probable. To determine the adequacy of collateral on a particular loan, an estimate of the fair market value of the collateral is based on the most current appraised value for real property or a discounted cash flow analysis on a business. This appraised value for real property is then reduced to reflect estimated liquidation expenses. Acquired loans are marked to fair value on the date of acquisition.
The allowance contains reserves identified as unallocated. These reserves reflect management's attempt to ensure that the overall allowance reflects a margin for imprecision and the uncertainty that is inherent in estimates of probable credit losses.
Our primary lending emphasis has been the origination of commercial real estate loans, multi-family loans, commercial and industrial loans and the origination and purchase of residential mortgage loans. We also originate home equity loans and home equity lines of credit. These activities resulted in a concentration of loans secured by real estate property and businesses located in New Jersey and New York. Based on the composition of our loan portfolio, we believe the primary risks are increases in interest rates, a decline in the general economy, and declines in real estate market values in New Jersey, New York and surrounding states. Any one or combination of these events may adversely affect our loan portfolio resulting in increased delinquencies, loan losses and future levels of loan loss provisions. We consider it important to maintain the ratio of our allowance for loan losses to total loans at an adequate level given current economic conditions and the composition of the portfolio. As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisal valuations are instrumental in determining the value of properties. Negative changes to appraisal assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals are carefully reviewed to determine that the resulting values reasonably reflect amounts realizable on the related loans.
For commercial real estate, multi-family and construction loans, the Company obtains an appraisal for all collateral dependent loans upon origination. An updated appraisal is obtained annually for loans rated substandard or worse with a balance of $500,000 or greater. An updated appraisal is obtained bi-annually for loans rated special mention with a balance of $2.0 million or greater. This is done in order to determine the specific reserve or charge off needed. As part of the allowance for loan loss process, the Company reviews each collateral dependent commercial real estate loan previously classified as non-accrual and/or impaired and assesses whether there has been an adverse change in the collateral value supporting the loan. The Company utilizes information from its commercial lending officers and its credit department and loan workout department's knowledge of changes in real estate conditions in our lending area to identify if possible deterioration of collateral value has occurred. Based on the severity of the changes in market conditions, management determines if an updated appraisal is warranted or if downward adjustments to the previous appraisal are warranted. If it is determined that the deterioration of the collateral value is significant enough to warrant ordering a new appraisal, an estimate of the downward adjustments to the existing appraised value is used in assessing if additional specific reserves are necessary until the updated appraisal is received.
For homogeneous residential mortgage loans, the Company's policy is to obtain an appraisal upon the origination of the loan and an updated appraisal in the event a loan becomes 90 days delinquent. Thereafter, the appraisal is updated every two years if the loan remains in non-performing status and the foreclosure process has not been completed. Management adjusts the appraised value of residential loans to reflect estimated selling costs and estimated declines in the real estate market.
Management believes the potential risk for outdated appraisals for impaired and other non-performing loans has been mitigated due to the fact that the loans are individually assessed to determine that the loan's carrying value is not in excess of the fair value of the collateral. Loans are generally charged off after an analysis is completed which indicates that collectability of the full principal balance is in doubt.
Our allowance for loan losses reflects probable losses considering, among other things, the economic conditions, the actual growth and change in composition of our loan portfolio, the level of our non-performing loans and our charge-off experience. We believe the allowance for loan losses reflects the inherent credit risk in our portfolio.
Although we believe we have established and maintained the allowance for loan losses at adequate levels, additions may be necessary if the current economic environment deteriorates. Management uses the best information available; however, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change. In addition, the Federal Deposit Insurance Corporation and the New Jersey Department of Banking and Insurance, as an integral part of their examination process, will periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.
Deferred Income Taxes. The Company records income taxes in accordance with ASC 740, “Income Taxes,” as amended, using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax

55

consequences of events that have been recognized in the financial statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled. Where applicable, deferred tax assets are reduced by a valuation allowance for any portions determined not likely to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment. The valuation allowance is adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant.
Asset Impairment Judgments. Certain of our assets are carried on our consolidated balance sheets at cost, fair value or at the lower of cost or fair value. Valuation allowances or write-downs are established when necessary to recognize impairment of such assets. We periodically perform analyses to test for impairment of such assets. In addition to the impairment analyses related to our loans discussed above, another significant impairment analysis is the determination of whether there has been an other-than-temporary decline in the value of one or more of our securities.
Our available-for-sale portfolio is carried at estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders' equity. While the Company does not intend to sell these securities, and it is more likely than not that we will not be required to sell these securities before their anticipated recovery of the remaining carrying value, we have the ability to sell the securities. Our held-to-maturity portfolio, consisting primarily of mortgage- backed securities and other debt securities for which we have a positive intent and ability to hold to maturity, is carried at carrying value. We conduct a periodic review and evaluation of the securities portfolio to determine if the value of any security has declined below its cost or amortized cost, and whether such decline is other-than-temporary. Management utilizes various inputs to determine the fair value of the portfolio. To the extent they exist, unadjusted quoted market prices in active markets (Level 1) or quoted prices on similar assets (Level 2) are utilized to determine the fair value of each investment in the portfolio. In the absence of quoted prices and in an illiquid market, valuation techniques, which require inputs that are both significant to the fair value measurement and unobservable (Level 3), are used to determine fair value of the investment. Valuation techniques are based on various assumptions, including, but not limited to cash flows, discount rates, rate of return, adjustments for nonperformance and liquidity, and liquidation values. Management is required to use a significant degree of judgment when the valuation of investments includes unobservable inputs. The use of different assumptions could have a positive or negative effect on our consolidated financial condition or results of operations.
The fair values of our securities portfolio are also affected by changes in interest rates. When significant changes in interest rates occur, we evaluate our intent and ability to hold the security to maturity or for a sufficient time to recover our recorded investment balance.
If a determination is made that a debt security is other-than-temporarily impaired, the Company will estimate the amount of the unrealized loss that is attributable to credit and all other non-credit related factors. The credit related component will be recognized as an other-than-temporary impairment charge in non-interest income as a component of gain (loss) on securities, net. The non-credit related component will be recorded as an adjustment to accumulate other comprehensive income, net of tax.
Goodwill Impairment. Goodwill is presumed to have an indefinite useful life and is tested, at least annually, for impairment at the reporting unit level. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. For purposes of our goodwill impairment testing, we have identified a single reporting unit.
In connection with our annual impairment assessment we applied the guidance in FASB ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. For the year ended December 31, 2015, our qualitative assessment concluded that it was not more likely than not that the fair value of the reporting unit is less than its carrying amount and, therefore, the two-step goodwill impairment test was not required.
Valuation of Mortgage Servicing Rights ("MSR"). The initial asset recognized for originated MSR is measured at fair value. The fair value of MSR is estimated by reference to current market values of similar loans sold with servicing released. MSR are amortized in proportion to and over the period of estimated net servicing income. We apply the amortization method for measurements of our MSR. MSR are assessed for impairment based on fair value at each reporting date. MSR impairment, if any, is recognized in a valuation allowance through charges to earnings as a component of fees and service charges. Subsequent increases in the fair value of impaired MSR are recognized only up to the amount of the previously recognized valuation allowance.
The estimated fair value of the MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market's perception of future interest rate movements. The valuation allowance is then adjusted in subsequent periods to reflect

56

changes in the measurement of impairment. All assumptions are reviewed for reasonableness on a quarterly basis to ensure they reflect current and anticipated market conditions.
The fair value of MSR is highly sensitive to changes in assumptions. Changes in prepayment speed assumptions generally have the most significant impact on the fair value of our MSR. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSR. As interest rates rise, mortgage loan prepayments slow down, which results in an increase in the fair value of MSR. Thus, any measurement of the fair value of our MSR is limited by the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different point in time.
Stock-Based Compensation. We recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards in accordance with ASC 718, “Compensation-Stock Compensation”. We estimate the per share fair value of option grants on the date of grant using the Black-Scholes option pricing model using assumptions for the expected dividend yield, expected stock price volatility, risk-free interest rate and expected option term. These assumptions are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. The Black- Scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets. The per share fair value of options is highly sensitive to changes in assumptions. In general, the per share fair value of options will move in the same direction as changes in the expected stock price volatility, risk-free interest rate and expected option term, and in the opposite direction as changes in the expected dividend yield. For example, the per share fair value of options will generally increase as expected stock price volatility increases, risk-free interest rate increases, expected option term increases and expected dividend yield decreases. The use of different assumptions or different option pricing models could result in materially different per share fair values of options.

Comparison of Financial Condition at December 31, 2015 and December 31, 2014
Total Assets.Total assets increased by $2.12 billion, or 11.3%, to $20.89 billion at December 31, 2015 from $18.77 billion at December 31, 2014. Net loans increased $1.77 billion to $16.66 billion at December 31, 2015, and securities increased by $386.5 million, or 14.0%, to $3.15 billion at December 31, 2015 from $2.76 billion at December 31, 2014.
Net Loans. Net loans increased by $1.77 billion, or 11.9%, to $16.66 billion at December 31, 2015 from $14.89 billion at December 31, 2014. At December 31, 2015, total loans were $16.89 billion which included $6.26 billion in multi-family loans, $5.04 billion in residential loans, $3.83 billion in commercial real estate loans, $1.04 billion in commercial and industrial loans, $496.6 million in consumer and other loans and $225.8 million in construction loans. During the year ended December 31, 2015, we originated $2.08 billion in multi-family loans, $936.9 million in commercial real estate loans, $930.8 million in commercial and industrial loans, $646.5 million in residential loans, $247.8 million in consumer and other loans and $82.5 million in construction loans. This increase in loans reflects our continued focus on generating multi-family loans, commercial real estate loans and commercial and industrial loans, which was partially offset by pay downs and payoffs of loans. Our loans are primarily on properties and businesses located in New Jersey and New York.

In addition to the loans originated for our portfolio, our mortgage subsidiary, Investors Home Mortgage Co., originated $238.6 million for the year ended December 31, 2015 in residential mortgage loans that were sold to third party investors.

Our accruing past due loans and non-accrual loans discussed below exclude certain purchased credit impaired (PCI) loans, primarily consisting of loans recorded in the Company's acquisitions. Under U.S. GAAP, the PCI loans (acquired at a discount that is due, in part, to credit quality) are not subject to delinquency classification in the same manner as loans originated by the Bank. The following table sets forth non-accrual loans and accruing past due loans (excluding PCI loans and loans held for sale) on the dates indicated as well as certain asset quality ratios.

57

 
 
December 31, 2015
 
September 30, 2015
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
 
# of Loans
Amount
 
# of Loans
Amount
 
# of Loans
Amount
 
# of Loans
Amount
 
# of Loans
Amount
 
(Dollars in millions)
Multi-family
4

$
3.5

 
4

$
3.0

 
6

$
4.1

 
5

$
3.9

 
2

$
3.0

Commercial real estate
37

10.8

 
40

13.8

 
36

12.9

 
35

11.6

 
36

13.9

Commercial and industrial
17

9.2

 
9

6.5

 
7

2.2

 
8

2.3

 
11

2.9

Construction
4

0.8

 
5

1.0

 
3

0.9

 
7

4.3

 
7

4.4

Total commercial loans
62

24.3

 
58

24.3

 
52

20.1

 
55

22.1

 
56

24.2

Residential and consumer
500

91.1

 
506

99.8

 
422

86.6

 
423

88

 
406

84.2

Total non-accrual loans
562

$
115.4

 
564

$
124.1

 
474

$
106.7

 
478

$
110.1

 
462

$
108.4

Accruing troubled debt restructured loans
39

$
22.5

 
38

$
25.2

 
48

$
29.6

 
50

$
31.5

 
55

$
35.6

Non-accrual loans to total loans
 
0.68
%
 
 
0.76
%
 
 
0.68
%
 
 
0.70
%
 
 
0.72
%
Allowance for loan loss as a percent of non-accrual loans
 
189.30
%
 
 
175.97
%
 
 
200.51
%
 
 
189.02
%
 
 
184.83
%
Allowance for loan loss as a percent of total loans
 
1.29
%
 
 
1.33
%
 
 
1.36
%
 
 
1.33
%
 
 
1.33
%
Total non-accrual loans increased to $115.4 million at December 31, 2015 compared to $108.4 million at December 31, 2014. We continue to diligently resolve our troubled loans, however it takes a long period of time to resolve residential credits in our lending area. At December 31, 2015, our allowance for loan loss as a percent of total loans is 1.29%. At December 31, 2015, there were $47.4 million of loans deemed as troubled debt restructurings, of which $22.9 million were residential and consumer loans, $19.0 million were commercial real estate loans, $0.7 million were construction loans, $1.6 million were multi-family loans and $3.2 million were commercial and industrial loans. Troubled debt restructured loans in the amount of $22.5 million were classified as accruing and $24.9 million were classified as non-accrual at December 31, 2015.
In addition to non-accrual loans, we continue to monitor our portfolio for potential problem loans. Potential problem loans are defined as loans about which we have concerns as to the ability of the borrower to comply with the current loan repayment terms and which may cause the loan to be placed on non-accrual status. As of December 31, 2015, the Company has deemed potential problems loans excluding PCI loans, totaling $19.7 million, which comprised of 16 commercial real estate loans totaling $4.5 million, 6 commercial and industrial loans totaling $962,000 and 6 multi-family loans totaling $14.2 million. Management is actively monitoring these loans.
The allowance for loan losses increased by $18.2 million to $218.5 million at December 31, 2015 from $200.3 million at December 31, 2014. The increase in our allowance for loan losses is due to the growth of the loan portfolio and the credit risk in our overall portfolio, particularly the inherent credit risk associated with commercial real estate lending as well as commercial and industrial loans. Our overall level of non-performing loans remains low compared to our national and regional peers. We attribute this to our conservative underwriting standards, our diligence in resolving our problem loans as well as the unseasoned nature of our loan portfolio. Although we use the best information available, the level of allowance for loan losses remains an estimate that is subject to significant judgment and short-term change. See "Critical Accounting Policies."
Securities. Securities, in the aggregate, increased by $386.5 million, or 14.0%, to $3.15 billion at December 31, 2015 from $2.76 billion at December 31, 2014. This increase was a result of purchases partially offset by paydowns.
Stock in the Federal Home Loan Bank, Bank Owned Life Insurance and Other Assets,. The amount of stock we own in the FHLB increased by $27.1 million, or 18.0% to $178.4 million at December 31, 2015 from $151.3 million at December 31,

58

2014. The amount of stock we own in the FHLB is related to the balance of borrowings, therefore the increase in borrowings has an impact in the FHLB stock owned. Bank owned life insurance was $159.2 million at December 31, 2015 and $161.6 million at December 31, 2014. Other assets was $4.7 million at December 31, 2015 and $10.3 million at December 31, 2014.
Deposits. Deposits increased by $1.89 billion, or 15.5%, from $12.17 billion at December 31, 2014 to $14.06 billion at December 31, 2015. Core deposits accounts (savings, checking, and money market) represent approximately 76% of our total deposits as of December 31, 2015.
Borrowed Funds. Borrowed funds increased by $497.0 million, or 18.0%, to $3.26 billion at December 31, 2015 from $2.77 billion at December 31, 2014 to help fund the continued growth of the loan portfolio.
Stockholders’ Equity. Stockholders' equity decreased by $266.2 million to $3.31 billion at December 31, 2015 from $3.58 billion at December 31, 2014. The decrease is primarily attributed to the repurchase of 31.6 million shares of common stock for $382.9 million as well as cash dividends of $0.25 per share totaling $87.4 million for the year ended December 31, 2015. These decreases are offset by net income of $181.5 million for the year ended December 31, 2015.
Analysis of Net Interest Income
Net interest income represents the difference between income we earn on our interest-earning assets and the expense we pay on interest-bearing liabilities. Net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned on such assets and paid on such liabilities.

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


59

 
 
For the Year Ended December 31,
 
 
2015
 
2014
 
2013
 
 
Average
Outstanding
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate
 
Average
Outstanding
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate
 
Average
Outstanding
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate
 
 
(Dollars in thousands)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits
 
$
207,331

 
$
225

 
0.11
%
 
$
371,636

 
$
552

 
0.15
%
 
$
136,656

 
$
49

 
0.04
%
Securities available-for-sale
 
1,245,745

 
22,646

 
1.82

 
965,969

 
18,164

 
1.88

 
1,092,496

 
18,638

 
1.71

Securities held-to-maturity
 
1,708,176

 
38,547

 
2.26

 
1,315,604

 
31,847

 
2.42

 
449,742

 
15,362

 
3.42

Net loans
 
15,716,010

 
663,424

 
4.22

 
13,776,250

 
603,438

 
4.38

 
11,065,190

 
504,622

 
4.56

Stock in FHLB
 
172,367

 
6,881

 
3.99

 
152,330

 
6,861

 
4.50

 
168,028

 
6,397

 
3.81

Total interest-earning assets
 
19,049,629

 
731,723

 
3.84

 
16,581,789

 
660,862

 
3.99

 
12,912,112

 
545,068

 
4.22

Non-interest-earning assets
 
770,262

 
 
 
 
 
732,469

 
 
 
 
 
564,765

 
 
 
 
Total assets
 
$
19,819,891

 
 
 
 
 
$
17,314,258

 
 
 
 
 
$
13,476,877

 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Savings deposits
 
$
2,235,703

 
$
6,976

 
0.31
%
 
$
2,241,747

 
$
6,638

 
0.30
%
 
$
1,775,454

 
$
6,320

 
0.36
%
Interest-bearing checking
 
2,735,513

 
9,642

 
0.35

 
2,478,047

 
8,755

 
0.35

 
1,791,345

 
6,245

 
0.35

Money market accounts
 
3,564,311

 
23,562

 
0.66

 
2,355,982

 
13,664

 
0.58

 
1,646,235

 
7,537

 
0.46

Certificates of deposit
 
2,972,611

 
31,234

 
1.05

 
3,180,032

 
30,149

 
0.95

 
2,849,573

 
29,867

 
1.05

Total interest-bearing deposits
 
11,508,138

 
71,414

 
0.62

 
10,255,808

 
59,206

 
0.58

 
8,062,607

 
49,969

 
0.62

Borrowed funds
 
3,157,311

 
65,225

 
2.07

 
2,741,609

 
59,685

 
2.18

 
3,180,473

 
59,673

 
1.88

Total interest-bearing liabilities
 
14,665,449

 
136,639

 
0.93

 
12,997,417

 
118,891

 
0.91

 
11,243,080

 
109,642

 
0.98

Non-interest-bearing liabilities
 
1,702,945

 
 
 
 
 
1,518,331

 
 
 
 
 
1,113,121

 
 
 
 
Total liabilities
 
16,368,394

 
 
 
 
 
14,515,748

 
 
 
 
 
12,356,201

 
 
 
 
Stockholders’ equity
 
3,451,497

 
 
 
 
 
2,798,510

 
 
 
 
 
1,120,676

 
 
 
 
Total liabilities and stockholders’ equity
 
$
19,819,891

 
 
 
 
 
$
17,314,258

 
 
 
 
 
$
13,476,877

 
 
 
 
Net interest income
 
 
 
$
595,084

 
 
 
 
 
$
541,971

 
 
 
 
 
$
435,426

 
 
Net interest rate spread(1)
 
 
 
 
 
2.91
%
 
 
 
 
 
3.08
%
 
 
 
 
 
3.24
%
Net interest-earning assets(2)
 
$
4,384,180

 
 
 
 
 
$
3,584,372

 
 
 
 
 
$
1,669,033

 
 
 
 
Net interest margin(3)
 
 
 
 
 
3.12
%
 
 
 
 
 
3.27
%
 
 
 
 
 
3.37
%
Ratio of interest-earning assets to total interest-bearing liabilities
 
1.30x

 
 
 
 
 
1.28x

 
 
 
 
 
1.15x

 
 
 
 

(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.

60

Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.
 
 
 
Years Ended December 31,
2015 vs. 2014
 
Years Ended December 31,
2014 vs. 2013
 
 
Increase (Decrease)
Due to
 
Net
Increase
(Decrease)
 
Increase (Decrease)
Due to
 
Net
Increase
(Decrease)
 
 
Volume
 
Rate
 
 
Volume
 
Rate
 
 
 
(In thousands)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits
 
$
(203
)
 
(124
)
 
(327
)
 
$
178

 
325

 
503

Securities available-for-sale
 
5,112

 
(630
)
 
4,482

 
(2,257
)
 
1,783

 
(474
)
Securities held-to-maturity
 
8,367

 
(1,667
)
 
6,700

 
17,976

 
(1,491
)
 
16,485

Net loans
 
87,885

 
(27,899
)
 
59,986

 
121,987

 
(23,171
)
 
98,816

Stock in FHLB
 
847

 
(827
)
 
20

 
(635
)
 
1,099

 
464

Total interest-earning assets
 
102,008

 
(31,147
)
 
70,861

 
137,249

 
(21,455
)
 
115,794

Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Savings deposits
 
(18
)
 
356

 
338

 
1,490

 
(1,172
)
 
318

Interest-bearing checking
 
908

 
(21
)
 
887

 
2,425

 
85

 
2,510

Money market accounts
 
7,778

 
2,120

 
9,898

 
3,785

 
2,342

 
6,127

Certificates of deposit
 
(2,047
)
 
3,132

 
1,085

 
3,282

 
(3,000
)
 
282

Total deposits
 
6,621

 
5,587

 
12,208

 
10,982

 
(1,745
)
 
9,237

Borrowed funds
 
8,668

 
(3,128
)
 
5,540

 
(9,071
)
 
9,083

 
12

Total interest-bearing liabilities
 
15,289

 
2,459

 
17,748

 
1,911

 
7,338

 
9,249

Increase in net interest income
 
$
86,719

 
(33,606
)
 
53,113

 
$
135,338

 
(28,793
)
 
106,545

Comparison of Operating Results for the Year Ended December 31, 2015 and 2014
Net Income. Net income for the year ended December 31, 2015 was $181.5 million compared to net income of $131.7 million for the year ended December 31, 2014.
Net Interest Income. Net interest income increased by $53.1 million, or 9.8%, to $595.1 million for the year ended December 31, 2015 from $542.0 million for the year ended December 31, 2014. The increase was primarily due to the average balance of interest earning assets increasing $2.47 billion to $19.05 billion at December 31, 2015 compared to $16.58 billion at December 31, 2014. This was partially offset by the average balance of our interest bearing liabilities increasing $1.67 billion to $14.67 billion at December 31, 2015 compared to $13.00 billion at December 31, 2014, as well as the weighted average yield on our interest-earning assets decreasing 15 basis points to 3.84% for the year ended December 31, 2015 from 3.99% for the year ended December 31, 2014. The net interest spread decreased by 17 basis points to 2.91% for the year ended December 31, 2015 from 3.08% for the year ended December 31, 2014 as the weighted average yield on interest-earning assets declined 15 basis points and cost of interest bearing liabilities increased 2 basis points.
Interest and Dividend Income. Total interest and dividend income increased by $70.9 million, or 10.7%, to $731.7 million for the year ended December 31, 2015 from $660.9 million for the year ended December 31, 2014. This increase is attributed to the average balance of interest-earning assets increasing $2.47 billion, or 14.9%, to $19.05 billion for the year ended December 31, 2015 from $16.58 billion for the year ended December 31, 2014. This was partially offset by the weighted average yield on interest-earning assets decreasing 15 basis points to 3.84% for the year ended December 31, 2015 compared to 3.99% for the year ended December 31, 2014.
Interest income on loans increased by $60.0 million, or 9.9%, to $663.4 million for the year ended December 31, 2015 from $603.4 million for the year ended December 31, 2014, reflecting a $1.94 billion, or 14.1%, increase in the average balance of net loans to $15.72 billion for the year ended December 31, 2015 from $13.78 billion for the year ended December 31, 2014.

61

The increase is primarily attributed to the average balance of multi-family loans, commercial real estate loans and commercial and industrial loans increasing $1.20 billion, $732.5 million and $427.1 million, respectively, partially offset by the average balance of residential loans decreasing $424.4 million for the year ended December 31, 2015. The weighted average yield on net loans decreased 16 basis points to 4.22% for the year ended December 31, 2015 from 4.38% for the year ended December 31, 2014. The decrease in the weighted average yield on net loans reflects lower rates on new and refinanced loans due to the current interest rate environment. Prepayment penalties, which are included in interest income, increased to $21.0 million for the year ended December 31, 2015 from $16.3 million for the year ended December 31, 2014.
Interest income on all other interest-earning assets, excluding loans, increased by $10.9 million, or 18.9%, to $68.3 million for the year ended December 31, 2015 from $57.4 million for the year ended December 31, 2014. The average balance of all other interest-earning assets, excluding loans, increased by $528.1 million to $3.33 billion for the year ended December 31, 2015 from $2.81 billion for the year ended December 31, 2014. The weighted average yield on interest-earning assets, excluding loans, was 2.05% for the years ended December 31, 2015 and 2014.
Interest Expense. Total interest expense increased by $17.7 million, or 14.9%, to $136.6 million for the year ended December 31, 2015 from $118.9 million for the year ended December 31, 2014. This increase is attributed to the average balance of total interest-bearing liabilities increasing by $1.67 billion, or 12.8%, to $14.67 billion for the year ended December 31, 2015 from $13.00 billion for the year ended December 31, 2014. In addition, the weighted average cost of total interest-bearing liabilities increased 2 basis points to 0.93% for the year ended December 31, 2015 from 0.91% for the year ended December 31, 2014.
Interest expense on interest-bearing deposits increased $12.2 million, or 20.6%, to $71.4 million for the year ended December 31, 2015 from $59.2 million for the year ended December 31, 2014. This increase is attributed to the average balance of total interest-bearing deposits increasing $1.25 billion, or 12.2% to $11.51 billion for the year ended December 31, 2015 from $10.26 billion for the year ended December 31, 2014. In addition the average cost of interest-bearing deposits increased 4 basis points to 0.62% for the year ended December 31, 2015 from 0.58% for the year ended December 31, 2014.
Interest expense on borrowed funds increased by $5.5 million, or 9.3%, to $65.2 million for the year ended December 31, 2015 from $59.7 million for the year ended December 31, 2014. The average balance of borrowed funds increased $415.7 million or 15.2%, to $3.16 billion for the year ended December 31, 2015 from $2.74 billion for the year ended December 31, 2014. This was partially offset by the weighted average cost of borrowings decreasing 11 basis points to 2.07% for the year ended December 31, 2015 from 2.18% for the year ended December 31, 2014.
Provision for Loan Losses. For the year ended December 31, 2015, our provision for loan losses was $26.0 million compared to $37.5 million for the year ended December 31, 2014. For the year ended December 31, 2015, net charge-offs were $7.8 million compared to $11.1 million for the year ended December 31, 2014. Our provision for the year ended December 31, 2015 is a result of continued organic growth in the loan portfolio, specifically the multi-family, commercial real estate and commercial and industrial portfolios; the inherent credit risk in our overall portfolio, particularly the credit risk associated with commercial real estate lending and commercial and industrial lending; and the level of non-performing loans.
Non-Interest Income. Total non-interest income decreased by $1.7 million, or 4.1%, to $40.1 million for the year ended December 31, 2015 from $41.9 million for the year ended December 31, 2014. The reduction is mainly attributed to decreases in fees and service charges and other income of $2.3 million and $1.6 million, respectively, for the year ended December 31, 2015. Included in other income for the year ended December 31, 2014 was a bargain purchase gain of $1.5 million, net of tax, relating to the acquisition of Gateway Community Financial Corp, the federally-chartered holding company for GCF Bank ("Gateway"), which was completed in January 2014. These decreases were partially offset by an increase of $2.5 million in gain on loans sales, net for the year ended December 31, 2015.
Non-Interest Expenses. Total non-interest expenses decreased by $11.5 million, or 3.4%, to $328.3 million for the year ended December 31, 2015 from $339.9 million for the year ended December 31, 2014. Included in the year ended December 31, 2014 is a contribution of $20.0 million to the Investors Charitable Foundation in conjunction with the second step capital offering in 2014. In addition, FDIC insurance premium decreased $5.3 million for the year ended December 31, 2015 due to the continued improvement in asset quality and additional capital raised in the second step offering. Data processing service fees decreased $3.0 million for the year ended December 31, 2015 to $22.4 million. Compensation and fringe benefits increased $14.3 million for the year ended December 31, 2015, which included $9.2 million related to the 2015 Equity Incentive Plan. For the 2014 period, compensation expense included a charge of $13.0 million related to the accelerated vesting of all stock option and restricted stock awards upon the completion of the second step capital offering in May 2014. In addition, for the year ended December 31, 2015, there was a $1.3 million expense related to a payout under an employment agreement with a former executive. Absent the accelerated vesting in 2014, the payout of an employment agreement and the $9.2 million in equity incentive expense for 2015, compensation and fringe benefits increased $16.7 million for the year ended December 31, 2015. This increase was related to staff additions to support our continued growth, normal merit increases and increasing costs associated with employee benefits.

62

For the year ended December 31, 2015 non-interest expenses included $972,000 of expenses to support our core conversion which was completed in August 2015.
Income Tax Expense. Income tax expense was $99.4 million for the year ended December 31, 2015, representing a 35.4% effective tax rate compared to income tax expense of $74.8 million for the year ended December 31, 2014 representing a 36.2% effective tax rate.
In April 2015, New York City changed their tax law to conform with that of New York State. As a result, the Company analyzed the impact of this change relative to its deferred tax positions. Based on that analysis, the Company revalued the deferred tax asset as of December 31, 2014, resulting in a tax benefit of $4.9 million for the year ended December 31, 2015. This change will result in the Company's effective tax rate increasing in future periods. In addition, for the year ended December 31, 2015 income taxes include a net operating loss carryforward related to a prior acquisition of $4.1 million.
Comparison of Operating Results for the Year Ended December 31, 2014 and 2013
Net Income. Net income for the year ended December 31, 2014 was $131.7 million compared to net income of $112.0 million for the year ended December 31, 2013. 
Net Interest Income. Net interest income increased by $106.5 million, or 24.5%, to $542.0 million for the year ended December 31, 2014 from $435.4 million for the year ended December 31, 2013.  The increase was primarily due to the average balance of interest earning assets increasing $3.67 billion, or 28.4% to $16.58 billion at December 31, 2014 compared to $12.91 billion at December 31, 2013, as well as a 7 basis point decrease in our weighted average cost of interest-bearing liabilities to 0.91% for the year ended December 31, 2014 from 0.98% for the year ended December 31, 2013. These were partially offset by the average balance of our interest bearing liabilities increasing $1.75 billion to $13.00 billion at December 31, 2014 compared to $11.24 billion at December 31, 2013, as well as the weighted average yield on our interest-earning assets decreasing 23 basis points to 3.99% for the year ended December 31, 2014 from 4.22% for the year ended December 31, 2013. This was partially attributed to higher average balances in securities and cash at lower weighted average yields for the year ended December 31, 2014 compared to the year ended December 31, 2013. The net interest spread decreased by 16 basis points to 3.08% for the year ended December 31, 2014 from 3.24% for the year ended December 31, 2013 as the weighted average yield on interest-earning assets declined 23 basis points while our weighted average cost of interest bearing liabilities declined 7 basis points.  
Interest and Dividend Income. Total interest and dividend income increased by $115.8 million, or 21.2%, to $660.9 million for the year ended December 31, 2014 from $545.1 million for the year ended December 31, 2013.  This increase is attributed to the average balance of interest-earning assets increasing $3.67 billion, or 28.4%, to $16.58 billion for the year ended December 31, 2014 from $12.91 billion for the year ended December 31, 2013. This was partially offset by the weighted average yield on interest-earning assets decreasing 23 basis points to 3.99% for the year ended December 31, 2014 compared to 4.22% for the year ended December 31, 2013.

Interest income on loans increased by $98.8 million, or 19.6%, to $603.4 million for the year ended December 31, 2014 from $504.6 million for the year ended December 31, 2013, reflecting a $2.71 billion, or 24.5%, increase in the average balance of net loans to $13.78 billion for the year ended December 31, 2014 from $11.07 billion for the year ended December 31, 2013.  The increase is primarily attributed to the average balance of multi-family loans, residential loans, commercial real estate loans and commercial and industrial loans increasing $1.04 billion, $794.1 million, $611.6 million and $152.3 million, respectively, as we continue to grow our loan portfolio. These increases were partially offset by an 18 basis point decrease in the weighted average yield on net loans to 4.38% for the year ended December 31, 2014 from 4.56% for the year ended December 31, 2013.  The decrease in the weighted average yield on net loans reflects lower rates on new and refinanced loans due to the current interest rate environment. Prepayment penalties, which are included in interest income, increased to $16.3 million for the year ended December 31, 2014 from $15.9 million for the year ended December 31, 2013.

Interest income on all other interest-earning assets, excluding loans, increased by $17.0 million, or 42.0%, to $57.4 million for the year ended December 31, 2014 from $40.4 million for the year ended December 31, 2013.  The average balance of all other interest-earning assets, excluding loans, increased by $958.6 million to $2.81 billion for the year ended December 31, 2014 from $1.85 billion for the year ended December 31, 2013. A portion of second step capital offering proceeds was initially used to purchase investment securities. This was partially offset by the weighted average yield on interest-earning assets, excluding loans, decreasing by 14 basis points to 2.05% for the year ended December 31, 2014 compared to 2.19% for the year ended December 31, 2013.
Interest Expense. Total interest expense decreased by $9.2 million, or 8.4%, to $118.9 million for the year ended December 31, 2014 from $109.6 million for the year ended December 31, 2013.  This increase is attributed to the average balance of total interest-bearing liabilities increasing by $1.75 billion, or 15.6%, to $13.00 billion for the year ended December 31, 2014 from $11.24 billion for the year ended December 31, 2013. This increase was partially offset by the weighted average cost of total

63

interest-bearing liabilities decreasing 7 basis points to 0.91% for the year ended December 31, 2014 compared to 0.98% for the year ended December 31, 2013, which is partially attributable to lower deposit costs.

Interest expense on interest-bearing deposits increased $9.2 million, or 18.5% to $59.2 million for the year ended December 31, 2014 from $50.0 million for the year ended December 31, 2013.  This increase is attributed to the average balance of total interest-bearing depoits increasing $2.19 billion, or 27.2%, to $10.26 billion for the year ended December 31, 2014 from $8.06 billion for the year ended December 31, 2013. This increase was partially offset by a 4 basis point decrease in the average cost of interest-bearing deposits to 0.58% for the year ended December 31, 2014 from 0.62% for the year ended December 31, 2013 as deposit rates declined due to the lower interest rate environment.

Interest expense on borrowed funds was $59.7 million for the year ended December 31, 2014 and December 31, 2013. Although the average of balance of borrowed funds decreased by $438.9 million or 13.8%, to $2.74 billion for the year ended December 31, 2014 from 3.18 billion for the year ended December 31, 2013, the average cost of borrowed funds increased 30 basis points to 2.18% for the year ended December 31, 2014 from 1.88% for the year ended December 31, 2013, as maturing lower rate short-term borrowings were paid off.
Provision for Loan Losses. For the year ended December 31, 2014, our provision for loan losses was $37.5 million
compared to $50.5 million for the year ended December 31, 2013. For the year ended December 31, 2014, net charge-offs were
$11.1 million compared to $18.7 million for the year ended December 31, 2013. Our provision for the year ended December 31, 2014 is a result of continued growth in the loan portfolio, specifically the multi-family, commercial real estate and commercial and industrial portfolios; the inherent credit risk in our overall portfolio, particularly the credit risk associated with commercial real estate lending and commercial and industrial lending; and the level of non-performing loans and delinquent loans. While the economic and real estate conditions in our lending area have improved slightly, management is cautiously optimistic and continues to be prudent in assessing the Company's credit risk.
Non-Interest Income. Total non-interest income increased by $5.3 million, or 14.5% to $41.9 million for the year ended
December 31, 2014 from $36.6 million for the year ended December 31, 2013. Income on bank owned life insurance, gain on
securities transactions and fees and service charges increased $1.8 million, $774,000 and $595,000, respectively, for the year ended December 31, 2014. In addition, other income increased $5.3 million for the year ended December 31, 2014. Included in other income for the year ended December 31, 2014 is a bargain purchase gain of $1.5 million, net of tax, relating to the acquisition of Gateway Community Financial Corp, the federally-chartered holding company for GCF Bank ("Gateway"), which was completed in January 2014. These increases were partially offset by a $3.5 million decrease in gain on the sale of loans to $5.3 million for the year ended December 31, 2014 compared to $8.7 million for the year ended December 31, 2013 due to lower volume of sales in the secondary market.
Non-Interest Expenses. Total non-interest expenses increased by $94.1 million, or 38.3%, to $339.9 million for the year
ended December 31, 2014 from $245.7 million for the year ended December 31, 2013. Compensation and fringe benefits increased $43.3 million for the year ended December 31, 2014, which includes $13.0 million related to the accelerated vesting of all stock option and restricted stock awards upon the completion of the second step capital offering in May 2014. In addition, compensation expense included approximately $1.0 million related to retention and severance payments to former RomaFinancial Corporation employees and $807,000 related to retention and severance payments to former Gateway employees. The remaining increase in compensation and fringe benefits relate to staff additions to support our continued growth, including the acquisitions of Roma Financial Corporation and Gateway, as well as normal merit increases. Other operating expenses increased by $7.5 million to $27.3 million for the year ended December 31, 2014 from $19.8 million for the year ended December 31, 2013. Contribution to charitable foundation represents the Company's contribution of $20.0 million to the Investors Charitable Foundation in conjunction with the second step capital offering, comprised of 1,000,000 shares of common stock and $10.0 million in cash. Occupancy expense, data processing fees, professional fees and advertising expenses have increased by $10.4 million, $5.5 million, $3.5 million and $3.6 million, respectively, for the year ended December 31, 2014. These increases are primarily the result of our recent acquisitions and organic growth.
Income Tax Expense. Income tax expense was $74.8 million for the year ended December 31, 2014, representing a 36.20% effective tax rate compared to income tax expense of $63.8 million for the year ended December 31, 2013 representing a 36.27% effective tax rate.
For the year ended December 31, 2014, there was a change in New York state tax law. The Company analyzed the impact of this change relative to its deferred tax positions. Based on that analysis, the Company revalued the deferred tax asset, resulting in a tax benefit of $3.6 million for the year ended December 31, 2014, respectively. This change will likely result in the Company paying higher New York state taxes in future periods.


64

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

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

We actively evaluate interest rate risk in connection with our lending, investing and deposit activities. Historically, our lending activities have emphasized one- to four-family fixed- and variable-rate first mortgages. At December 31, 2015 approximately 36% of our residential portfolio was in variable rate products, while 64% was in fixed rate products. Our variable rate mortgage related assets have helped to reduce our exposure to interest rate fluctuations and is expected to benefit our long term profitability, as the rates earned on these mortgage loans will increase as prevailing market rates increase. However, the current low interest rate environment, and the preferences of our customers, has resulted in more of a demand for fixed-rate products. This may adversely impact our net interest income, particularly in a rising rate environment. To help manage our interest rate risk, the origination of commercial real estate loans, particularly multi-family loans and commercial and industrial loans have outpaced the growth in the residential portfolio, as these loan types help reduce our interest rate risk due to their shorter term compared to residential mortgage loans. In addition, we primarily invest in shorter-to-medium duration securities, which generally have shorter average lives and lower yields compared to longer term securities. Shortening the average lives of our securities, along with originating more adjustable-rate mortgages and commercial real estate mortgages, will help to reduce interest rate risk.

We retain an independent, nationally recognized consulting firm that specializes in asset and liability management to complete our quarterly interest rate risk reports. We also retain a second nationally recognized consulting firm to prepare independently comparable interest rate risk reports for the purpose of validation. Both firms use a combination of analyses to monitor our exposure to changes in interest rates. The economic value of equity analysis is a model that estimates the change in net portfolio value (“NPV”) over a range of immediately changed interest rate scenarios. NPV is the discounted present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. In calculating changes in NPV, assumptions estimating loan prepayment rates, reinvestment rates and deposit decay rates that seem most likely based on historical experience during prior interest rate changes are used.
    
The net interest income analysis uses data derived from an asset and liability analysis, described below, and applies several additional elements, including actual interest rate indices and margins, contractual limitations and the U.S. Treasury yield curve as of the balance sheet date. In addition we apply consistent parallel yield curve shifts (in both directions) to determine possible changes in net interest income if the theoretical yield curve shifts occurred gradually over a one year period. Net interest income analysis also adjusts the asset and liability repricing analysis based on changes in prepayment rates resulting from the parallel yield curve shifts.
    
Our asset and liability analysis determines the relative balance between the repricing of assets and liabilities over multiple periods of time (ranging from overnight to five years). This asset and liability analysis includes expected cash flows from loans and mortgage-backed securities, applying prepayment rates based on the differential between the current interest rate and the market interest rate for each loan and security type. This analysis identifies mismatches in the timing of asset and liability cash flows but does not necessarily provide an accurate indicator of interest rate risk because the assumptions used in the analysis may not reflect the actual response to market changes.
Quantitative Analysis.The table below sets forth, as of December 31, 2015, the estimated changes in our NPV and our net interest income that would result from the designated changes in interest rates. Such changes to interest rates are calculated as an immediate and permanent change for the purposes of computing NPV and a gradual change over a one year period for the purposes of computing net interest income. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not

65

be relied upon as indicative of actual results. The following table reflects management's expectations of the changes in NPV or net interest income for an interest rate decrease of 100 basis points or increase of 200 basis points.
 
 
 
Net Portfolio Value (1) (2)
 
Net Interest Income (3)
Change in
Interest Rates
(basis points)
 
Estimated
NPV
 
Estimated Increase (Decrease)
 
Estimated  Net
Interest
Income
 
Estimated Increase (Decrease)
Amount
 
Percent
 
Amount
 
Percent
 
 
(Dollars in thousands)
+ 200bp
 
$
3,996,076

 
 
(381,238
)
 
(8.7
)%
 
$
552,036

 
(42,294
)
 
(7.1
)%
0bp
 
$
4,377,314

 
 
—

 
—

 
$
594,330

 
—

 
—

-100bp
 
$
4,226,036

 
 
(151,278
)
 
(3.5
)%
 
$
596,590

 
2,260

 
0.4
 %
(1)
Assumes an instantaneous and parallel shift in interest rates at all maturities.
(2)
NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3)
Assumes a gradual change in interest rates over a one year period at all maturities.
The table set forth above indicates at December 31, 2015, in the event of a 200 basis points increase in interest rates, we would be expected to experience a 8.7% decrease in NPV and a $42.3 million, or 7.1%, decrease in net interest income. In the event of a 100 basis points decrease in interest rates, we would be expected to experience a 3.5% decrease in NPV and a $2.3 million, or 0.4% increase in net interest income. These data do not reflect any future actions we may take in response to changes in interest rates, such as changing the mix of our assets and liabilities, which could change the results of the NPV and net interest income calculations. As mentioned above, we retain two nationally recognized firms to compute our quarterly interest rate risk reports. Certain shortcomings are inherent in any methodology used in the above interest rate risk measurements. Modeling changes in NPV and net interest income require certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The NPV and net interest income table presented above assumes no growth and that the composition of our interest rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions we may take in response to changes in interest rates. The table also assumes a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing characteristics of specific assets and liabilities. Accordingly, although the NPV and net interest income table provide an indication of our sensitivity to interest rate changes at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effects of changes in market interest rates on our NPV and net interest income.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of liquidity consist of deposit inflows, loan and security repayments and maturities and borrowings from the FHLB and others. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. From time to time we may evaluate the sale of securities as a possible liquidity source. Our Asset Liability Committee is responsible for establishing and monitoring our liquidity targets and strategies to ensure that sufficient liquidity exists for meeting the borrowing needs of our customers as well as unanticipated contingencies.
We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term securities.
Our primary source of funds is cash provided by principal and interest payments on loans and securities. Principal repayments on loans for the years ended December 31, 2015, 2014 and 2013 were $2.95 billion, $2.14 billion and $2.75 billion, respectively. Principal repayments on securities for the years ended December 31, 2015, 2014 and 2013were $515.7 million, $354.6 million and $385.5 million, respectively. There were sales of securities during years ended December 31, 2015, 2014 and 2013 of $37.5 million, $73.3 million and $426.1 million, respectively. In connection with the second step conversion in 2014, the Company raised net proceeds of $2.15 billion and used approximately half of the proceeds to pay down maturing, short term borrowings.
    
In addition to cash provided by principal and interest payments on loans and securities, our other sources of funds include cash provided by operating activities, deposits and borrowings. Net cash provided by operating activities for the years ended December 31, 2015, 2014 and 2013 totaled $533.1 million, $277.4 million and $176.1 million, respectively. For the year ended

66

December 31, 2015, deposits increased $1.89 billion. For the year ended December 31, 2014, excluding the deposits from the Gateway Financial acquisition, total deposits increased by $1.20 billion. For the year ended December 31, 2013, excluding the deposits from the Roma acquisition, total deposits increased by $608.8 million. Deposit flows are affected by the overall level of market interest rates, the interest rates and products offered by us and our local competitors, and other factors.
For the year ended December 31, 2015 borrowed funds increased $497.0 million. Excluding borrowed funds assumed in the Gateway Financial acquisition, net borrowed funds decreased by $606.4 million for the year ended December 31, 2014. The Company used approximately half of the proceeds from its second step capital offering in May 2014 to pay down maturing, short-term borrowings. Excluding borrowed funds assumed in the Roma acquisition, net borrowed funds increased by $569.6 million for the year ended December 31, 2013. The increases in borrowings was largely due to new loan originations outpacing the deposit growth.
Our primary use of funds are for the origination and purchase of loans and the purchase of securities. During the years ended December 31, 2015, 2014 and 2013, we originated loans of $4.92 billion, $3.76 billion and $3.50 billion, respectively. During the year ended December 31, 2015 we purchased loans of $198.6 million. During the year ended December 31, 2014, excluding loans acquired in the acquisition of Gateway Financial, we purchased loans of $233.9 million. During the year ended December 31, 2013, excluding loans acquired in the acquisition of Roma, we purchased loans of $1.05 billion. During the year ended December 31, 2015 we purchased securities of $957.9 million. During the year ended December 31, 2014, excluding the securities acquired in the Gateway Financial acquisition, we purchased securities of $1.52 billion. During the year ended December 31, 2013, excluding the securities acquired in the Roma acquisition, we purchased securities of $508.4 million. In addition, we utilized $382.9 million, $13.5 million, $1.5 million during the years ended December 31, 2015, 2014 and 2013, respectively, to repurchase shares of our common stock under our stock repurchase plans.
At December 31, 2015, we had commitments to originate total commercial loans of $566.9 million. Additionally, we had commitments to originate residential loans of approximately $57.4 million, commitments to purchase residential loans of $82.7 million and unused home equity and overdraft lines of credit, and undisbursed business and constructions loans, totaling approximately $960.5 million. Certificates of deposit due within one year of December 31, 2015 totaled $2.59 billion, or 18.4% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including but not limited to other certificates of deposit and FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2015. We have the ability to attract and retain deposits by adjusting the interest rates offered.
Liquidity management is both a daily and long-term function of business management. Our most liquid assets are cash and cash equivalents. The levels of these assets depend upon our operating, financing, lending and investing activities during any given period. At December 31, 2015, cash and cash equivalents totaled $148.9 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $1.30 billion at December 31, 2015. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB and other financial institutions, which provide an additional source of funds. At December 31, 2015, the Company participated in the FHLB’s Overnight Advance program. This program allows members to borrow overnight up to their maximum borrowing capacity at the FHLB. At December 31, 2015, our borrowing capacity at the FHLB was $8.78 billion, of which the Company had outstanding borrowings of $3.12 billion and outstanding letters of credit of $1.83 billion. The overnight advances are priced at the federal funds rate plus a spread (generally between 20 and 30 basis points) and re-price daily. In addition, the Bank had an effective commitment for unsecured discretionary overnight borrowings with other institutions totaling $125 million, of which no balance was outstanding at December 31, 2015.
    
Investors Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2015, Investors Bank exceeded all regulatory capital requirements. Investors Bank is considered “well capitalized” under regulatory guidelines. See Item 1 Business “Supervision and Regulation — Federal Banking Regulation — Capital Requirements.”
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Off-Balance Sheet Arrangements. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of our commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval processes that we use for loans that we originate.
Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment.

67

The following table summarizes our significant fixed and determinable contractual obligations and other funding needs by payment date at December 31, 2015. The payment amounts represent those amounts due to the recipient and do not include any unamortized premiums or discounts or other similar carrying amount adjustments.
 
 
 
Payments Due by Period
Contractual Obligations
 
Less than
One Year
 
One to
Three Years
 
Three to
Five Years
 
More than
Five Years
 
Total
 
 
(In thousands)
Other borrowed funds
 
$
500,000

 
$
956,000

 
$
1,119,782

 
$
531,001

 
$
3,106,783

Repurchase agreements
 
—

 
156,307

 
—

 
—

 
156,307

Operating leases
 
20,310

 
57,833

 
47,756

 
90,134

 
216,033

Total
 
$
520,310

 
$
1,170,140

 
$
1,167,538

 
$
621,135

 
$
3,479,123

Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of Investors Bancorp, Inc. have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires all lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. Lessor accounting remains largely unchanged under the new guidance. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period, with early adoption permitted. A modified retrospective approach must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently assessing the impact that the guidance will have on the its financial condition and results of operations.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This amendment supersedes the guidance to classify equity securities with readily determinable fair values into different categories, requires equity securities to be measured at fair value with changes in the fair value recognized through net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The amendment requires public business entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The amendment requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. The amendment requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. The amendment reduces diversity in current practice by clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendment by means of a cumulative-effect adjustment as of the beginning of the fiscal year of adoption, with the exception of the amendment related to equity securities without readily determinable fair values, which should be applied prospectively to equity investments that exist as of the date of adoption. The Company intends to adopt the accounting standard during the first quarter of 2018, as required, and is currently evaluating the impact on its results of operations, financial position, and liquidity.
In September 2015, the FASB issued ASU 2015-16, “Business Combinations- Simplifying the Accounting for Measurement-Period Adjustments." Under the new rules, acquirers no longer have to retrospectively adjust provisional amounts included in acquisition-date financial statements, when final facts and circumstances are not known on the acquisition date, and later become known in the measurement period. Instead, adjustments that are made in a later period are to be reported in that period. However, acquirers must disclose the amount of adjustments to current period income relating to amounts that would have been recognized in previous periods if the adjustments were recognized as of the acquisition date. For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.

68

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” The ASU changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. According to the ASU’s Basis for Conclusions, debt issuance costs incurred before the associated funding is received should be reported on the balance sheet as deferred charges until that debt liability amount is recorded. For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.
In April 2015, the FASB issued ASU 2015-04, "Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets." The ASU gives an employer whose fiscal year-end does not coincide with a calendar month-end the ability, as a practical expedient, to measure defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end. The ASU also provides guidance on accounting for contributions to the plan and significant events that require a remeasurement that occur during the period between a month-end measurement date and the employer’s fiscal year-end. An entity should reflect the effects of those contributions or significant events in the measurement of the retirement benefit obligations and related plan assets. The ASU is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are in the scope of other standards. In April 2015, the FASB issued a proposed ASU to defer for one year the effective date of the new revenue standard. The requirements are effective for annual periods and interim periods within fiscal years beginning after December 15, 2017. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For information regarding market risk see Item 7- “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements are included in Part IV, Item 15 of this Form 10-K.

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.

ITEM 9A.
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
With the participation of management, the Principal Executive Officer and Principal Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2015. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of that date, the Company’s disclosure controls and procedures are effective
(b) Changes in internal controls.
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(c) Management's report on internal control over financial reporting.
The management of Investors Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Investors Bancorp’s internal control system is a process designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

69

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of Investors Bancorp; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Investors Bancorp’s assets that could have a material effect on our financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Investors Bancorp’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on our assessment we believe that, as of December 31, 2015, the Company’s internal control over financial reporting is effective based on those criteria.
Investors Bancorp’s independent registered public accounting firm that audited the consolidated financial statements has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. This report appears on page 76.
The Sarbanes-Oxley Act Section 302 Certifications have been filed with the SEC as exhibit 31.1 and exhibit 31.2 to this Annual Report on Form 10-K.

ITEM 9B.
OTHER INFORMATION
Not Applicable.

Part III


ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding directors, executive officers and corporate governance of the Company is incorporated herein by reference in the Company’s definitive Proxy Statement to be filed with respect to the Annual Meeting of Stockholders to be held on May 24, 2016.

ITEM 11.
EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by reference in the Company’s definitive Proxy Statement to be filed with respect to the Annual Meeting of Stockholders to be held on May 24, 2016.

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference in the Company’s definitive Proxy Statement to be filed with respect to the Annual Meeting of Stockholders to be held on May 24, 2016. Information regarding equity compensation plans is incorporated here in by reference in the Company’s definitive Proxy Statement to be filed with respect to the Annual Meeting of Stockholders to be held on May 24, 2016.

ITEM 13.
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information regarding certain relationships and related transactions, and director independence is incorporated herein by reference in the Company’s definitive Proxy Statement to be filed with respect to the Annual Meeting of Stockholders to be held on May 24, 2016.

ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accounting fees and services is incorporated herein by reference in Investors Bancorp’s definitive Proxy Statement to be filed with respect to the Annual Meeting of Stockholders to be held on May 24, 2016.

70



Part IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) Financial Statements






71




Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Investors Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of Investors Bancorp, Inc. and subsidiaries (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Investors Bancorp, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 29, 2016 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Short Hills, New Jersey
February 29, 2016

72


Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Investors Bancorp, Inc.:
We have audited Investors Bancorp, Inc.'s (the Company) internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Investors Bancorp, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Investors Bancorp, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015, and our report dated February 29, 2016 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Short Hills, New Jersey
February 29, 2016



73

INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
 
 
December 31,
2015
 
December 31,
2014
 
(In thousands except share data)
ASSETS
 
 
 
Cash and cash equivalents
$
148,904

 
230,961

Securities available-for-sale, at estimated fair value
1,304,697

 
1,197,924

Securities held-to-maturity, net (estimated fair value of $1,888,686 and $1,609,365 at December 31, 2015 and 2014, respectively)
1,844,223

 
1,564,479

Loans receivable, net
16,661,133

 
14,887,570

Loans held-for-sale
7,431

 
6,868

Stock in the Federal Home Loan Bank
178,437

 
151,287

Accrued interest receivable
58,563

 
55,267

Other real estate owned
6,283

 
7,839

Office properties and equipment, net
172,519

 
160,899

Net deferred tax asset
237,367

 
231,898

Bank owned life insurance
159,152

 
161,609

Goodwill and Intangible assets
105,311

 
106,705

Other assets
4,664

 
10,333

Total assets
$
20,888,684

 
18,773,639

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities:
 
 
 
Deposits
$
14,063,656

 
12,172,326

Borrowed funds
3,263,090

 
2,766,104

Advance payments by borrowers for taxes and insurance
108,721

 
69,893

Other liabilities
141,570

 
187,461

Total liabilities
17,577,037

 
15,195,784

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value, 100,000,000 authorized shares; none issued
—

 
—

Common stock, $0.01 par value, 1,000,000,000 shares authorized; 359,070,852 issued at December 31, 2015 and 2014; 334,894,181 and 358,012,895 outstanding at December 31, 2015 and 2014, respectively
3,591

 
3,591

Additional paid-in capital
2,785,503

 
2,864,406

Retained earnings
936,040

 
836,639

Treasury stock, at cost; 24,176,671and 1,057,957 shares at December 31, 2015 and 2014, respectively
(295,412
)
 
(11,131
)
Unallocated common stock held by the employee stock ownership plan
(90,250
)
 
(93,246
)
Accumulated other comprehensive loss
(27,825
)
 
(22,404
)
Total stockholders’ equity
3,311,647

 
3,577,855

Total liabilities and stockholders’ equity
$
20,888,684

 
18,773,639

See accompanying notes to consolidated financial statements.

74

INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
 
For the Years Ended December 31,
 
2015
 
2014
 
2013
 
(Dollars in thousands, except per share data)
Interest and dividend income:
 
 
 
 
 
Loans receivable and loans held-for-sale
$
663,424

 
603,438

 
504,622

Securities:
 
 
 
 

Equity
123

 
115

 
61

Government-sponsored enterprise obligations
45

 
46

 
9

Mortgage-backed securities
55,096

 
44,183

 
28,057

Municipal bonds and other debt
5,929

 
5,667

 
5,873

Interest-bearing deposits
225

 
552

 
49

Federal Home Loan Bank stock
6,881

 
6,861

 
6,397

Total interest and dividend income
731,723

 
660,862

 
545,068

Interest expense:
 
 
 
 

Deposits
71,414

 
59,206

 
49,969

Borrowed Funds
65,225

 
59,685

 
59,673

Total interest expense
136,639

 
118,891

 
109,642

Net interest income
595,084

 
541,971

 
435,426

Provision for loan losses
26,000

 
37,500

 
50,500

Net interest income after provision for loan losses
569,084

 
504,471

 
384,926

Non-interest income
 
 
 
 

Fees and service charges
17,119

 
19,399

 
18,804

Income on bank owned life insurance
3,948

 
4,652

 
2,898

Gain on loans, net
7,786

 
5,257

 
8,748

Gain on securities transactions, net
1,036

 
1,546

 
772

Impairment losses on investment securities:
 
 
 
 
 
Impairment losses on investment securities
—

 
—

 
(939
)
Non-credit related gains recognized in comprehensive income
—

 
—

 
(38
)
Net impairment losses on investment securities recognized in earnings
—

 
—

 
(977
)
Gain on sale of other real estate owned, net
1,631

 
809

 
1,451

Other income
8,605

 
10,198

 
4,875

Total non-interest income
40,125

 
41,861

 
36,571

Non-interest expense
 
 
 
 

Compensation and fringe benefits
186,320

 
172,068

 
128,765

Advertising and promotional expense
10,988

 
12,238

 
8,602

Office occupancy and equipment expense
50,865

 
49,668

 
39,226

Federal deposit insurance premiums
9,050

 
14,390

 
14,950

Stationery, printing, supplies and telephone
4,372

 
4,238

 
3,395

Professional fees
16,104

 
14,672

 
11,154

Data processing service fees
22,366

 
25,333

 
19,844

Contribution to charitable foundation
—

 
20,000

 
—

Other operating expenses
28,267

 
27,253

 
19,775

Total non-interest expenses
328,332

 
339,860

 
245,711


75

Income before income tax expense
280,877

 
206,472

 
175,786

Income tax expense
99,372

 
74,751

 
63,755

Net income
$
181,505

 
131,721

 
112,031

Basic and Diluted earnings per share
$
0.55

 
0.38

 
0.40

Weighted average shares outstanding
 
 
 
 
 
Basic
329,763,527

 
344,389,259

 
279,632,558

Diluted
332,933,448

 
347,731,571

 
283,035,844

See accompanying notes to consolidated financial statements.


76

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

 
 
For the Years Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Net income
$
181,505

 
131,721

 
112,031

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
Change in funded status of retirement obligations
(1,455
)
 
(5,042
)
 
10

Unrealized (loss) gain on securities available-for-sale
(4,933
)
 
5,952

 
(12,827
)
Net loss on securities reclassified from available for sale to held to maturity
—

 
—

 
(7,242
)
Accretion of loss on securities reclassified to held to maturity
1,448

 
1,726

 
988

Unrealized gain on security reclassified from held-to-maturity to available for sale
—

 
—

 
138

Reclassification adjustment for security gains included in net income
(1,547
)
 
(138
)
 
(405
)
Noncredit related component of other-than-temporary impairment on security
—

 
—

 
22

Other-than-temporary impairment accretion on debt securities
1,066

 
794

 
1,227

Total other comprehensive (loss) income
(5,421
)
 
3,292

 
(18,089
)
Total comprehensive income
$
176,084

 
135,013

 
93,942



See accompanying notes to consolidated financial statements.

77

INVESTORS BANCORP, INC. & SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Year ended December 31, 2015, 2014 and 2013
 
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 except share data)
Balance at December 31, 2012
$
1,356

 
533,034

 
644,923

 
(73,692
)
 
(31,197
)
 
(7,607
)
 
1,066,817

Net income
—

 
—

 
112,031

 
—

 
—

 
—

 
112,031

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
(18,089
)
 
(18,089
)
Common stock issues to finance acquisition
163

 
179,008

 
—

 
—

 
—

 
—

 
179,171

Purchase of treasury stock (212,221 shares)
—

 
—

 
—

 
(1,531
)
 
—

 
—

 
(1,531
)
Treasury stock allocated to restricted stock plan
—

 
(55
)
 
13

 
42

 
—

 
—

 
—

Compensation cost for stock options and restricted stock
—

 
3,478

 
—

 
—

 
—

 
—

 
3,478

Net tax benefit from stock-based compensation
—

 
1,262

 
—

 
—

 
—

 
—

 
1,262

Option Exercise
—

 
2,502

 
—

 
8,135

 
—

 
—

 
10,637

Cash dividend paid ($0.08 per common share)
—

 
—

 
(22,404
)
 
—

 
—

 
—

 
(22,404
)
ESOP shares allocated or committed to be released
—

 
1,537

 
—

 
—

 
1,418

 
—

 
2,955

Balance at December 31, 2013
1,519

 
720,766

 
734,563

 
(67,046
)
 
(29,779
)
 
(25,696
)
 
1,334,327

Net income
—

 
—

 
131,721

 
—

 
—

 
—

 
131,721

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
—

 
3,292

 
3,292

Corporate Reorganization


 


 


 


 


 


 


Conversion of Investors Bancorp, MHC (213,963,274 shares)
2,140

 
2,091,579

 
—    

 
—    

 
—    

 
—

 
2,093,719

Purchase by ESOP (6,617,421 shares)
66

 
66,108

 
—    

 
—    

 
(66,174
)
 
—

 
—

Treasury stock retired (14,293,439 shares)
(143
)
 
(64,126
)
 
—    

 
64,269

 
—    

 
—

 
—

Contribution of MHC
—

 
—    

 
12,652

 
—

 
—

 
—

 
12,652

Equity from Gateway acquisition
—    

 
22,000

 
—

 
—    

 
—

 
—

 
22,000

Purchase of treasury stock (1,295,193 shares)
—

 
—

 
—

 
(13,523
)
 
—

 
—

 
(13,523
)
Treasury stock allocated to restricted stock plan
—

 
(390
)
 
258

 
132

 
—

 
—

 
—

Compensation cost for stock options and restricted stock
—

 
13,701

 
—

 
—

 
—

 
—

 
13,701

Net tax benefit from stock-based compensation
—

 
3,710

 
—

 
—

 
—

 
—

 
3,710

Option exercise
9

 
8,764

 
—

 
5,037

 
—

 
—

 
13,810

Cash dividend paid ($0.12 per common share)
—

 
—

 
(42,555
)
 
—

 
—

 
—

 
(42,555
)

78

ESOP shares allocated or committed to be released
—

 
2,294

 
—

 
—

 
2,707

 
—

 
5,001

Balance at December 31, 2014
3,591

 
2,864,406

 
836,639

 
(11,131
)
 
(93,246
)
 
(22,404
)
 
3,577,855

Net income
—

 
—

 
181,505

 
—

 
—

 
—

 
181,505

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
(5,421
)
 
(5,421
)
Purchase of treasury stock (31,576,421 shares)
—

 
—

 
—

 
(382,922
)
 
—

 
—

 
(382,922
)
Treasury stock allocated to restricted stock plan (6,849,832 shares)
—

 
(85,897
)
 
5,472

 
80,425

 
—

 
—

 
—

Compensation cost for stock options and restricted stock
—

 
9,220

 
—

 
—

 
—

 
—

 
9,220

Net tax benefit from stock-based compensation
—

 
2,985

 
—

 
—

 
—

 
—

 
2,985

Option exercise
—

 
(9,045
)
 
—

 
19,164

 
—

 
—

 
10,119

Common stock repurchased for restricted stock plan (90,000 shares)

 
 
1,129

 
(181
)
 
(948
)
 
 
 
 
 
 
Cash dividend paid ($0.25 per common share)
—

 
—

 
(87,395
)
 
—

 
—

 
—

 
(87,395
)
ESOP shares allocated or committed to be released
—

 
2,705

 
—

 
—

 
2,996

 
—

 
5,701

Balance at December 31, 2015
$
3,591

 
2,785,503

 
936,040

 
(295,412
)
 
(90,250
)
 
(27,825
)
 
3,311,647

 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements

79

INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
 
 
For the Years Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Cash flows from operating activities:
 
 
 
 
 
Net income
$
181,505

 
131,721

 
112,031

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Contribution of stock to charitable foundation
—

 
10,000

 
—

ESOP and stock-based compensation expense
14,921

 
18,702

 
6,433

Amortization of premiums and accretion of discounts on securities, net
13,943

 
10,173

 
9,735

Amortization of premiums and accretion of fees and costs on loans, net
(10,122
)
 
(1,794
)
 
10,517

Amortization of intangible assets
3,350

 
3,806

 
2,115

Provision for loan losses
26,000

 
37,500

 
50,500

Depreciation and amortization of office properties and equipment
13,930

 
13,151

 
8,540

Gain on securities, net
(1,036
)
 
(1,546
)
 
(772
)
Other-than-temporary impairment losses on securities
—

 
—

 
977

Mortgage loans originated for sale
(238,608
)
 
(150,099
)
 
(379,806
)
Proceeds from mortgage loan sales
590,636

 
186,747

 
405,973

Gain on sales of mortgage loans, net
(5,258
)
 
(2,832
)
 
(6,207
)
Gain on sale of other real estate owned
(1,631
)
 
(809
)
 
(1,451
)
Gain on bargain purchase of acquisitions
—

 
(1,482
)
 
—

Income on bank owned life insurance
(3,948
)
 
(4,652
)
 
(2,898
)
(Increase) decrease in accrued interest receivable
(3,296
)
 
(7,100
)
 
1,496

Deferred tax benefit
(3,180
)
 
(9,786
)
 
(20,818
)
Decrease (increase) in other assets
4,245

 
4,425

 
(6,741
)
(Decrease) increase in other liabilities
(48,317
)
 
41,263

 
(13,530
)
Total adjustments
351,629

 
145,667

 
64,063

Net cash provided by operating activities
533,134

 
277,388

 
176,094

Cash flows from investing activities:
 
 
 
 
 
Purchases of loans receivable
(198,623
)
 
(233,856
)
 
(1,054,395
)
Net originations of loans receivable
(1,990,008
)
 
(1,650,629
)
 
(778,049
)
Proceeds from sale of loans held for investment
49,938

 
2,425

 
184,668

Gain on disposition of loans held for investment
(2,528
)
 
(2,425
)
 
(2,541
)
Net proceeds from sale of foreclosed real estate
7,104

 
7,614

 
10,833

Purchases of mortgage-backed securities held to maturity
(526,095
)
 
(909,421
)
 
(202,821
)
Purchases of debt securities held-to-maturity
(56,242
)
 
(20,835
)
 
(9,729
)
Purchases of mortgage-backed securities available-for-sale
(375,605
)
 
(587,952
)
 
(295,897
)
Proceeds from paydowns/maturities on mortgage-backed securities held-to-maturity
260,039

 
167,886

 
80,438

Proceeds from paydowns on equity securities available for sale
2,954

 
430

 
148

Proceeds from paydowns/maturities on debt securities held-to-maturity
28

 
12,596

 
20,159


80

Proceeds from calls/maturities on debt securities held-to-maturity
2,977

 
—

 
—

Proceeds from paydowns/maturities on mortgage-backed securities available-for-sale
249,729

 
173,661

 
284,726

Proceeds from sales of mortgage-backed securities held-to-maturity
—

 
19,177

 
—

Proceeds from sales of mortgage-backed securities available-for-sale
—

 
37,682

 
401,573

Proceeds from maturity of US Government and Agency Obligations available-for-sale
—

 
3,000

 
—

Proceeds from maturities of Municipal Bonds
37,505

 
—

 
—

Proceeds from sale of equity securities available for sale
—

 
13,411

 
24,540

Redemption of equity securities available-for-sale
—

 
164

 
108

Proceeds from redemptions of Federal Home Loan Bank stock
157,342

 
143,707

 
143,081

Purchases of Federal Home Loan Bank stock
(184,492
)
 
(116,403
)
 
(161,866
)
Purchases of office properties and equipment
(25,550
)
 
(31,655
)
 
(24,544
)
Death benefit proceeds from bank owned life insurance
6,405

 
5,455

 
—

Cash received from MHC for merger
—

 
11,307

 
—

Cash received, net of cash consideration paid for acquisitions
—

 
17,917

 
118,246

Net cash used in investing activities
(2,585,122
)
 
(2,936,744
)
 
(1,261,322
)
Cash flows from financing activities:
 
 
 
 
 
Net increase in deposits
1,891,330

 
1,198,843

 
608,801

Net proceeds from sale of common stock
—

 
2,149,893

 
—

Loan to ESOP for purchase of common stock
—

 
(66,174
)
 
—

(Repayments) proceeds of funds borrowed under other repurchase agreements
(10,000
)
 
(98,205
)
 
143,205

Net increase (decrease) in other borrowings
506,986

 
(508,150
)
 
426,347

Net increase in advance payments by borrowers for taxes and insurance
38,828

 
1,979

 
14,447

Dividends paid
(87,395
)
 
(42,555
)
 
(22,404
)
Exercise of stock options
10,119

 
13,810

 
10,637

Purchase of treasury stock
(382,922
)
 
(13,523
)
 
(1,531
)
Net tax benefit from stock-based compensation
2,985

 
3,710

 
1,262

Net cash provided by financing activities
1,969,931

 
2,639,628

 
1,180,764

Net (decrease) increase in cash and cash equivalents
(82,057
)
 
(19,728
)
 
95,536

Cash and cash equivalents at beginning of period
230,961

 
250,689

 
155,153

Cash and cash equivalents at end of period
$
148,904

 
230,961

 
250,689

Supplemental cash flow information:
 
 
 
 
 
Non-cash investing activities:
 
 
 
 
 
Real estate acquired through foreclosure
4,448

 
6,404

 
4,512

Transfer of loans to loans held for sale
347,955

 
32,411

 
—

Cash paid during the year for:
 
 
 
 

    Interest
135,930

 
118,140

 
109,527

    Income taxes
88,169

 
85,796

 
83,918

Acquisitions:
 
 
 
 
 
Non-cash assets acquired:
 
 
 
 
 
Investment securities available for sale
$
—

 
50,347

 
381,950


81

Loans
—

 
195,062

 
990,970

Goodwill and other intangible assets, net
—

 
1,853

 
9,782

Other assets
—

 
21,343

 
78,527

Total non-cash assets acquired
—

 
268,605

 
1,461,229

Liabilities assumed:
 
 
 
 
 
Deposits
—

 
254,672

 
1,341,153

Borrowings
—

 
5,185

 
92,070

Other liabilities
—

 
3,184

 
20,509

Total liabilities assumed
—

 
263,041

 
1,453,732

Net non-cash assets acquired
—

 
5,564

 
7,497

Common stock issued for acquisitions
—

 
—

 
179,171

See accompanying notes to consolidated financial statements.

82

INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
 
1. Summary of Significant Accounting Policies
The following significant accounting and reporting policies of Investors Bancorp, Inc. and subsidiaries (collectively, the Company) conform to U.S. generally accepted accounting principles (GAAP), and are used in preparing and presenting these consolidated financial statements.
 
(a)
Basis of Presentation    
The consolidated financial statements are composed of the accounts of Investors Bancorp, Inc. and its wholly owned subsidiaries, including Investors Bank (Bank). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications. 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 periods presented have been included. The results of operations and other data presented for the years ended December 31, 2015, 2014 and 2013 are not necessarily indicative of the results of operations that may be expected for subsequent years.
In January 1997, the Bank completed a Plan of Mutual Holding Company Reorganization, utilizing the multi-tier mutual holding company structure. In a series of steps, the Bank formed a Delaware-chartered stock corporation (Investors Bancorp, Inc.) which owned 100% of the common stock of the Bank and formed a New Jersey-chartered mutual holding company (Investors Bancorp, MHC) which initially owned all of the common stock of Investors Bancorp, Inc. On October 11, 2005, Investors Bancorp, Inc. completed an initial public stock offering. See Note 2.
On May 7, 2014, Investors Bancorp, MHC, Investors Bancorp, Inc. and the Bank completed the Plan of Conversion and Reorganization of the Mutual Holding Company (the “Plan”) in which the Bank reorganized from a two-tier mutual holding company structure to a fully public stock holding company structure. The Company raised net proceeds of $2.15 billion by selling a total of 219,580,695 shares of common stock at $10.00 per share in the second step stock offering and issued 1,000,000 shares of common stock to the Investors Charitable Foundation. Concurrent with the completion of the stock offering, each share of Old Investors Bancorp common stock owned by public stockholders (stockholders other than Investors Bancorp, MHC) was exchanged for 2.55 shares of Company common stock. A total of 137,560,968 shares of Company common stock were issued in the exchange. The conversion was accounted for as a capital raising transaction by entities under common control. The historical financial results of Investors Bancorp, MHC are immaterial to the results of the Company and therefore upon completion of the conversion, the net assets of Investors Bancorp, MHC were merged into the Company and are reflected as an increase to stockholders' equity. In addition, the second step conversion resulted in the accelerated vesting of all outstanding stock awards as of the conversion date. The withholding of shares for payment of taxes with respect to these awards resulted in treasury stock of 1,101,694 shares. As a result of the conversion, all share information has been revised to reflect the 2.55- to- one exchange ratio. Financial information presented in this Form 10-K is derived in part from the consolidated financial statements of Old Investors Bancorp and subsidiaries. See Note 2.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The estimate of our allowance for loan losses, the valuation of mortgage servicing rights (MSR), the valuation of deferred tax assets, impairment judgments regarding goodwill, and fair value and impairment of securities are particularly critical because they involve a higher degree of complexity and subjectivity and require estimates and assumptions about highly uncertain matters. Actual results may differ from our estimates and assumptions. The current economic environment has increased the degree of uncertainty inherent in these material estimates.
Business
Investors Bancorp, Inc.’s primary business is holding the common stock of the Bank and a loan to the Investors Bank Employee Stock Ownership Plan. The Bank provides banking services to customers primarily through branch offices in New Jersey and New York. The Bank is subject to competition from other financial institutions and is subject to the regulations of certain federal and state regulatory authorities and undergoes periodic examinations by those regulatory authorities.
 
(b)
Cash Equivalents
Cash equivalents consist of cash on hand, amounts due from banks and interest-bearing deposits in other financial institutions. The Company is required by the Federal Reserve System to maintain cash reserves equal to a percentage of certain deposits. The reserve requirement totaled $43.4 million at December 31, 2015 and $39.1 million at December 31, 2014.


83

 
(c)
Securities
Securities include securities held-to-maturity and securities available-for-sale. Management determines the appropriate classification of securities at the time of purchase. If management has the positive intent not to sell and the Company would not be required to sell prior to maturity, they are classified as held-to-maturity securities. Such securities are stated at amortized cost, adjusted for unamortized purchase premiums and discounts. Securities in the available-for-sale category are debt and mortgage-backed securities which the Company may sell prior to maturity, and all marketable equity securities. Available-for-sale securities are reported at fair value with any unrealized appreciation or depreciation, net of tax effects, reported as accumulated other comprehensive income/loss in stockholders’ equity. Discounts and premiums on securities are accreted or amortized using the level-yield method over the estimated lives of the securities, including the effect of prepayments. Realized gains and losses are recognized when securities are sold or called using the specific identification method.
The Company periodically evaluates the security portfolio for other-than-temporary impairment. Other-than-temporary impairment means the Company believes the security’s impairment is due to factors that could include its inability to pay interest or dividends, its potential for default, and/or other factors. In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 320, “Investments — Debt and Equity Securities”, when a held to maturity or available for sale debt security is assessed for other-than-temporary impairment, the Company has to first consider (a) whether it intends to sell the security, and (b) whether it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis. If one of these circumstances applies to a security, an other-than-temporary impairment loss is recognized in the statement of income equal to the full amount of the decline in fair value below amortized cost. If neither of these circumstances applies to a security, but the Company does not expect to recover the entire amortized cost basis, an other-than-temporary impairment loss has occurred that must be separated into two categories: (a) the amount related to credit loss, and (b) the amount related to other factors. In assessing the level of other-than-temporary impairment attributable to credit loss, the Company compares the present value of cash flows expected to be collected with the amortized cost basis of the security. The portion of the total other-than-temporary impairment related to credit loss is recognized in earnings, while the amount related to other factors is recognized in other comprehensive income. The total other-than-temporary impairment loss is presented in the statement of income, less the portion recognized in other comprehensive income. When a debt security becomes other-than-temporarily impaired, its amortized cost basis is reduced to reflect the portion of the total impairment related to credit loss.
To determine whether a security’s impairment is other-than-temporary, the Company considers factors that include, the duration and severity of the impairment; the Company’s ability and intent to hold security investments until they recover in value (as well as the likelihood of such a recovery in the near term); the Company’s intent to sell security investments; and whether it is more likely than not that the Company will be required to sell such securities before recovery of their individual amortized cost basis less any current-period credit loss. For debt securities, the primary consideration in determining whether impairment is other-than-temporary is whether or not it is probable that current or future contractual cash flows have been or may be impaired.
 
(d)
Loans Receivable, Net
Loans receivable, other than loans held-for-sale, are stated at unpaid principal balance, adjusted by unamortized premiums and unearned discounts, net deferred origination fees and costs, net purchase accounting adjustments and the allowance for loan losses. Interest income on loans is accrued and credited to income as earned. Premiums and discounts on purchased loans and net loan origination fees and costs are deferred and amortized to interest income over the estimated life of the loan as an adjustment to yield.
The allowance for loan losses is increased by the provision for loan losses charged to earnings and is decreased by charge-offs, net of recoveries. The provision for loan losses is based on management’s evaluation of the adequacy of the allowance which considers, among other things, the Company’s past loan loss experience (using the appropriate look-back and loss emergence periods), known and inherent risks in the portfolio, existing adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and current economic conditions. While management uses available information to recognize estimated losses on loans, future additions may be necessary based on changes in economic or other conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based upon their judgments and information available to them at the time of their examinations.
A loan is considered delinquent when we have not received a payment within 30 days of its contractual due date. The accrual of income on loans is discontinued when interest or principal payments are 90 days in arrears or when the timely collection of such income is doubtful. Loans on which the accrual of income has been discontinued are designated as non-accrual loans and outstanding interest previously credited is reversed. Interest income on non-accrual loans and impaired loans is recognized in the period collected unless the ultimate collection of principal is considered doubtful. A loan is returned to accrual status when all amounts due have been received and the remaining principal is deemed collectible. Loans are generally charged off after an analysis is completed which indicates that collectability of the full principal balance is in doubt.

84

The Company defines an impaired loan as a loan for which it is probable, based on current information, that the lender will not collect all amounts due under the contractual terms of the loan agreement. The Company evaluates commercial loans with an outstanding balance greater than $1.0 million and on non-accrual status, loans modified in a troubled debt restructuring (“TDR”), and other loans over $1.0 million outstanding balance if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement for impairment. Impaired loans are individually evaluated to determine that the loan’s carrying value is not in excess of the fair value of the collateral or the present value of the expected future cash flows. Smaller balance homogeneous loans are evaluated for impairment collectively unless they are modified in a trouble debt restructure. Such loans include residential mortgage loans, consumer loans, and loans not meeting the Company’s definition of impaired, and are specifically excluded from impaired loans.
Purchased Credit-Impaired ("PCI") loans, are loans acquired at a discount that is due, in part, to credit quality. PCI loans are accounted for in accordance with ASC Subtopic 310-30 and are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (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 result in an increase in yield on a prospective basis.
 
(e)
Loans Held-for-Sale
Loans held-for-sale are carried at the lower of cost or estimated fair value, as determined on an aggregate basis. Net unrealized losses, if any, are recognized in a valuation allowance through charges to earnings. Premiums and discounts and origination fees and costs on loans held-for-sale are deferred and recognized as a component of the gain or loss on sale. Gains and losses on sales of loans held-for-sale are recognized on settlement dates and are determined by the difference between the sale proceeds and the carrying value of the loans. These transactions are accounted for as sales based on our satisfaction of the criteria for such accounting which provide that, as transferor, we have surrendered control over the loans.

(f)
Stock in the Federal Home Loan Bank
The Bank, as a member of the Federal Home Loan Bank of New York (FHLB), is required to hold shares of capital stock of the FHLB based on our activities, primarily our outstanding borrowings, with the FHLB. The stock is carried at cost, less any impairment.
 
(g)
Office Properties and Equipment, Net
Land is carried at cost. Office buildings, leasehold improvements and furniture, fixtures and equipment are carried at cost, less accumulated depreciation and amortization. Office buildings and furniture, fixtures and equipment are depreciated using an accelerated basis over the estimated useful lives of the respective assets. Leasehold improvements are amortized using the straight-line method over the terms of the respective leases or the lives of the assets, whichever is shorter.
 
(h)
Bank Owned Life Insurance
Bank owned life insurance is carried at the amount that could be realized under the Company’s life insurance contracts as of the date of the consolidated balance sheets and is classified as a non-interest earning asset. Increases in the carrying value are recorded as non-interest income in the consolidated statements of income and insurance proceeds received are generally recorded as a reduction of the carrying value. The carrying value consists of cash surrender value of $152.5 million at December 31, 2015 and $155.8 million at December 31, 2014 and a claims stabilization reserve of $6.6 million at December 31, 2015 and $5.8 million at December 31, 2014. Repayment of the claims stabilization reserve (funds transferred from the cash surrender value to provide for future death benefit payments) and the deferred acquisition costs (costs incurred by the insurance carrier for the policy issuance) is guaranteed by the insurance carrier provided that certain conditions are met at the date of a contract is surrendered. The Company satisfied these conditions at December 31, 2015 and 2014.
 
(i)
Intangible Assets
Goodwill. Goodwill is presumed to have an indefinite useful life and is tested, at least annually, for impairment at the reporting unit level. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. For purposes of our goodwill impairment testing, we have identified the Bank as a single reporting unit.

85

At December 31, 2015, the carrying amount of our goodwill totaled $77.6 million. In connection with our annual impairment assessment we applied the guidance in FASB Accounting Standards Update (“ASU”) 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. For the year ended December 31, 2015, the Company’s qualitative assessment concluded that it was not more likely than not that the fair value of the reporting unit is less than its carrying amount and, therefore, the two-step goodwill impairment test was not required.
Mortgage Servicing Rights. The Company recognizes as separate assets the rights to service mortgage loans. The right to service loans for others is generally obtained through the sale of loans with servicing retained. The initial asset recognized for originated mortgage servicing rights (“MSR”) is measured at fair value. The fair value of MSR is estimated by reference to current market values of similar loans sold with servicing released. MSR are amortized in proportion to and over the period of estimated net servicing income. We apply the amortization method for measurements of our MSR. MSR are assessed for impairment based on fair value at each reporting date. MSR impairment, if any, is recognized in a valuation allowance through charges to earnings as a component of fees and service charges. Increases in the fair value of impaired MSR are recognized only up to the amount of the previously recognized valuation allowance. Fees earned for servicing loans are reported as income when the related mortgage loan payments are collected.
Core Deposit Premiums. Core deposit premiums represent the intangible value of depositor relationships assumed in purchase acquisitions and are amortized on an accelerated basis over 10 years. The Company periodically evaluates the value of core deposit premiums to ensure the carrying amount exceeds it implied fair value.
 
(j)
Other Real Estate Owned
Real estate owned (REO) consists of properties acquired through foreclosure or deed in lieu of foreclosure. Such assets are carried at the lower of cost or fair value, less estimated selling costs, based on independent appraisals. Write-downs required at the time of acquisition are charged to the allowance for loan losses. Thereafter, decreases in the properties’ estimated fair value which are charged to income along with any additional property maintenance and protection expenses incurred in owning the property.
 
(k)
Borrowed Funds
    Our FHLB borrowings, frequently referred to as advances, are over collateralized by our residential and non residential mortgage portfolios as well as qualified investment securities.
The Bank also enters into sales of securities under agreements to repurchase with selected brokers and the FHLB. The securities underlying the agreements are delivered to the counterparty who agrees to resell to the Bank the identical securities at the maturity or call of the agreement. These agreements are recorded as financing transactions, as the Bank maintains effective control over the transferred securities, and no gain or loss is recognized. The dollar amount of the securities underlying the agreements continues to be carried in the Bank’s securities portfolio. The obligations to repurchase the securities are reported as a liability in the consolidated balance sheets.
 
(l)
Income Taxes
The Company records income taxes in accordance with Accounting Standard 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. 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. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, where applicable, in income tax expense.
 
(m)
Employee Benefits
The Company has a defined benefit pension plan which covers all employees who satisfy the eligibility requirements. The Company participates in a multiemployer plan. Costs of the pension plan are based on the contributions required to be made to the plan.

86

The Company has two Supplemental Employee Retirement Plans (SERPs). The SERPs are a nonqualified, defined benefit plans which provide benefits to certain eligible employees of the Company whose benefits and/or contributions under the pension plan are limited by the Internal Revenue Code. The Company also has a nonqualified, defined benefit plan which provides benefits to its directors. The SERP and the directors’ plan are unfunded and the costs of the plans are recognized over the period that services are provided.
The Company has a 401(k) plan covering substantially all employees. The Company matches 50% of the first 6% contributed by participants and recognizes expense as its contributions are made.
The employee stock ownership plan (ESOP) is accounted for in accordance with the provisions of Statement ASC 718-40, “Employers’ Accounting for Employee Stock Ownership Plans.” The funds borrowed by the ESOP from the Company to purchase the Company’s common stock are being repaid from the Bank’s contributions over a period of up to 30 years. The Company’s common stock not yet allocated to participants is recorded as a reduction of stockholders’ equity at cost. Compensation expense for the ESOP is based on the market price of the Company’s stock and is recognized as shares are committed to be released to participants due to the repayment of the loan by the ESOP to the Company.
The Company recognizes 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”. The Company estimates the per share fair value of option grants on the date of grant using the Black-Scholes option pricing model using assumptions for the expected dividend yield, expected stock price volatility, risk-free interest rate and expected option term. These assumptions are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. The Black-Scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets.

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

(n)
Earnings Per Share
Basic earnings per common share, or EPS, are computed by dividing net income by the weighted-average common shares outstanding during the year. The weighted-average common shares outstanding includes the weighted-average number of shares of common stock outstanding less the weighted average number of unvested shares of restricted stock and unallocated shares held by the ESOP. For EPS calculations, ESOP shares that have been committed to be released are considered outstanding. ESOP shares that have not been committed to be released are excluded from outstanding shares on a weighted average basis for EPS calculations.
Diluted EPS is computed using the same method as basic EPS, but includes the effect of all potentially dilutive common shares that were outstanding during the period, such as unexercised stock options and unvested shares of restricted stock, calculated using the treasury stock method. When applying the treasury stock method, we add: (1) the assumed proceeds from option exercises; (2) the tax benefit that would have been credited to additional paid-in capital assuming exercise of non-qualified stock options and vesting of shares of restricted stock; and (3) the average unamortized compensation costs related to unvested shares of restricted stock and stock options. We then divide this sum by our average stock price to calculate shares repurchased. The excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted EPS.

2.     Stock Transactions
Stock Offering
Investors Bancorp, Inc. (the “Company”) is a Delaware corporation that was incorporated in December 2013 to be the successor to Investors Bancorp, Inc. (“Old Investors Bancorp”) upon completion of the mutual-to-stock conversion of Investors Bancorp, MHC, the top tier holding company of Old Investors Bancorp. Old Investors Bancorp completed its initial public stock offering on October 11, 2005 selling 131,649,089 shares, or 43.74% of its outstanding common stock, to subscribers in the offering, including 10,847,883 shares purchased by the ESOP. Upon completion of the initial public offering, Investors Bancorp, MHC, a New Jersey chartered mutual holding company held 165,353,151 shares, or 54.94% of the Company’s outstanding common stock (shares restated to include shares issued in a business combination subsequent to initial public offering). Additionally, the Company contributed $5.2 million in cash and issued 3,949,473 shares of common stock, or 1.32% of its outstanding shares, to Investors Bank Charitable Foundation resulting in a pre-tax expense charge of $20.7 million. Net proceeds from the initial offering were $509.7 million. The Company contributed $255.0 million of the net proceeds to the Bank.

87

In conjunction with the second step conversion, Investors Bancorp, MHC merged into Old Investors Bancorp (and ceased to exist), and Old Investors Bancorp merged into the Company and the Company became its successor under the name Investors Bancorp, Inc. The second step conversion was completed May 7, 2014. The Company raised net proceeds of $2.15 billion by selling a total of 219,580,695 shares of common stock at $10.00 per share in the second step stock offering and issued 1,000,000 shares of common stock to the Investors Charitable Foundation. Concurrent with the completion of the stock offering, each share of Old Investors Bancorp common stock owned by public stockholders (stockholders other than Investors Bancorp, MHC) was exchanged for 2.55 shares of Company common stock. A total of 137,560,968 shares of Company common stock were issued in the exchange. The conversion was accounted for as a capital raising transaction by entities under common control. The historical financial results of Investors Bancorp, MHC are immaterial to the results of the Company and therefore upon completion of the conversion, the net assets of Investors Bancorp, MHC were merged into the Company and are reflected as an increase to stockholders' equity. In addition, the second step conversion resulted in the accelerated vesting of all outstanding stock awards as of the conversion date. The withholding of shares for payment of taxes with respect to these awards resulted in treasury stock of 1,101,694 shares.
Stock Repurchase Programs
On March 1, 2011, the Company announced its fourth Share Repurchase Program, which authorized the purchase of an additional 10% of its publicly-held outstanding shares of common stock, or 9,885,133 shares. Under the stock repurchase programs, shares of the Company’s common stock could be purchased in the open market and through privately negotiated transactions, from time to time, depending on market conditions. This stock repurchase program commenced upon the completion of the third program on July 25, 2011. In connection with the second step conversion completed on May 7, 2014, the existing stock repurchase plan was terminated. Under applicable federal regulations, the Company was not permitted to implement a stock repurchase program during the first year following completion of the second-step conversion without prior notice to, and the receipt of a non-objection from, the Federal Reserve Board.
On March 16, 2015, the Company announced it had received approval from the Board of Governors of the Federal Reserve System to commence a 5% buyback program prior to the one-year anniversary of the completion of its second step conversion. Accordingly, the Board of Directors authorized the repurchase of 17,911,561 shares.
On June 9, 2015, the Company announced its second share repurchase program, which authorized the purchase of an additional 10% of its publicly-held outstanding shares of common stock, or approximately 34,779,211 shares. The new repurchase program commenced immediately upon completion of the first repurchase plan on June 30, 2015.
During the year ended December 31, 2015, the Company purchased 31,576,421 shares at a cost of $382.9 million, or approximately $12.13 per share.
During the year ended December 31, 2014, prior to the second step conversion, the Company purchased 1,295,193 shares at a cost of $13.5 million, or approximately $10.44 per share. The second step conversion on May 7, 2014 resulted in the accelerated vesting of all outstanding stock awards. The withholding of shares for payments of taxes with respect to these awards resulted in the purchase of 1,101,694 shares. The remaining shares are held for general corporate use.
Cash Dividend
On September 28, 2012, the Company declared its first quarterly cash dividend of $0.02 per share. It was the first dividend since completing its initial public stock offering in October 2005. Since declaring this dividend, the Company has paid a dividend to stockholders in each subsequent quarter.

3.    Business Combinations
On January 10, 2014, the Company completed its acquisition of Gateway Community Financial Corp., the federally-chartered holding company for GCF Bank ("Gateway"), which operated 4 branches in Gloucester County, New Jersey. After the purchase accounting adjustments, the Company added $254.7 million in customer deposits and acquired $195.1 million in loans. This transaction generated $1.9 million in core deposit premium. The acquisition was accounted for under the acquisition method of accounting as prescribed by FASB ASC 805 “Business Combinations”, as amended. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based on their estimated fair values, net of applicable income tax effects. The acquisition resulted in a bargain purchase gain of $1.5 million, net of tax. In conjunction with the acquisition, Investors Bancorp issued 1,945,079 shares to Investors Bancorp, MHC which was determined using the closing average twenty day stock price of Investors Bancorp's common stock. GCF Bank was merged into the Bank as of the acquisition date.

88

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for Gateway Financial, net of cash consideration paid:
 
 
At January 10, 2014
 
(In millions)
Cash and cash equivalents, net
$
17.9

Securities available-for-sale
50.3

Loans receivable
195.1

Accrued interest receivable
0.7

Other real estate owned
0.4

Office properties and equipment, net
4.3

Intangible assets
1.9

Other assets
15.9

Total assets acquired
286.5

Deposits
(254.7
)
Borrowed funds
(5.2
)
Other liabilities
(3.1
)
Total liabilities assumed
$
(263.0
)
Net assets acquired
$
23.5

The purchase accounting for the Gateway Financial transaction is complete and reflected in the table above and in our consolidated financial statements.
Fair Value Measurement of Assets Acquired and Liabilities Assumed
Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Gateway acquisition based on guidance from ASC 820-10 which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
Securities. The estimated fair values of the investment securities classified as available for sale were calculated utilizing Level 1 inputs. The prices for these instruments are based upon sales of the securities shortly after the acquisition date.  The Company reviewed the data and assumptions used in pricing the securities by its third party provider to ensure the highest level of significant inputs are derived from market observable data.
Loans. Level 3 inputs were utilized to value the acquired loan portfolio and included the use of present value techniques employing cash flow estimates and the incorporated assumptions that marketplace participants would use in estimating fair values.  In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine reasonable fair value.  Specifically, the Company utilized three separate fair value analyses we believe a market participant might employ in estimating the entire fair value adjustment required under ASC 820-10.  The three separate fair valuation methodologies used are: 1) interest rate loan fair value analysis, 2) general credit fair value adjustment, and 3) specific credit fair value adjustment.
To prepare the interest rate fair value analysis, loans were assembled into groupings by characteristics such as loan type, term, collateral and rate.  Market rates for similar loans were obtained from various external data sources and reviewed by Company management for reasonableness.  The average of these rates was used as the fair value interest rate a market participant would utilize.  A present value approach was utilized to calculate the interest rate fair value adjustment.
The general credit fair value adjustment was calculated using a two part general credit fair value analysis; 1) expected lifetime losses and 2) estimated fair value adjustment for qualitative factors.  The expected lifetime losses were calculated using an average of historical losses of the Company, the acquired banks and peer banks.  The adjustment related to qualitative factors was impacted by general economic conditions and the risk related to lack of familiarity with the originator's underwriting process.
To calculate the specific credit fair value adjustment the Company reviewed the acquired loan portfolio for loans meeting the definition of an impaired loan as defined by ASC 310-30.  Loans meeting this criteria were reviewed by comparing the contractual cash flows to expected collectible cash flows.  The aggregate expected cash flows less the acquisition date fair value will result in an accretable yield amount.  The accretable yield amount will be recognized over the life of the loans on a level yield basis as an adjustment to yield.

89

Deposits / Core Deposit Premium. Core deposit premium represents the value assigned to demand, interest checking, money market and savings accounts acquired as part of an acquisition.  The core deposit premium value represents the future economic benefit, including the present value of future tax benefits, of the potential cost savings from acquiring core deposits as part of an acquisition compared to the cost alternative funding sources and is valued utilizing Level 2 inputs. 
Certificates of deposit (time deposits) are not considered to be core deposits as they are assumed to have a low expected average life upon acquisition.  The fair value of certificates of deposits represents the present value of the certificates' expected contractual payments discounted by market rates for similar CDs and is valued utilizing Level 2 inputs. 
Borrowed Funds. The present value approach was used to determine the fair value of the borrowed funds acquired during 2014.  The fair value of the liability represents the present value of the expected payments using the current rate of a replacement borrowing of the same type and remaining term to maturity and is valued utilizing Level 2 inputs.

4.
Securities
The following tables present the carrying value, gross unrealized gains and losses and estimated fair value for available-for-sale securities and the amortized cost, net unrealized losses, gross unrecognized gains and losses and estimated fair value for held-to-maturity securities as of the dates indicated:

 
At December 31, 2015
 
Carrying value
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair value
 
(In thousands)
Available-for-sale:
 
 
 
 
 
 
 
Equity securities
$
5,778

 
733

 
16

 
6,495

Mortgage-backed securities:
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
546,652

 
3,242

 
2,443

 
547,451

Federal National Mortgage Association
724,851

 
4,520

 
3,299

 
726,072

Government National Mortgage Association
24,841

 
1

 
163

 
24,679

Total mortgage-backed securities available-for-sale
1,296,344

 
7,763

 
5,905

 
1,298,202

Total available-for-sale securities
$
1,302,122

 
8,496

 
5,921

 
1,304,697

 
At December 31, 2015
 
Amortized cost
 
Net unrealized losses (1)
 
Carrying value
 
Gross
unrecognized
gains (2)
 
Gross
unrecognized
losses (2)
 
Estimated
fair value
 
(In thousands)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises
$
4,232

 
—

 
4,232

 
11

 
—

 
4,243

Municipal bonds
43,058

 
—

 
43,058

 
1,307

 
—

 
44,365

Corporate and other debt securities
58,358

 
(23,245
)
 
35,113

 
42,704

 


 
77,817

Total debt securities held-to-maturity
105,648

 
(23,245
)
 
82,403

 
44,022

 
—

 
126,425

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
516,841

 
(2,502
)
 
514,339

 
2,213

 
3,082

 
513,470

Federal National Mortgage Association
1,228,845

 
(2,705
)
 
1,226,140

 
7,305

 
6,120

 
1,227,325

Government National Mortgage Association
21,330

 
—

 
21,330

 
125

 
—

 
21,455

Federal Housing Authorities
11

 
—

 
11

 
—

 
—

 
11

Total mortgage-backed securities held-to-maturity
1,767,027

 
(5,207
)
 
1,761,820

 
9,643

 
9,202

 
1,762,261

Total held-to-maturity securities
$
1,872,675

 
(28,452
)
 
1,844,223

 
53,665

 
9,202

 
1,888,686


90

 
At December 31, 2014
 
Carrying value
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair value
 
(In thousands)
Available-for-sale:
 
 
 
 
 
 
 
Equity securities
$
6,887

 
1,636

 
—

 
8,523

Mortgage-backed securities:
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
503,268

 
5,023

 
1,008

 
507,283

Federal National Mortgage Association
675,535

 
7,641

 
1,184

 
681,992

Government National Mortgage Association
125

 
1

 
—

 
126

Total mortgage-backed securities available-for-sale
1,178,928

 
12,665

 
2,192

 
1,189,401

Total available-for-sale securities
$
1,185,815

 
14,301

 
2,192

 
1,197,924

 
At December 31, 2014
 
Amortized cost
 
Net unrealized losses (1)
 
Carrying Value
 
Gross
unrecognized
gains (2)
 
Gross
unrecognized
losses (2)
 
Estimated
fair value
 
(In thousands)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises
$
4,388

 
—

 
4,388

 
15

 
—

 
4,403

Municipal bonds
24,320

 
—

 
24,320

 
1,001

 
—

 
25,321

Corporate and other debt securities
58,487

 
(25,047
)
 
33,440

 
32,163

 
367

 
65,236

Total debt securities held-to-maturity
87,195

 
(25,047
)
 
62,148

 
33,179

 
367

 
94,960

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
504,407

 
(3,770
)
 
500,637

 
3,561

 
1,878

 
502,320

Federal National Mortgage Association
978,261

 
(3,885
)
 
974,376

 
11,629

 
1,218

 
984,787

Government National Mortgage Association
27,136

 
—

 
27,136

 
—

 
20

 
27,116

Federal housing authorities
182

 
—

 
182

 
—

 
—

 
182

Total mortgage-backed securities held-to-maturity
1,509,986

 
(7,655
)
 
1,502,331

 
15,190

 
3,116

 
1,514,405

Total held-to-maturity securities
$
1,597,181

 
(32,702
)
 
1,564,479

 
48,369

 
3,483

 
1,609,365


(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 OTTI charge is recognized on a held-to-maturity security, through the date of the balance sheet.
A portion of the Company’s securities are pledged to secure borrowings. The contractual maturities of mortgage-backed securities are generally less than 20 years; with effective lives expected to be shorter due to anticipated prepayments. Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer, therefore, mortgage-backed securities are not included in the following table. The amortized cost and estimated fair value of debt securities at December 31, 2015, by contractual maturity, are shown below. 

91

 
December 31, 2015
 
Carrying Value
 
Estimated
fair value
 
(In thousands)
Due in one year or less
$
40,136

 
40,136

Due after one year through five years
2,363

 
2,375

Due after five years through ten years
—

 
—

Due after ten years
39,904

 
83,914

Total
$
82,403

 
126,425


Gross unrealized losses on securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2015 and December 31, 2014, was as follows:
 
 
December 31, 2015
 
Less than 12 months
 
12 months or more
 
Total
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
(In thousands)
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Equity Securities
$
4,692

 
16

 
—

 
—

 
4,692

 
16

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 


Federal Home Loan Mortgage Corporation
$
263,255

 
2,443

 
—

 
—

 
263,255

 
2,443

Federal National Mortgage Association
375,792

 
2,850

 
14,821

 
449

 
390,613

 
3,299

Government National Mortgage Association
24,874

 
163

 


 


 
24,874

 
163

Total mortgage-backed securities available-for-sale
663,921

 
5,456

 
14,821

 
449

 
678,742

 
5,905

Total available-for-sale securities
$
668,613

 
5,472

 
14,821

 
449

 
683,434

 
5,921

Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
342,702

 
2,804

 
4,887

 
278

 
347,589

 
3,082

Federal National Mortgage Association
547,326

 
5,477

 
29,013

 
643

 
576,339

 
6,120

Total mortgage-backed securities held-to-maturity
890,028

 
8,281

 
33,900

 
921

 
923,928

 
9,202

Total held-to-maturity securities
$
890,028

 
8,281

 
33,900

 
921

 
923,928

 
9,202

Total
$
1,558,641

 
13,753

 
48,721

 
1,370

 
1,607,362

 
15,123

 

92

 
December 31, 2014
 
Less than 12 months
 
12 months or more
 
Total
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
(In thousands)
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
76,525

 
426

 
60,394

 
582

 
136,919

 
1,008

Federal National Mortgage Association
67,017

 
50

 
52,519

 
1,134

 
119,536

 
1,184

Total mortgage-backed securities available-for-sale
143,542

 
476

 
112,913

 
1,716

 
256,455

 
2,192

Total available-for-sale securities
143,542

 
476

 
112,913

 
1,716

 
256,455

 
2,192

Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate and other debt securities
674

 
40

 
233

 
327

 
907

 
367

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
199,962

 
1,043

 
47,892

 
835

 
247,854

 
1,878

Federal National Mortgage Association
145,520

 
371

 
37,517

 
847

 
183,037

 
1,218

Government National Mortgage Association
27,116

 
20

 
—

 
—

 
27,116

 
20

Total mortgage-backed securities held-to-maturity
372,598

 
1,434

 
85,409

 
1,682

 
458,007

 
3,116

Total held-to-maturity securities
$
373,272

 
1,474

 
85,642

 
2,009

 
458,914

 
3,483

Total
$
516,814

 
1,950

 
198,555

 
3,725

 
715,369

 
5,675

At December 31, 2015 gross unrealized losses primarily relate to our mortgage-backed-security portfolio which is comprised of securities issued by U.S. Government Sponsored Enterprises. The fair values of these securities have been negatively impacted by the recent increase in intermediate-term market interest rates. The gross unrealized losses at December 31, 2015 also relate to our corporate and other debt securities (trust preferred securities) whose estimated fair value has been adversely impacted by the economic environment, an increase in current market rates, wider credit spreads and credit deterioration subsequent to the purchase of these securities.
At December 31, 2015, 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. While all were investment grade at purchase, securities classified as non-investment grade at December 31, 2015 had an amortized cost and estimated fair value of $33.2 million and $71.1 million, respectively. Fair value is derived from considering specific assumptions, including terms of the TruPS structure, events of deferrals, defaults and liquidations, the projected cashflow for principal and interest payments, and discounted cash flow modeling.
Other-Than-Temporary Impairment (“OTTI”)
We conduct a quarterly review and evaluation of the securities portfolio to determine if the value of any security has declined below its cost or amortized cost, and whether such decline is other-than-temporary. If a determination is made that a debt security is other-than-temporarily impaired, the Company will estimate the amount of the unrealized loss that is attributable to credit and all other non-credit related factors. The credit related component will be recognized as an other-than-temporary impairment charge in non-interest income. The non-credit related component will be recorded as an adjustment to accumulated other comprehensive income, net of tax.
With the assistance of a valuation specialist, we evaluate the credit and performance of each underlying issuer of our trust preferred securities by deriving probabilities and assumptions for default, recovery and prepayment/amortization for the expected cash flows for each security. At December 31, 2015 and 2014, management deemed that the present value of projected cash flows for each security was greater than the book value and did not recognize any additional OTTI charges for the periods ended December 31, 2015 and 2014. At December 31, 2013, the discounted cash flow projected for one of the Company's pooled trust preferred securities fell

93

below its adjusted book value. Based on the review of underlying collateral, the credit of this security continued to deteriorate and therefore the Company recorded net other-than-temporary impairment ("OTTI") charge of $977,000 for the year ended December 31, 2013. At December 31, 2015, the security had a fair value of $94,000. At December 31, 2015, non-credit related OTTI recorded on the previously impaired pooled trust preferred securities was $23.2 million ($13.8 million after-tax) and is being accreted into income over the estimated remaining life of the securities.
The following table presents the changes in the credit loss component of the impairment loss of debt securities that the Company has written down for such loss as an other-than-temporary impairment recognized in earnings.
 
 
For the Years Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Balance of credit related OTTI, beginning of period
$
108,817

 
112,235

 
114,514

Additions:
 
 
 
 
 
Initial credit impairments
—

 
—

 
—

Subsequent credit impairments
—

 
—

 
977

Reductions:
 
 
 
 
 
Accretion of credit loss impairment due to an increase in expected cash flows
(3,804
)
 
(3,418
)
 
(3,256
)
Reduction for securities sold or paid off during the period
(4,813
)
 
—

 
—

Balance of credit related OTTI, end of period
$
100,200

 
108,817

 
112,235


The credit loss component of the impairment loss represents the difference between the present value of expected future cash flows and the amortized cost basis of the securities prior to considering credit losses. The beginning balance represents the credit loss component for debt securities for which other-than-temporary impairment occurred prior to the period presented. If other-than-temporary impairment is recognized in earnings for credit impaired debt securities, they would be presented as additions in two components based upon whether the current period is the first time a debt security was credit impaired (initial credit impairment) or is not the first time a debt security was credit impaired (subsequent credit impairments). The credit loss component is reduced if the Company sells, intends to sell or believes it will be required to sell previously credit impaired debt securities. Additionally, the credit loss component is reduced if (i) the Company receives cash flows in excess of what it expected to receive over the remaining life of the credit impaired debt security, (ii) the security matures or (iii) the security is fully written down.
Realized Gains and Losses
Gains and losses on the sale of all securities are determined using the specific identification method. For the year ended December 31, 2015, the Company received proceeds of $2.6 million on an equity security from the available-for-sale portfolio resulting in a gross realized gain of $1.5 million. For the year ended December 31, 2015, the Company recognized gains on available-for-sale securities of $145,000 related to capital distributions of equity securities from the available-for-sale portfolio.
For the year ended December 31, 2015, there were no sales of securities from held-to-maturity portfolio, however for the year ended December 31, 2015, the Company recognized a loss of $646,000 on a TruP security which was entirely liquidated by its Trustee.

For the year ended December 31, 2014, the Company recognized net gains on available-for-sale securities of $619,000, of which $145,000 were related to capital distributions of equity securities from the available-for-sale portfolio. In December 2013, regulatory agencies adopted a rule on the treatment of certain collateralized debt obligations backed by trust preferred securities to implement sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker Rule. As a result of the evaluation of the impact of the Volcker Rule, the Company reclassified one trust preferred security to available-for-sale. The Company sold the security for the year ended December 31, 2014, resulting in gross realized gains of $474,000.
For the year ended December 31, 2014 total proceeds of securities from the held-to-maturity portfolio were $19.5 million, which resulted in gross realized gains of $927,000. For the year ended December 31, 2014, sales of mortgage back securities from the held-to-maturity portfolio, which had a book value of $18.3 million resulted in gross realized gains of $877,000. These securities met the criteria of principal pay downs under 85% of the original investment amount and therefore did not result in a tainting of the held-to-maturity portfolio. The Company sells securities when market pricing presents, in management’s assessment, an economic benefit that outweighs holding such securities, and when smaller balance securities become cost prohibitive to carry. In addition, for

94

the year ended December 31, 2014, the Company recognized a gain of $50,000 on a TruP security which was entirely liquidated by its Trustee. For the year ended December 31, 2014 there were no losses recognized.
For the year ended December 31, 2013, proceeds from sales of securities from available-for-sale portfolio were $56.0 million, which resulted in gross realized gains of $846,100 and $162,300 of gross realized losses as well as $88,600 of net gains on capital distributions of equity securities. In addition, at December 31, 2013 the Company recognized a net other-than-temporary charge of $977,000 for one of the pooled trust preferred security falling below its adjusted book value. There were no sales from the held-to-maturity portfolio for the year ended December 31, 2013.
    
5.
Loans Receivable, Net
The detail of the loan portfolio as of December 31, 2015 and December 31, 2014 was as follows:
 
 
December 31,
2015
 
December 31,
2014
 
(In thousands)
Multi-family loans
$
6,255,904

 
5,048,477

Commercial real estate loans
3,821,950

 
3,139,824

Commercial and industrial loans
1,044,329

 
544,402

Construction loans
224,057

 
143,664

Total commercial loans
11,346,240

 
8,876,367

Residential mortgage loans
5,037,898

 
5,764,896

Consumer and other loans
496,103

 
440,500

Total loans excluding PCI loans
16,880,241

 
15,081,763

PCI loans
11,089

 
17,789

Net unamortized premiums/discounts and deferred loan fees/costs (1)
(11,692
)
 
(11,698
)
Allowance for loan losses
(218,505
)
 
(200,284
)
Net loans
$
16,661,133

 
14,887,570

(1) Included in unamortized premiums/discounts and deferred loan fees/costs are accretable purchase accounting adjustments in connection with loans acquired.
Purchased Credit-Impaired Loans
Purchased Credit-Impaired ("PCI") loans, are loans acquired at a discount that is due, in part, to credit quality. PCI loans are accounted for in accordance with ASC Subtopic 310-30 and are initially recorded at fair value as determined by the present value of expected future cash flows with no valuation allowance reflected in the allowance for loan losses.

The following table presents information regarding the estimates of the contractually required payments, the cash flows expected to be collected and the estimated fair value of the PCI loans acquired in the Gateway Financial acquisition as of January 10, 2014:
 
January 10, 2014
 
(In thousands)
Contractually required principal and interest
$
4,172

Contractual cash flows not expected to be collected (non-accretable difference)
(1,024
)
Expected cash flows to be collected
3,148

Interest component of expected cash flows (accretable yield)
(216
)
Fair value of acquired loans
$
2,932


95


The following table presents changes in the accretable yield for PCI loans during the years ended December 31, 2015 and 2014:
 
Years Ended December 31,
 
2015
 
2014
 
(In thousands)
Balance, beginning of period
$
971

 
4,154

Acquisitions
—

 
216

Accretion (1)
(522
)
 
(3,399
)
Net reclassification from non-accretable difference
—

 
—

Balance, end of period
$
449

 
971

(1) Includes the removal of $1.9 million accretable mark on PCI loans sold during the year ended December 31, 2014. This transfer had no impact on income for the year ended December 31, 2014.

An analysis of the allowance for loan losses is summarized as follows:
 
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Balance at beginning of the period
$
200,284

 
173,928

 
142,172

Loans charged off
(12,216
)
 
(18,244
)
 
(22,610
)
Recoveries
4,437

 
7,100

 
3,866

Net charge-offs
(7,779
)
 
(11,144
)
 
(18,744
)
Provision for loan losses
26,000

 
37,500

 
50,500

Balance at end of the period
$
218,505

 
200,284

 
173,928

The allowance for loan losses is the estimated amount considered necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses that is charged against income. In determining the allowance for loan losses, we make significant estimates and therefore, have identified the allowance as a critical accounting policy. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.
The allowance for loan losses has been determined in accordance with U.S. GAAP, under which we are required to maintain an allowance for probable losses at the balance sheet date. We are responsible for the timely and periodic determination of the amount of the allowance required. We believe that our allowance for loan losses is adequate to cover specifically identifiable losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable. Loans acquired are marked to fair value on the date of acquisition with no valuation allowance reflected in the allowance for loan losses. In conjunction with the quarterly evaluation of the adequacy of the allowance for loan loss, the Company performs an analysis on acquired loans to determine whether or not there has been subsequent deterioration in relation to those loans. If deterioration has occurred, the Company will include these loans in their calculation of the allowance for loan loss. For the year ended December 31, 2015, the Company recorded charge offs related to PCI loans acquired of $388,000.
Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. The analysis of the allowance for loan losses has two components: specific and general allocations. Specific allocations are made for loans determined to be impaired. A loan is deemed to be impaired if it is a commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, loans modified in a troubled debt restructuring (“TDR”), and other commercial loans greater than $1.0 million if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans, including those loans not meeting the Company’s definition of an impaired loan, by type of loan, risk rating (if applicable) and payment history. In addition, the Company's residential portfolio is subdivided between fixed and adjustable rate loans as adjustable rate loans are deemed to be subject to more credit risk if interest rates rise. The loss factors used are based on the

96

Company's historical loss experience over a look-back period determined to provide the appropriate amount of data to accurately estimate expected losses as of period end. Additionally, management assesses the loss emergence period for the expected losses of each loan segment and adjusts each historical loss factor accordingly. The loss emergence period is the estimated time from the date of a loss event (such as a personal bankruptcy) to the actual recognition of the loss (typically via the first full or partial loan charge-off), and is determined based upon a study of the Company's past loss experience by loan segment. The loss factors may also be adjusted to account for qualitative or environmental factors that are likely to cause estimated credit losses inherent in the portfolio to differ from historical loss experience. This evaluation is based on among other things, loan and delinquency trends, general economic conditions, geographic concentrations, lending policies and procedures and industry and peer comparisons, but is inherently subjective as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be different than the allowance for loan losses we have established which could have a material negative effect on our financial results.
On a quarterly basis, management reviews the current status of various loan assets in order to evaluate the adequacy of the allowance for loan losses. In this evaluation process, specific loans are analyzed to determine their potential risk of loss. Loans determined to be impaired are evaluated for potential loss exposure. Any shortfall results in a recommendation of a a charge-off or specific allowance or charge-off if the likelihood of loss is evaluated as probable. To determine the adequacy of collateral on a particular loan, an estimate of the fair value of the collateral is based on the most current appraised value available for real property or a discounted cash flow analysis on a business. This appraised value for real property is then reduced to reflect estimated liquidation expenses.
The allowance contains reserves identified as unallocated. These reserves reflect management's attempt to ensure that the overall allowance reflects a margin for imprecision and the uncertainty that is inherent in estimates of probable credit losses.
Our primary lending emphasis has been the origination of commercial real estate loans, multi-family loans, commercial and industrial loans and the origination and purchase of residential mortgage loans. We also originate home equity loans and home equity lines of credit. These activities resulted in a concentration of loans secured by real estate property and businesses located in New Jersey and New York. Based on the composition of our loan portfolio, we believe the primary risks are increases in interest rates, a decline in the general economy, and declines in real estate market values in New Jersey, New York and surrounding states. Any one or combination of these events may adversely affect our loan portfolio resulting in increased delinquencies, loan losses and future levels of loan loss provisions. As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisal valuations are instrumental in determining the value of properties. Negative changes to appraisal assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals are carefully reviewed to determine that the resulting values reasonably reflect amounts realizable on the related loans.
For commercial real estate, multi-family and construction loans, the Company obtains an appraisal for all collateral dependent loans upon origination. An updated appraisal is obtained annually for loans rated substandard or worse with a balance of $500,000 or greater. An updated appraisal is obtained bi-annually for loans rated special mention with a balance of $2.0 million or greater. This is done in order to determine the specific reserve or charge off needed. As part of the allowance for loan loss process, the Company reviews each collateral dependent commercial real estate loan previously classified as non-accrual and/or impaired and assesses whether there has been an adverse change in the collateral value supporting the loan. The Company utilizes information from its commercial lending officers and its credit department and loan workout department’s knowledge of changes in real estate conditions in our lending area to identify if possible deterioration of collateral value has occurred. Based on the severity of the changes in market conditions, management determines if an updated appraisal is warranted or if downward adjustments to the previous appraisal are warranted. If it is determined that the deterioration of the collateral value is significant enough to warrant ordering a new appraisal, an estimate of the downward adjustments to the existing appraised value is used in assessing if additional specific reserves are necessary until the updated appraisal is received.
For homogeneous residential mortgage loans, the Company’s policy is to obtain an appraisal upon the origination of the loan and an updated appraisal in the event a loan becomes 90 days delinquent. Thereafter, the appraisal is updated every two years if the loan remains in non-performing status and the foreclosure process has not been completed. Management adjusts the appraised value of residential loans to reflect estimated selling costs and declines in the real estate market.
Management believes the potential risk for outdated appraisals for impaired and other non-performing loans has been mitigated due to the fact that the loans are individually assessed to determine that the loan’s carrying value is not in excess of the fair value of the collateral. Loans are generally charged off after an analysis is completed which indicates that collectability of the full principal balance is in doubt.
Our allowance for loan losses reflects probable losses considering, among other things, the economic conditions, the actual growth and change in composition of our loan portfolio, the level of our non-performing loans and our charge-off experience. We believe the allowance for loan losses reflects the inherent credit risk in our portfolio.

97

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


98

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 the years ended December 31, 2015 and 2014:
 
 
December 31, 2015
 
Multi-
Family Loans
 
Commercial
Real Estate Loans
 
Commercial
and Industrial
Loans
 
Construction
Loans
 
Residential
Mortgage Loans
 
Consumer
and Other
Loans
 
Unallocated
 
Total
 
(Dollars in thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance-December 31, 2014
$
71,147

 
44,030

 
20,759

 
6,488

 
47,936

 
3,347

 
6,577

 
200,284

Charge-offs
(284
)
 
(1,021
)
 
(516
)
 
(466
)
 
(9,526
)
 
(403
)
 
—

 
(12,216
)
Recoveries
445

 
807

 
295

 
317

 
2,295

 
278

 
—

 
4,437

Provision
16,915

 
3,183

 
20,047

 
455

 
(9,262
)
 
(67
)
 
(5,271
)
 
26,000

Ending balance-December 31, 2015
$
88,223

 
46,999

 
40,585

 
6,794

 
31,443

 
3,155

 
1,306

 
218,505

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
—

 
—

 
2,409

 
—

 
1,773

 
9

 
—

 
4,191

Collectively evaluated for impairment
88,223

 
46,999

 
38,176

 
6,794

 
29,670

 
3,146

 
1,306

 
214,314

Loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 


 
—

 
—

 
—

Balance at December 31, 2015
$
88,223

 
46,999

 
40,585

 
6,794

 
31,443

 
3,155

 
1,306

 
218,505

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
3,219

 
18,941

 
9,395

 
2,504

 
22,539

 
389

 
—

 
56,987

Collectively evaluated for impairment
6,252,685

 
3,803,009

 
1,034,934

 
221,553

 
5,015,359

 
495,714

 
—

 
16,823,254

Loans acquired with deteriorated credit quality
—

 
7,149

 
56

 
1,786

 
1,645

 
453

 
—

 
11,089

Balance at December 31, 2015
$
6,255,904

 
3,829,099

 
1,044,385

 
225,843

 
5,039,543

 
496,556

 
—

 
16,891,330


99

 
December 31, 2014
 
Multi-
Family Loans
 
Commercial
Real Estate Loans
 
Commercial
and Industrial
Loans
 
Construction
Loans
 
Residential
Mortgage Loans
 
Consumer
and Other
Loans
 
Unallocated
 
Total
 
(Dollars in thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance-December 31, 2013
$
42,103

 
46,657

 
9,273

 
8,947

 
51,760

 
2,161

 
13,027

 
173,928

Charge-offs
(323
)
 
(6,147
)
 
(2,447
)
 
(640
)
 
(7,715
)
 
(972
)
 
—

 
(18,244
)
Recoveries
3,784

 
201

 
516

 
799

 
1,783

 
17

 
—

 
7,100

Provision
25,583

 
3,319

 
13,417

 
(2,618
)
 
2,108

 
2,141

 
(6,450
)
 
37,500

Ending balance-December 31, 2014
$
71,147

 
44,030

 
20,759

 
6,488

 
47,936


3,347

 
6,577

 
200,284

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
—

 
274

 
—

 
—

 
1,865

 
—

 
—

 
2,139

Collectively evaluated for impairment
71,147

 
43,756

 
20,759

 
6,488

 
46,071

 
3,347

 
6,577

 
198,145

Loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Balance at December 31, 2014
$
71,147

 
44,030

 
20,759

 
6,488

 
47,936


3,347

 
6,577

 
200,284

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
4,111

 
22,995

 
3,310

 
6,798

 
23,285

 
—

 
—

 
60,499

Collectively evaluated for impairment
5,044,366

 
3,116,829

 
541,092

 
136,866

 
5,741,611

 
440,500

 
—

 
15,021,264

Loans acquired with deteriorated credit quality
637

 
7,329

 
56

 
4,732

 
4,581

 
454

 
—

 
17,789

Balance at December 31, 2014
$
5,049,114

 
3,147,153

 
544,458

 
148,396

 
5,769,477


440,954

 
—

 
15,099,552

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

100

events may have affected or could affect the cash flow or ability to continue operating profitably, provided, however, the events do not constitute an undue credit risk. Residential loans delinquent 30-59 days are considered Watch.
Special Mention - A “Special Mention” asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Residential loans delinquent 60-89 days are considered special mention.
Substandard - A “Substandard” asset is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Residential loans delinquent 90 days or greater are considered substandard.
Doubtful - An asset classified “Doubtful” has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.
Loss - An asset or portion thereof, classified “Loss” is considered uncollectible and of such little value that its continuance on the institution’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur. As such, it is not practical or desirable to defer the write-off.
The following tables present the risk category of loans as of December 31, 2015 and December 31, 2014 by class of loans excluding PCI loans:
 
 
December 31, 2015
 
Pass
 
Watch
 
Special  Mention
 
Substandard
 
Doubtful
 
Loss
 
Total
 
(In thousands)
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Multi-family
$
5,876,425

 
325,414

 
17,033

 
37,032

 
—

 
—

 
6,255,904

Commercial real estate
3,411,876

 
331,429

 
38,265

 
40,380

 
—

 
—

 
3,821,950

Commercial and industrial
793,527

 
223,474

 
13,782

 
13,546

 
—

 
—

 
1,044,329

Construction
207,499

 
12,833

 
—

 
3,725

 
—

 
—

 
224,057

Total commercial loans
10,289,327

 
893,150

 
69,080

 
94,683

 
—

 
—

 
11,346,240

Residential mortgage
4,930,961

 
24,584

 
13,796

 
68,557

 
—

 
—

 
5,037,898

Consumer and other
482,715

 
3,987

 
427

 
8,974

 
—

 
—

 
496,103

Total
$
15,703,003

 
921,721

 
83,303

 
172,214

 
—

 
—

 
16,880,241


 
December 31, 2014
 
Pass
 
Watch
 
Special  Mention
 
Substandard
 
Doubtful
 
Loss
 
Total
 
(In thousands)
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Multi-family
$
4,710,124

 
247,921

 
62,886

 
27,546

 
—

 
—

 
5,048,477

Commercial real estate
2,757,949

 
276,660

 
29,248

 
75,967

 
—

 
—

 
3,139,824

Commercial and industrial
405,021

 
110,374

 
20,321

 
8,686

 
—

 
—

 
544,402

Construction
134,356

 
2,228

 
2,075

 
5,005

 
—

 
—

 
143,664

Total commercial loans
8,007,450

 
637,183

 
114,530

 
117,204

 
—

 
—

 
8,876,367

Residential mortgage
5,641,184

 
22,059

 
7,657

 
93,996

 
—

 
—

 
5,764,896

Consumer and other
431,314

 
3,987

 
1,006

 
4,193

 
—

 
—

 
440,500

Total
$
14,079,948

 
663,229

 
123,193

 
215,393

 
—

 
—

 
15,081,763

    

101

The following tables present the payment status of the recorded investment in past due loans as of December 31, 2015 and December 31, 2014 by class of loans excluding PCI loans:
 
 
December 31, 2015
 
30-59 Days
 
60-89 Days
 
Greater
than 90
Days
 
Total Past
Due
 
Current
 
Total
Loans
Receivable
 
(In thousands)
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
$
14,236

 
—

 
1,886

 
16,122

 
6,239,782

 
6,255,904

Commercial real estate
4,171

 
352

 
6,429

 
10,952

 
3,810,998

 
3,821,950

Commercial and industrial
957

 
—

 
4,386

 
5,343

 
1,038,986

 
1,044,329

Construction
—

 
—

 
792

 
792

 
223,265

 
224,057

Total commercial loans
19,364

 
352

 
13,493

 
33,209

 
11,313,031

 
11,346,240

Residential mortgage
27,092

 
14,956

 
68,560

 
110,608

 
4,927,290

 
5,037,898

Consumer and other
3,987

 
427

 
8,976

 
13,390

 
482,713

 
496,103

Total
$
50,443

 
15,735

 
91,029

 
157,207

 
16,723,034

 
16,880,241

 

 
December 31, 2014
 
30-59 Days
 
60-89 Days
 
Greater
than 90
Days
 
Total Past
Due
 
Current
 
Total
Loans
Receivable
 
(In thousands)
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
$
698

 
239

 
2,989

 
3,926

 
5,044,551

 
5,048,477

Commercial real estate
6,566

 
778

 
13,940

 
21,284

 
3,118,540

 
3,139,824

Commercial and industrial
792

 
395

 
2,903

 
4,090

 
540,312

 
544,402

Construction
—

 
—

 
4,345

 
4,345

 
139,319

 
143,664

Total commercial loans
8,056

 
1,412

 
24,177

 
33,645

 
8,842,722

 
8,876,367

Residential mortgage
23,712

 
8,900

 
75,610

 
108,222

 
5,656,674

 
5,764,896

Consumer and other
1,334

 
1,006

 
4,211

 
6,551

 
433,949

 
440,500

Total
$
33,102

 
11,318

 
103,998

 
148,418

 
14,933,345

 
15,081,763

The following table presents non-accrual loans excluding PCI loans at the dates indicated:
 
 
December 31, 2015
 
December 31, 2014
 
# of loans
 
amount
 
# of loans
 
amount
 
(Dollars in thousands)
Non-accrual:
 
Multi-family
4

 
$
3,467

 
2

 
$
2,989

Commercial real estate
37

 
10,820

 
36

 
13,940

Commercial and industrial
17

 
9,225

 
11

 
2,903

Construction
4

 
792

 
7

 
4,345

Total commercial loans
62

 
24,304

 
56

 
24,177

Residential and consumer
500

 
91,122

 
406

 
84,182

Total non-accrual loans
562

 
$
115,426

 
462

 
$
108,359

Included in the non-accrual table above are TDR loans whose payment status is current but the Company has classified as non-accrual as the loans have not maintained their current payment status for six consecutive months under the restructured terms and therefore do not meet the criteria for accrual status. As of December 31, 2015, these loans are comprised of 15 residential and consumer

102

TDR loans totaling $3.4 million, 2 commercial and industrial TDR loans totaling $2.2 million, 2 commercial real estate TDR loans totaling $240,000 and 1 multifamily totaling $1.0 million. There were 11 residential TDR loans totaling $3.3 million which were also 30-89 days delinquent and classified as non-accrual, 1 commercial and industrial TDR for $360,000 which was 30-89 days delinquent and classified as non-accrual and 5 commercial real estate TDR loans for $2.3 million which were 30-89 days delinquent and classified as non-accrual. As of December 31, 2014, these loans are comprised of 5 residential TDR loans totaling $1.5 million. There were 10 residential TDR loans totaling $2.9 million which were also 30-89 days delinquent and classified as non-accrual. The Company has no loans past due 90 days or more delinquent that are still accruing interest. PCI loans are excluded from non-accrual loans, as they are recorded at fair value based on the present value of expected future cash flows. As of December 31, 2015, PCI loans with a carrying value of $11.1 million included $9.0 million of which were current and $2.1 of which were 90 days or more delinquent. As of December 31, 2014, PCI loans with a carrying value of $17.8 million included $9.2 million of which were current and $8.6 million of which were 90 days or more delinquent.
At December 31, 2015 and 2014, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans which totaled $57.0 million and $60.5 million, respectively, with allocations of the allowance for loan losses of $4.2 million and $2.1 million for the periods ending December 31, 2015 and 2014. During the years ended December 31, 2015 and 2014, interest income received and recognized on these loans totaled $3.8 million and $2.5 million, respectively.

The following tables present loans individually evaluated for impairment by portfolio segment as of December 31, 2015 and
December 31, 2014:
 
 
December 31, 2015
 
Recorded
Investment
 
Unpaid Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(In thousands)
With no related allowance:
 
 
 
 
 
 
 
 
 
Multi-family
$
3,219

 
6,806

 
—

 
2,871

 
119

Commercial real estate
18,941

 
27,961

 
—

 
19,025

 
1,136

Commercial and industrial
5,155

 
5,160

 
—

 
3,575

 
200

Construction
2,504

 
6,412

 
—

 
4,288

 
226

Total commercial loans
29,819

 
46,339

 
—

 
29,759

 
1,681

Residential mortgage and consumer
8,020

 
12,433

 
—

 
7,611

 
463

With an allowance recorded:
 
 
 
 
 
 
 
 
 
Multi-family
—

 
—

 
—

 
—

 
—

Commercial real estate
—

 
—

 
—

 
—

 
—

Commercial and industrial
4,240

 
4,271

 
2,409

 
4,389

 
194

Construction
—

 
—

 
—

 
—

 
—

Total commercial loans
4,240

 
4,271

 
2,409

 
4,389

 
194

Residential mortgage and consumer
14,908

 
13,695

 
1,782

 
16,424

 
476

Total:
 
 
 
 
 
 
 
 
 
Multi-family
3,219

 
6,806

 
—

 
2,872

 
119

Commercial real estate
18,941

 
27,961

 
—

 
19,025

 
1,136

Commercial and industrial
9,395

 
9,431

 
2,409

 
7,964

 
394

Construction
2,504

 
6,412

 
—

 
4,288

 
226

Total commercial loans
34,059

 
50,610

 
2,409

 
34,149

 
1,875

Residential mortgage and consumer
22,928

 
26,128

 
1,782

 
24,035

 
939

Total impaired loans
$
56,987

 
76,738

 
4,191

 
58,184

 
2,814


103

 
December 31, 2014
 
Recorded
Investment
 
Unpaid Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(In thousands)
With no related allowance:
 
 
 
 
 
 
 
 
 
Multi-family
$
4,111

 
7,846

 
—

 
4,746

 
135

Commercial real estate
19,901

 
23,601

 
—

 
17,056

 
879

Commercial and industrial
3,310

 
3,310

 
—

 
1,985

 
152

Construction
6,798

 
9,292

 
—

 
13,609

 
410

Total commercial loans
34,120

 
44,049

 
—

 
37,396

 
1,576

Residential mortgage
6,755

 
8,830

 
—

 
6,606

 
370

With an allowance recorded:
 
 
 
 
 
 
 
 
 
Multi-family
—

 
—

 
—

 
—

 
—

Commercial real estate
3,094

 
4,760

 
274

 
3,106

 
72

Commercial and industrial
—

 
—

 
—

 
—

 
—

Construction
—

 
—

 
—

 
—

 
—

Total commercial loans
3,094

 
4,760

 
274

 
3,106

 
72

Residential mortgage
16,530

 
16,882

 
1,865

 
16,547

 
507

Total:
 
 
 
 
 
 
 
 
 
Multi-family
4,111

 
7,846

 
—

 
4,746

 
135

Commercial real estate
22,995

 
28,361

 
274

 
20,162

 
951

Commercial and industrial
3,310

 
3,310

 
—

 
1,985

 
152

Construction
6,798

 
9,292

 
—

 
13,609

 
410

Total commercial loans
37,214

 
48,809

 
274

 
40,502

 
1,648

Residential mortgage and consumer
23,285

 
25,712

 
1,865

 
23,153

 
877

Total impaired loans
$
60,499

 
74,521

 
2,139

 
63,655

 
2,525

The average recorded investment is the annual average calculated based upon the ending quarterly balances. The interest income recognized is the year to date interest income recognized on a cash basis.
Troubled Debt Restructurings
On a case-by-case basis, the Company may agree to modify the contractual terms of a borrower’s loan to remain competitive and assist customers who may be experiencing financial difficulty, as well as preserve the Company’s position in the loan. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a troubled debt restructured loan ("TDR").
Substantially all of our troubled debt restructured loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan, or a combination of these two methods. These modifications rarely result in the forgiveness of principal or accrued interest. In addition, we frequently obtain additional collateral or guarantor support when modifying commercial loans. Restructured loans remain on non 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.


104

The following tables present the total troubled debt restructured loans at December 31, 2015 and December 31, 2014. There were three residential PCI loans that were classified as TDRs and are included in the table below at December 31, 2015. There were no PCI loans classified as a TDR for the period ended December 31, 2014.
 
 
December 31, 2015
 
Accrual
 
Non-accrual
 
Total
 
# of loans
 
Amount
 
# of loans
 
Amount
 
# of loans
 
Amount
 
(Dollars in thousands)
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
—

 
$
—

 
2

 
$
1,580

 
2

 
$
1,580

Commercial real estate
5

 
13,161

 
9

 
5,826

 
14

 
18,987

Commercial and industrial
1

 
640

 
3

 
2,586

 
4

 
3,226

Construction
1

 
313

 
2

 
405

 
3

 
718

Total commercial loans
7

 
14,114

 
16

 
10,397

 
23

 
24,511

Residential mortgage and consumer
32

 
8,375

 
49

 
14,553

 
81

 
22,928

Total
39

 
$
22,489

 
65

 
$
24,950

 
104

 
$
47,439


 
December 31, 2014
 
Accrual
 
Non-accrual
 
Total
 
# of loans
 
Amount
 
# of loans
 
Amount
 
# of loans
 
Amount
 
(Dollars in thousands)
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
2

 
$
1,122

 
—

 
$
—

 
2

 
$
1,122

Commercial real estate
8

 
15,250

 
1

 
3,197

 
9

 
18,447

Commercial and industrial
2

 
1,381

 
—

 
—

 
2

 
1,381

Construction
2

 
3,066

 
—

 
—

 
2

 
3,066

Total commercial loans
14

 
20,819

 
1

 
3,197

 
15

 
24,016

Residential mortgage and consumer
41

 
14,805

 
29

 
8,456

 
70

 
23,261

Total
55

 
$
35,624

 
30

 
$
11,653

 
85

 
$
47,277



105

The following table presents information about troubled debt restructurings that occurred during the years ended December 31, 2015 and 2014:
 
 
Years Ended December 31,
 
2015
 
2014
 
Number of
Loans
 
Pre-modification
Recorded
Investment
 
Post-
modification
Recorded
Investment
 
Number of
Loans
 
Pre-modification
Recorded
Investment
 
Post-
modification
Recorded
Investment
 
(Dollars in thousands)
Troubled Debt Restructings:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
1

 
$
1,115

 
$
1,115

 
—

 
$
—

 
$
—

Commercial real estate
4

 
824

 
824

 
3

 
10,657

 
7,657

Construction
2

 
1,508

 
1,508

 
—

 
—

 
—

Commercial and industrial
2

 
2,246

 
2,246

 
—

 
—

 
—

Residential mortgage
19

 
3,413

 
3,413

 
11

 
3,217

 
3,217

    
Post-modification recorded investment represents the net book balance immediately following modification.
All TDRs are impaired loans, which are individually evaluated for impairment, as discussed above. Collateral dependent impaired loans classified as TDRs were written down to the estimated fair value of the collateral. There were no charge-offs for collateral dependent TDR during the year ended December 31, 2015. For the year ended December 31, 2014 there was $3.0 million in charges-offs for collateral dependent TDRs. The allowance for loan losses associated with the TDRs presented in the above tables totaled $1.8 million and $1.9 million for the periods at December 31, 2015 and 2014, respectively.
Residential mortgage loan modifications primarily involved the reduction in loan interest rate and extension of loan maturity dates. All residential loans deemed to be TDRs were modified to reflect a reduction in interest rates to current market rates. Several residential TDRs include step up interest rates in their modified terms which will impact their weighted average yield in the future. Commercial loan modifications which qualified as a TDR comprised of terms of maturity being extended and reduction in interest rates to current market terms. For the year ended December 31, 2015, commercial loans which qualified as a TDR involved the maturity and payment terms being modified. As of December 31, 2015 and December 31, 2014, the Company has no additional fundings to any borrowers classified as a troubled debt restructuring.
The following table presents information about pre and post modification interest yield for troubled debt restructurings which occurred during the years ended December 31, 2015 and 2014:
 
 
Years Ended December 31,
 
2015
 
2014
 
Number of
Loans
 
Pre-modification
Interest Yield
 
Post-
modification
Interest Yield
 
Number of
Loans
 
Pre-modification
Interest Yield
 
Post-
modification
Interest Yield
 
 
Troubled Debt Restructings:
 
 
 
 
 
 
 
 
 
 
 
Multi-family
1

 
3.88
%
 
3.88
%
 
—

 
—
%
 
—
%
Commercial real estate
4

 
4.53
%
 
5.35
%
 
3

 
6.59
%
 
5.75
%
Construction
2

 
4.97
%
 
4.97
%
 
—

 
—

 
—

Commercial and industrial
2

 
6.24
%
 
6.24
%
 
—

 
—

 
—

Residential mortgage
19

 
4.84
%
 
3.40
%
 
11

 
5.35
%
 
3.90
%
Payment defaults for loans modified as TDR during the period ended December 31, 2015 consisted of one construction loan with a recorded investment of $225,000 at December 31, 2015. There were no payment defaults for loans modified as TDRs during the period ended December 31, 2014.

106

Loan Sales
For the year ended December 31, 2015, the Company sold $20.9 million of non-performing and PCI residential loans which resulted in a $4.5 million charge off recorded through the allowance. In addition, the Company sold $347.3 million of performing residential loans resulting in a gain on sale of $611,000.
For the year ended December 31, 2014, the Company sold $32.4 million of non-performing and PCI loans previously transferred to held for sale. The sale resulted in a net gain of approximately $552,000.

6. Office Properties and Equipment, Net
Office properties and equipment are summarized as follows:
 
 
 
December 31,
 
 
2015
 
2014
 
 
(In thousands)
Land
 
$
20,569

 
21,862

Office buildings
 
87,832

 
78,808

Leasehold improvements
 
79,898

 
66,857

Furniture, fixtures and equipment
 
77,096

 
68,420

Construction in process
 
12,075

 
17,121

 
 
277,470

 
253,068

Less accumulated depreciation and amortization
 
104,951

 
92,169

 
 
$
172,519

 
160,899

Depreciation and amortization expense for the years ended December 31, 2015, 2014 and 2013 was $13.9 million, $13.2 million and $8.5 million, respectively.


107

7. Goodwill and Other Intangible Assets
The following table summarizes net intangible assets and goodwill at December 31, 2015 and 2014:
 
 
December 31, 2015
 
December 31, 2014
 
 
(In thousands)
Mortgage servicing rights
 
$
16,248

 
14,261

Core deposit premiums
 
11,332

 
14,683

Other
 
160

 
190

Total other intangible assets
 
27,740

 
29,134

Goodwill
 
77,571

 
77,571

Goodwill and intangible assets
 
$
105,311

 
106,705

The following table summarizes other intangible assets as of December 31, 2015 and December 31, 2014:
    
 
 
Gross Intangible Asset
 
Accumulated Amortization
 
Valuation Allowance
 
Net Intangible Assets
 
 
(In thousands)
December 31, 2015
 
 
 
 
 
 
 
 
Mortgage Servicing Rights
 
$
23,411

 
(7,042
)
 
(121
)
 
16,248

Core Deposit Premiums
 
25,058

 
(13,726
)
 
—

 
11,332

Other
 
300

 
(140
)
 
—

 
160

Total other intangible assets
 
$
48,769

 
(20,908
)
 
(121
)
 
27,740

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
Mortgage Servicing Rights
 
$
23,925

 
(9,543
)
 
(121
)
 
14,261

Core Deposit Premiums
 
25,058

 
(10,375
)
 
—

 
14,683

Other
 
300

 
(110
)
 
—

 
190

Total other intangible assets
 
$
49,283

 
(20,028
)
 
(121
)
 
29,134

Mortgage servicing rights are accounted for using the amortization method. Under this method, the Company amortizes the loan servicing asset in proportion to, and over the period of, estimated net servicing revenues. The Company sells loans on a servicing-retained basis. Loans that were sold on this basis, amounted to $2.12 billion and $1.59 billion at December 31, 2015 and December 31, 2014 respectively, all of which relate to residential mortgage loans. At December 31, 2015 and 2014, the servicing asset, included in intangible assets, had an estimated fair value of $16.2 million and $14.3 million, respectively. For the period ending December 31, 2015 fair value was based on expected future cash flows considering a weighted average discount rate of 10.20%, a weighted average constant prepayment rate on mortgages of 10.80% and a weighted average life of 6.1 years.
Core deposit premiums are amortized using an accelerated method and having a weighted average amortization period of 10 years. For the year ended December 31, 2014, the Company recorded $1.9 million in core deposit premiums resulting from the acquisition of Gateway Financial in January 2014.

108

The following presents the estimated future amortization expense of other intangible assets for the next five years:

 
Mortgage Servicing Rights
 
Core Deposit Premiums
 
Other
 
(In thousands)
2016
$
473

 
$
2,900

 
$
30

2017
506

 
2,441

 
30

2018
522

 
1,983

 
30

2019
538

 
1,524

 
30

2020
552

 
1,109

 
30


8. Deposits
Deposits are summarized as follows:
 
 
December 31,
 
2015
 
2014
 
Weighted Average Rate
 
Amount
 
% of Total
 
Weighted Average Rate
 
Amount
 
% of Total
 
(In thousands)
Checking accounts
0.17
%
 
$
4,636,025

 
32.96
%
 
0.20
%
 
$
3,892,839

 
31.98
%
Money market deposits
0.67
%
 
3,861,317

 
27.46
%
 
0.71
%
 
3,390,238

 
27.85
%
Savings
0.29
%
 
2,150,004

 
15.29
%
 
0.27
%
 
2,318,911

 
19.05
%
Total transaction accounts
0.38
%
 
10,647,346

 
75.71
%
 
0.40
%
 
9,601,988

 
78.88
%
Certificates of deposit
1.14
%
 
3,416,310

 
24.29
%
 
1.00
%
 
2,570,338

 
21.12
%
Total Deposits
0.56
%
 
$
14,063,656

 
100.00
%
 
0.53
%
 
$
12,172,326

 
100.00
%


Scheduled maturities of certificates of deposit are as follows:
 
 
 
December 31,
 
 
2015
 
2014
 
 
(In thousands)
Within one year
 
$
2,586,076

 
1,450,655

One to two years
 
496,288

 
660,523

Two to three years
 
167,028

 
278,190

Three to four years
 
57,443

 
74,526

After four years
 
109,475

 
106,444

 
 
$
3,416,310

 
2,570,338

The aggregate amount of certificates of deposit in denominations of $100,000 or more totaled approximately $1.32 billion and $1.19 billion at December 31, 2015 and December 31, 2014, respectively.

109


Interest expense on deposits consists of the following:
 
 
For the Years Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Checking accounts
$
9,642

 
8,755


6,245

Money market deposits
23,562

 
13,664


7,537

Savings
6,976

 
6,639

 
6,320

Certificates of deposit
31,234

 
30,148


29,867

Total
$
71,414

 
59,206

 
49,969




9. Borrowed Funds
Borrowed funds are summarized as follows:
 
 
 
December 31,
 
 
2015
 
2014
 
 
Principal
 
Weighted
Average
Rate
 
Principal
 
Weighted
Average
Rate
 
 
 
 
(Dollars in thousands)
 
 
Funds borrowed under repurchase agreements:
 
 
 
 
 
 
 
 
FHLB
 
$
24,383

 
3.90%
 
$
25,071

 
3.90%
Other brokers
 
131,924

 
1.89%
 
142,847

 
2.00%
Total funds borrowed under repurchase agreements
 
156,307

 
2.21%
 
167,918

 
2.28%
Other borrowed funds:
 
 
 
 
 
 
 
 
FHLB advances
 
3,106,783

 
2.12%
 
2,598,186

 
2.24%
Total borrowed funds
 
$
3,263,090

 
2.13%
 
$
2,766,104

 
2.24%
Borrowed funds had scheduled maturities as follows:
 
 
 
December 31,
 
 
2015
 
2014
 
 
Principal
 
Weighted
Average
Rate
 
Principal
 
Weighted
Average
Rate
 
 
(Dollars in thousands)
Within one year
 
$
500,000

 
1.99%
 
$
576,250

 
2.03%
One to two years
 
249,383

 
3.00%
 
325,000

 
2.79%
Two to three years
 
862,924

 
2.13%
 
250,071

 
3.00%
Three to four years
 
469,782

 
1.78%
 
763,597

 
2.22%
Four to five years
 
650,000

 
1.99%
 
444,994

 
1.78%
After five years
 
531,001

 
2.30%
 
406,192

 
2.18%
Total borrowed funds
 
$
3,263,090

 
2.13%
 
$
2,766,104

 
2.24%
Mortgage-backed securities have been sold, subject to repurchase agreements, to the FHLB and various brokers. Mortgage-backed securities sold, subject to repurchase agreements, are held by the FHLB for the benefit of the Company. Repurchase agreements require repurchase of the identical securities. Whole mortgage loans have been pledged to the FHLB as collateral for advances, but are held by the Company.

110

The amortized cost and fair value of the underlying securities used as collateral for securities sold under agreements to repurchase are as follows:
 
 
 
December 31,
 
 
2015
 
2014
 
 
(Dollars in thousands)
Amortized cost of collateral:
 
 
 
 
Mortgage-backed securities
 
$
475,984

 
195,890

Total amortized cost of collateral
 
$
475,984

 
195,890

Fair value of collateral:
 
 
 
 
Mortgage-backed securities
 
$
481,401

 
198,502

Total fair value of collateral
 
$
481,401

 
198,502


During the years ended December 31, 2015, 2014 and 2013, the maximum month-end balance of the repurchase agreements was $163.0 million, $261.2 million and $267.7 million, respectively. The average amount of repurchase agreements outstanding during the years ended December 31, 2015, 2014 and 2013 was $159.4 million, $192.9 million and $165.4 million, respectively, and the average interest rate was 2.25%, 2.02% and 1.50%, respectively.
At December 31, 2015, the Company participated in the FHLB’s Overnight Advance program. This program allows members to borrow overnight up to their maximum borrowing capacity at the FHLB. At December 31, 2015, our borrowing capacity at the FHLB was $8.78 billion, of which the Company had outstanding borrowings of $3.12 billion and outstanding letters of credit of $1.83 billion. The overnight advances are priced at the federal funds rate plus a spread (generally between 20 and 30 basis points) and re-price daily. In addition, the Bank had an effective commitment for unsecured discretionary overnight borrowings with other institutions totaling $125 million, of which no balance was outstanding at December 31, 2015.

10. Income Taxes

The components of income tax expense are as follows:
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
 
 
(In thousands)
Current tax expense:
 
 
 
 
 
 
Federal
 
$
87,748

 
77,029

 
76,692

State
 
14,804

 
7,508

 
7,881

 
 
102,552

 
84,537

 
84,573

Deferred tax (benefit) expense:
 
 
 
 
 
 
Federal
 
4,310

 
(3,846
)
 
(16,887
)
State
 
(7,490
)
 
(5,940
)
 
(3,931
)
 
 
(3,180
)
 
(9,786
)
 
(20,818
)
Total income tax expense
 
$
99,372

 
74,751

 
63,755


 

111

The following table presents the reconciliation between the actual income tax expense and the “expected” amount computed using the applicable statutory federal income tax rate of 35%:
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
 
 
 
 
(In thousands)
 
 
“Expected” federal income tax expense
 
$
98,307

 
72,265


61,525

State tax, net
 
4,753

 
1,019

 
2,567

Bank owned life insurance
 
(1,382
)
 
(1,628
)
 
(1,014
)
Expiration of loss carryforward
 
—

 
—

 
645

Change in valuation allowance for federal deferred tax assets
 
—

 
—

 
(645
)
Acquisition related net operating loss
 
(4,076
)
 
—

 
—

ESOP fair market value adjustment
 
947

 
349

 
538

Non-deductible compensation
 
276

 
3,334

 
411

Non-deductible acquisition related expenses
 
—

 
—

 
297

Expiration of stock options
 
19

 
2

 
—

Other
 
528

 
(590
)
 
(569
)
Total income tax expense
 
$
99,372

 
74,751

 
63,755

The temporary differences and loss carryforwards which comprise the deferred tax asset and liability are as follows:
 
 
 
December 31,
 
 
2015
 
2014
 
 
(In thousands)
Deferred tax asset:
 
 
 
 
Employee benefits
 
$
36,372

 
30,832

Deferred compensation
 
1,417

 
1,332

Premises and equipment
 
2,262

 
1,532

Allowance for loan losses
 
88,894

 
79,255

Net unrealized loss on securities
 
10,420

 
9,101

Net other than temporary impairment loss on securities
 
42,085

 
44,225

ESOP
 
3,695

 
2,921

Allowance for delinquent interest
 
13,071

 
12,379

Fair value adjustments related to acquisitions
 
31,986

 
38,309

Charitable contribution carryforward
 
5,823

 
5,685

Loan origination costs
 
7,127

 
10,821

Intangible assets
 
45

 
—

Other
 
1,409

 
1,969

Gross deferred tax asset
 
244,606

 
238,361

Valuation allowance
 
(346
)
 
(346
)
 
 
244,260

 
238,015

Deferred tax liability:
 
 
 
 
Intangible assets
 
—

 
251

Mortgage servicing rights
 
6,893

 
5,866

Gross deferred tax liability
 
6,893

 
6,117

Net deferred tax asset
 
$
237,367

 
231,898


A deferred tax asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred tax assets is reduced by the amount of any tax benefits that, based on available

112

evidence, are more likely than not to be realized. 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 become deductible. A valuation allowance is recorded for tax benefits which management has determined are not more likely than not to be realized.
In connection with the Company’s second step conversion, a $20.0 million charitable contribution was made to Investors Charitable Foundation. $10.0 million was made in cash at the Bank level, and is expected to be fully realized based on the Bank’s future taxable income. The remaining $10.0 million contribution was made by Investors Bancorp, Inc., and based on the standalone future state taxable income at the Bancorp level, a valuation allowance of $346,000 was established as of December 31, 2014 for the portion of the state tax benefit related to the contribution that is not more likely than not to be realized. At December 31, 2015 the Company's valuation allowance pertaining to the charitable contributions remained at $346,000.
Based upon projections of future taxable income and the ability to carry back losses for two years, management believes it is more likely than not the Company will realize the remaining deferred tax asset.
Retained earnings at December 31, 2015 included approximately $45.2 million for which deferred income taxes of approximately $19.2 million have not been provided. The retained earnings amount represents the base year allocation of income to bad debt deductions for tax purposes only. Base year reserves are subject to recapture if the Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter. Under ASC 740, this amount is treated as a permanent difference and deferred taxes are not recognized unless it appears that it will be reduced and result in taxable income in the foreseeable future. Events that would result in taxation of these reserves include failure to qualify as a bank for tax purposes or distributions in complete or partial liquidation.
The Company had no unrecognized tax benefits or related interest or penalties at December 31, 2015 and 2014.
The Company files income tax returns in the United States federal jurisdiction and in the states of New Jersey and New York. As of December 31, 2015, the Company was under audit by the IRS in connection with its 2013 federal consolidated tax return, however the Company is no longer subject to federal income tax examination for years prior to 2012. Investors Bank and its affiliates are currently under audit by the New York State Department of Taxation and Finance for tax years 2013 and 2014. The Company is no longer subject to income tax examination by New Jersey and New York for years prior to 2011 and 2012, respectively.

11. Benefit Plans

Defined Benefit Pension Plan
The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”), a tax-qualified defined-benefit pension plan. The Pentegra DB Plan’s Employer Identification Number is 13-5645888 and the Plan Number is 333. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan.
The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind all of the liabilities. Accordingly, under the Pentegra DB Plan contributions made by a participating employer may be used to provide benefits to participants of other participating employers.
The funded status (fair value of plan assets divided by funding target) as of July 1, 2015 and 2014 was 99.17% and 107.60%, respectively. The fair value of plan assets reflects any contributions received through June 30, 2015.
 
The Company’s required contribution and pension cost was $9.2 million, $5.3 million and $5.9 million in the years ended December 31, 2015, 2014 and 2013, respectively. The accrued pension liability was $727,000 and $672,000 million at December 31, 2015 and 2014, respectively. The Company’s contributions to the Pentegra DB Plan are not more than 5% of the total contributions to the plan. The Company's expected contribution for the 2016 year is approximately $6.5 million.
SERPs, Directors’ Plan and Other Postretirement Benefits Plan
The Company has an Executive Supplemental Retirement Wage Replacement Plan ("Wage Replacement Plan") and the Supplemental ESOP and Retirement Plan ("Supplemental ESOP") (collectively, the "SERPs"). The Wage Replacement Plan is a nonqualified, defined benefit plan which provides benefits to certain executives as designated by the Compensation Committee of the Board of Directors. More specifically, the Wage Replacement Plan is designed to provide participants with a normal retirement benefit equal to an annual benefit of 60% of the participant's highest annual base salary and cash inventive (over a consecutive 36-month period within the last 120 consecutive calendar months of employment) reduced by the sum of the benefits provided under the Pentagra DB Plan and the annualized value of their benefits payable under the defined benefit portion of the Supplemental ESOP.

113

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

The following table sets forth information regarding the Wage Replacement Plan and the directors’ defined benefit plan:
 
 
December 31,
 
2015
 
2014
 
(In thousands)
Change in benefit obligation:
 
 
 
Benefit obligation at beginning of year
$
40,522

 
29,152

Service cost
3,096

 
2,319

Interest cost
1,497

 
1,322

(Gain) loss due to change in mortality assumption
(778
)
 
3,289

(Gain) loss due to change in discount rate
(1,587
)
 
4,816

Loss due to demographic changes
6,008

 
495

Benefits paid
(871
)
 
(871
)
Benefit obligation at end of year
47,887

 
40,522

Funded status
$
(47,887
)
 
(40,522
)
The unfunded pension benefits of $47.9 million and $40.5 million at December 31, 2015 and 2014, respectively, are included in other liabilities in the consolidated balance sheets. The components of accumulated other comprehensive loss related to pension plans, on a pre-tax basis, at December 31, 2015 and 2014, are summarized in the following table.
 
 
December 31,
 
2015
 
2014
 
(In thousands)
Prior service cost
$
—

 
49

Net actuarial gain
19,284

 
16,923

Total amounts recognized in accumulated other comprehensive income
$
19,284

 
16,972

The accumulated benefit obligation for the Wage Replacement Plan and directors’ defined benefit plan was $28.6 million and $23.6 million at December 31, 2015 and 2014, respectively. The measurement date for our SERP and directors’ plan is December 31 for the years ended December 31, 2015 and 2014.

The weighted-average actuarial assumptions used in the plan determinations at December 31, 2015 and 2014 were as follows:
 
 
December 31,
 
2015
 
2014
Discount rate
3.99
%
 
3.71
%
Rate of compensation increase
4.36
%
 
4.19
%


114

The components of net periodic benefit cost are as follows:
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Service cost
$
3,096

 
2,319

 
1,799

Interest cost
1,497

 
1,322

 
908

Amortization of:
 
 
 
 
 
Prior service cost
49

 
98

 
98

Net gain
1,282

 
633

 
660

Total net periodic benefit cost
$
5,924

 
4,372

 
3,465


The following are the weighted average assumptions used to determine net periodic benefit cost:
 
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
 
 
 
 
 
Discount rate
3.71
%
 
4.53
%
 
3.56
%
Rate of compensation increase
4.19
%
 
4.00
%
 
3.87
%
Estimated future benefit payments, which reflect expected future service, as appropriate for the next ten calendar years are as follows:
 
 
Amount
 
(In thousands)
2016
$
1,175

2017
925

2018
906

2019
885

2020
2,882

2021 through 2025
22,174

401(k) Plan
The Company has a 401(k) plan covering substantially all employees providing they meet the eligibility age requirement of age 21. The Company matches 50% of the first 6% contributed by the participants to the 401(k) plan. The Company’s aggregate contributions to the 401(k) plan for the years ended December 31, 2015, 2014 and 2013 were $2.2 million, $2.0 million and $1.5 million, respectively.
 
Employee Stock Ownership Plan
The ESOP is a tax-qualified plan designed to invest primarily in the Company’s common stock that provides employees with the opportunity to receive a funded retirement benefit from the Bank, based primarily on the value of the Company’s common stock. During the Company's initial public stock offering in October 2005 the ESOP was authorized to purchase, and did purchase, 10,847,883 shares of the Company’s common stock at a price of $3.92 per share with the proceeds of a loan from the Company to the ESOP. In connection with the completion of the Company's mutual to stock conversion on May 7, 2014, the ESOP purchased an additional 6,617,421 common shares of stock at a price of $10.00 per share with the proceeds of a loan from the Company to the ESOP. The Company refinanced the outstanding principal and interest balance of $33.9 million and borrowed an additional $66.2 million to purchase the additional shares. The outstanding loan principal balance at December 31, 2015 was $94.9 million. Shares of the Company’s common stock pledged as collateral for the loan are released from the pledge pro-rata for allocation to participants as loan payments are made.
At December 31, 2015, shares allocated to participants were 4,201,759 since the plan inception. ESOP shares that were unallocated or not yet committed to be released totaled 13,263,545 at December 31, 2015, and had a fair value of $165.0 million.

115

ESOP compensation expense for the years ended December 31, 2015, 2014 and 2013 was $5.5 million, $5.1 million and $3.0 million, respectively, representing the fair value of shares allocated or committed to be released during the year.
The Supplemental ESOP also provides supplemental benefits to certain executives as designated by the Compensation Committee of the Board of Directors who are prevented from receiving the full benefits contemplated by ESOP's benefit formula due to the Internal Revenue Code. During the years ended December 31, 2015, 2014 and 2013, compensation expense related to this plan amounted to $656,000, $568,000 and $782,000, respectively.
Equity Incentive Plan
At the annual meeting held on June 9, 2015, stockholders of the Company approved the Investors Bancorp, Inc. 2015 Equity Incentive Plan ("2015 Plan"). On June 23, 2015, the Company granted to directors and certain employees a total of 6,849,832 restricted stock awards and 11,576,612 stock options to purchase Company stock. The restricted stock awards and stock options were issued out of the 2015 Plan, which allows the Company to grant common stock or options to purchase common stock at specific prices to directors and employees of the Company. The 2015 Plan provides for the issuance or delivery of up to 30,881,296 shares (13,234,841 restricted stock awards and 17,646,455 stock options) of Investors Bancorp, Inc. common stock.
Restricted shares granted under the 2015 Plan vest in equal installments, over the service period generally ranging from 5 to 7 years beginning one year from the date of grant. Additionally, certain restricted shares awarded are performance vesting awards, which may or may not vest depending upon the attainment of certain corporate financial targets. The vesting of restricted stock may accelerate in accordance with the terms of the 2015 Plan. The product of the number of shares granted and the grant date closing market price of the Company's common stock determine the fair value of restricted shares under the 2015 Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period.

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

The fair value of stock options granted on June 23, 2015 was estimated utilizing the Black-Scholes option pricing model using the following assumptions:
 
Stock Options Granted
 
 
Weighted average expected life (in years)
7.43

Weighted average risk-free rate of return
1.96
%
Weighted average volatility
25.33
%
Dividend yield
1.59
%
Weighted average fair value of options granted
$
3.12


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

The Company applied ASC, 718 “Compensation- Stock Compensation," ("ASC 718") and began to expense the fair value of all share-based compensation granted over the requisite service periods. ASC 718 requires the Company to report as a financing cash flow the benefits of realized tax deductions in excess of previously recognized tax benefits on compensation expense. In accordance with SEC Staff Accounting Bulletin No. 107 (“SAB 107”), the Company classified share-based compensation for employees and outside directors within “compensation and fringe benefits” in the consolidated statements of income to correspond with the same line item as the cash compensation paid.
During the year ended December 31, 2014, the Compensation and Benefits Committee approved the issuance of an additional 38,250 restricted stock awards and 144,177 stock options to certain officers under the Investors Bancorp, Inc. 2006 Equity Incentive Plan (the "2006 Plan").
During the year ended December 31, 2013, the Compensation and Benefits Committee approved the issuance of an additional 7,650 restricted stock awards and 504,696 stock options to certain officers under the 2006 Plan. In addition, as part of

116

the Roma Financial acquisition 1,584,235 stock awards were granted for the conversion of outstanding Roma Financial stock awards. These shares had a weighted average exercise price of $6.11 per share and were fully vested upon acquisition. The company will not recognize compensation expense in the future on these awards as they have been accounted for as part of the acquisition.

The following table presents the share based compensation expense for the year ended December 31, 2015 2014 and 2013. Upon completion of the mutual-to-stock conversion of Investors Bancorp, MHC on May 7, 2014, vesting accelerated for both stock options and restricted stock outstanding awards and all applicable expenses were recognized during the period.
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(Dollars in thousands)
Stock option expense
$
2,905

 
1,800

 
365

Restricted stock expense
6,314

 
11,900

 
3,100

Total share based compensation expense
$
9,219

 
13,700

 
3,465



The following is a summary of the status of the Company’s restricted shares as of December 31, 2015 and changes therein during the year then ended:
 
 
 
Number of
Shares
Awarded
 
Weighted
Average
Grant Date
Fair Value
Non-vested at December 31, 2014
 
—

 
$
—

Granted
 
6,849,832

 
12.54

Vested
 
—

 
—

Forfeited
 
(90,000
)
 
12.54

Non-vested at December 31, 2015
 
6,759,832

 
$
12.64

Expected future expenses relating to the non-vested restricted shares outstanding as of December 31, 2015 is $77.6 million over a weighted average period of 5.66 years.

The following is a summary of the Company’s stock option activity and related information for its option plan for the year ended December 31, 2015:
 
 
 
Number of
Stock
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (in years)
 
Aggregate
Intrinsic
Value
Outstanding at December 31, 2014
 
9,092,584

 
$
6.06

 
2.8
 
$
46,984

Granted
 
11,576,611

 
12.54

 
9.9
 
 
Exercised
 
(1,698,283
)
 
5.96

 
1.6
 
 
Forfeited
 
(161,419
)
 
12.41

 
 
 
 
Expired
 
(4,677
)
 
9.90

 
 
 
 
Outstanding at December 31, 2015
 
18,804,816

 
$
10.00

 
6.8
 
$
46,996

Exercisable at December 31, 2015
 
7,366,289

 
$
6.06

 
1.8
 
$
46,975

 

117

The fair value of the option grants was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
 
 
 
 
 
December 31,
 
 
 
 
2015
 
2014
 
2013
 
 
 
Expected dividend yield
 
1.59
%
 
0.35
%
 
0.16
%
Expected volatility
 
25.33
%
 
32.97
%
 
33.20
%
Risk-free interest rate
 
1.96
%
 
1.69
%
 
1.38
%
Expected option life
 
7.4 years

 
6.5 years

 
6.5 years

The weighted average grant date fair value of options granted during the years ended December 31, 2015 and 2014 was $3.12 and $3.63 per share, respectively. Expected future expense relating to the non-vested options outstanding as of December 31, 2015 is $32.7 million over a weighted average period of 5.74 years.


12. Commitments and Contingencies
The Company is a defendant in certain claims and legal actions arising in the ordinary course of business. Management and the Company’s legal counsel are of the opinion that the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial condition, results of operations or liquidity.
At December 31, 2015, the Company was obligated under various non-cancelable operating leases on buildings and land used for office space and banking purposes. These operating leases contain escalation clauses which provide for increased rental expense, based primarily on increases in real estate taxes and cost-of-living indices. Rental expense under these leases aggregated approximately $19.2 million, $17.3 million and $15.2 million for the years ended December 31, 2015, 2014 and 2013, respectively.

The projected annual minimum rental commitments are as follows:
 
 
 
 
Amount
 
(In thousands)
2016
$
20,310

2017
20,055

2018
19,190

2019
18,588

2020
17,013

Thereafter
120,877

 
$
216,033

Financial Transactions with Off-Balance-Sheet Risk and Concentrations of Credit Risk
The Company is a party to transactions with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers. These transactions consist of commitments to extend credit. These transactions involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the accompanying consolidated balance sheet.
At December 31, 2015, the Company had commitments to originate total commercial loans of $566.9 million. Additionally, the Company had commitments to originate residential loans of approximately $57.4 million, commitments to purchase residential loans of $82.7 million and unused home equity and overdraft lines of credit, and undisbursed business and construction loans, totaling approximately $960.5 million. No commitments are included in the accompanying consolidated financial statements. The Company has no exposure to credit loss if the customer does not exercise its rights to borrow under the commitment.
The Company uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet loans. Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since the commitments may expire without being drawn upon, the total commitment

118

amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but primarily includes residential properties.
The Company principally grants commercial real estate loans, multi-family loans, commercial and industrial loans, construction loans, residential mortgage loans and consumer and other loans to borrowers throughout New Jersey, New York and states in close proximity. Its borrowers’ abilities to repay their obligations are dependent upon various factors, including the borrowers’ income and net worth, cash flows generated by the underlying collateral, value of the underlying collateral and priority of the Company’s lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the Company’s control; the Company is, therefore, subject to risk of loss. The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks and adequate provisions for loan losses are provided for all probable and estimable losses. Collateral and/or government or private guarantees are required for virtually all loans.
The Company also holds in its loan portfolio interest-only one-to four-family mortgage loans in which the borrower makes only interest payments for the first five, seven or ten years of the mortgage loan term. This feature will result in future increases in the borrower’s contractually required payments due to the required amortization of the principal amount after the interest-only period. These payment increases could affect the borrower’s ability to repay the loan. The amount of interest-only one-to four-family mortgage loans at December 31, 2015 and December 31, 2014 was $172.3 million, and $288.0 million, respectively. The Company maintained stricter underwriting criteria for these interest-only loans than it did for its amortizing loans. The Company believes 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.
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 the Company is found to be in breach of these representations and warranties, it may be obligated to repurchase certain of these loans.
In connection with its mortgage banking activities, the Company has certain freestanding derivative instruments. At December 31, 2015, the Company had commitments of approximately $26.5 million to fund loans which will be classified as held-for-sale with a like amount of commitments to sell such loans which are considered derivative instruments under ASC 815, “Derivatives and Hedging.” The Company also had commitments of $19.0 million to sell loans at December 31, 2015. The fair values of these derivative instruments are immaterial to the Company’s financial condition and results of operations.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The guarantees generally extend for a term of up to one year and are fully collateralized. For each guarantee issued, if the customer defaults on a payment or performance to the third party, the Company would have to perform under the guarantee. Outstanding standby letters of credit totaled $23.7 million at December 31, 2015. The fair values of these obligations were immaterial at December 31, 2015. In addition, at December 31, 2015, the Company had $617,000 in commercial letters of credit outstanding.

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 are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets or liabilities on a non-recurring basis, such as held-to-maturity securities, mortgage servicing rights (“MSR”), loans receivable and real estate owned (“REO”). These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets. Additionally, in connection with our mortgage banking activities we have commitments to fund loans held-for-sale and commitments to sell loans, which are considered free-standing derivative instruments, the fair values of which are not material to our financial condition or results of operations.
In accordance with Financial Accounting Standards Board (“FASB”) ASC 820, “Fair Value Measurements and Disclosures”, we group our assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:
•
Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
•
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
•
Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

119

We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Assets Measured at Fair Value on a Recurring Basis
Securities available-for-sale
Our available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity. The fair values of available-for-sale securities are based on quoted market prices (Level 1), where available. The Company obtains one price for each security primarily from a third-party pricing service (pricing service), which generally uses quoted or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded (Level 2), the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes. As the Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in adjustment in the prices obtained from the pricing service.

The following tables provide the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a recurring basis at December 31, 2015 and December 31, 2014.
 
 
Carrying Value at December 31, 2015
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Securities available for sale:
 
 
 
 
 
 
 
Equity securities
$
6,495

 
6,495

 
—

 
—

Mortgage-backed securities:
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
547,451

 
—

 
547,451

 
—

Federal National Mortgage Association
726,072

 
—

 
726,072

 
—

Government National Mortgage Association
24,679

 
—

 
24,679

 
—

Total mortgage-backed securities available-for-sale
1,298,202

 
—

 
1,298,202

 
—

Total securities available-for-sale
$
1,304,697

 
6,495

 
1,298,202

 
—

 
 
Carrying Value at December 31, 2014
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Securities available for sale:
 
 
 
 
 
 
 
Equity securities
$
8,523

 
6,082

 
2,441

 
—

Mortgage-backed securities:
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
507,283

 
—

 
507,283

 
—

Federal National Mortgage Association
681,992

 
—

 
681,992

 
—

Government National Mortgage Association
126

 
—

 
126

 
—

Total mortgage-backed securities available-for-sale
1,189,401

 
—

 
1,189,401

 
—

Total securities available-for-sale
$
1,197,924

 
6,082

 
1,191,842

 
—


120

There have been no changes in the methodologies used at December 31, 2015 from December 31, 2014, and there were no transfers between Level 1 and Level 2 during the year ended December 31, 2015.
The changes in Level 3 assets measured at fair value on a recurring basis for the years ended December 31, 2015 and 2014 are summarized below:
 
Years Ended December 31,
 
2015
 
2014
 
(Dollars in thousands)
Balance beginning of period (1)
$
—

 
670

Total net (losses) gains for the period included in:
 
 
 
Net income
—

 
470

Other comprehensive income (loss)
—

 
(229
)
Sales
—

 
(911
)
Settlements
—

 
—

Balance end of period
$
—

 
—

(1) Represents a trust preferred security transferred to available for sale at its fair value on December 31, 2013 due to the impact of the Volcker Rule adopted in December 2013. The Volcker Rule requires specific treatment of certain collateralized debt obligation backed by trust preferred securities. The security was subsequently sold during the twelve months ended December 31, 2014.
Assets Measured at Fair Value on a Non-Recurring Basis
Mortgage Servicing Rights, net
Mortgage servicing rights are carried at the lower of cost or estimated fair value. The estimated fair value of MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements. The prepayment speed and the discount rate are considered two of the most significant inputs in the model. At December 31, 2015, the fair value model used prepayment speeds ranging from 6.30% to 26.28% and a discount rate of 10.20% for the valuation of the mortgage servicing rights. A significant degree of judgment is involved in valuing the mortgage servicing rights using Level 3 inputs. The use of different assumptions could have a significant positive or negative effect on the fair value estimate.

Loans Receivable
Loans which meet certain criteria are evaluated individually for impairment. A loan is deemed to be impaired if it is a commercial loan with an outstanding balance greater than $1.0 million and on non-accrual status, loans modified in a troubled debt restructuring, and other commercial loans with $1.0 million in outstanding principal if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. Our impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling costs. In order to estimate fair value, once interest or principal payments are 90 days delinquent or when the timely collection of such income is considered doubtful an updated appraisal is obtained. Thereafter, in the event the most recent appraisal does not reflect the current market conditions due to the passage of time and other factors, management will obtain an updated appraisal or make downward adjustments to the existing appraised value based on their knowledge of the property, local real estate market conditions, recent real estate transactions, and for estimated selling costs, if applicable. At December 31, 2015, appraisals were discounted in a range of 0%-25%.
Other Real Estate Owned
Other Real Estate Owned is recorded at estimated fair value, less estimated selling costs when acquired, thus establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are discounted an additional 0%-25% for estimated costs to sell. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If the estimated fair value of the asset declines, a writedown is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions. Operating costs after acquisition are generally expensed.

121

The following tables provides the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis at December 31, 2015 and December 31, 2014. For the year ended December 31, 2015, there was no change to carrying value of MSR and impaired loans measured at fair value on a non-recurring basis.
 
 Security Type
Valuation Technique
Unobservable Input
Range
Weighted Average
Carrying Value at December 31, 2015
 
 
 
 
 
Total
Level 1
Level 2
Level 3
 
 
 
 
 
(In thousands)
Other real estate owned
Market comparable
Lack of marketability
0.0% - 25.0%
8.90%
$
510

—

—

510





 
$
510

—

—

510

 
 Security Type
Valuation Technique
Unobservable Input
Range
Weighted Average
Carrying Value at December 31, 2014
 
 
 
 
 
Total
Level 1
Level 2
Level 3
 
 
 
 
 
(In thousands)
MSR, net
Estimated cash flow
Prepayment speeds
5.70% - 29.40%
11.22%
$
13,081

—

—

13,081

Other real estate owned
Market comparable
Lack of marketability
0.0% - 25.0%
15.87%
566

—

—

566

 
 
 
 
 
$
13,647

—

—

13,647

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

Cash and Cash Equivalents
For cash and due from banks, the carrying amount approximates fair value.
Securities held-to-maturity
Our held-to-maturity portfolio, consisting primarily of mortgage backed securities and other debt securities for which we have a positive intent and ability to hold to maturity, is carried at amortized cost. Management utilizes various inputs to determine the fair value of the portfolio. The Company obtains one price for each security primarily from a third-party pricing service, which generally uses quoted or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes. In the absence of quoted prices and in an illiquid market, valuation techniques, which require inputs that are both significant to the fair value measurement and unobservable, are used to determine fair value of the investment. Valuation techniques are based on various assumptions, including, but not limited to cash flows, discount rates, rate of return, adjustments for nonperformance and liquidity, and liquidation values. As the Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in adjustment in the prices obtained from the pricing service.
FHLB Stock
The fair value of FHLB stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock and the Bank is required to hold a minimum investment based upon the unpaid principal of home mortgage loans and/or FHLB advances outstanding.


122

Loans held for sale
The fair value of loans held for sale is its carrying value, since this is the amount for which the Company intends to sell it for. The fair value is determined based on quoted prices for similar instruments in active markets.
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories.
The fair value of performing loans, except residential mortgage loans, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs, if applicable. Fair value for significant non-performing loans is based on recent external appraisals of collateral securing such loans, adjusted for the timing of anticipated cash flows. Fair values estimated in this manner do not fully incorporate an exit price approach to fair value, but instead are based on a comparison to current market rates for comparable loans.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as savings, checking accounts and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates which approximate currently offered for deposits of similar remaining maturities.
Borrowings
The fair value of borrowings are based on securities dealers’ estimated fair values, when available, or estimated using discounted contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.

123

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.
 
 
December 31, 2015
 
Carrying
 
Estimated Fair Value
 
value
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
148,904

 
148,904

 
148,904

 
—

 
—

Securities available-for-sale
1,304,697

 
1,304,697

 
6,495

 
1,298,202

 
—

Securities held-to-maturity
1,844,223

 
1,888,686

 
—

 
1,810,869

 
77,817

Stock in FHLB
178,437

 
178,437

 
178,437

 
—

 
—

Loans held for sale
7,431

 
7,431

 
—

 
7,431

 
—

Net loans
16,661,133

 
16,650,529

 
—

 
—

 
16,650,529

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits, other than time deposits
$
10,647,346

 
10,647,346

 
10,647,346

 
—

 
—

Time deposits
3,416,310

 
3,414,528

 
—

 
3,414,528

 
—

Borrowed funds
3,263,090

 
3,277,983

 
—

 
3,277,983

 
—


 
December 31, 2014
 
Carrying
 
Estimated Fair Value
 
value
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
230,961

 
230,961

 
230,961

 
—

 
—

Securities available-for-sale
1,197,924

 
1,197,924

 
6,082

 
1,191,842

 
—

Securities held-to-maturity
1,564,479

 
1,609,365

 
—

 
1,544,129

 
65,236

Stock in FHLB
151,287

 
151,287

 
151,287

 
—

 
—

Loans held for sale
6,868

 
6,868

 
—

 
6,868

 
—

Net loans
14,887,570

 
14,747,319

 
—

 
—

 
14,747,319

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits, other than time deposits
$
9,601,988

 
9,601,988

 
9,601,988

 
—

 
—

Time deposits
2,570,338

 
2,580,572

 
—

 
2,580,572

 
—

Borrowed funds
2,766,104

 
2,796,969

 
—

 
2,796,969

 
—

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

124

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. Regulatory Capital
The Bank and the Company are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Company must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Company to maintain minimum amounts and ratios of Tier 1 leverage ratio, Common equity tier 1 risk-based, Tier 1 risk-based capital and Total risk-based capital (as defined in the regulations). 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 riskweighted 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. The Common equity tier 1 risk-based ratio and changes to the calculation of risk-weighted assets became effective for the Bank and Company on January 1, 2015.
As of December 31, 2015, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank and the Company must maintain minimum Tier 1 leverage ratio, Common equity tier 1 risk-based, Tier 1 risk-based capital and Total risk-based capital as set forth in the tables. There are no conditions or events since that notification that management believes have changed the Bank and the Company's category.
The following is a summary of the Bank and the Company’s actual capital amounts and ratios as of December 31, 2015 compared to the FDIC minimum capital adequacy requirements and the FDIC requirements for classification as a well-capitalized institution. The information presented as of December 31, 2014 reflect the requirements in effect at that time, as the Basel III requirements became effective on January 1, 2015.

125

 
 
 
Actual
 
Minimum Capital Requirement
 
To be Well  Capitalized
Under Prompt
Corrective Action
Provisions (1)
 
 
Amount
 
Ratio
 
Amount    
 
Ratio    
 
Amount    
 
Ratio    
 
 
(Dollars in thousands)
As of December 31, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
Bank:
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 Leverage Ratio
 
$
2,558,334

 
12.41
%
 
$
824,607

 
4.00
%
 
$
1,030,759

 
5.00
%
Common equity tier 1 risk-based
 
2,558,334

 
15.87
%
 
725,523

 
4.50
%
 
1,047,978

 
6.50
%
Tier 1 Risk-Based Capital
 
2,558,334

 
15.87
%
 
967,364

 
6.00
%
 
1,289,819

 
8.00
%
Total Risk-Based Capital
 
2,760,081

 
17.12
%
 
1,289,819

 
8.00
%
 
1,612,274

 
10.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Investors Bancorp, Inc:
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 Leverage Ratio
 
$
3,259,928

 
15.80
%
 
$
825,139

 
4.00
%
 
n/a

 
n/a

Common equity tier 1 risk-based
 
3,259,928

 
20.20
%
 
726,146

 
4.50
%
 
n/a

 
n/a

Tier 1 Risk-Based Capital
 
3,259,928

 
20.20
%
 
968,194

 
6.00
%
 
n/a

 
n/a

Total Risk-Based Capital
 
3,461,649

 
21.45
%
 
1,290,926

 
8.00
%
 
n/a

 
n/a

 
 
Actual
 
For Capital Adequacy
Purposes
 
To be Well  Capitalized
Under Prompt
Corrective Action
Provisions (1)
 
 
Amount
 
Ratio
 
Amount    
 
Ratio    
 
Amount    
 
Ratio    
 
 
(Dollars in thousands)
As of December 31, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
Bank:
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 Leverage Ratio
 
$
2,339,572

 
12.79
%
 
$
731,884

 
4.00
%
 
$
914,855

 
5.00
%
Tier 1 Risk-Based Capital
 
2,339,572

 
17.01
%
 
550,321

 
4.00
%
 
825,481

 
6.00
%
Total Risk-Based Capital
 
2,511,897

 
18.26
%
 
1,100,641

 
8.00
%
 
1,375,802

 
10.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Investors Bancorp, Inc:
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 Leverage Ratio
 
$
3,511,433

 
19.17
%
 
$
732,710

 
4.00
%
 
n/a

 
n/a

Tier 1 Risk-Based Capital
 
3,511,433

 
25.48
%
 
551,181

 
4.00
%
 
n/a

 
n/a

Total Risk-Based Capital
 
3,684,024

 
26.74
%
 
1,102,362

 
8.00
%
 
n/a

 
n/a

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

15. Parent Company Only Financial Statements
The following condensed financial statements for Investors Bancorp, Inc. (parent company only) reflect the investment in its wholly-owned subsidiary, Investors Bank, using the equity method of accounting.
 
Balance Sheets
 
 
 
December 31,
 
 
2015
 
2014
 
 
(In thousands)
Assets:
 
 
 
 
Cash and due from bank
 
$
569,513

 
1,022,231

Securities available-for-sale, at estimated fair value
 
1,733

 
3,791

Investment in subsidiary
 
2,611,080

 
2,409,557

ESOP loan receivable
 
94,889

 
96,951

Other assets
 
45,898

 
52,499

Total Assets
 
$
3,323,113

 
3,585,029

Liabilities and Stockholders’ Equity:
 
 
 
 
Total liabilities
 
$
11,466

 
7,174

Total stockholders’ equity
 
3,311,647

 
3,577,855

Total Liabilities and Stockholders’ Equity
 
$
3,323,113

 
3,585,029


126

Statements of Operations
 
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Income:
 
 
 
 
 
Interest on ESOP loan receivable
$
3,151

 
2,499

 
1,125

Dividend from subsidiary
—

 
—

 
10,000

Interest on deposit with subsidiary
2

 
2

 
2

Interest and dividends on investments
65

 
64

 
49

Gain on securities transactions
1,682

 
145

 
89

 
4,900

 
2,710

 
11,265

Expenses:
 
 
 
 
 
Interest expense
54

 
43

 
53

Other expenses
3,170

 
12,197

 
1,420

Income (loss) before income tax expense
1,676

 
(9,530
)
 
9,792

Income tax (benefit) expense
540

 
(3,675
)
 
233

Income (loss) before undistributed earnings of subsidiary
1,136

 
(5,855
)
 
9,559

Equity in undistributed earnings of subsidiary
180,370

 
137,576

 
102,472

Net income
$
181,506

 
131,721

 
112,031


 Other Comprehensive Income
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Net income
$
181,506

 
131,721

 
112,031

Other comprehensive income, net of tax:
 
 
 
 
 
Unrealized gain on securities available-for-sale
433

 
1,482

 
1,316

Total other comprehensive income
433

 
1,482

 
1,316

Total comprehensive income
$
181,939

 
133,203

 
113,347



127


Statements of Cash Flows
 
 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
 
 
(In thousands)
Cash flows from operating activities:
 
 
 
 
 
 
Net income
 
$
181,506

 
131,721

 
112,031

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
(Equity in undistributed earnings of subsidiary)
 
(180,370
)
 
(137,576
)
 
(102,472
)
Contribution in stock to charitable foundation
 
—

 
10,000

 
—

Gain on securities transactions
 
1,682

 
145

 
89

Decrease in other assets
 
2,107

 
2,227

 
2,235

Increase in other liabilities
 
4,927

 
525

 
1,834

Net cash provided by operating activities
 
9,852

 
7,042

 
13,717

Cash flows from investing activities:
 
 
 
 
 
 
Capital contributed to the Bank
 
—

 
(1,074,947
)
 
—

Cash received net of cash paid for acquisition
 
—

 
48

 
738

Purchase of investments available-for-sale
 
—

 
(493
)
 
(668
)
Redemption of equity securities available-for-sale
 
2,700

 
467

 
280

Principal collected on ESOP loan
 
2,062

 
3,093

 
1,101

Cash received from MHC merger
 
—

 
11,307

 
—

Net cash provided by (used in) investing activities
 
4,762

 
(1,060,525
)
 
1,451

Cash flows from financing activities:
 
 
 
 
 
 
Loan to ESOP
 
—

 
(66,553
)
 
—

Proceeds from issuance of common stock
 
—

 
2,149,893

 
—

Proceeds from sale of treasury stock
 
—

 
38,227

 
6,916

Purchase of treasury stock
 
(382,922
)
 
(13,523
)
 
(1,531
)
Net tax benefit on stock awards
 
2,985

 
3,710

 
1,262

Dividends paid
 
(87,395
)
 
(42,555
)
 
(22,404
)
Net cash (used in) provided by financing activities
 
(467,332
)
 
2,069,199

 
(15,757
)
Net (decrease) increase in cash and due from bank
 
(452,718
)
 
1,015,716

 
(589
)
Cash and due from bank at beginning of year
 
1,022,231

 
6,515

 
7,104

Cash and due from bank at end of year
 
$
569,513

 
1,022,231

 
6,515



128

16. Selected Quarterly Financial Data (Unaudited)
The following tables are a summary of certain quarterly financial data for the years ended December 31, 2015 and 2014.
 
 
 
2015 Quarter Ended
 
 
March 31
 
June 30
 
September 30
 
December 31
 
 
(In thousands, except per share data)
Interest and dividend income
 
$
175,159

 
181,529

 
186,897

 
188,138

Interest expense
 
30,717

 
32,977

 
35,623

 
37,322

Net interest income
 
144,442

 
148,552

 
151,274

 
150,816

Provision for loan losses
 
9,000

 
7,000

 
5,000

 
5,000

Net interest income after provision for loan losses
 
135,442

 
141,552

 
146,274

 
145,816

Non-interest income
 
8,534

 
11,585

 
11,306

 
8,700

Non-interest expenses
 
76,909

 
79,836

 
85,921

 
85,666

Income before income tax expense
 
67,067

 
73,301

 
71,659

 
68,850

Income tax expense
 
25,120

 
26,939

 
22,865

 
24,448

Net income
 
$
41,947

 
46,362

 
48,794

 
44,402

Basic and diluted earnings per common share
 
$
0.12

 
0.14

 
0.15

 
0.14

 
 
 
2014 Quarter Ended
 
 
March 31
 
June 30
 
September 30
 
December 31
 
 
(In thousands, except per share data)
Interest and dividend income
 
$
158,625

 
164,089

 
167,058

 
171,090

Interest expense
 
29,434

 
29,326

 
29,212

 
30,919

Net interest income
 
129,191

 
134,763

 
137,846

 
140,171

Provision for loan losses
 
9,000

 
8,000

 
9,000

 
11,500

Net interest income after provision for loan losses
 
120,191

 
126,763

 
128,846

 
128,671

Non-interest income
 
11,942

 
10,173

 
9,872

 
9,874

Non-interest expenses
 
77,198

 
112,155

 
76,584

 
73,923

Income before income tax expense
 
54,935

 
24,781

 
62,134

 
64,622

Income tax expense
 
20,516

 
9,596

 
23,092

 
21,547

Net income
 
$
34,419

 
15,185

 
39,042

 
43,075

Basic earnings per common share
 
$
0.10

 
0.04

 
0.11

 
0.13

Diluted earnings per common share
 
0.10

 
0.04

 
0.11

 
0.12



129

17. 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 Year Ended December 31,
 
2015
 
2014
 
2013
 
Income
 
Shares
 
Per  Share
Amount
 
Income
 
Shares
 
Per  Share
Amount
 
Income
 
Shares
 
Per  Share
Amount
 
(Dollars in thousands, except per share data)
Net Income
$
181,505

 
 
 
 
 
$
131,721

 
 
 
 
 
$
112,031

 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
$
181,505

 
329,763,527

 
$
0.55

 
$
131,721

 
344,389,259

 
$
0.38

 
$
112,031

 
279,632,558

 
$
0.40

Effect of dilutive common stock equivalents (1)


 
3,169,921

 
 
 


 
3,342,312

 
 
 


 
3,403,286

 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
$
181,505

 
332,933,448

 
$
0.55

 
$
131,721

 
347,731,571

 
$
0.38

 
$
112,031

 
283,035,844

 
$
0.40

(1) For the years ended December 31, 2015, 2014 and 2013, there were 18,200,877, 142,953, and 1,937,015 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.


130

18. Comprehensive Income (Loss)

 The components of comprehensive income (loss), both gross and net of tax, are as follows:
 
Year ended December 31, 2015
 
Year ended December 31, 2014
 
Year ended December 31, 2013
 
Gross
 
Tax
 
Net
 
Gross
 
Tax
 
Net
 
Gross
 
Tax
 
Net
 
(Dollars in thousands)
Net income
$
280,877

 
(99,372
)
 
181,505

 
206,472

 
(74,751
)
 
131,721

 
175,786

 
(63,755
)
 
112,031

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in funded status of retirement obligations
(2,425
)
 
970

 
(1,455
)
 
(8,402
)
 
3,360

 
(5,042
)
 
16

 
(6
)
 
10

Unrealized (loss) gain on securities available-for-sale
(7,982
)
 
3,049

 
(4,933
)
 
9,836

 
(3,884
)
 
5,952

 
(21,930
)
 
9,103

 
(12,827
)
Net Loss on Securities reclassified from available for sale to held to maturity
—

 
—

 
—

 
—

 
—

 
—

 
(12,243
)
 
5,001

 
(7,242
)
Accretion of loss on securities reclassified to held to maturity available for sale
2,448

 
(1,000
)
 
1,448

 
2,918

 
(1,192
)
 
1,726

 
1,670

 
(682
)
 
988

Unrealized gain on security reclassified from held to maturity to available for sale
—

 
—

 
—

 
—

 
—

 
—

 
233

 
(95
)
 
138

Reclassification adjustment for security (gains) losses included in net income
(1,553
)
 
6

 
(1,547
)
 
(233
)
 
95

 
(138
)
 
(684
)
 
279

 
(405
)
Noncredit related component other-than-temporary impairment on security
—

 
—

 
—

 
—

 
—

 
—

 
38

 
(16
)
 
22

Other-than-temporary impairment accretion on debt securities
1,802

 
(736
)
 
1,066

 
1,343

 
(549
)
 
794

 
2,075

 
(848
)
 
1,227

Total other comprehensive (loss) income
(7,710
)
 
2,289

 
(5,421
)
 
5,462

 
(2,170
)
 
3,292

 
(30,825
)
 
12,736

 
(18,089
)
Total comprehensive income
$
273,167

 
(97,083
)
 
176,084

 
211,934

 
(76,921
)
 
135,013

 
144,961

 
(51,019
)
 
93,942


131

The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the years ended December 31, 2015 and 2014:
 
 
Change in
funded status of
retirement
obligations
 
Accretion of loss on securities reclassified to held to maturity
 
Unrealized gain
on securities
available-for-sale
 
Reclassification adjustment for losses included in net income
 
Other-than-
temporary
impairment
accretion on debt
securities
 
Total
accumulated
other
comprehensive
loss
 
(Dollars in thousands)
Balance - December 31, 2014
$
(10,911
)
 
(4,528
)
 
7,851

 
—

 
(14,816
)
 
(22,404
)
Net change
(1,455
)
 
1,448

 
(4,933
)
 
(1,547
)
 
1,066

 
(5,421
)
Balance - December 31, 2015
$
(12,366
)
 
(3,080
)
 
2,918

 
(1,547
)
 
(13,750
)
 
(27,825
)
 
 
 
 
 
 
 
 
 
 
 
 
Balance - December 31, 2013
$
(5,869
)
 
(6,254
)
 
1,899

 
138

 
(15,610
)
 
(25,696
)
Net change
(5,042
)
 
1,726

 
5,952

 
(138
)
 
794

 
3,292

Balance - December 31, 2014
$
(10,911
)
 
(4,528
)
 
7,851

 
—

 
(14,816
)
 
(22,404
)
 

The following table sets for 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.

 
Year Ended December 31,
 
2015
 
2014
 
(In thousands)
Reclassification adjustment for gains included in net income
 
 
 
Gain on security transactions
$
(1,553
)
 
(233
)
Change in funded status of retirement obligations (1)
 
 
 
Compensation and fringe benefits:
 
 
 
Adjustment of net obligation
2,512

 
(175
)
Amortization of net obligation or asset
—

 
25

Amortization of prior service cost
49

 
125

Amortization of net gain
1,354

 
580

Compensation and fringe benefits
3,915

 
555

Total before tax
2,362

 
322

Income tax benefit (expense)
976

 
(205
)
Net of tax
$
1,386

 
527


 (1) These accumulated other comprehensive loss components are included in the computations of net periodic cost for our defined benefit plans and other post-retirement benefit plan. See Note 11 for additional details.

19. Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires all lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. Lessor accounting remains largely unchanged under the new guidance. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period, with early adoption permitted. A modified retrospective approach must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period

132

presented in the financial statements. The Company is currently assessing the impact that the guidance will have on the its financial condition and results of operations.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This amendment supersedes the guidance to classify equity securities with readily determinable fair values into different categories, requires equity securities to be measured at fair value with changes in the fair value recognized through net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The amendment requires public business entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The amendment requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. The amendment requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. The amendment reduces diversity in current practice by clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendment by means of a cumulative-effect adjustment as of the beginning of the fiscal year of adoption, with the exception of the amendment related to equity securities without readily determinable fair values, which should be applied prospectively to equity investments that exist as of the date of adoption. The Company intends to adopt the accounting standard during the first quarter of 2018, as required, and is currently evaluating the impact on its results of operations, financial position, and liquidity.
In September 2015, the FASB issued ASU 2015-16, “Business Combinations- Simplifying the Accounting for Measurement-Period Adjustments." Under the new rules, acquirers no longer have to retrospectively adjust provisional amounts included in acquisition-date financial statements, when final facts and circumstances are not known on the acquisition date, and later become known in the measurement period. Instead, adjustments that are made in a later period are to be reported in that period. However, acquirers must disclose the amount of adjustments to current period income relating to amounts that would have been recognized in previous periods if the adjustments were recognized as of the acquisition date. For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” The ASU changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. According to the ASU’s Basis for Conclusions, debt issuance costs incurred before the associated funding is received should be reported on the balance sheet as deferred charges until that debt liability amount is recorded. For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.
In April 2015, the FASB issued ASU 2015-04, "Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets." The ASU gives an employer whose fiscal year-end does not coincide with a calendar month-end the ability, as a practical expedient, to measure defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end. The ASU also provides guidance on accounting for contributions to the plan and significant events that require a remeasurement that occur during the period between a month-end measurement date and the employer’s fiscal year-end. An entity should reflect the effects of those contributions or significant events in the measurement of the retirement benefit obligations and related plan assets. The ASU is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are in the scope of other standards. In April 2015, the FASB issued a proposed ASU to defer for one year the effective date of the new revenue standard. The requirements are effective for annual periods and interim periods within fiscal years beginning after December 15, 2017. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.

133


20. Subsequent Events
As defined in FASB ASC 855, "Subsequent Events", subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Financial statements are considered issued when they are widely distributed to stockholders and other financial statement users for general use and reliance in a form and format that complies with GAAP.     
On January 28, 2016, the Company declared a cash dividend of $0.06 per share. The $0.06 dividend per share was paid to stockholders on February 25, 2016, with a record date of February 10, 2016.
    

134

(a)(3)
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)
 
 
 
4

  
Form of Common Stock Certificate of Investors Bancorp, Inc. (1)
 
 
 
10.1

  
Amended and Restated Employment Agreement between Investors Bancorp, Inc. and Kevin Cummings (1)

 
 
 
10.2

  
Amended and Restated Employment Agreement between Investors Bancorp, Inc. and Domenick A. Cama (1)
 
 
 
10.3

  
Amended and Restated Employment Agreement Investors Bancorp, Inc. and Richard S. Spengler (2)

 
 
 
10.4

  
Amended and Restated Employment Agreement Investors Bancorp, Inc. and Paul Kalamaras (3)

 
 
 
10.5

  
Employment Agreement Investors Bancorp, Inc. and Sean Burke (4)
 
 
 
10.6

  
Investors Bancorp, Inc. 2006 Equity Incentive Plan (5)

 
 
 
10.7

  
Roma Financial Corporation 2008 Equity Incentive Plan (6)

 
 
 
10.8

  
Investors Bank Executive Officer Annual Incentive Plan (7)

 
 
 
10.9

  
Investors Bank Amended and restated Supplemental ESOP and Retirement Plan (1)

 
 
 
10.10

  
Amended and Restated Investors Bank Executive Supplemental Retirement Wage Replacement Plan (1)

 
 
 
10.11

  
Investors Bank Amended and Restated Director Retirement Plan (1)

 
 
 
10.12

 
Investors Bancorp, Inc. Deferred Directors Fee Plan (1)

 
 
 
10.13

 
Investors Bank Deferred Directors Fee Plan (1)

10.14

 
Split Dollar Life Insurance Agreement between Roma Bank and Robert C. Albanese, as assumed by Investors Bank (8)
 
 
 
10.15

 
Split Dollar Life Insurance Agreement between Roma Bank and Dennis M. Bone, assumed by Investors Bank (8)
 
 
 
10.16

 
Split Dollar Life Insurance Agreement between Roma Bank and Michele N. Siekerka, as assumed by Investors Bank (8)

135

21

  
Subsidiaries of Registrant
 
 
 
23.1

 
Consent of Independent Registered Public Accounting Firm
 
 
 
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

  
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements

                                         


 
(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.

(2)
Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Investors Bancorp, Inc. (Commission File No. 000-51557) filed with the Securities and Exchange Commission on April 1, 2010.

(3)
Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Investors Bancorp, Inc. (Commission File No. 000-51557) filed with the Securities and Exchange Commission on April 1, 2010.

(4)
Incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K of Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange Commission on March 3, 2015.
(5)
Incorporated by reference to Appendix B to the Definitive Proxy Statement for Investors Bancorp, Inc.’s 2006 Annual Meeting of Stockholders (Commission File No. 000-51557) filed with the Securities and Exchange Commission on September 15, 2006.

(5)
Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-8 of Investors Bancorp, Inc. (Commission File No. 333-192717) filed with the Securities and Exchange Commission on December 9, 2013.

(7)
Incorporated by reference to Annex D to the Definitive Proxy Statement for Investors Bancorp, Inc.’s 2013 Annual Meeting of Stockholders (Commission File No. 000-51557) filed with the Securities and Exchange Commission on April 29, 2013.

(8)
Incorporated by reference to the Amended Registration Statement on Form S-1 of Investors Bancorp, Inc. (Commission File no. 333-192966) filed with the Securities and Exchange Commission on February 11, 2014.




136

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: February 29, 2016
 
By:
 
/s/  Kevin Cummings
 
 
 
 
Kevin Cummings
Chief Executive Officer and President
(Principal Executive Officer)
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 

137

 
 
 
 
 
Signatures
  
Title
 
Date
 
 
 
/s/  Kevin Cummings
Kevin Cummings
  
Director, Chief Executive Officer and President
(Principal Executive Officer)
 
February 29, 2016

 
 
 
/s/  Domenick Cama
Domenick Cama
  
Director, Chief Operating Officer
and Senior Executive Vice President
 
February 29, 2016

 
 
 
 
 
/s/  Sean Burke                                                                          Sean Burke
  
Chief Financial Officer and
Senior Vice President
(Principal Financial and Accounting Officer)
 
February 29, 2016

 
 
 
/s/  Robert M. Cashill
Robert M. Cashill
  
Director, Chairman
 
February 29, 2016

 
 
 
 
 
/s/ Robert C. Albanese
Robert C. Albanese


 
Director
 
February 29, 2016

 
 
 
 
 
/s/  Dennis M. Bone
Dennis M. Bone


  
Director
 
February 29, 2016

 
 
 
 
 
/s/  Doreen R. Byrnes
Doreen R. Byrnes
  
Director
 
February 29, 2016

 
 
 
 
 
/s/ William Cosgrove
William Cosgrove


 
Director
 
February 29, 2016

 
 
 
 
 
/s/  Brian D. Dittenhafer
Brian D. Dittenhafer
  
Director
 
February 29, 2016

 
 
 
/s/  Brendan J. Dugan
Brendan J. Dugan


  
Director
 
February 29, 2016

 
 
 
/s/  James Garibaldi
James Garibaldi
 
Director
 
February 29, 2016

 
 
 
 
 
/s/ Michele N. Siekerka
Michele N. Siekerka



 
Director
 
February 29, 2016

 
 
 
 
 
/s/  James H. Ward III
James H. Ward III
  
Director
 
February 29, 2016



138