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2016 ANNUAL REPORT • FORM 10-K & PROXY STATEMENT
“ Maintaining our
commitment to
continuously improve
is essential to our
ongoing growth
and success.”
Folio Holder
do not delete or
used this Page
Dear Fellow Shareholder,
We have so much to be proud of and grateful for at Investors Bancorp as 2016 was another financially
strong year. There is no question we continue to make progress as we grow and move forward. We take
great pride in being recognized by Forbes Magazine for the 6th consecutive year as one of the “Best Banks
in America,”1 and we were the highest rated bank in our geographic market.
For 2016, we posted net income of $192.1 million, compared to $181.5 million in 2015 and have delivered
an impressive five-year total shareholder return of 182%. Assets grew as well in 2016, to $23.17 billion,
an increase of $2.29 billion from December 31, 2015. In total, assets have increased by $12.47 billion
over the last five years. We also opened thirteen new branches in our New Jersey and New York footprint
during 2016.
Our impressive growth was a result of our team’s hard work and commitment. We also recognize that our
growth is dependent on continuing the build-out of our operational and risk management infrastructure, in
particular, our compliance, BSA, AML, information and data security, and credit risk.
As risk management continues to be a focus in our industry, we must keep current with the emerging
technologies, which include increased information security and protection against cyber risk. Keeping
pace with technology requires us to adapt and evolve quickly. Our investment in technology will help
facilitate our continued growth by creating more efficient processes that will enable us to meet and exceed
customer expectations. We have to meet customers not only where they are today – but also where they
will be in the future.
Last year, we unveiled our new website which provides faster, easier navigation and an enhanced online
experience with better access to important information. In 2017, we intend to continue our investment in
technology to enhance our product offerings, including our mobile banking platforms, business online
banking capabilities and digital services. Further developing digital solutions will allow us to improve the
customer experience and provide the services the market has come to expect.
Maintaining our commitment to continuously improve is essential to our ongoing growth and success.
I have said this in the past, and I believe it even more today, we need to grow and change in order to
succeed. Every day, in every way, we must strive to be better at what we do.
We have changed as an organization. Since our initial public offering in 2005, we have transformed from
a wholesale thrift to a retail commercial bank. We have accomplished this by increasing our core deposits
1 Forbes Magazine, January 10, 2017, “America’s Best Banks 2017”
investorsbank.com • 3
and loans to meet the needs of our growing consumer and commercial customer base. Net loans
increased $1.91 billion to $18.57 billion in 2016 and we originated approximately $5.08 billion in
new loans. Additionally, the strength of our cash management and professional banking services
has helped us grow our loans to business owners to $2.05 billion over the past five years. Overall
deposit growth for 2016 was 8.7% and 10.7% of
that growth is attributed to our thirteen new branch
locations.
“ I remain excited for
the future of Investors.
More than ever, I believe
Investors can provide a
legacy of significance.”
Investors continues to effectively manage its strong
capital position of 13% to enhance shareholder
value. Through December 31, 2016 the Company
has repurchased a total of 62.9 million shares
of stock, at an average cost of $11.86 per share,
totaling $746.3 million since our stock repurchase
plan was implemented in March 2015. Dividends
paid to shareholders in 2016 were $0.26 per share.
Our strategic plan is to continue to grow as a
commercial bank and maintain a diversified loan
portfolio. While our loan growth remains impressive, we remain diligent in our underwriting and
monitoring of credit risk in both our commercial and residential portfolios. Our overall level of non-
performing loans remains low, as compared to national and regional peers.
Throughout Investors’ history, mergers and acquisitions have been an integral part of our growth and
success. In May 2016 Investors signed a definitive merger agreement with The Bank of Princeton,
however, we mutually agreed to terminate that transaction in January 2017. We believe this decision
was appropriate given the uncertainty of the timing of regulatory approval. Going forward we will
continue to take advantage of prudent opportunities for growth that produce financial results and
create value for our shareholders.
The execution of our strategic plan and the commitment of our leadership team and employees
provide Investors with a strong competitive advantage. As we strive to fulfill our mission of providing
high-quality products and services, our employees help us operate responsibly and ethically. Their
dedication and hard work enable all of us – clients, stockholders, and our communities – to prosper.
We recognize our employees are the Bank’s most important asset. In 2016 we invested in programs
and provided resources to help employees develop both professionally and personally. We are
committed to the ongoing improvement in everything we do at Investors and will continue to make
investing in our employees a high priority.
Our employees bring our culture and core values to life in every interaction with customers,
colleagues and the communities we serve. Our core values of cooperation, character, community and
commitment drive us to make a difference. During 2016 our foundations awarded over $8 million
to non-profit organizations. Our philanthropic contributions are just a part of our commitment. Our
employees’ support of these organizations is what truly makes the difference. They donate their time,
talent and energy to their local communities. They are a reflection and personification of our culture,
and they are helping to make Investors Bank significant.
4 • investorsbank.com
Investing and enhancing our brand awareness in the markets in which we operate is important to
our continued growth. In 2016, Investors was proud to enter into an exciting new partnership with
the New Jersey Devils and The Prudential Center. This relationship is much more than a marketing
sponsorship. It truly is a partnership between like-minded companies who are committed to giving
back to the communities they serve. This relationship raises Investors’ profile in our market. We
will continue to leverage opportunities and activities which can open the door for more business
relationships in the future.
Yes, 2016 was another financially strong year for Investors. However, we are not content to sit
back and say we are “successful”. That is not the Investors way. We will continue to execute on
our strategic plan and do so by means that encourage, enable and ensure our improvement. We will
remain true to our vision, our mission and values, because that is the foundation on which we have
built the Company.
Although we start 2017 with a challenging economic environment and an unchartered political
landscape, I have faith in our strategic plan, our ability to continue its execution, and to do it well. I
also have confidence in our employees and their dedication. We will keep moving forward and will
do so while remaining true to our roots as a community bank – providing a high level of service with
quality financial solutions. We believe that we have an obligation to contribute to the ongoing vitality
and prosperity of our customers and the communities we serve.
I remain excited for the future of Investors. More than ever, I believe Investors can provide a legacy
of significance.
On behalf of the Board of Directors, management and staff, thank you for being a shareholder of
Investors Bancorp. Your investment is so important. We appreciate your trust, confidence, and the
continuing opportunity to serve you.
Sincerely,
Kevin Cummings
President and Chief Executive Officer
investorsbank.com • 5
SELECTED FINANCIAL DATA
(In thousands, except branch data and percent data)
*
Total assets
Net loans outstanding
Securities
Deposits
Borrowed funds
Stockholders' equity
Number of full service offices
Net interest income
Net income
Return on average assets
Return on average equity
Interest rate spread
Net interest margin
Non-performing assets to total assets
Average equity to average assets
Total Assets at December 31 (dollars in billions)
2014
2015
2016
2016
2015
2014
$23,174,675
$20,888,684
$18,773,639
18,608,153
3,415,989
15,280,833
4,546,251
3,123,245
151
16,668,564
3,148,920
14,063,656
3,263,090
3,311,647
140
14,894,438
2,762,403
12,172,326
2,766,104
3,577,855
132
2016
$640,185
192,125
0.88%
6.06%
2.83%
3.04%
0.47%
14.52%
2015
$595,084
181,505
0.92%
5.26%
2.91%
3.12%
0.69%
17.41%
2014
$541,971
131,721
0.76%
4.71%
3.08%
3.27%
0.81%
16.16%
18.8
20.9
23.2
Net Loans Outstanding at December 31 (dollars in billions)
2014
2015
2016
Deposits at December 31 (dollars in billions)
14.9
16.7
18.6
2014
2015
2016
6 • investorsbank.com
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15.3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2016
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
(State or other jurisdiction of
incorporation or organization)
101 JFK Parkway, Short Hills, New Jersey
(Address of Principal Executive Offices)
46-4702118
(I.R.S. Employer
Identification Number)
07078
Zip Code
(973) 924-5100
(Registrant’s telephone number)
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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 Í 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 Í
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 Í 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 Í 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. Í
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 Í
Non-accelerated filer
‘ (Do not check if a smaller reporting company)
Accelerated filer
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 Í
As of February 23, 2017, the registrant had 359,070,852 shares of common stock, par value $0.01 per share,
issued and 309,878,591 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, 2016, as reported by the NASDAQ Global Select Market, was
approximately $3.47 billion.
1. Proxy Statement for the 2017 Annual Meeting of Stockholders of the registrant (Part III).
DOCUMENTS INCORPORATED BY REFERENCE
INVESTORS BANCORP, INC.
2016 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Part I.
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III.
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships, Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . . .
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part IV.
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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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
including references to
assumptions.
terms and phrases,
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. Risk Factors herein and include, without
limitation, the following:
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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;
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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 an 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.
1
As used in this Form 10-K, “we,” “us” and “our” refer to Investors Bancorp, Inc. and its consolidated
subsidiaries, principally Investors Bank. 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.
ITEM 1. BUSINESS
PART I
Investors Bancorp, Inc. (the “Company”) is a Delaware corporation which became the holding company for
Investors Bank (“the Bank”) in May 2014, upon the completion of the mutual-to-stock conversion of Investors
Bancorp, MHC. Prior to the 2014 conversion, Investors Bancorp, MHC held 55% of Investors Bancorp’s
outstanding common stock in connection with its initial public offering in October 2005, which raised net
proceeds of $509.7 million. 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 and a $10.0 million cash contribution to
the Investors Charitable Foundation. Concurrent with the completion of the stock offering, each share of
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 prior to May 2014 has been revised to reflect the 2.55- to- one exchange ratio.
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The Company is subject to regulation as a bank holding company by the Federal Reserve Board. 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
it has grown through
founded in 1926 as a New Jersey-chartered mutual savings and loan association,
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, home equity lines of credit and cash surrender value lending on life
insurance contracts. Securities, primarily mortgage-backed securities, U.S. Government and Federal Agency
obligations, and other securities represented 15% of consolidated assets at December 31, 2016. 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”).
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
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loans and core deposits. Our transformation can be attributed to a number of factors, including organic growth,
de novo branch openings, bank and branch acquisitions, as well as product expansion. We believe the attractive
markets we operate in, namely, the greater New Jersey and New York metropolitan areas, 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 the largest bank headquartered in the state of New Jersey as measured by assets. 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 as well as 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 household income growth
through 2021. Though slower population growth is projected for many 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 and
nearly all have median household incomes greater than the national median.
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, 2016, the latest
date for which statistics are available, our market share of deposits was ranked in the top 10 of total deposits in
the State of New Jersey and in the top 20 within the New York metropolitan area.
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, 2016, we originated $2.16 billion in multi-family loans and $1.08 billion 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 interest rate exposure to mortgage-backed securities and one- to four-family mortgages.
To further diversify our loan portfolio we have increased 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, 2016, we originated $608.9 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 72% of our loan portfolio at December 31,
2016 as compared to December 31, 2012, when commercial loans were approximately 51% of total loans.
Growing and diversifying our loan portfolio will continue to be a major focus of our business strategy going
forward.
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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
generally a more stable source of low cost funding and are less sensitive to changes in market interest rates. As
of December 31, 2016, we had core deposits of $12.33 billion, representing approximately 81% of total deposits,
compared to December 31, 2012 when core deposits were $5.80 billion, representing 66% of total deposits. Over
the same time, the percent of non-interest bearing deposits to total deposits has grown from 10% to 14%. In order
to maintain these favorable results and trends, we will continue to invest in additional de novo branches, branch
staff training, product development as well as commercial deposit gathering efforts. Over the past few years we
have developed a suite of commercial deposit and cash management products, designed to appeal to small and
mid-sized 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. Through 2014 we
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.
In May 2016 we signed a definitive merger agreement with the Bank of Princeton, with assets of
$1.0 billion, operating ten branches in New Jersey and three in the Philadelphia market. In January 2017, due to
the uncertainty of the timing around regulatory approval, both parties mutually agreed to terminate the
transaction.
Capital Management
Capital management is a key component of our business strategy. We raised net proceeds of $2.15 billion in
equity in May 2014 upon the completion of the second step mutual conversion. As of December 31, 2016 our
4
tangible equity to asset ratio was 13.10%. We manage our capital through a combination of organic growth,
acquisitions, 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. Subsequently we
announced two additional repurchase programs each authorizing a 10% buyback program. Since receiving
approval in March 2015 we have repurchased 62.9 million shares totaling $746.3 million at an average price of
$11.86.
Beginning September of 2012, we began to pay a quarterly cash dividend of $0.02 per share. Since then our
dividend has increased to $0.08 per share. For the year ended 2016 our dividend payout ratio was 40% which
includes a 33% dividend increase in the fourth quarter of 2016 to $0.08 per share.
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 Investors Charitable Foundation, established in 2005, and the Roma Charitable Foundation, which
we acquired in December 2013, Investors Bank has contributed or committed $23.4 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.
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.
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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,
2016, multi-family loans totaled $7.46 billion, or 39.7% of our total loan portfolio, commercial real estate loans
totaled $4.45 billion, or 23.7% of our total loan portfolio, commercial and industrial loans totaled $1.28 billion,
or 6.8% of our total loan portfolio, and construction loans totaled $314.8 million, or 1.7% of our total loan
portfolio. Residential mortgage loans represented $4.71 billion, or 25.1% of our total loans at December 31,
2016. We also offer consumer loans, which consist primarily of home equity loans, home equity lines of credit
and cash surrender value lending on life insurance contracts. At December 31, 2016, consumer and other loans
totaled $597.3 million, or 3.2% of our total loan portfolio.
5
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan.
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.
2016
2015
December 31,
2014
2013
2012
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
(Dollars in thousands)
Commercial loans:
Multi-family loans
Commercial real estate loans
Commercial and industrial loans
Construction loans
$ 7,459,131
4,452,300
1,275,283
314,843
39.65% $ 6,255,904
3,829,099
23.67
1,044,385
6.78
225,843
1.67
37.04% $ 5,049,114
3,147,153
22.67
544,458
6.18
148,396
1.34
Total commercial loans
13,501,557
71.77
11,355,231
67.23
8,889,121
Residential mortgage loans
Consumer and other loans:
Home equity loans
Home equity credit lines
Other
Total consumer and other loans
4,711,880
25.05
5,039,543
29.83
5,769,477
161,356
240,518
195,391
597,265
0.86
1.28
1.04
3.18
201,063
220,357
75,136
496,556
1.19
1.30
0.45
2.94
222,871
200,066
18,017
440,954
33.44% $ 3,986,208 30.51% $ 2,995,471 28.70%
20.84
3.61
0.98
1,971,689 18.89
1.62
2.15
2,505,327 19.18
2.05
1.55
268,422
202,261
169,258
224,816
58.87
38.21
1.48
1.32
0.12
2.92
6,962,218 53.29
5,361,234 51.36
5,698,351 43.62
4,838,315 46.35
245,653
150,796
7,600
404,049
1.88
1.15
0.06
3.09
101,163
131,808
5,951
238,922
0.97
1.26
0.06
2.29
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Total loans
$18,810,702 100.00% $16,891,330 100.00% $15,099,552 100.00% $13,064,618 100.00% $10,438,471 100.00%
Net unamortized premiums and
deferred loan costs(1)
Allowance for loan losses
(12,474)
(228,373)
(11,692)
(218,505)
(11,698)
(200,284)
(8,146)
(173,928)
10,487
(142,172)
Net loans
$18,569,855
$16,661,133
$14,887,570
$12,882,544
$10,306,786
(1)
Included in unamortized premiums and deferred loan costs are accretable purchase accounting adjustments in connection with loans acquired.
Portfolio Maturities. The following table summarizes the scheduled repayments of our loan portfolio based on contractual
maturity, including PCI loans at December 31, 2016. Overdraft loans are reported as being due in one year or less.
Amounts Due:
One year or less
After one year:
One to three years
Three to five years
Five to ten years
Ten to twenty years
Over twenty years
Multi-Family
Loans
Commercial
Real Estate
Loans
Commercial and
Industrial Loans
Construction
Loans
Residential
Mortgage
Loans
Consumer and
Other Loans
Total
At December 31, 2016
(In thousands)
$ 170,954
$ 376,561
$ 378,410
$296,192
$ 294,430
$153,023
$ 1,669,570
1,067,202
2,560,439
3,237,622
422,914
—
754,567
1,338,433
1,656,287
320,230
6,222
88,733
210,010
412,492
155,124
30,514
896,873
18,425
—
226
—
—
18,651
353,948
447,052
612,232
1,080,251
1,923,967
4,417,450
106,046
123,036
65,203
77,866
72,091
444,242
2,388,921
4,678,970
5,984,062
2,056,385
2,032,794
17,141,132
Total due after one year
7,288,177
4,075,739
Total loans
$7,459,131
$4,452,300
$1,275,283
$314,843
$4,711,880
$597,265
$18,810,702
Premiums on purchased loans and
deferred loan fees, net
Allowance for loan losses
Net loans
(12,474)
(228,373)
$18,569,855
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The following table sets forth fixed- and adjustable-rate loans at December 31, 2016 that are contractually
due after December 31, 2017.
Commercial loans:
Multi-family loans
Commercial real estate loans
Commercial and industrial loans
Construction loans
Total commercial loans
Residential mortgage loans
Consumer and other loans:
Home equity loans
Home equity credit lines
Other
Total consumer and other loans
Due After December 31, 2017
Fixed
Adjustable
Total
(In thousands)
$5,151,795
2,559,433
289,654
7,733
8,008,615
1,300,524
—
92,497
191,938
284,435
$ 7,288,177
4,075,739
896,873
18,651
12,279,440
4,417,450
159,509
92,497
192,236
444,242
$2,136,382
1,516,306
607,219
10,918
4,270,825
3,116,926
159,509
—
298
159,807
Total loans
$7,547,558
$9,593,574
$17,141,132
Multi-family Loans. At December 31, 2016, $7.46 billion, or 39.7%, 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.
Commercial Real Estate Loans. At December 31, 2016, $4.45 billion, or 23.7%, 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. Included in commercial real estate loans are
owner occupied commercial mortgage loans which totaled approximately $700 million at December 31, 2016.
Commercial and Industrial Loans. At December 31, 2016, $1.28 billion, or 6.8%, 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. As the Company and our footprint have grown, we have broadened our product offerings
to create certain commercial and industrial lending subspecialties, including expanded lending to the healthcare
industry. As of December 31, 2016 asset based lending loans totaled $70.3 million. Included in the Company’s
commercial and industrial loans were $95.0 million of loans to Co-operative housing corporations and groups
(“Co-Op loans”).
Construction Loans. At December 31, 2016, we held $314.8 million in construction loans representing
1.7% of our total loan portfolio. We offer loans directly to builders and developers on income-producing
properties and residential for-sale housing units. Generally, construction loans are structured to have a three-year
term and 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 units to be sold require a pre-sale or we will
limit the amount of speculative building without a sales contract.
7
Residential Mortgage Loans. At December 31, 2016, $4.71 billion, or 25.1%, 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 brokers. 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.
We offer various loan programs to provide financing for low-and moderate-income home buyers, 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.
Consumer and Other Loans. At December 31, 2016, consumer and other loans totaled $597.3 million, or
3.2% of our total loan portfolio. We offer consumer loans, most of which consist of home equity loans, home
equity lines of credit and cash surrender value lending on life insurance contracts. Home equity loans and home
equity lines of credit are secured by residences primarily located in New Jersey and New York. Home equity
loans are offered with fixed rates of interest, terms up to 20 years and to a maximum of $500,000. Home equity
lines of credit have adjustable rates of interest, indexed to the prime rate.
During 2014, we started to offer cash surrender value lending on life insurance contracts. At December 31,
2016, cash surrender value loans totaled $191.9 million, or 32% 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 a maximum of
$3,000,000. Acceptable credit history and FICO scores are reviewed along with the evaluation of the financial
rating of the insurance carrier.
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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.
Loan originations and purchases
Loan originations:
Commercial loans:
Multi-family loans
Commercial real estate loans
Commercial and industrial loans
Construction loans
Total commercial loans
Residential mortgage loans
Consumer and other loans:
Home equity loans
Home equity credit lines
Other
Total consumer and other loans
Total loan originations
Loan purchases:
Commercial loans:
Multi-family loans
Commercial real estate loans
Commercial and industrial loans
Construction loans
Total commercial loans
Residential mortgage loans
Consumer and other loans
Total loan purchases
Loans sold
Principal repayments
Other items, net(1)
Net loans acquired in acquisition
Net increase in loan portfolio
Years Ended December 31,
2016
2015
2014
(In thousands)
$ 2,162,447
1,078,601
608,899
451,505
$ 2,079,201
936,889
930,777
82,455
$ 1,671,514
869,705
445,360
44,817
4,301,452
523,342
4,029,322
646,521
3,031,396
608,076
14,614
145,147
100,262
260,023
23,177
131,533
93,081
247,791
19,742
103,689
842
124,273
5,084,817
4,923,634
3,763,745
$
— $
—
—
—
—
141,563
—
141,563
$
2,760
141,564
—
—
144,324
54,300
—
198,624
—
—
—
—
—
233,856
—
233,856
(9,752)
(3,302,546)
(5,360)
—
(394,742)
(2,945,853)
(8,100)
—
(32,412)
(2,139,676)
(24,562)
204,075
$ 1,908,722
$ 1,773,563
$ 2,005,026
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(1) Other items include charge-offs and recoveries, 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.
Credit Policy and Procedures
Loan Approval Procedures and Authority. The credit approval process provides for prompt and thorough
underwriting and approval or decline of loan requests. The approval method used is a hierarchy of individual
lending authorities for new credits and renewals. Our lending authority policy and limits are reviewed
periodically by the Board of Directors. Approval limits are set based on the risk associated with each loan type,
loan amount, and aggregate loan balances of a borrower. The Bank’s Credit Risk Committee approves authorities
for lending and credit personnel, which are ultimately submitted to our Board for ratification. Lending authorities
are based on position, capability, and experience of the individuals.
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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, 2016, the regulatory lending limit
was $445.0 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 regular basis. The Bank also sets additional limits on size of loans by loan type. At
December 31, 2016, the Bank’s largest relationship with an individual borrower and its related entities was
$120.7 million in commercial loans consisting of six shopping centers and three retail stores and was performing
in accordance with its contractual terms.
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,
2016 are $124.2 million interest only and $246.0 million in no income verification loans. The Bank does, 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, 2016 are $588.4 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 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.
10
Delinquent Loans. The following table sets forth our loan delinquencies by type and by amount at the dates
indicated, excluding loans classified as PCI.
At December 31, 2016
Commercial loans:
Multi-family loans
Commercial real estate loans
Commercial and industrial loans
Construction loans
Total commercial loans
Residential mortgage loans
Consumer and other loans
Total
At December 31, 2015
Commercial loans:
Multi-family loans
Commercial real estate loans
Commercial and industrial loans
Construction loans
Total commercial loans
Residential mortgage loans
Consumer and other loans
Total
Loans Delinquent For
60-89 Days
90 Days and Over
Total
Number
Amount
Number
Amount
Number
Amount
(Dollars in thousands)
1
8
4
—
13
52
10
75
$ 1,099
31,964
885
—
33,948
10,930
719
$45,597
— $ —
352
3
—
2
—
—
5
60
31
96
352
14,956
427
$15,735
1
14
6
—
21
286
115
422
2
18
13
4
37
301
137
475
$
234
6,445
2,971
—
9,650
58,119
7,065
$74,834
$ 1,886
6,429
4,386
792
13,493
68,560
8,976
$91,029
2
22
10
—
34
338
125
497
2
21
15
4
42
361
168
571
$
1,333
38,409
3,856
—
43,598
69,049
7,784
$120,431
$
1,886
6,781
4,386
792
13,845
83,516
9,403
$106,764
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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 (“REO”), and
excludes PCI loans. We did not have any loans delinquent 90 days or more and still accruing interest at
December 31, 2016 and 2015. Included in delinquent loans 60-89 days for the year ended December 31, 2016 is a
single loan relationship totaling 6 loans for $32.2 million. The loans for this relationship are secured by single
tenant, well-collateralized properties with strong loan to value ratios. Management is actively monitoring all of
these loans.
At December 31, 2016, we had REO of $4.5 million consisting of 18 residential properties and 8
commercial properties. Non-accrual loans decreased by $21.1 million to $94.3 million at December 31, 2016
from $115.4 million at December 31, 2015. There were no sales of non-performing loans during 2016. During
2015, the Company sold a pool of non-performing loans (including PCI loans) totaling $20.9 million on a bulk
basis.
The ratio of non-accrual loans to total loans decreased to 0.50% at December 31, 2016 from 0.68% at
December 31, 2015. Our ratio of non-performing assets to total assets decreased to 0.47% at December 31, 2016
from 0.69% at December 31, 2015. The allowance for loan losses as a percentage of total non-accrual loans
increased to 242.24% at December 31, 2016 from 189.30% at December 31, 2015. 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.
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Non-accrual loans:
Multi-family loans
Commercial real estate loans
Commercial and industrial loans
Construction loans
Total commercial loans
Residential mortgage loans
Consumer and other loans
Total non-accrual loans
Real estate owned
Performing troubled debt restructurings
December 31,
2016
2015
2014
2013
2012
(Dollars in thousands)
$
482
9,205
4,659
—
14,346
72,593
7,335
$
3,467
10,820
9,225
792
24,304
81,816
9,306
$
2,989
13,940
2,903
4,345
24,177
79,971
4,211
$
5,905
2,711
1,281
16,181
26,078
72,309
1,973
$ 11,143
753
375
25,764
38,035
81,295
1,238
94,274
115,426
108,359
100,360
120,568
4,492
9,445
6,283
22,489
7,839
35,624
8,516
39,570
8,093
15,756
Total non-performing assets
$108,211
$144,198 $151,822
$148,446
$144,417
Total non-accrual loans to total loans
Total non-performing assets to total assets
0.50%
0.47%
0.68%
0.69%
0.72%
0.81%
0.77%
0.95%
1.16%
1.14%
At December 31, 2016, there were $30.4 million of loans deemed trouble debt restructurings, of which
$9.5 million were classified as accruing and $20.9 million were classified as non-accrual. For the year ended
December 31, 2016, interest income that would have been recorded had our non-accruing loans been current in
accordance with their original terms amounted to $4.9 million. We recognized interest income of $2.6 million on
such loans for the year ended December 31, 2016.
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, 2016, we had REO of $4.5 million consisting of 18
residential properties and 8 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 or classified assets, 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 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.
12
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, 2016, loans meeting the Company’s definition of an
impaired loan totaled $34.4 million. The allowance for loan losses related to loans classified as impaired at
December 31, 2016, amounted to $1.6 million. Interest income received during the year ended December 31,
2016 on loans classified as impaired totaled $1.5 million. For further detail on our impaired loans, see Note 1 and
Note 4 of Notes to Consolidated Financial Statements in “Item 15 - Exhibits and Financial Statement Schedules.”
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, 2016 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.
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Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the
periods indicated.
Years Ended December 31,
2016
2015
2014
2013
2012
$
218,505 $
19,750
(Dollars in thousands)
173,928 $
37,500
200,284 $
26,000
142,172 $
50,500
117,242
65,000
Allowance balance (beginning of period)
Provision for loan losses
Charge-offs:
Multi-family loans
Commercial real estate loans
Commercial and industrial loans
Construction loans
Residential mortgage loans
Consumer and other loans
(161)
(455)
(4,485)
(52)
(9,425)
(419)
(284)
(1,021)
(516)
(466)
(9,526)
(403)
(323)
(6,147)
(2,447)
(640)
(7,715)
(972)
Total charge-offs
(14,997)
(12,216)
(18,244)
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Recoveries:
Multi-family loans
Commercial real estate loans
Commercial and industrial loans
Construction loans
Residential mortgage loans
Consumer and other loans
Total recoveries
1,885
689
541
267
1,631
102
5,115
445
807
295
317
2,295
278
4,437
3,784
201
516
799
1,783
17
7,100
(1,266)
(1,101)
(516)
(3,424)
(15,508)
(795)
(22,610)
219
65
604
315
2,528
135
3,866
(9,058)
(479)
(99)
(13,227)
(20,180)
(1,107)
(44,150)
—
43
23
3,387
593
34
4,080
Net charge-offs
(9,882)
(7,779)
(11,144)
(18,744)
(40,070)
Allowance balance (end of period)
$
228,373 $
218,505 $
200,284 $
173,928 $
142,172
Total loans outstanding
Average loans outstanding
Allowance for loan losses as a percent of
total loans outstanding
Net loans charged off as a percent of
average loans outstanding
Allowance for loan losses to
non-performing loans(1)
$18,810,702 $16,891,330 $15,099,552 $13,064,618 $10,438,471
9,271,550
13,776,250
11,065,190
17,479,932
15,716,010
1.21%
1.29%
1.33%
1.33%
1.36%
0.06%
0.05%
0.08%
0.17%
0.43%
220.18%
158.43%
139.10%
124.30%
104.29%
(1) Non performing loans include non-accrual loans and performing troubled debt restructured loans.
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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.
2016
2015
December 31,
2014
2013
2012
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
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
Commercial real
estate loans
Commercial and
industrial loans
Construction loans
Residential
mortgage loans
Consumer and other
loans
Unallocated
$ 95,561
39.6% $ 88,223
37.0% $ 71,147
33.4% $ 42,103
30.5% $ 29,853
28.7%
52,796
23.7
46,999
22.7
44,030
20.8
46,657
19.2
33,347
18.9
43,492
11,653
6.8
1.7
40,585
6,794
6.2
1.3
20,759
6,488
3.6
1.0
9,273
8,947
2.1
1.6
4,094
16,062
1.6
2.2
19,831
25.0
31,443
29.8
47,936
38.2
51,760
43.6
45,369
46.4
2,850
2,190
3.2
3,155
1,306
2.9
3,347
6,577
2.9
2,161
13,027
3.1
2,086
11,361
2.3
Total allowance $228,373
100.0% $218,505
100.0% $200,284
100.0% $173,928
100.0% $142,172
100.0%
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
limited to, U.S. Treasury
investment regulations. Our investments purchased may include, but are not
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.
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. At December 31, 2016 none of our securities were
deemed to be a covered fund under the Volcker Rule.
15
At December 31, 2016, our securities portfolio totaled $3.42 billion representing 14.7% of our total assets.
Securities are classified as held-to-maturity or available-for-sale when purchased. At December 31, 2016,
$1.76 billion of our securities were classified as held-to-maturity and reported at amortized cost and $1.66 billion
were classified as available-for-sale and reported at fair value.
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,
2016, agency-issued mortgage-backed securities including CMOs, totaled $3.33 billion, or 97.3%, of our total
securities portfolio.
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. The fair value of such securities may be
adversely affected by changes in interest rates and/or other market variables.
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Our mortgage-backed securities portfolio had a weighted average yield of 1.91% for the year ended
December 31, 2016. The estimated fair value of our mortgage-backed securities at December 31, 2016 was
$3.31 billion, which is $34.3 million less than the carrying value. The decrease to the fair value is attributed to an
increase to interest rates during 2016.
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. Currently, the Company does not hold any non-agency mortgage-backed securities in its
portfolio.
Corporate and Other Debt Securities. Our corporate and other debt securities portfolio primarily consists of
collateralized debt obligations (CDOs) backed by pooled trust preferred securities (TruPS), principally issued by
banks and to a lesser extent
trusts, and collateralized debt
insurance companies, real estate investment
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, 2016, the trust preferred securities portfolio had an amortized cost of $39.1 million, or
1.14% of our total securities portfolio, and a fair value of $79.2 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, 2016,
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, 2016, 2015 and 2014. 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.
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, 2016, we had $38.0 million in municipal bonds which represents 1.1%
of our total securities portfolio. These bonds are comprised of $33.4 million in short-term Bond Anticipation or
Tax Anticipation notes and $4.6 million of longer term New Jersey Revenue Bonds. These purchases were made
to diversify the securities portfolio and are designated as held to maturity.
16
Government Sponsored Enterprises. At December 31, 2016, debt securities issued by Government Sponsored
Enterprises held in our security portfolio totaled $2.1 million representing less than 0.2% of our total securities portfolio.
Marketable Equity Securities. At December 31, 2016, we had $6.7 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.
Securities Portfolios. The following table sets forth the composition of our investment securities portfolios at the dates
indicated.
Available-for-sale:
Equity securities
Mortgage-backed securities:
2016
At December 31,
2015
2014
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
(In thousands)
$
5,825 $
6,660 $
5,778 $
6,495 $
6,887 $
8,523
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
1,022,383
603,774
47,538
1,008,587
598,439
46,747
724,851
546,652
24,841
726,072
547,451
24,679
675,535
503,268
125
681,992
507,283
126
Total mortgage-backed securities available
for sale
1,673,695
1,653,773
1,296,344
1,298,202
1,178,928
1,189,401
Total available-for-sale securities
$1,679,520 $1,660,433 $1,302,122 $1,304,697 $1,185,815 $1,197,924
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Held-to-maturity:
Debt securities:
Government sponsored enterprises
Municipal bonds
Corporate and other debt securities
Total debt securities
Mortgage-backed securities:
$
2,128 $
2,140 $
4,232 $
4,243 $
4,388 $
37,978
44,092
84,198
39,493
84,245
125,878
43,058
35,113
82,403
44,365
77,817
126,425
24,320
33,440
62,148
974,376
500,637
27,136
182
4,403
25,321
65,236
94,960
984,787
502,320
27,116
182
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Federal housing authorities
1,244,833
410,133
16,392
—
1,233,079
407,424
16,420
—
1,226,140
514,339
21,330
11
1,227,325
513,470
21,455
11
Total mortgage-backed securities
held-to-maturity
1,671,358
1,656,923
1,761,820
1,762,261
1,502,331
1,514,405
Total held-to-maturity securities
$1,755,556 $1,782,801 $1,844,223 $1,888,686 $1,564,479 $1,609,365
Total securities
$3,435,076 $3,443,234 $3,146,345 $3,193,383 $2,750,294 $2,807,289
At December 31, 2016, 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.
Portfolio Maturities and Coupon. The composition, maturities and coupon rate of the securities portfolio at
December 31, 2016 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.
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One Year or Less
Carrying
Value
Weighted
Average
Coupon
More than One Year
through Five Years
Carrying
Value
Weighted
Average
Coupon
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
Fair
Value
Weighted
Average
Coupon
(Dollars in thousands)
$ —
— % $ —
— % $ —
— % $
5,825 — % $
5,825 $
6,660 — %
—
—
—
—
75,639
2.74
528,135
2.01
603,774
598,439
2.10
—
—
14,972
2.55
142,704
2.16
864,707
1.94
1,022,383 1,008,587
1.98
—
—
—
—
—
—
—
—
47,538
1.84
47,538
46,747
1.84
14,972
2.55
218,343
2.36
1,440,380
1.96
1,673,695 1,653,773
2.02
$ —
— % $14,972
2.55% $218,343
2.36% $1,446,205
1.95% $1,679,520 $1,660,433
2.01%
$ —
—
$ 2,128
33,348
1.54
75
—
33,348
—
1.54
—
2,203
1.55
3.63
—
1.62
$ —
—
—
—
$
—
—
$
2,128 $
2,140
1.55
4,555
9.13
37,978
39,493
2.45
5,000
5,000
5.13
5.13
39,092
43,647
2.28
2.99
44,092
84,198
84,245
125,878
2.60
2.51
—
—
—
—
18,121
2.06
392,012
2.17
410,133
407,424
2.17
—
—
25,084
1.77
56,314
1.89
1,163,435
2.32
1,244,833 1,233,079
2.29
—
—
—
—
—
—
—
—
16,392
2.27
16,392
16,420
2.27
25,084
1.77
74,435
1.93
1,571,839
2.28
1,671,358 1,656,923
2.26
$33,348
1.54% $27,287
1.76% $ 79,435
2.13% $1,615,486
2.30% $1,755,556 $1,782,801
2.27%
Available-for-Sale:
Equity securities
Mortgage-backed
securities:
Federal Home
Loan
Mortgage
Corporation
Federal
National
Mortgage
Association
Government
National
Mortgage
Association
Total mortgage-
backed securities
Total available-for-
sale securities
Held-to-Maturity:
Debt securities:
Government
sponsored
enterprises
Municipal
bonds
Corporate and
other debt
securities
Mortgage-backed
securities:
Federal Home
Loan
Mortgage
Corporation
Federal
National
Mortgage
Association
Government
National
Mortgage
Association
Total mortgage-
backed securities
Total
held-to-maturity
securities
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
18
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, 2016, we held $15.28 billion in total deposits, representing 76.2% of our total
liabilities. Over the past several years, we have 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, 2016, we held
$12.33 billion in core deposits, representing 80.7% of total deposits, of which $736.8 million are brokered money
market deposits. At December 31, 2016, $2.95 billion, or 19.3%, of our total deposit balances were certificates of
deposit, which included $687.8 million of brokered certificates of deposits. In addition, municipal deposits are a
significant source of funds. At December 31, 2016 $3.36 billion, or 22.0% of our total deposits consisted of
public fund deposits from local government entities.
We have a suite of commercial deposit products, designed to appeal to small and mid-sized business owners
and non-profit organizations. The interest rates we pay, our maturity terms, service fees and withdrawal penalties
are all reviewed on a periodic basis. Deposit rates and terms are based primarily on our current operating
strategies, market rates, liquidity requirements, rates paid by competitors and growth goals. We also rely on
personalized customer service, long-standing relationships with customers and an active marketing program to
attract and retain deposits.
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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, technology platforms and 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.
2016
Percent
of Total
Deposits
Weighted
Average
Rate
Balance
At December 31,
2015
Percent
of Total
Deposits
Weighted
Average
Rate
Balance
Balance
(Dollars in thousands)
2014
Percent
of Total
Deposits
Weighted
Average
Rate
$ 2,173,493
14.2% —% $ 1,890,536
13.4% —% $ 1,249,070
10.3% —%
3,916,208
25.6
0.45
2,745,489
19.5
0.29
2,643,769
21.7
0.29
4,150,583
2,092,989
2,947,560
27.2
13.7
19.3
0.65
0.29
0.91
3,861,317
2,150,004
3,416,310
27.5
15.3
24.3
0.67
0.29
1.14
3,390,238
2,318,911
2,570,338
27.9
19.1
21.1
0.71
0.27
1.00
Non-interest bearing:
Checking accounts
Interest-bearing:
Checking accounts
Money market
deposits
Savings
Certificates of deposit
Total deposits
$15,280,833 100.0% 0.51% $14,063,656 100.0% 0.56% $12,172,326 100.0% 0.53%
19
The following table sets forth, by rate category, the amount of certificates of deposit outstanding as of the
dates indicated.
Certificates of Deposits
0.00% - 0.25%
0.26% - 0.50%
0.51% - 1.00%
1.01% - 2.00%
2.01% - 3.00%
Over 3.00%
Total
At December 31,
2016
2015
2014
(Dollars in thousands)
$ 639,425
194,827
643,526
1,427,999
31,956
9,827
$ 606,970
304,458
384,941
1,791,549
301,930
26,462
$ 703,630
511,058
389,815
512,383
386,775
66,677
$2,947,560
$3,416,310
$2,570,338
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The following table sets forth, by rate category, the remaining period to maturity of certificates of deposit
outstanding at December 31, 2016.
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%
0.26% - 0.50%
0.51% - 1.00%
1.01% - 2.00%
2.01% - 3.00%
Over 3.00%
$245,644 $135,462
17,677
169,049
316,340
301
4,273
45,038
49,876
154,188
12,959
3,081
$206,213
38,379
210,713
254,241
1,413
1,153
$ 24,500
93,428
84,423
471,009
561
631
$
8,503
236
40,490
183,506
4,661
110
$ 19,103 $ 639,425
194,827
643,526
1,427,999
31,956
9,827
69
88,975
48,715
12,061
579
Total
$510,786 $643,102
$712,112
$674,552
$237,506
$169,502 $2,947,560
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, 2016.
Three months or less
Over three months through six months
Over six months through one year
Over one year
Total
At
December 31, 2016
(In thousands)
$ 254,540
446,897
475,175
761,698
$1,938,310
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.
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Balance at end of period
Average balance during period
Maximum outstanding at any month end
Weighted average interest rate at end of period
Average interest rate during period
At or for the Year Ended December 31,
2016
2015
2014
2013
2012
(Dollars in thousands)
$4,391,420 $3,106,783 $2,598,186 $3,099,593 $2,650,652
2,068,006
2,548,744
3,663,087
2,650,652
3,230,000
4,391,420
2,997,873
3,548,000
3,015,058
3,586,000
1.79%
1.86%
2.12%
2.06%
2.24%
2.19%
1.83%
1.90%
2.14%
2.60%
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,
2016
2015
2014
2013
2012
Balance at end of period
Average balance during period
Maximum outstanding at any month end
Weighted average interest rate at end of period
Average interest rate during period
Subsidiary Activities
$154,831
153,000
154,831
(Dollars in thousands)
$167,918
192,865
261,205
$156,307
159,438
163,000
$267,681
164,415
267,681
$ 55,000
156,120
250,000
2.19%
2.16%
2.21%
2.25%
2.28%
2.02%
1.60%
1.50%
3.94%
3.93%
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, 2016, 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, Investors
Investment Corp., Investors Commercial, Inc., Investors Financial Group, Inc., My Way Development LLC,
Marathon Realty Investors Inc. and Investors Financial Group Insurance Agency, Inc. In addition, Investors Bank
has the following direct and indirect subsidiaries that are dormant and are in the process of being dissolved or
merged into other subsidiaries: MNBNY Holding Inc., Roma Capital Investment Corp., Roma Service
Corporation, B.F.S. Agency, Inc. and 3D Holding Company, Inc. 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. Investors Bank has two additional subsidiaries which are inactive.
The subsidiaries are Investors Financial Services, Inc. and Investors Real Estate Corporation.
•
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
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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 Investment Corp. Investors 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 for Bank owned real estate.
• 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
the corporate level on taxable income
election, Marathon Realty Investors Inc.
distributed to stockholders, provided that certain REIT qualification tests are met.
taxed at
is not
•
Investors Financial Group Insurance Agency, Inc. Investors Financial Group Insurance Agency, Inc.
is a New Jersey licensed insurance agency formed in 2016. The purpose of this subsidiary is to receive
commissions relating to the sale of certain insurance products, including, but not limited to, life
insurance, fixed annuities and indexed annuities.
Enterprise Risk Management Framework
Our Board of Directors oversees our risk management process, including the bank-wide approach to risk
management, carried out by our management. Our Board approves the strategic plans and the policies that set
standards for the nature and level of risk we are willing to assume. The Board receives reports on the
management of critical risks and the effectiveness of risk management systems. While our full Board maintains
the ultimate oversight responsibility for the risk management process, its committees, including Audit, Risk
Oversight and Compensation committees, oversee risk in certain specified areas. The Risk Oversight Committee
of the Board meets quarterly and provides independent oversight of all risk functions. Our Board has assigned
responsibility to our Chief Risk Officer for maintaining the Enterprise Risk Management (“ERM”) framework to
identify, assess, manage and mitigate risks in the execution of our strategic goals and objectives and ensure we
operate in a safe and sound manner in accordance with the Board approved policies.
The Bank is continuing to enhance its risk management systems, policies and procedures and has added
significant staffing and expertise in 2016. The Bank’s Management Risk Committee meets regularly and
provides governance over risk policy and risk escalation. The ERM framework supports a culture that promotes
proactive risk management by all Investors Bank Employees, a risk appetite framework, with defined risk
tolerance limits, and risk governance with a three line of defense model to manage and oversee risk. In a three
line of defense structure, each line of business and corporate function serve as the first line of defense and have
responsibility for identifying, assessing, managing and mitigating risks in their area. Independent Risk
22
Management serves as the second line of defense and is responsible for providing guidance, oversight and
appropriate challenge to the first line of defense. Internal Audit serves as the third line of defense and ensures
that appropriate risk management controls, processes and systems are in place and functioning effectively.
Our ERM framework is consistent with common industry practices and regulatory guidance and is
appropriate to our size, growth trajectory and the complexity of our business activities. The ERM Framework
encompasses the following categories of risks; credit risk, interest rate risk, liquidity risk, price risk, operational
risk, model risk, supplier risk, fraud risk, information security including cybersecurity, compliance risk, strategic
risk, and reputational risk.
Personnel
As of December 31, 2016, we had 1,811 full-time employees and 18 part-time employees. The employees
are not represented by a collective bargaining unit and we consider our relationship with our employees to be
good.
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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 and funds availability under various statutes and
regulations, 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.
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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 mandated 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.
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 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.
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The Bank has developed a repeatable and comprehensive process to comply with the stress testing
requirements, which involves the Board of Directors, Senior Management and Risk Management, along with
third-party consultants who assist in this process. The Board of Directors receives regular updates as to the
progress and challenges in complying with this regulatory requirement. The Bank submitted its stress tests results
by July 31, 2016, as required, and published updated stress test results on October 25, 2016. 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 entities 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.
25
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.
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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 continue to increase as a result of the consumer
protection provisions of the Dodd-Frank Act.
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 continues to be 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
continuing impact the Dodd-Frank Act will have on our competitors and on the financial services industry as a
whole. In addition to the continuing 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;
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•
•
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 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.
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
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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.
28
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, 2016:
Bank:
Tier 1 Leverage Ratio
Common Equity Tier 1 Risk-Based Capital
Tier 1 Risk-Based Capital
Total Risk-Based Capital
Investors Bancorp, Inc.:
Tier 1 Leverage Ratio
Common Equity Tier 1 Risk-Based Capital
Tier 1 Risk-Based Capital
Total Risk-Based Capital
As of December 31, 2016(1)
Amount
Ratio
(Dollars in thousands)
$2,736,173
2,736,173
2,736,173
2,965,720
$3,066,401
3,066,401
3,066,401
3,295,948
12.03%
14.75
14.75
15.99
13.48%
16.52
16.52
17.75
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(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, 2016, 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
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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.
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, which for 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, 2016, the amount of FHLB stock held by Investors Bank 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 prompt corrective action framework 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
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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, 2016.
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). This rule became effective July 1, 2016 and implements 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
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applicable law, regulation, rule, order or condition imposed by the FDIC. We are not currently aware 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, 2016, the
annualized Financing Corporation assessment was equal to 0.56 basis points of total average 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:
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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 specific 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.
Privacy Standards. FDIC regulations require Investors Bank to disclose its privacy policy, including
identifying with whom it shares “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 it 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 it 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 includes administrative,
technical and physical
safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The
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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 2014.
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.
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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
primary 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
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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 $15.5 million and up to $115.1 million,
and 10% against
transaction accounts in excess of up to $115.1 million. The first
$15.5 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.
that portion of total
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 contains measures intended to encourage information sharing among bank regulatory and law
enforcement agencies. 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 effective training
program; and independent testing;
• Making of 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;
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• 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.
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.
On August 12, 2016, Investors Bank agreed to enter into an informal agreement (“Informal Agreement”)
with the FDIC and the New Jersey Department of Banking and Insurance (“NJDOBI”) with regard to Bank
Secrecy Act (“BSA”) and Anti-Money Laundering (“AML”) compliance matters. Investors Bank agreed to;
1) develop, adopt and implement a system of internal controls designed to ensure full compliance with BSA;
2) conduct a comprehensive validation of Investors Bank’s BSA/AML automated compliance system; and
3) develop, adopt and implement effective training programs relating to BSA. Investors Bank also agreed to
review certain transactions and accounts for BSA and AML compliance and to establish a Compliance
Committee of the Board. Numerous actions have been taken or commenced by Investors Bank to strengthen its
BSA and AML compliance practices, policies, procedures and controls. Investors Bank has enhanced its risk
management and compliance programs through restructured reporting lines, improved technology and increased
staff, including hiring senior personnel.
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Holding Company Regulation
Inc., are subject
including Investors Bancorp,
Federal Regulation. Bank holding companies,
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, the
Dodd-Frank Act 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, 2016, Investors Bancorp, Inc.’s regulatory
capital ratios exceeded these minimum capital requirements. See “Federal Banking Regulation — Capital
Requirements.”
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
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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 provide 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, would 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
that has received a composite “1” or “2” rating, as well as a “satisfactory” rating for
Reserve Board,
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:
•
•
•
•
•
•
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”;
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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 its 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 other 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.
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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.
Federal Taxation
Taxation
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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 federal tax returns are not
currently under audit. The Internal Revenue Service completed its examination of the Company’s 2013 and 2014
federal tax returns in 2016. 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, 2016,
Investors Bank’s 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.
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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, 2016, the Company
had total federal net operating loss carryforwards of $7.1 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.
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,
2016, Investors Bancorp, Inc. currently meets the eligibility requirements and therefore elects 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
6.5%. The amount of revenues that are sourced to New York State under the new legislation 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 2016 was 28.0% 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.
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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.
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Because we intend to continue to increase our commercial originations, our credit risk will increase.
At December 31, 2016, our portfolio of multi-family, commercial real estate, C&I and construction loans
totaled $13.50 billion, or 71.8% 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 the bank regulators impose limitations on our commercial real estate lending activities, our earnings
could be adversely affected.
In 2006, the FDIC, the Office of the Comptroller of the Currency and the Board of Governors of the Federal
Reserve System (collectively, the “Agencies”) issued joint guidance entitled “Concentrations in Commercial
Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”). Although the CRE Guidance
did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure may
receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including
loans secured by apartment buildings, investor commercial real estate and construction and land loans, represent
300% or more of an institution’s total risk-based capital and the outstanding balance of the commercial real
estate loan portfolio has increased by 50% or more during the preceding 36 months. Our level of non-owner
occupied commercial real estate equaled 386% of Bank total risk-based capital at December 31, 2016.
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In December 2015, the Agencies released a new statement on prudent risk management for commercial real
estate lending (the “2015 Statement”). In the 2015 Statement, the Agencies express concerns about easing
commercial real estate underwriting standards, direct financial institutions to maintain underwriting discipline
and exercise risk management practices to identify, measure and monitor lending risks, and indicate that the
Agencies will continue “to pay special attention” to commercial real estate lending activities and concentrations
going forward. If the FDIC, the Bank’s primary federal regulator were to impose restrictions on the amount of
commercial real estate loans we can hold in our portfolio, or require higher capital ratios as a result of the level of
commercial real estate loans we hold, our earnings would be adversely affected.
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, 2016 of $228.4 million was
1.21% of total loans and 220.18% 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.
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Significant portions of our multi-family loan portfolio and commercial real estate portfolio and nearly all
of our C&I loan portfolio are unseasoned. It is difficult to judge the future performance of unseasoned
loans.
Our multi-family loan portfolio has increased to $7.46 billion at December 31, 2016 from $3.0 billion at
December 31, 2012. Our commercial real estate portfolio has increased to $4.45 billion at December 31, 2016
from $1.97 billion at December 31, 2012. Our C&I loan portfolio has increased to $1.28 billion at December 31,
2016 from $169.3 million at December 31, 2012. Consequently, a large portion of our multi-family loans and
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 2012. 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.”
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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, 2016, the fair
value of our total securities portfolio was $3.44 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. The economic value of equity analysis is the discounted present value of
expected cash flows from assets, liabilities and off-balance sheet contracts. At December 31, 2016, 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 6.2% or $40.9 million decrease in net interest income and 11.5% or $550.7 million decrease in
economic value of equity.
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. 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. 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 $12.72 billion at December 31, 2012 to $23.17 billion at
December 31, 2016. 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, remain in good standing with our regulators, 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, 2016, $3.36 billion, or 22.0% of our total deposits, consisted of public funds deposits from local
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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.
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FHLB funds are an important source of funding for the Company and a reduced level may have an
adverse impact on our liquidity, results of operations and financial condition.
We borrow directly from the FHLB and various financial institutions. Our financial flexibility will be
severely constrained if we are unable to maintain our access to funding or if adequate financing is not available
to accommodate future growth at acceptable interest rates. If we are unable to secure alternative funding or need
to rely on more expensive funding sources, our operating margins, profitability and liquidity would be negatively
impacted.
We may incur impairments to goodwill.
At December 31, 2016, 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
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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.
Investors Bank Entered Into an Informal Agreement with the Federal Deposit Insurance Corporation and
the New Jersey Department of Banking and Insurance.
On August 12, 2016, Investors Bank agreed to enter into an informal agreement (“Informal Agreement”)
with the FDIC and the New Jersey Department of Banking and Insurance (“NJDOBI”) with regard to Bank
Secrecy Act (“BSA”) and Anti-Money Laundering (“AML”) compliance matters. Investors Bank agreed to;
1) develop, adopt and implement a system of internal controls designed to ensure full compliance with BSA;
2) conduct a comprehensive validation of Investors Bank’s BSA/AML automated compliance system; and
3) develop, adopt and implement effective training programs relating to BSA. Investors Bank also agreed to
review certain transactions and accounts for BSA and AML compliance and to establish a Compliance
Committee of the Board. Numerous actions have been taken or commenced by Investors Bank to strengthen its
BSA and AML compliance practices, policies, procedures and controls. Investors Bank has enhanced its risk
management and compliance programs through restructured reporting lines, improved technology and increased
staff, including hiring senior personnel. The failure to achieve compliance with the requirements of the Informal
Agreement could lead to further action by the FDIC and NJDOBI, which could adversely affect Investors Bank.
The costs to remediate are unknown and could adversely affect our growth prospects, financial condition and
results of operations.
A 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 relative to prior post-recession periods 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
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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.
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.
investment,
The Dodd-Frank Act has significantly changed the current bank regulatory structure and affecting the
lending, deposit,
institutions and their holding
trading and operating activities of financial
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
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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 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.
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 required minimum
capital conservation buffer will be phased in incrementally, starting at 0.625% on January 1, 2016 and increasing
to 1.25% on January 1, 2017, 1.875% on January 1, 2018 and 2.5% on January 1, 2019. 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.
this “qualified mortgage” definition will be presumed to have complied with the new
Loans that meet
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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.
We may be adversely affected by changes in U.S. tax laws and regulations.
Policy makers have indicated an interest in reforming the U.S. corporate income tax code in 2017. Possible
approaches include lowering the 35 percent corporate tax rate, modifying the U.S. taxation of income earned
outside the U.S. and limiting or eliminating various deductions, tax credits and/or other tax preferences. While
we may benefit on a prospective net income basis from any decrease in corporate tax rates, proposals being
discussed currently could result in a material decrease in the value of our deferred tax asset, which would also
result in a material reduction to net income during the period in which the change is enacted. Regulatory capital
could also be reduced if the decrease in the value of deferred tax assets exceeds certain levels. Given the number
of uncertainties relating to the ultimate form any corporate tax reform may take, it is not possible to quantify the
potential negative impact to our income or regulatory capital that could result from corporate tax reform.
We currently utilize incentive-based payment arrangements with our employees as compensation
practices. Potential regulatory changes to this practice could have an impact on our current practices and
impact our results of operations.
Investors Bank is subject to the compensation-related provisions of the Dodd-Frank Act which prohibit
incentive-based payment arrangements that encourage inappropriate risk taking. The scope and content of the
U.S. banking regulators’ policies on incentive compensation are continuing to develop and are likely to continue
evolving in the future.
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,
insurance companies, and brokerage and investment banking firms operating locally and
mutual funds,
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 “Item 1. Business.”
47
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 new, the long term effect on Investors
Bank’s deposit insurance assessment is uncertain.
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We may eliminate dividends on our common stock.
Although we pay 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.
We continue to devote a significant amount of effort, time and resources to continually strengthen our
controls and ensure compliance with complex accounting standards and banking regulations. 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.
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
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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.
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 by issuing 1,000,000 shares and 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 continue to utilize the remainder of the net proceeds for
general corporate purposes, including, among other items, paying cash dividends and repurchasing shares of our
common stock. Our failure to deploy the capital 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 and leveraged 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 have expanded our lending team to include asset based and
leveraged lending teams as well as 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.
Weather-related events have adversely impacted our market area in recent years, 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.
49
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
At December 31, 2016, the Company and the Bank conducted business from their corporate headquarters in
Short Hills, New Jersey, with operation centers located in Iselin and Robbinsville New Jersey as well as lending
offices in Short Hills, Robbinsville, Mount Laurel, Spring Lake, Newark, Manhattan, Queens, Brooklyn,
Melville, as well as a full-service branch network of 151 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.
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Part II
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,
2017 was approximately 8,600. 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. The following information was provided by the NASDAQ Global Select Market.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended
December 31, 2016
Year Ended
December 31, 2015
High
Low
$12.37
12.05
12.30
14.39
$10.77
10.67
10.71
11.58
Dividends
Declared
$0.06
0.06
0.06
0.08
High
Low
$11.98
12.72
12.59
13.13
$10.70
11.55
11.27
11.99
Dividends
Declared
$0.10(1)
0.05
0.05
0.05
(1)
Included in the first quarter of 2015 is a special cash dividend of $0.05 per share.
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requirements,
financial condition and other
Since 2012, we have been paying quarterly cash dividends to our stockholders, however stockholders are
not entitled to receive dividends. We pay dividends to stockholders quarterly. The timing and amount of cash
relevant
dividends paid depend on our earnings, capital
factors. 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, 2011 through December 31, 2016, (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.
51
Investors Bancorp, Inc.
Total Return Performance
e
u
l
a
V
x
e
d
n
I
350
300
250
200
150
100
50
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12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
Investors Bancorp, Inc.
SNL U.S. Bank and Thrift
SNL U.S. Thrift
Index
Investors Bancorp, Inc.
SNL U.S. Bank and Thrift
SNL U.S. Thrift
12/31/2011
100.00
100.00
100.00
12/31/2012
132.26
134.28
121.63
12/31/2013
192.11
183.86
156.09
12/31/2014
217.44
205.25
167.88
12/31/2015
246.04
209.39
188.78
12/31/2016
282.11
264.35
231.33
Source: SNL Financial LC, Charlottesville, VA
Stock Repurchases
The following table reports information regarding repurchases of our common stock during the quarter
ended December 31, 2016 and the stock repurchase plans approved by our Board of Directors.
Period
October 1, 2016 through
October 31, 2016
November 1, 2016 through
November 30, 2016
December 1, 2016 through
December 31, 2016
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
1,750,000
$11.96
$20,926,090
21,660,643
401,472
$12.45
$ 4,996,671
21,259,171
—
$ —
$
—
21,259,171
Total
2,151,472
$25,922,761
(1) On April 28, 2016, the Company announced its third share repurchase program, which authorized the
purchase of an additional 10% of its publicly-held outstanding shares of common stock, or approximately
31,481,189 million shares. The plan commenced upon the completion of the second repurchase plan on
June 17, 2016. This program has no expiration date and has 21,259,171 shares yet to be repurchased as of
December 31, 2016.
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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.
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 “Item 7. 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.
Selected Financial Condition Data:
Total assets
Loans receivable, net
Loans held-for-sale
Securities held to maturity
Securities available for sale, at
estimated fair value
Bank owned life insurance
Deposits
Borrowed funds
Goodwill
Stockholders’ equity
Selected Operating Data:
Interest and dividend income
Interest expense
Net interest income
Provision for loan losses
Net interest income after
provision for loan losses
Non-interest income
Non-interest expenses
Income before income tax expense
Income tax expense
Net income
Earnings per share — basic
Earnings per share — diluted
2016
2015
2014
2013
2012
At December 31,
(In thousands)
$23,174,675
18,569,855
38,298
1,755,556
$20,888,684
16,661,133
7,431
1,844,223
$18,773,639
14,887,570
6,868
1,564,479
$15,623,070
12,882,544
8,273
831,819
$12,722,574
10,306,786
28,233
179,922
1,660,433
161,940
15,280,833
4,546,251
77,571
3,123,245
1,304,697
159,152
14,063,656
3,263,090
77,571
3,311,647
1,197,924
161,609
12,172,326
2,766,104
77,571
3,577,855
785,032
152,788
10,718,811
3,367,274
77,571
1,334,327
1,385,328
113,941
8,768,857
2,705,652
77,063
1,066,817
2016
2015
2014
2013
2012
Year Ended December 31,
(In thousands)
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731,723
136,639
595,084
26,000
569,084
40,125
328,332
280,877
99,372
181,505
0.55
0.55
$
$
$
$
660,862
118,891
541,971
37,500
504,471
41,861
339,860
206,472
74,751
131,721
0.38
0.38
$
$
$
$
545,068
109,642
435,426
50,500
384,926
36,571
245,711
175,786
63,755
112,031
0.40
0.40
$
$
$
$
496,189
123,444
372,745
65,000
307,745
44,112
207,007
144,850
56,083
88,767
0.32
0.32
$
$
$
$
793,521
153,336
640,185
19,750
620,435
37,201
358,564
299,072
106,947
192,125
0.65
0.64
$
$
$
$
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Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total
assets)
Return on equity (ratio of net income to average equity)
Net interest rate spread(1)
Net interest margin(2)
Efficiency ratio(3)
Efficiency ratio — Adjusted(4)
Non-interest expenses to average total assets
Average interest-earning assets to average interest-
bearing liabilities
Dividend payout ratio(5)
Asset Quality Ratios:
Non-performing assets to total assets
Non-accrual loans to total loans
Allowance for loan losses to non-performing loans(6)
Allowance for loan losses to total loans
Capital Ratios:
Tier 1 leverage ratio(7)
Common equity tier 1 risk-based(7)
Tier 1 risk-based capital(7)
Total-risk-based capital(7)
Equity to total assets
Tangible equity to tangible assets(8)
Average equity to average assets
Other Data:
Book value per common share(8)
Tangible book value per common share(8)
Number of full service offices
Full time equivalent employees
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At or for the Year Ended December 31,
2016
2015
2014
2013
2012
0.92%
5.26%
2.91%
3.12%
0.88%
0.76%
0.83%
0.77%
6.06%
4.71% 10.00%
8.68%
3.24%
2.83%
3.08%
3.26%
3.40%
3.37%
3.27%
3.04%
52.93% 51.69% 58.21% 52.06% 49.66%
52.60% 51.48% 52.45% 50.66% 46.47%
1.81%
1.96%
1.64%
1.82%
1.66%
1.29x
40.00% 45.45% 31.58% 19.61%
1.30x
1.15x
1.28x
1.13x
6.02%
0.47%
0.50%
0.69%
0.68%
1.14%
0.81%
1.16%
0.72%
220.18% 158.43% 139.10% 124.30% 104.29%
1.36%
1.33%
0.95%
0.77%
1.33%
1.21%
1.29%
n/a
8.20%
n/a
7.59%
12.03% 12.41% 12.79%
n/a
14.75% 15.87%
14.75% 15.87% 17.01% 10.14%
9.98%
15.99% 17.12% 18.26% 11.39% 11.24%
8.39%
13.48% 15.85% 19.06%
7.67%
13.10% 15.43% 18.60%
8.92%
14.52% 17.41% 16.16%
8.54%
7.90%
8.32%
$ 10.53
$ 10.18
151
1,829
$ 10.30
9.97
$
140
1,734
$ 10.39
$ 10.08
132
1,682
$
$
9.85
9.04
129
1,541
$
$
9.81
8.89
101
1,193
(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 adjusted efficiency ratio represents non-interest expense divided by the sum of net interest income and
non-interest income adjusted. For the year ended December 31, 2016, adjustments were related to the
accelerated vesting of equity awards upon the death of a director ($1.5 million) and professional fees
associated with the termination of the Bank of Princeton acquisition ($840,000). For the year ended
December 31, 2015, a one time item related to a payout under an employment agreement with a former
executive was excluded. For the year ended December 31, 2014, $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, were excluded. For the
year ended December 31, 2013, pre-tax acquisition charges related to Roma Financial of $5.6 million and a
non-cash OTTI charge of $977,000 were excluded. Pre-tax acquisition charges related to Marathon and
BFSB of $13.3 million were excluded for the year ended December 31, 2012.
54
(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 “Item 1. Business — Supervision and
Regulation”.
(8) Excludes goodwill and intangible assets for the calculation of tangible book value and tangible equity. For
common share calculation, excludes treasury shares and unallocated ESOP shares.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Since the Company’s initial public offering in 2005, we have transitioned from a wholesale thrift business to
a retail commercial bank. This transition has been primarily accomplished by increasing the amount of our
commercial loans and core deposits (savings, checking and money market accounts). Our transformation can be
attributed to a number of factors, including organic growth, de novo branch openings, bank and branch
acquisitions, as well as product expansion. We believe the attractive markets we operate in, namely, New Jersey
and the greater New York metropolitan area, will continue to provide us with growth opportunities. Our primary
focus is to build and develop profitable customer relationships across all lines of business, both consumer and
commercial.
Our results of operations depend primarily on net interest income, which is directly impacted by the market
interest rate environment. Net interest income is the difference between the interest income we earn on our
interest-earning assets, primarily loans and investment securities, and the interest we pay on our interest-bearing
liabilities, primarily interest-bearing transaction accounts, time deposits, and borrowed funds. Net interest income
is affected by the level of interest rates, the shape of the market yield curve, the timing of the placement and the
repricing of interest-earning assets and interest-bearing liabilities on our balance sheet, and the prepayment rate
on our mortgage-related assets.
The persistent low interest rate environment and a flattening of the yield curve over the past several years
have resulted in sustained pressure on our net interest margin. Interest-earning assets continue to be originated or
re-priced at yields lower than the overall portfolio, and competitive pricing remains strong in both the loan and
deposit markets. Despite these headwinds, we have been able to generally offset net interest margin compression
through interest earning asset growth. We continue to actively manage our interest rate risk against a backdrop of
slow but positive economic growth and the potential for additional increases in short-term rates in the near future.
If short-term interest rates increase, we may be subject to near-term net interest margin compression. Should the
treasury yield curve steepen, we may experience an improvement in net interest income, particularly if short-term
interest rates remain unchanged.
Our results of operations are also significantly affected by general economic conditions. While the
consumer continues to benefit from lower energy costs and improved housing and employment metrics, the
velocity of economic growth, domestically and internationally, remains sluggish.
Total assets increased by $2.29 billion, or 10.9%,
to $23.17 billion at December 31, 2016 from
$20.89 billion at December 31, 2015. Net loans increased $1.91 billion to $18.57 billion at December 31, 2016,
while securities increased by $267.1 million, or 8.5%, to $3.42 billion at December 31, 2016 from $3.15 billion
at December 31, 2015. During the year ended December 31, 2016, we originated $2.16 billion in multi-family
loans, $1.08 billion in commercial real estate loans, $608.9 million in commercial and industrial
loans,
$523.3 million in residential loans, $451.5 million in construction loans and $260.0 million in consumer and
other loans. Our strategic objective is to become more commercial bank like and maintain a well-diversified loan
portfolio. We understand the heightened regulatory sensitivity around commercial real estate and multi-family
concentration and continue to be diligent in our underwriting and credit risk monitoring of these portfolios. The
overall level of non-performing loans remains low compared to our national and regional peers.
Capital management is a key component of our business strategy. We continue to manage our capital
through a combination of organic growth, acquisitions, stock repurchases and cash dividends. Effective capital
management and prudent growth allowed us to effectively leverage the capital from the Company’s public
offerings, while being mindful of tangible book value for stockholders. Our capital to total assets ratio has
decreased to 13.48% at December 31, 2016 from 15.85% at December 31, 2015. Since the commencement of our
first stock repurchase plan in March 2015 through December 31, 2016, the Company has repurchased a total of
62.9 million shares at an average cost of $11.86 per share totaling $746.3 million. Stockholders’ equity was
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impacted for the year ended December 31, 2016 by the repurchase of 31.3 million shares of common stock for
$363.4 million as well as cash dividends of $0.26 per share totaling $82.3 million.
In August 2016 we entered into an informal agreement with the FDIC and NJDOBI with regard to Bank
Secrecy Act and Anti-Money Laundering compliance matters. Our BSA and AML team continues to work
diligently to enhance the risk infrastructure procedures and technology, while ensuring its long term
sustainability for the Company.
In May 2016 we signed a definitive merger agreement with the Bank of Princeton, with assets of
$1.0 billion, operating ten branches in New Jersey and three in the Philadelphia market. In January 2017, due to
the uncertainty of the timing around regulatory approval, both parties mutually agreed to terminate the
transaction.
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 branch expansion, enhanced product offerings,
investments in our people and opportunistic acquisitions in our market area. During 2016, we continued to
enhance our employee training and development programs, built additional risk management and operational
infrastructure and added 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.
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 its
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 it will not collect all amounts due under the contractual terms of the loan
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agreement. Impairment is measured by determining the present value of expected future cash flows or, for
collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses.
The general allocation is determined by segregating the remaining loans by type of loan, risk rating (if
applicable) and payment history. In addition, the Company’s residential portfolio is subdivided between fixed
and adjustable rate loans as adjustable rate loans are deemed to be subject to more credit risk if interest rates rise.
Reserves for each loan segment or the loss factors are generally determined based on the Company’s historical
loss experience over a look-back period determined to provide the appropriate amount of data to accurately
estimate expected losses as of period end. Additionally, management assesses the loss emergence period for the
expected losses of each loan segment and adjusts each historical loss factor accordingly. The loss emergence
period is the estimated time from the date of a loss event (such as a personal bankruptcy) to the actual recognition
of the loss (typically via the first full or partial loan charge-off), and is determined based upon a study of the
Company’s past loss experience by loan segment. The loss factors may also be adjusted to account for qualitative
or environmental factors that are likely to cause estimated credit losses inherent in the portfolio to differ from
historical loss experience. This evaluation is based on among other things, loan and delinquency trends, general
economic conditions, credit concentrations, lending policies and procedures and industry trends, but is inherently
subjective as it requires material estimates that may be susceptible to significant revisions based upon changes in
economic and real estate market conditions. Actual loan losses may be different than the allowance for loan
losses we have established which could have a material negative effect on our financial results.
Purchased Credit-Impaired (“PCI”) loans, are loans acquired at a discount due, in part, to credit quality. PCI
loans are accounted for in accordance with ASC Subtopic 310-30 and are initially recorded at fair value (as
determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance
for loan losses). The difference between the undiscounted cash flows expected at acquisition and the initial
carrying amount (fair value) of the PCI loans, or the “accretable yield,” is recognized as interest income utilizing
the level-yield method over the life of the loans. Contractually required payments for interest and principal that
exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not
recognized as a yield adjustment, as a loss accrual or a valuation allowance. Reclassifications of the
non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to
increases in expected cash flows of the loans and would result in an increase in yield on a prospective basis. The
Company analyzes the actual cash flow versus the forecasts and any adjustments to credit loss expectations are
made based on actual loss recognized as well as changes in the probability of default. For a period in which cash
flows aren’t reforecasted, prior period’s estimated cash flows are adjusted to reflect the actual cash received and
credit events that occurred during the current reporting period.
On a quarterly basis, management reviews the current status of various loan assets in order to evaluate the
adequacy of the allowance for loan losses. In this evaluation process, specific loans are analyzed to determine
their potential risk of loss. Loans determined to be impaired are evaluated for potential loss exposure. Any
shortfall results in a recommendation of a specific allowance or charge-off if the likelihood of loss is evaluated as
probable. To determine the adequacy of collateral on a particular loan, an estimate of the fair value of the
collateral is based on the most current appraised value available for real property or a discounted cash flow
analysis on a business. This appraised value for real property is then reduced to reflect estimated liquidation
expenses.
The allowance contains reserves identified as unallocated. These reserves reflect management’s attempt to
ensure that the overall allowance reflects a margin for imprecision and the uncertainty that is inherent in
estimates of probable credit losses.
Our 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 to our loan portfolio are increases in interest rates, a decline in
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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.
loans upon origination. An updated appraisal
For commercial real estate, multi-family and construction loans, the Company obtains an appraisal for all
collateral dependent
is obtained annually for loans rated
substandard or worse with a balance of $500,000 or greater. An updated appraisal is obtained biennially for loans
rated special mention with a balance of $2.0 million or greater. This is done in order to determine the specific
reserve or charge off needed. As part of the allowance for loan loss process, the Company reviews each collateral
dependent commercial real estate loan classified as non-accrual and/or impaired and assesses whether there has
been an adverse change in the collateral value supporting the loan. The Company utilizes information from its
commercial lending officers and its credit department and special assets department’s knowledge of changes in
real estate conditions in our lending area to identify if possible deterioration of collateral value has occurred.
Based on the severity of the changes in market conditions, management determines if an updated appraisal is
warranted or if downward adjustments to the previous appraisal are warranted. If it is determined that the
deterioration of the collateral value is significant enough to warrant ordering a new appraisal, an estimate of the
downward adjustments to the existing appraised value is used in assessing if additional specific reserves are
necessary until the updated appraisal is received.
For homogeneous residential mortgage loans, the Company’s policy is to obtain an appraisal upon the
origination of the loan and an updated appraisal in the event a loan becomes 90 days delinquent. Thereafter, the
appraisal is updated every two years if the loan remains in non-performing status and the foreclosure process has
not been completed. Management adjusts the appraised value of residential loans to reflect estimated selling costs
and declines in the real estate market.
Management believes the potential risk for outdated appraisals for impaired and other non-performing loans
has been mitigated due to the fact that the loans are individually assessed to determine that the loan’s carrying
value is not in excess of the fair value of the collateral. Loans are generally charged off after an analysis is
completed which indicates that collectability of the full principal balance is in doubt.
Although we believe we have established and maintained the allowance for loan losses at adequate levels,
additions may be necessary if the current economic environment deteriorates. Management uses relevant
information available; however, the level of the allowance for loan losses remains an estimate that is subject to
significant judgment and short-term change. In addition, the Federal Deposit Insurance Corporation and the New
Jersey Department of Banking and Insurance, as an integral part of their examination process, will periodically
review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance
based on their judgments about information available to them at the time of their examination.
Deferred Income Taxes. The Company records income taxes in accordance with ASC 740, “Income
Taxes,” as amended, using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are
recognized for the expected future tax consequences of events that have been recognized in the financial
statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates
expected to apply in the years when those temporary differences are expected to be recovered or settled. The
ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the
periods in which those temporary differences and carryforwards became deductible. Where applicable, deferred
59
tax assets are reduced by a valuation allowance for any portions determined not likely to be realized. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of
enactment. The valuation allowance is adjusted, by a charge or credit to income tax expense, as changes in facts
and circumstances warrant.
Asset Impairment Judgments. Certain of our assets are carried on our consolidated balance sheets at cost,
fair value or at the lower of cost or fair value. Valuation allowances or write-downs are established when
necessary to recognize impairment of such assets. We periodically perform analyses to test for impairment of
such assets. In addition to the impairment analyses related to our loans discussed above, another significant
impairment analysis is the determination of whether there has been an other-than-temporary decline in the value
of one or more of our securities.
Our available-for-sale portfolio is carried at estimated fair value, with any unrealized gains or losses, net of
taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. While the Company
does not intend to sell these securities, and it is more likely than not that we will not be required to sell these
securities before their anticipated recovery of the remaining carrying value, we have the ability to sell the
securities. Our held-to-maturity portfolio, consisting primarily of mortgage- backed securities and other debt
securities for which we have a positive intent and ability to hold to maturity, is carried at carrying value. We
conduct a periodic review and evaluation of the securities portfolio to determine if the value of any security has
declined below its cost or amortized cost, and whether such decline is other-than-temporary. Management
utilizes various inputs to determine the fair value of the portfolio. The use of different assumptions could have a
positive or negative effect on our consolidated financial condition or results of operations.
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If a determination is made that a debt security is other-than-temporarily impaired, the Company will
estimate the amount of the unrealized loss that is attributable to credit and all other non-credit related factors. The
credit related component will be recognized as an other-than-temporary impairment charge in non-interest
income as a component of gain (loss) on securities, net. The non-credit related component will be recorded as an
adjustment to accumulated other comprehensive income, net of tax.
Goodwill Impairment. Goodwill is presumed to have an indefinite useful life and is tested, at least
annually, for impairment at the reporting unit level. Impairment exists when the carrying amount of goodwill
exceeds its implied fair value. For purposes of our goodwill impairment testing, we have identified the Bank as 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, 2016,
our qualitative assessment concluded that it was not more likely than not that the fair value of the reporting unit
is less than its carrying amount and, therefore, the two-step goodwill impairment test was not required.
Valuation of Mortgage Servicing Rights (“MSR”). The initial asset recognized for originated MSR is
measured at fair value. The fair value of MSR is estimated by reference to current market values of similar loans
sold with servicing released. MSR are amortized in proportion to and over the period of estimated net servicing
income. We apply the amortization method for measurements of our MSR. MSR are assessed for impairment
based on fair value at each reporting date. MSR impairment, if any, is recognized in a valuation allowance
through charges to earnings as a component of fees and service charges. Subsequent increases in the fair value of
impaired MSR are recognized only up to the amount of the previously recognized valuation allowance. Fees
earned for servicing loans are reported as income when the related mortgage loan payments are collected.
The estimated fair value of MSR is obtained through independent third party valuations through an analysis
incorporating assumptions market participants would use in determining fair value
of future cash flows,
60
including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other
market driven data, including the market’s perception of future interest rate movements. The valuation allowance
is then adjusted in subsequent periods to reflect changes in the measurement of impairment. All assumptions are
reviewed for reasonableness on a quarterly basis to ensure they reflect current and anticipated market conditions.
The fair value of MSR is highly sensitive to changes in assumptions. Changes in prepayment speed
assumptions generally have the most significant impact on the fair value of our MSR. Generally, as interest rates
decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in
the fair value of MSR. As interest rates rise, mortgage loan prepayments slow down, which results in an increase
in the fair value of MSR. Thus, any measurement of the fair value of our MSR is limited by the conditions
existing and the assumptions utilized as of a particular point in time, and those assumptions may not be
appropriate if they are applied at a different point in time.
Stock-Based Compensation. We recognize the cost of employee services received in exchange for awards
of equity instruments based on the grant-date fair value of those awards in accordance with ASC 718,
“Compensation-Stock Compensation”. We estimate the per share fair value of option grants on the date of grant
using the Black-Scholes option pricing model using assumptions for the expected dividend yield, expected stock
price volatility, risk-free interest rate and expected option term. These assumptions are subjective in nature,
involve uncertainties and, therefore, cannot be determined with precision. The Black- Scholes option pricing
model also contains certain inherent limitations when applied to options that are not traded on public markets.
The per share fair value of options is highly sensitive to changes in assumptions. In general, the per share fair
value of options will move in the same direction as changes in the expected stock price volatility, risk-free
interest rate and expected option term, and in the opposite direction as changes in the expected dividend yield.
For example, the per share fair value of options will generally increase as expected stock price volatility
increases, risk-free interest rate increases, expected option term increases and expected dividend yield decreases.
The use of different assumptions or different option pricing models could result in materially different per share
fair values of options.
Derivative Financial Instruments. As part of our interest rate risk management, we may utilize, from
time-to-time, derivative financial instruments which are recorded as either assets or liabilities in the consolidated
statements of financial condition at fair value. The effective portion of changes in the fair value of derivatives
designated and that qualify as cash flow hedges is initially recorded in Accumulated Other Comprehensive
Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects
earnings. The ineffective portion of the change in fair value of the derivatives would be recognized directly in
earnings.
Comparison of Financial Condition at December 31, 2016 and December 31, 2015
Total Assets. Total assets increased by $2.29 billion, or 10.9%, to $23.17 billion at December 31, 2016 from
$20.89 billion at December 31, 2015. Net loans increased $1.91 billion to $18.57 billion at December 31, 2016,
and securities increased by $267.1 million, or 8.5%, to $3.42 billion at December 31, 2016 from $3.15 billion at
December 31, 2015.
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Net Loans. Net loans increased by $1.91 billion, or 11.5%, to $18.57 billion at December 31, 2016 from
$16.66 billion at December 31, 2015. The detail of the loan portfolio (including PCI loans) is below:
Commercial Loans:
Multi-family loans
Commercial real estate loans
Commercial and industrial loans
Construction loans
Total commercial loans
Residential mortgage loans
Consumer and other
Total Loans
Net unamortized premiums and deferred
loan costs
Allowance for loan losses
Net loans
December 31, 2016
December 31, 2015
(Dollars in thousands)
$ 7,459,131
4,452,300
1,275,283
314,843
13,501,557
4,711,880
597,265
18,810,702
6,255,904
3,829,099
1,044,385
225,843
11,355,231
5,039,543
496,556
16,891,330
(12,474)
(228,373)
(11,692)
(218,505)
$18,569,855
$16,661,133
During the year ended December 31, 2016, we originated $2.16 billion in multi-family loans, $1.08 billion
in commercial real estate loans, $608.9 million in commercial and industrial loans, $523.3 million in residential
loans, $451.5 million in construction loans and $260.0 million in consumer and other loans. This increase in
loans reflects our continued focus on generating multi-family loans, commercial real estate loans and commercial
and industrial loans, which was partially offset by pay downs and payoffs of loans. 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, originated $245.8 million for the year ended
December 31, 2016 in residential mortgage loans that were sold to third party investors.
The following table sets forth non-accrual loans (excluding PCI loans and loans held-for-sale) on the dates
indicated as well as certain asset quality ratios:
December 31, 2016 September 30, 2016
June 30, 2016
March 31, 2016
December 31, 2015
# of Loans Amount # of Loans Amount # of Loans Amount # of Loans Amount # of Loans Amount
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Multi-family
Commercial real estate
Commercial and
industrial
Construction
Total commercial loans
Residential and
consumer
Total non-accrual loans
Accruing troubled debt
restructured loans
Non-accrual loans to
total loans
Allowance for loan loss
as a percent of
non-accrual loans
Allowance for loan loss
as a percent of total
loans
2
24
8
0
34
478
512
42
$
$
$
0.5
9.2
4.7
—
14.4
79.9
94.3
1
29
6
0
36
481
517
9.4
31
$
$
$
(Dollars in millions)
1.2
11.7
2
33
$
6
1
42
0.7
0.2
13.8
3
35
10
3
51
$
2.9
10.3
5.6
0.5
19.3
4
37
17
4
62
$
3.5
10.8
9.2
0.8
24.3
471
513
86.5
$100.3
488
539
85.9
$ 105.2
500
562
91.1
$ 115.4
0.2
8.9
2.3
—
11.4
86.1
97.5
8.8
29
$ 12.1
30
$
10.7
39
$
22.5
0.50%
0.53%
0.57%
0.61%
0.68%
242.24%
229.31%
219.6%
205.83%
189.30%
1.21%
1.22%
1.25%
1.26%
1.29 %
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Total non-accrual loans decreased to $94.3 million at December 31, 2016 compared to $115.4 million at
December 31, 2015. We continue to diligently resolve our troubled loans, however it takes a long period of time
to resolve residential credits in our lending area. At December 31, 2016, our allowance for loan loss as a percent
of total loans was 1.21%. At December 31, 2016, there were $30.4 million of loans deemed as troubled debt
restructurings, of which $24.8 million were residential and consumer loans, $3.6 million were commercial real
estate loans, $1.7 million were commercial and industrial loans and $248,000 were multi-family loans. Troubled
debt restructured loans in the amount of $9.4 million were classified as accruing and $20.9 million were
classified as non-accrual at December 31, 2016.
In addition to non-accrual loans, we continue to monitor our portfolio for potential problem loans. Potential
problem loans are defined as loans about which we have concerns as to the ability of the borrower to comply
with the current loan repayment terms and which may cause the loan to be placed on non-accrual status. As of
December 31, 2016, the Company identified $46.5 million of potential problem loans which were comprised of
11 commercial real estate loans totaling $38.4 million, 8 commercial and industrial loans totaling $1.7 million
and 3 multi-family loans totaling $6.4 million. Included in potential problem loans is a single relationship
totaling 8 loans for $40.4 million. The properties for this relationship are single tenant and well-collateralized
with strong loan to value ratios. Management is actively monitoring all these loans.
The allowance for loan losses increased by $9.9 million to $228.4 million at December 31, 2016 from
$218.5 million at December 31, 2015. The increase in our allowance for loan losses is due to the growth of the
loan portfolio, particularly the inherent credit risk associated with commercial real estate lending as well as
commercial and industrial loans. Future increases in the allowance for loan losses may be necessary based on the
growth and composition of the loan portfolio, the level of loan delinquency and the economic conditions in our
lending area. At December 31, 2016, our allowance for loan loss as a percent of total loans was 1.21%.
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Securities. Securities are held primarily for liquidity, interest rate risk management and long-term yield
enhancement. Our Investment Policy requires that investment transactions conform to Federal and New Jersey
State investment regulations. Our investments purchased may include, but are not limited to, U.S. Treasury
obligations, securities issued by various Federal Agencies, State and Municipal subdivisions, mortgage-backed
securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other
banks, investment grade corporate debt instruments, and mutual funds. In addition, Investors Bancorp may invest
in equity securities subject to certain limitations. Purchase decisions are based upon a thorough analysis of each
security to determine it conforms to our overall asset/liability management objectives. The analysis must
consider its effect on our risk-based capital measurement, prospects for yield and/or appreciation and other risk
factors. Securities are classified as held-to-maturity or available-for-sale when purchased.
At December 31, 2016, our securities portfolio represented 14.7% of our total assets. Securities, in the
aggregate, increased by $267.1 million, or 8.5%, to $3.42 billion at December 31, 2016 from $3.15 billion at
December 31, 2015. This increase was a result of purchases partially offset by paydowns and sales.
Stock in the Federal Home Loan Bank, Bank Owned Life Insurance and Other Assets. The amount of
stock we own in the FHLB increased by $59.5 million, or 33.3% to $237.9 million at December 31, 2016 from
$178.4 million at December 31, 2015. The amount of stock we own in the FHLB is primarily related to the
balance of our borrowings from the FHLB, therefore the increase in borrowings has an impact on FHLB stock
owned. Bank owned life insurance was $161.9 million at December 31, 2016 and $159.2 million at December 31,
2015. Other assets was $14.5 million at December 31, 2016 and $4.7 million at December 31, 2015.
Deposits. At December 31, 2016, deposits totaled $15.28 billion, representing 76.2% of our total liabilities.
Our deposit strategy is focused on attracting core deposits (savings, checking and money market accounts),
resulting in a deposit mix of lower cost 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.
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Deposits increased by $1.22 billion, or 8.7%, from $14.06 billion at December 31, 2015 to $15.28 billion at
December 31, 2016. Total checking accounts increased $1.45 billion to $6.09 billion at December 31, 2016 from
$4.64 billion at December 31, 2015. At December 31, 2016, we held $12.33 billion in core deposits, representing
80.7% of total deposits, of which $736.8 million are brokered money market deposits. At December 31, 2016,
$2.95 billion, or 19.3%, of our total deposit balances were certificates of deposit, of which included
$687.8 million of brokered certificates of deposits.
Borrowed Funds. We borrow directly from the FHLB and various financial institutions. Our FHLB
borrowings, frequently referred to as advances, are over collateralized by our residential and non-residential
mortgage portfolios as well as qualified investment securities. Borrowed funds increased by $1.29 billion, or
39.3%, to $4.55 billion at December 31, 2016 from $3.26 billion at December 31, 2015 to help fund the
continued growth of the loan portfolio.
Stockholders’ Equity. Stockholders’ equity decreased by $188.4 million to $3.12 billion at December 31,
2016 from $3.31 billion at December 31, 2015. The decrease is primarily attributed to the repurchase of
31.3 million shares of common stock for $363.4 million as well as cash dividends of $0.26 per share totaling
income of
$82.3 million for the year ended December 31, 2016. These decreases were offset by net
$192.1 million for the year ended December 31, 2016.
Analysis of Net Interest Income
Net interest income represents the difference between income we earn on our interest-earning assets and the
expense we pay on interest-bearing liabilities. Net interest income depends on the volume of interest-earning
assets and interest-bearing liabilities and the interest rates earned on such assets and paid on such liabilities.
Average Balances and Yields. The following tables set forth average balance sheets, average yields and
costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as
the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were
included in the computation of average balances, however interest receivable on these loans have been fully
reserved for and not included in interest income. The yields set forth below include the effect of deferred fees,
discounts and premiums that are amortized or accreted to interest income or expense.
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For the Year Ended December 31,
2016
2015
2014
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)
$
144,610 $
342
0.24% $
207,331 $
225
0.11% $
371,636 $
552
0.15%
1,398,373
1,836,692
25,515
42,643
17,479,932 715,901
9,120
204,735
1.82
2.32
4.10
4.45
1,245,745
1,708,176
22,646
38,547
15,716,010 663,424
6,881
172,367
1.82
2.26
4.22
3.99
18,164
965,969
1,315,604
31,847
13,776,250 603,438
6,861
152,330
1.88
2.42
4.38
4.50
Interest-earning assets:
Interest-bearing deposits
Securities
available-for-sale
Securities held-to-maturity
Net loans
Stock in FHLB
Total interest-earning
assets
21,064,342 793,521
3.77
19,049,629 731,723
3.84
16,581,789 660,862
3.99
Non-interest-earning assets
779,138
Total assets
$21,843,480
770,262
$19,819,891
732,469
$17,314,258
Interest-bearing
liabilities:
Savings deposits
Interest-bearing checking
Money market accounts
Certificates of deposit
Total interest-bearing
deposits
Borrowed funds
Total interest-bearing
$ 2,096,769 $
3,381,909
3,925,095
3,161,843
6,304
16,268
25,621
33,864
0.30% $ 2,235,703 $
0.48
0.65
1.07
2,735,513
3,564,311
2,972,611
6,402
9,642
24,136
31,234
0.29% $ 2,241,747 $
0.35
0.68
1.05
2,478,047
2,355,982
3,180,032
6,638
8,755
13,664
30,149
0.30%
0.35
0.58
0.95
12,565,616
3,816,087
82,057
71,279
0.65
1.87
11,508,138
3,157,311
71,414
65,225
0.62
2.07
10,255,808
2,741,609
59,206
59,685
0.58
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liabilities
16,381,703 153,336
0.94
14,665,449 136,639
0.93
12,997,417 118,891
0.91
Non-interest-bearing
liabilities
Total liabilities
Stockholders’ equity
Total liabilities and
stockholders’
equity
2,289,036
18,670,739
3,172,741
1,702,945
16,368,394
3,451,497
1,518,331
14,515,748
2,798,510
$21,843,480
$19,819,891
$17,314,258
Net interest income
$640,185
$595,084
$541,971
Net interest rate spread(1)
2.83%
2.91%
Net interest-earning
assets(2)
Net interest margin(3)
Ratio of interest-earning
assets to total interest-
bearing liabilities
$ 4,682,639
$ 4,384,180
$ 3,584,372
3.04%
3.12%
1.29
1.30
1.28
3.08%
3.27%
(1) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of
average interest-bearing liabilities.
(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average total interest-earning assets.
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
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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.
Interest-earning assets:
Interest-bearing deposits
Securities available-for-sale
Securities held-to-maturity
Net loans
Stock in FHLB
Total interest-earning assets
Interest-bearing liabilities:
Savings deposits
Interest-bearing checking
Money market accounts
Certificates of deposit
Total deposits
Borrowed funds
Total interest-bearing liabilities
Increase in net interest income
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2016 vs. 2015
Years Ended December 31,
2015 vs. 2014
Increase (Decrease)
Due to
Volume
Rate
Net
Increase
(Decrease)
Increase (Decrease)
Due to
Volume
Rate
Net
Increase
(Decrease)
(In thousands)
$
(86)
2,772
3,103
77,752
1,387
203
97
993
(25,275)
852
117
2,869
4,096
52,477
2,239
$
(203)
5,112
8,367
87,885
847
(124)
(630)
(1,667)
(27,899)
(827)
(327)
4,482
6,700
59,986
20
84,928
(23,130)
61,798
102,008
(31,147)
70,861
(351)
2,576
2,524
2,024
6,773
12,607
253
4,050
(1,039)
606
3,870
(6,553)
(98)
6,626
1,485
2,630
10,643
6,054
(45)
908
8,229
(2,047)
7,045
8,668
(191)
(21)
2,243
3,132
(236)
887
10,472
1,085
5,163
(3,128)
12,208
5,540
19,380
(2,683)
16,697
15,713
2,035
17,748
$65,548
(20,447)
45,101
$ 86,295
(33,182)
53,113
Comparison of Operating Results for the Year Ended December 31, 2016 and 2015
Net Income. Net income for the year ended December 31, 2016 was $192.1 million compared to net income
of $181.5 million for the year ended December 31, 2015.
Net Interest Income. Net interest income increased by $45.1 million, or 7.6%, to $640.2 million for the year
ended December 31, 2016 from $595.1 million for the year ended December 31, 2015. The net interest margin
decreased 8 basis points to 3.04% for the year ended December 31, 2016 from 3.12% for the year ended
December 31, 2015.
Interest and Dividend Income. Total interest and dividend income increased by $61.8 million, or 8.4%, to
$793.5 million for the year ended December 31, 2016. Interest income on loans increased by $52.5 million, or
7.9%, to $715.9 million for the year ended December 31, 2016, as a result of a $1.8 billion, or 11.2%, increase in
the average balance of net loans to $17.48 billion for the year ended December 31, 2016, primarily attributed to
the growth in the commercial loan portfolio. This increase was offset by a decrease of 12 basis points in the
weighted average yield on net loans to 4.10%. Prepayment penalties, which are included in interest income,
totaled $22.0 million for the year ended December 31, 2016 compared to $21.0 million for the year ended
December 31, 2015. Interest
increased by
$9.3 million, or 13.6%, to $77.6 million for the year ended December 31, 2016 which is attributable to a
$250.8 million increase in the average balance of all other interest earning assets, excluding loans,
to
$3.58 billion for the year ended December 31, 2016. In addition, the weighted average yield on interest-earning
assets, excluding loans, increased 12 basis points to 2.17%.
income on all other interest-earning assets, excluding loans,
Interest Expense. Total interest expense increased by $16.7 million, or 12.2%, to $153.3 million for the
year ended December 31, 2016. Interest expense on interest-bearing deposits increased $10.6 million, or 14.9%,
to $82.1 million for the year ended December 31, 2016. The average balance of total interest-bearing deposits
increased $1.06 billion, or 9.2% to $12.57 billion for the year ended December 31, 2016. In addition, the
weighted average cost of interest-bearing deposits increased 3 basis points to 0.65% for the year ended
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December 31, 2016. Interest expense on borrowed funds increased by $6.1 million, or 9.3%, to $71.3 million for
the year ended December 31, 2016. The average balance of borrowed funds increased $658.8 million or 20.9%,
to $3.82 billion for the year ended December 31, 2016. This increase was offset by a decrease of 20 basis points
in the weighted average cost of borrowings to 1.87% for the year ended December 31, 2016.
Non-Interest Income. Total non-interest income decreased by $2.9 million, or 7.3%, to $37.2 million for the
year ended December 31, 2016. Gain on loans, net decreased for the year ended December 31, 2016 primarily as
a result of fewer loan sales at the Bank. Loan sales at our mortgage subsidiary were consistent year over year. In
addition, gain on sale of other real estate owned decreased $1.5 million for the year ended December 31, 2016 as
compared to the year ended December 31, 2015. These decreases were offset by an increase of $2.1 million in
gain on securities transactions for the year ended December 31, 2016 primarily due to the sale of securities
totaling $69.1 million, resulting in a gain of $3.1 million.
Non-Interest Expense. Total non-interest expense was $358.6 million for the year ended December 31,
2016, an increase of $30.2 million, or 9.2% as compared to the year ended December 31, 2015. Compensation
and fringe benefits increased $20.4 million for the year ended December 31, 2016. The increase was primarily
due to an increase of $12.8 million in equity incentive expense for the year ended December 31, 2016 resulting
from the restricted stock and stock option grants on June 23, 2015 to certain employees, officers and directors of
the Company, pursuant to the Investors Bancorp, Inc. 2015 Equity Incentive Plan; additions to our staff to
support our growth and continued build out of our risk management and operating infrastructure; as well as
normal merit increases. These increases were partially offset by decreases of approximately $1.7 million in
benefit expenses related to the freezing of both the defined benefit pension plan and supplemental executive
retirement wage replacement plan that was approved by the Board of Directors during the fourth quarter of 2016.
Office occupancy and equipment expense increased $5.4 million for the year ended December 31, 2016 primarily
due to new branch openings. Professional fees and other operating expenses increased $4.0 million and
$2.3 million, respectively for the year ended December 31, 2016 as we continue to enhance additional risk
management and operational infrastructure as our company grows and we enhance our employee training and
development programs. Included in professional fees for the three months ended December 31, 2016 is $840,000
related to the recently announced termination of the Bank of Princeton acquisition.
Income Taxes. Income tax expense was $106.9 million and $99.4 million for the years ended December 31,
2016 and December 31, 2015, respectively.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting.” ASU No. 2016-09 simplifies several aspects of
the accounting for share-based payment transactions, including the income tax consequences, classification of
awards as either equity or liabilities, classification on the statement of cash flows, and accounting for forfeitures.
In the fourth quarter of 2016 the Company adopted ASU No. 2016-09. Adjustments to previously reported 2016
interim periods were made to reflect the adoption of this ASU.
The adoption of ASU No. 2016-09 resulted in a tax benefit of $10.4 million for the year ended
December 31, 2016. The tax rate for the year ended December 31, 2015 includes a tax benefit realized from
revaluing the Company’s deferred tax asset as a result of the New York City tax law reform enacted in 2015 and
a discrete item related to a net operating loss carryforward on a prior acquisition.
The effective tax rate is affected by the level of income earned that is exempt from tax relative to the overall
level of pre-tax income; the level of expenses not deductible for tax purposes relative to the overall level of
pre-tax income; the level of income allocated and apportioned to the various state and local jurisdictions where
the Company operates, because tax rates differ among such jurisdictions; and the impact of any material but
infrequently occurring items.
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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. The net interest margin decreased 15 basis points to 3.12% for the year ended
December 31, 2015 from 3.27% for the year ended December 31, 2014.
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. Interest income on loans increased by $60.0 million, or
9.9%, to $663.4 million for the year ended December 31, 2015 as a result of 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, 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. 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
which is attributable to a $528.1 million increase in the average balance of all other interest-earning assets,
excluding loans, to $3.33 billion for the year ended December 31, 2015. 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. Interest expense on interest-bearing deposits increased $12.2 million, or 20.6%,
to $71.4 million for the year ended December 31, 2015. The average balance of total interest-bearing deposits
increased $1.25 billion, or 12.2% to $11.51 billion for the year ended December 31, 2015. In addition the
weighted average cost of interest-bearing deposits increased 4 basis points to 0.62% for the year ended
December 31, 2015. Interest expense on borrowed funds increased by $5.5 million, or 9.3%, to $65.2 million for
the year ended December 31, 2015. The average balance of borrowed funds increased $415.7 million or 15.2%,
to $3.16 billion for the year ended December 31, 2015. This increase was offset by a decrease of 11 basis points
in the weighted average cost of borrowings to 2.07% for the year ended December 31, 2015.
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. 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 Expense. Total non-interest expense decreased by $11.5 million, or 3.4%, to $328.3 million
for the year ended December 31, 2015. 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,
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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. 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 Taxes. Income tax expense was $99.4 million and $74.8 million for the years ended December 31,
2015 and December 31, 2014, respectively. The effective tax rates were 35.4% and 36.2% for the years ended
December 31, 2015 and December 31, 2014, respectively.
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.
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 cash flow or re-pricing of our assets, liabilities and off-balance sheet
contracts (i.e., loan commitments); the effect of loan prepayments, deposit activity; the difference in the behavior
of lending and funding rates arising from the uses of different indices; and “yield curve risk” arising from
changing interest rate relationships across the term structure of interest rates. Changes in market interest rates can
affect net interest income by influencing the amount and rate of new loan originations, the ability of borrowers to
repay variable rate loans, the volume of loan prepayments and the mix and flow of deposits.
The general objective of our interest rate risk management process is to determine the appropriate level of
risk given our business model and then manage that risk in a manner consistent with our policy to reduce, to the
extent possible, the exposure of our net interest income to changes in market interest rates. Our Asset Liability
Committee, which consists of senior management and executives, evaluates the interest rate risk inherent in our
balance sheet, our operating environment and capital and liquidity requirements and may modify our lending,
investing and deposit gathering strategies accordingly. On a quarterly basis, our Board of Directors reviews the
Asset Liability Committee report, the aforementioned activities and strategies, the estimated effect of those
strategies on our net interest margin and the estimated effect that changes in market interest rates may have on
the economic value of our loan and securities portfolios, as well as the intrinsic value of our deposits and
borrowings.
We actively evaluate interest rate risk in connection with our lending, investing and deposit activities. At
December 31, 2016, 25.1% of our total loan portfolio was comprised of residential mortgages, of which
approximately 35% was in variable rate products, while 65% was in fixed rate products. Our variable rate
mortgage related assets have helped to reduce our exposure to interest rate fluctuations. Fixed-rate products may
adversely impact our net interest income in a rising rate environment. The origination of commercial real estate
loans, particularly multi-family loans and commercial and industrial loans, which have outpaced the growth in
the residential portfolio in recent years, generally help reduce our interest rate risk due to their shorter term
compared to fixed rate residential mortgage loans. In addition, we primarily invest in relatively low risk
securities, which generally have shorter average lives and lower yields compared to longer term securities.
We use an internally developed industry standard asset/ liability model to complete our quarterly interest
rate risk reports. The model projects net interest income based on various interest rate scenarios and horizons.
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We use a combination of analyses to monitor our exposure to changes in interest rates. Our net interest income
sensitivity analysis determines the relative balance between the repricing of assets and liabilities over various
horizons. This asset and liability analysis includes expected cash flows from loans and securities, using
forecasted prepayment rates as well as contractual and forecasted liability cash flows. This analysis identifies
mismatches in the timing of asset and liability cash flows but does not necessarily provide an accurate indicator
of interest rate risk because the assumptions used in the analysis may not reflect the actual response of cash flows
to market interest rate changes. The economic value of equity (“EVE”) analysis estimates the change in the net
present value (“NPV”) of assets and liabilities and off-balance sheet contracts over a range of immediately
changed interest rate scenarios. In calculating changes in EVE, for the various scenarios we forecast loan and
securities prepayment rates, reinvestment rates and deposit decay rates.
Quantitative Analysis.The table below sets forth, as of December 31, 2016, the estimated changes in our
EVE and our net interest income that would result from the designated changes in interest rates. Such changes to
interest rates are calculated as an immediate and permanent change for the purposes of computing EVE and a
gradual change over a one year period for the purposes of computing net interest income. Computations of
prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative
levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of
actual results. The following table reflects management’s expectations of the changes in EVE and net interest
income for an interest rate decrease of 100 basis points and increase of 200 basis points.
Change in
Interest Rates
(basis points)
+ 200bp
0bp
-100bp
EVE (1) (2)
Net Interest Income (3)
Estimated
EVE
Estimated Increase
(Decrease)
Amount
Percent
Estimated Net
Interest
Income
Estimated Increase
(Decrease)
Amount
Percent
(Dollars in thousands)
$4,240,906
$4,791,637
$4,743,206
(550,731)
—
(48,431)
(11.5)% $615,745
— $656,677
(1.0)% $658,461
(40,933)
—
1,784
(6.2)%
—
0.3%
(1) Assumes an instantaneous and parallel shift in interest rates at all maturities.
(2) EVE is the net 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 that at December 31, 2016, in the event of a 200 basis points increase in
interest rates, we would be expected to experience a $550.7 million decrease, or 11.5% in EVE and a
$40.9 million decrease, or 6.2% in net interest income. In the event of a 100 basis points decrease in interest
rates, we would be expected to experience a $48.4 million decrease, or 1.0% in EVE and a $1.8 million increase,
or 0.3% in net interest income. This data does not reflect any future actions we may take in response to changes
in interest rates, such as changing the mix in or growth of our assets and liabilities, which could change the
results of the EVE and net interest income calculations.
As mentioned above, we use an internally developed asset liability model to compute our quarterly interest
rate risk reports. Certain shortcomings are inherent in any methodology used in the above interest rate risk
measurements. Modeling changes in EVE and net interest income require certain assumptions that may or may
not reflect the manner in which actual yields and costs respond to changes in market interest rates. The EVE and
net interest income table presented above assumes no growth and that generally the composition of our interest-
rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being
measured and, accordingly, the data does not reflect any actions we may take in response to changes in interest
rates. The table also assumes a particular change in interest rates is reflected uniformly across the yield curve.
Accordingly, although the EVE and net interest income table provide an indication of our sensitivity to interest
rate changes at a particular point in time, such measurement is not intended to and does not provide a precise
forecast of the effects of changes in market interest rates on our EVE and net interest income.
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Liquidity and Capital Resources
Liquidity is the ability to economically meet current and future financial obligations. Our primary sources of
funds consists of deposit inflows, loan and security cash flows and various forms of borrowings. While maturities
and scheduled amortization of loans and securities are predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset
Liability Committee is responsible for establishing and monitoring our liquidity targets and strategies to ensure
that sufficient liquidity exists for meeting the needs of our customers as well as unanticipated contingencies.
A primary source of funds is cash provided by cash flows on loans and securities. Principal repayments on
loans for the years ended December 31, 2016, 2015 and 2014 were $3.30 billion, $2.95 billion and $2.14 billion,
respectively. Principal repayments on securities for the years ended December 31, 2016, 2015 and 2014 were
$671.3 million, $553.2 million and $357.6 million, respectively. There were sales of securities during years
ended December 31, 2016 and 2014 of $72.2 million and $70.3 million, respectively. Included in principal
repayments for the year ended December 31, 2015 were security payoffs of $2.6 million resulting in a gain. 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, 2016, 2015 and 2014 totaled $227.1 million, $533.1 million and
$277.4 million, respectively. For the year ended December 31, 2016 and 2015 deposits increased $1.22 billion
and $1.89 billion, respectively. For the year ended December 31, 2014, excluding the deposits from the Gateway
Financial acquisition, total deposits increased by $1.20 billion. Deposit flows are affected by the overall level of
and direction of changes in market interest rates, the interest rates and products offered by us and our local
competitors, and other factors.
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For the year ended December 31, 2016 and 2015 net borrowed funds increased $1.28 billion and
$497.0 million, respectively. 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. The increases in borrowings was largely due to new loan originations outpacing 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, 2016, 2015 and 2014, we originated loans of $5.08 billion, $4.92 billion and
$3.76 billion, respectively. During the year ended December 31, 2016 and 2015 we purchased loans of
$141.6 million and $198.6 million, respectively. 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, 2016 and 2015 we purchased securities of $1.04 billion and $957.9 million, respectively. During
the year ended December 31, 2014, excluding the securities acquired in the Gateway Financial acquisition, we
purchased securities of $1.52 billion. In addition, we utilized $363.4 million, $382.9 million and $13.5 million
during the years ended December 31, 2016, 2015 and 2014, respectively, to repurchase shares of our common
stock under our stock repurchase plans.
At December 31, 2016, we had commitments to originate commercial loans of $451.2 million. Additionally,
we had commitments to originate residential loans of approximately $113.9 million, commitments to purchase
residential loans of $151.6 million and unused home equity and overdraft lines of credit, and undisbursed
business and constructions loans, totaling approximately $1.07 billion. Certificates of deposit due within one year
of December 31, 2016 totaled $1.87 billion, or 12.2% 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, 2016.
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Liquidity management is both a short 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, 2016, cash and cash equivalents totaled
$164.2 million. Securities, which provide additional sources of liquidity, totaled $3.42 billion at December 31,
2016. 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, 2016, our
borrowing capacity at the FHLB was $10.25 billion, of which the Company had outstanding borrowings of
$4.41 billion and outstanding letters of credit of $2.92 billion. In addition, the Bank had uncommitted unsecured
overnight borrowing lines with other institutions totaling $325.0 million, of which no balance was outstanding at
December 31, 2016.
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, 2016, Investors Bank exceeded all regulatory capital requirements. Investors Bank is considered
“well capitalized” under regulatory guidelines. See “Item 1. 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.
The following table summarizes our significant fixed and determinable contractual obligations and other
funding needs by payment date at December 31, 2016. 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.
Contractual Obligations
Other borrowed funds
Repurchase agreements
Operating leases
Total
Payments Due by Period
Less than
One Year
One to
Three Years
Three to
Five Years
More than
Five Years
Total
$ 960,000
23,629
23,004
$1,350,567
131,202
66,891
(In thousands)
$1,375,000
—
53,484
$705,853
—
94,649
$4,391,420
154,831
238,028
$1,006,633
$1,548,660
$1,428,484
$800,502
$4,784,279
The Company has entered into derivative financial instruments to manage exposures that arise from
business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of
which are determined by interest rates. The Company’s derivative financial instruments are used to manage
differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known
or expected cash payments principally related to the Company’s borrowings. For the year ended December 31,
2016, such derivatives were used to hedge the variability in cash flows associated with certain short term
wholesale funding transactions. The fair value of the derivative as of December 31, 2016 was an asset of
$12.6 million.
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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 March 2016, the FASB issued ASU 2016-09, “Compensation — Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting”, a new standard that changes the accounting for
certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax
deficiencies to be recorded in the income statement when the awards vest or are settled. In addition, cash flows
related to excess tax benefits will no longer be separately classified as a financing activity apart from other
income tax cash flows. The standard also allows entities to repurchase more of an employee’s shares for tax
withholding purposes without triggering liability accounting, clarifies that all cash payments made on an
employee’s behalf for withheld shares should be presented as a financing activity on its cash flows statement, and
provides an accounting policy election to account for forfeitures as they occur. On December 31, 2016, The
Company adopted ASU No. 2016-09 cumulatively, effective for the first quarter of 2016. Upon adoption, the
Company recorded an cumulative-effect adjustment to the opening balances of retained earnings and additional
paid in capital. The ASU No. 2016-09 requires that excess tax benefits and shortfalls be recorded as income tax
benefit or expense in the income statement, rather than equity. This resulted in a benefit to income tax expense in
each of the quarters of 2016. Relative to forfeitures, ASU No. 2016-09 allows an entity’s accounting policy
election to either continue to estimate the number of awards that are expected to vest, as under current guidance,
or account for forfeitures when they occur. The Company has elected to continue its existing practice of
estimating the number of awards that will be forfeited. The income tax effects of ASU No. 2016-09 on the
statement of cash flows are now classified as cash flows from operating activities, rather than cash flows from
financing activities. The Company elected to apply this cash flow classification guidance prospectively and,
therefore, prior periods have not been adjusted. ASU No. 2016-09 also requires the presentation of certain
employee withholding taxes as a financing activity on the Consolidated Statement of Cash Flows; this is
consistent with the manner in which we have presented such employee withholding taxes in the past.
Accordingly, no reclassification for prior periods is required.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of
Assets Other Than Inventory.” This ASU addresses the recognition of current and deferred taxes for an intra-
entity asset transfer and amends current GAAP by eliminating the exception for intra-entity transfers of assets
other than inventory to defer such recognition until sale to an outside party. ASU No. 2016-16 is effective for
fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early
adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual)
have not been made available for issuance. The Company is currently evaluating the provisions of ASU
No. 2016-16 to determine the potential impact the new standard will have on the Company’s Consolidated
Financial Statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments”, a new standard which addresses diversity in practice related to eight
specific cash flow issues: debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments
or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate
of the borrowing, contingent consideration payments made after a business combination, proceeds from the
settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies
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(including bank-owned life insurance policies), distributions received from equity method investees, beneficial
interests in securitization transactions; and separately identifiable cash flows and application of the predominance
principle. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years. Entities will apply the standard’s provisions using a retrospective transition
method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the
issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The
Company is currently evaluating the provisions of ASU No. 2016-15 to determine the potential impact the new
standard will have on the Company’s Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.”
This ASU significantly changes how entities will measure credit losses for most financial assets and certain other
instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is
responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace
today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current
expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at
amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans,
leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply
to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure
credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances
rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to
estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The
ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13
also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating
the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for
each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU
No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early
adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will
apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the
first reporting period in which the guidance is effective (i.e., modified retrospective approach). While early
adoption is permitted, the Company does not expect to elect that option. The Company has begun its evaluation
of the amended guidance including the potential impact on its Consolidated Financial Statements. The extent of
the change is indeterminable at this time as it will be dependent upon portfolio composition and credit quality at
the adoption date, as well as economic conditions and forecasts at that time.
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 continues to evaluate the impact of the guidance, including
determining whether other contracts exist that are deemed to be in scope. As such, no conclusions have yet been
reached regarding the potential impact on adoption on the Company’s Consolidated Financial Statements.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments- Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities.” This amendment supersedes the
guidance to classify equity securities with readily determinable fair values into different categories, requires
equity securities to be measured at fair value with changes in the fair value recognized through net income, and
simplifies the impairment assessment of equity investments without readily determinable fair values. The
amendment requires public business entities that are required to disclose the fair value of financial instruments
measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The
amendment requires an entity to present separately in other comprehensive income the portion of the total change
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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 May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The objective of
this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard
for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to
transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are
in the scope of other standards. The ASU is effective for public business entities for financial statements issued
for fiscal years beginning after December 15, 2017, and early adoption is permitted. Subsequently, the FASB
issued the following standards related to ASU 2014-09: ASU 2016-08, “Revenue from Contracts with Customers
(Topic 606): Principal versus Agent Considerations” ; ASU 2016-10, “Revenue from Contracts with Customers
(Topic 606): Identifying Performance Obligations and Licensing”; ASU 2016-11, “Revenue Recognition
(Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting
Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”;
and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and
Practical Expedients”. These amendments are intended to improve and clarify the implementation guidance of
ASU 2014-09 and have the same effective date as the original standard. The Company’s revenue is comprised of
net interest income on interest earning assets and liabilities and non-interest income. The scope of guidance
explicitly excludes net interest income as well as other revenues associated with financial assets and liabilities,
including loans, leases, securities and derivatives. Accordingly, the majority of the Company’s revenues will not
be affected.
In September 2015, the FASB issued ASU 2015-16, “Business Combinations- Simplifying the Accounting
for Measurement-Period Adjustments.” Under the new rules, acquirers no longer have to retrospectively adjust
provisional amounts included in acquisition-date financial statements, when final facts and circumstances are not
known on the acquisition date, and later become known in the measurement period. Instead, adjustments that are
made in a later period are to be reported in that period. However, acquirers must disclose the amount of
adjustments to current period income relating to amounts that would have been recognized in previous periods if
the adjustments were recognized as of the acquisition date. For public business entities, the guidance in the ASU
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.
This guidance did not have a material impact to the Company’s consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” The
ASU changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents
such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset.
Amortization of the costs is reported as interest expense. According to the ASU’s Basis for Conclusions, debt
issuance costs incurred before the associated funding is received should be reported on the balance sheet as
deferred charges until that debt liability amount is recorded. For public business entities, the guidance in the ASU
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.
This guidance did not have a material impact to the Company’s consolidated financial statements.
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In April 2015, the FASB issued ASU 2015-04, “Practical Expedient for the Measurement Date of an
Employer’s Defined Benefit Obligation and Plan Assets.” The ASU gives an employer whose fiscal year-end
does not coincide with a calendar month-end the ability, as a practical expedient, to measure defined benefit
retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end. The ASU
also provides guidance on accounting for contributions to the plan and significant events that require a
remeasurement that occur during the period between a month-end measurement date and the employer’s fiscal
year-end. An entity should reflect the effects of those contributions or significant events in the measurement of
the retirement benefit obligations and related plan assets. The ASU is effective for public business entities for
financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those
fiscal years. This guidance did not have a material impact to the Company’s consolidated financial statements.
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, 2016. 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, 2016 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.
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
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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, 2016. In making this assessment, we used the criteria set forth by the
the Treadway Commission in Internal Control-Integrated
Committee of Sponsoring Organizations of
Framework (2013). Based on our assessment we believe that, as of December 31, 2016, 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, 2016. This report appears on page 69.
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.
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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 23, 2017.
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 23,
2017.
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 23, 2017. 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 23, 2017.
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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 23, 2017.
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 23, 2017.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements
Part IV
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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, 2016 and 2015, and the related consolidated statements of income, comprehensive
income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31,
2016. 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, 2016 and 2015, and the results
of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016,
in conformity with U.S. generally accepted accounting principles.
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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, 2016, 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 March 1, 2017 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Short Hills, New Jersey
March 1, 2017
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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, 2016, based on criteria established in Internal Control — Integrated Framework (2013) issued by
the Treadway Commission (COSO). The Company’s
the Committee of Sponsoring Organizations of
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.
internal control over financial reporting may not prevent or detect
Because of its inherent
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.
limitations,
In our opinion, Investors Bancorp, Inc. maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2016, 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,
2016 and 2015, and the related consolidated statements of income, comprehensive income, stockholders’ equity,
and cash flows for each of the years in the three-year period ended December 31, 2016, and our report dated
March 1, 2017 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Short Hills, New Jersey
March 1, 2017
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
Cash and cash equivalents
Securities available-for-sale, at estimated fair value
Securities held-to-maturity, net (estimated fair value of $1,782,801 and $1,888,686
at December 31, 2016 and 2015, respectively)
Loans receivable, net
Loans held-for-sale
Federal Home Loan Bank stock
Accrued interest receivable
Other real estate owned
Office properties and equipment, net
Net deferred tax asset
Bank owned life insurance
Goodwill and intangible assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits
Borrowed funds
Advance payments by borrowers for taxes and insurance
Other liabilities
Total liabilities
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, 2016 and 2015; 309,449,388 and
334,894,181 outstanding at December 31, 2016 and 2015, respectively
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 49,621,464 and 24,176,671 shares at December 31,
2016 and 2015, respectively
Unallocated common stock held by the employee stock ownership plan
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
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December 31,
2016
December 31,
2015
(In thousands except share data)
$
164,178
1,660,433
148,904
1,304,697
1,755,556
18,569,855
38,298
237,878
65,969
4,492
177,417
222,277
161,940
101,839
14,543
1,844,223
16,661,133
7,431
178,437
58,563
6,283
172,519
237,367
159,152
105,311
4,664
$23,174,675
20,888,684
$15,280,833
4,546,251
105,851
118,495
14,063,656
3,263,090
108,721
141,570
20,051,430
17,577,037
—
—
3,591
2,765,732
1,053,750
3,591
2,785,503
936,040
(587,974)
(87,254)
(24,600)
(295,412)
(90,250)
(27,825)
3,123,245
3,311,647
$23,174,675
20,888,684
See accompanying notes to consolidated financial statements.
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Interest and dividend income:
Loans receivable and loans held-for-sale
Securities:
Equity
Government-sponsored enterprise obligations
Mortgage-backed securities
Municipal bonds and other debt
Interest-bearing deposits
Federal Home Loan Bank stock
For the Years Ended December 31,
2016
2015
2014
(Dollars in thousands, except per share data)
$
715,901
663,424
603,438
198
36
60,211
7,713
342
9,120
123
45
55,096
5,929
225
6,881
115
46
44,183
5,667
552
6,861
Total interest and dividend income
793,521
731,723
660,862
Interest expense:
Deposits
Borrowed Funds
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
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Non-interest income
Fees and service charges
Income on bank owned life insurance
Gain on loans, net
Gain on securities transactions, net
Gain on sale of other real estate owned, net
Other income
Total non-interest income
Non-interest expense
Compensation and fringe benefits
Advertising and promotional expense
Office occupancy and equipment expense
Federal deposit insurance premiums
General and administrative
Professional fees
Data processing and communication
Contribution to charitable foundation
Other operating expenses
Total non-interest expenses
Income before income tax expense
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
Weighted average shares outstanding
Basic
Diluted
82,057
71,279
153,336
640,185
19,750
620,435
17,148
4,423
4,787
3,100
96
7,647
37,201
206,698
8,644
56,220
12,183
3,131
20,104
21,043
—
30,541
358,564
299,072
106,947
192,125
0.65
0.64
$
$
$
71,414
65,225
136,639
595,084
26,000
569,084
17,119
3,948
7,786
1,036
1,631
8,605
40,125
186,320
10,988
50,865
9,050
4,372
16,104
22,366
—
28,267
328,332
280,877
99,372
181,505
0.55
0.55
59,206
59,685
118,891
541,971
37,500
504,471
19,399
4,652
5,257
1,546
809
10,198
41,861
172,068
12,238
49,668
14,390
4,238
14,672
25,333
20,000
27,253
339,860
206,472
74,751
131,721
0.38
0.38
297,580,834
300,954,885
329,763,527
332,933,448
344,389,259
347,731,571
See accompanying notes to consolidated financial statements.
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Net income
Other comprehensive income (loss), net of tax:
Change in funded status of retirement obligations
Unrealized (loss) gain on securities available-for-sale
Accretion of loss on securities reclassified to held to maturity
Reclassification adjustment for security gains included in net income
Other-than-temporary impairment accretion on debt securities
Net gains on derivatives arising during the period
Total other comprehensive income (loss)
Total comprehensive income
For the Years Ended December 31,
2016
2015
2014
$192,125
(In thousands)
181,505
131,721
7,471
(12,284)
1,092
(1,358)
880
7,424
(1,455)
(4,933)
1,448
(1,547)
1,066
—
(5,042)
5,952
1,726
(138)
794
—
3,225
(5,421)
3,292
$195,350
176,084
135,013
See accompanying notes to consolidated financial statements.
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INVESTORS BANCORP, INC. & SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Year ended December 31, 2016, 2015 and 2014
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)
$1,519
—
—
720,766
734,563 (67,046)
— 131,721
—
—
—
—
(29,779)
—
—
(25,696)
—
3,292
1,334,327
131,721
3,292
Balance at December 31, 2013
Net income
Other comprehensive income, net of tax
Corporate Reorganization
Conversion of Investors Bancorp, MHC
(213,963,274 shares)
—
— (66,174)
—
66
Purchase by ESOP (6,617,421 shares)
(143)
Treasury stock retired (14,293,439 shares)
—
Contribution of MHC
—
Equity from Gateway acquisition
Purchase of treasury stock (1,295,193 shares)
—
Treasury stock allocated to restricted stock plan —
Compensation cost for stock options and
2,140 2,091,579
66,108
(64,126)
—
22,000
—
(390)
—
—
— 64,269
—
—
12,652
—
— (13,523)
132
258
restricted stock
—
Net tax benefit from stock-based compensation —
Option Exercise
Cash dividend paid ($0.12 per common share)
ESOP shares allocated or committed to be
—
13,701
3,710
8,764
9
—
—
—
— (42,555)
—
—
5,037
—
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released
—
2,294
—
—
2,707
Balance at December 31, 2014
3,591 2,864,406
836,639 (11,131)
(93,246)
(22,404)
3,577,855
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,093,719
—
—
12,652
22,000
(13,523)
—
13,701
3,710
13,810
(42,555)
5,001
—
(5,421)
—
181,505
(5,421)
(382,922)
—
—
—
—
—
—
—
—
9,220
2,985
10,119
—
(87,395)
5,701
—
—
3,225
—
—
192,125
3,225
(363,410)
—
—
—
—
—
—
—
21,975
34,317
—
(82,291)
5,657
Net income
Other comprehensive loss, net of tax
Purchase of treasury stock (31,576,421 shares)
Treasury stock allocated to restricted stock plan
—
—
—
— 181,505
—
—
—
— (382,922)
—
—
(6,849,832 shares)
— (85,897)
5,472
80,425
Compensation cost for stock options and
restricted stock
—
Net tax benefit from stock-based compensation —
Option exercise
—
Common stock repurchased for restricted stock
plan (90,000 shares)
Cash dividend paid ($0.25 per common share)
ESOP shares allocated or committed to be
released
—
—
—
9,220
2,985
(9,045)
—
—
— 19,164
—
—
1,129
(181)
— (87,395)
(948)
—
2,705
—
—
2,996
Cumulative effect of adopting ASU No. 2016-09 —
—
Net income
—
Other comprehensive income, net of tax
Purchase of treasury stock (31,336,369 shares)
—
Treasury stock allocated to restricted stock plan
(8,051)
8,051
— 192,125
—
—
—
— (363,410)
—
—
—
(276,890 shares)
Compensation cost for stock options and
restricted stock
Option exercise
Common stock repurchased for restricted stock
plan (100,205 shares)
Cash dividend paid ($0.26 per common share)
ESOP shares allocated or committed to be
released
—
—
—
—
(3,237)
(85)
3,322
—
21,975
— (34,325)
—
— 68,642
—
1,206
(90)
— (82,291)
(1,116)
2,661
—
—
2,996
Balance at December 31, 2015
3,591 2,785,503
936,040 (295,412)
(90,250)
(27,825)
3,311,647
Balance at December 31, 2016
$3,591 2,765,732 1,053,750 (587,974)
(87,254)
(24,600)
3,123,245
See accompanying notes to consolidated financial statements.
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Contribution of stock to charitable foundation
ESOP and stock-based compensation expense
Amortization of premiums and accretion of discounts on securities, net
Amortization of premiums and accretion of fees and costs on loans, net
Amortization of intangible assets
Provision for loan losses
Depreciation and amortization of office properties and equipment
Gain on securities transactions, net
Mortgage loans originated for sale
Proceeds from mortgage loan sales
Gain on sales of mortgage loans, net
Gain on sale of other real estate owned
Gain on bargain purchase of acquisitions
Income on bank owned life insurance
Increase in accrued interest receivable
Deferred tax expense (benefit)
Decrease in other assets
Net tax benefit from stock-based compensation
(Decrease) increase in other liabilities
Total adjustments
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of loans receivable
Net originations of loans receivable
Proceeds from sale of loans held for investment
Gain on disposition of loans held for investment
Net proceeds from sale of foreclosed real estate
Proceeds from principal repayments/calls/maturities of securities available for sale
Proceeds from sales of securities available for sale
Proceeds from principal repayments/calls/maturities of securities held to maturity
Proceeds from sales of securities held to maturity
Purchases of securities available for sale
Purchases of securities held to maturity
Proceeds from redemptions of Federal Home Loan Bank stock
Purchases of Federal Home Loan Bank stock
Purchases of office properties and equipment
Death benefit proceeds from bank owned life insurance
Cash received from MHC for merger
Cash received, net of cash consideration paid for acquisitions
Net cash used in investing activities
Cash flows from financing activities:
Net increase in deposits
Net proceeds from sale of common stock
Loan to ESOP for purchase of common stock
Repayments of funds borrowed under other repurchase agreements
Net increase (decrease) in other borrowings
Net (decrease) increase in advance payments by borrowers for taxes and insurance
Dividends paid
Exercise of stock options
Purchase of treasury stock
Net tax benefit from stock-based compensation
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Non-cash investing activities:
Real estate acquired through foreclosure
Transfer of loans to loans held for sale
Cash paid during the year for:
Interest
Income taxes
Acquisitions:
Non-cash assets acquired:
Investment securities available for sale
Loans
Goodwill and other intangible assets, net
Other assets
Total non-cash assets acquired
Liabilities assumed:
Deposits
Borrowings
Other liabilities
Total liabilities assumed
Net non-cash assets acquired
Common stock issued for acquisitions
For the Years Ended December 31,
2016
2015
2014
(In thousands)
$
192,125
181,505
131,721
—
27,632
13,702
(4,508)
2,881
19,750
16,190
(3,100)
(245,792)
219,078
(4,154)
(96)
—
(4,423)
(7,406)
11,640
3,479
10,414
(20,276)
35,011
227,136
(141,562)
(1,795,505)
10,398
(646)
5,021
302,769
57,879
368,543
14,348
(744,380)
(295,157)
215,142
(274,583)
(21,088)
875
—
—
(2,297,946)
1,217,177
—
—
—
1,283,161
(2,870)
(82,291)
34,317
(363,410)
—
2,086,084
15,274
148,904
164,178
—
14,921
13,943
(10,122)
3,350
26,000
13,930
(1,036)
(238,608)
590,636
(5,258)
(1,631)
—
(3,948)
(3,296)
(3,180)
4,245
—
(48,317)
351,629
533,134
(198,623)
(1,990,008)
49,938
(2,528)
7,104
252,683
—
300,549
—
(375,605)
(582,337)
157,342
(184,492)
(25,550)
6,405
—
—
(2,585,122)
1,891,330
—
—
(10,000)
506,986
38,828
(87,395)
10,119
(382,922)
2,985
1,969,931
(82,057)
230,961
148,904
3,351
—
152,807
117,127
4,448
347,955
135,930
88,169
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
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10,000
18,702
10,173
(1,794)
3,806
37,500
13,151
(1,546)
(150,099)
186,747
(2,832)
(809)
(1,482)
(4,652)
(7,100)
(9,786)
4,425
—
41,263
145,667
277,388
(233,856)
(1,650,629)
2,425
(2,425)
7,614
174,255
51,093
183,482
19,177
(587,952)
(930,256)
143,707
(116,403)
(31,655)
5,455
11,307
17,917
(2,936,744)
1,198,843
2,149,893
(66,174)
(98,205)
(508,150)
1,979
(42,555)
13,810
(13,523)
3,710
2,639,628
(19,728)
250,689
230,961
6,404
32,411
118,140
85,796
50,347
195,062
1,853
21,343
268,605
254,672
5,185
3,184
263,041
5,564
—
See accompanying notes to consolidated financial statements.
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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 comprised of the accounts of Investors Bancorp, Inc. and its
wholly owned subsidiaries, including Investors Bank (the “Bank”) and the Bank’s wholly-owned subsidiaries
(collectively, the “Company”). 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, 2016, 2015 and 2014 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”),
judgments regarding goodwill and fair value,
impairment
impairment of securities, stock based compensation and derivative instruments are particularly critical because
the valuation of deferred tax assets,
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Notes to Consolidated Financial Statements
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 $62.8 million at December 31, 2016 and
$43.4 million at December 31, 2015.
(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
87
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
the duration and severity of the impairment;
To determine whether a security’s impairment is other-than-temporary, the Company considers factors that
to hold security
include,
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.
the Company’s ability and intent
(d) Loans Receivable, Net
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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.
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 greater than $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
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Notes to Consolidated Financial Statements
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 $152.8 million at December 31, 2016 and $152.5 million at
December 31, 2015 and a claims stabilization reserve of $9.1 million at December 31, 2016 and $6.6 million at
December 31, 2015. 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
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Notes to Consolidated Financial Statements
insurance carrier for the policy issuance) is guaranteed by the insurance carrier provided that certain conditions
are met at the date on which a contract is surrendered. The Company satisfied these conditions at December 31,
2016 and 2015.
(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.
At December 31, 2016, 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, 2016, 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.
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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. Subsequent 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 are charged to income along with any
additional property maintenance and protection expenses incurred in owning the properties.
(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.
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Notes to Consolidated Financial Statements
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 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.
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(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.
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 SERPs 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
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
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Notes to Consolidated Financial Statements
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.
ASC 718 requires the Company to report as a financing cash flow the benefits of realized tax deductions in
excess of previously recognized tax benefits on compensation expense. In accordance with SEC Staff Accounting
Bulletin No. 107 (“SAB 107”), the Company classified share-based compensation for employees and outside
directors within “compensation and fringe benefits” in the consolidated statements of income to correspond with
the same line item as the cash compensation paid.
The 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 and (2) 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.
(o) Derivative Financial Instruments
As part of our interest rate risk management, we may utilize, from time-to-time, derivative financial
instruments which are recorded as either assets or liabilities in the consolidated balance sheet at fair value. The
effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is
initially recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in
the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair
value of the derivatives would be recognized directly in earnings.
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
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Notes to Consolidated Financial Statements
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,
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.
to subscribers in the offering,
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
Under applicable federal regulations, the Company was not permitted to implement a stock repurchase
program during the first year following completion of the second-step conversion without prior notice to, and the
receipt of a non-objection from, the Federal Reserve Board. On March 16, 2015, the Company announced it had
received approval from the Board of Governors of the Federal Reserve System to commence a 5% buyback
program prior to the one-year anniversary of the completion of its second step conversion. Accordingly, the
Board of Directors authorized the repurchase of 17,911,561 shares. The first program was completed on June 30,
2015.
On June 9, 2015, the Company announced its second share repurchase program, which authorized the
purchase of an additional 10% of its publicly-held outstanding shares of common stock, or 34,779,211 shares.
The second repurchase program commenced immediately upon completion of the first repurchase plan on
June 30, 2015. The second program was completed on June 17, 2016.
On April 28, 2016, the Company announced its third share repurchase program, which authorized the
purchase of an additional 10% of its publicly-held outstanding shares of common stock, or 31,481,189 shares.
The new repurchase program commenced immediately upon completion of the second repurchase plan on
June 17, 2016.
During the year ended December 31, 2016, the Company purchased 31,336,369 shares at a cost of
$363.4 million, or approximately $11.60 per share. 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.
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
Cash Dividends
Since September 2012, we have paid a quarterly cash dividend. Our dividend payout ratio for the year
ending December 31, 2016 was 40%.
3. Securities
The following tables present the carrying value, gross unrealized gains and losses and estimated fair value
for available-for-sale securities and the amortized cost, net unrealized losses, carrying value, gross unrecognized
gains and losses and estimated fair value for held-to-maturity securities as of the dates indicated:
Available-for-sale:
Equity securities
Mortgage-backed securities:
Carrying
value
At December 31, 2016
Gross
unrealized
gains
Gross
unrealized
losses
(In thousands)
Estimated
fair value
$
5,825
918
83
6,660
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
Government National Mortgage Association
603,774
1,022,383
1,971
2,678
47,538 —
7,306
598,439
16,474 1,008,587
46,747
791
Total mortgage-backed securities
available-for-sale
Total available-for-sale securities
1,673,695
4,649
24,571 1,653,773
$1,679,520
5,567
24,654 1,660,433
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At December 31, 2016
Amortized
cost
Net
unrealized
losses(1)
Carrying
value
Gross
unrecognized
gains(2)
Gross
unrecognized
losses(2)
Estimated
fair value
(In thousands)
Held-to-maturity:
Debt securities:
Government-sponsored
enterprises
Municipal bonds
Corporate and other debt
$
2,128 —
37,978 —
2,128
37,978
12
1,515
securities
65,852 21,760
44,092
40,153
Total debt securities
held-to-maturity
Mortgage-backed securities:
Federal Home Loan
105,958 21,760
84,198
41,680
—
—
—
—
2,140
39,493
84,245
125,878
Mortgage Corporation
411,692
1,559
410,133
793
3,502
407,424
Federal National
Mortgage Association
1,246,635
1,802 1,244,833
3,635
15,389
1,233,079
Government National
Mortgage Association
16,392 —
16,392
28
—
16,420
Total mortgage-
backed securities
held-to-maturity
1,674,719
3,361 1,671,358
4,456
18,891
1,656,923
Total held-to-maturity securities
$1,780,677 25,121 1,755,556
46,136
18,891
1,782,801
(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
the date a security is designated as
they represent
held-to-maturity; or (ii) the date that an other than temporary impairment charge is recognized on a
held-to-maturity security, through the date of the balance sheet.
fair value fluctuations from the later of: (i)
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Available-for-sale:
Equity securities
Mortgage-backed securities:
Carrying
value
At December 31, 2015
Gross
unrealized
gains
Gross
unrealized
losses
(In thousands)
Estimated
fair value
$
5,778
733
16
6,495
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
Government National Mortgage Association
546,652
724,851
24,841
3,242
4,520
1
2,443
3,299
163
547,451
726,072
24,679
Total mortgage-backed securities
available-for-sale
Total available-for-sale securities
1,296,344
7,763
5,905
1,298,202
$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
Municipal bonds
Corporate and other debt
$
4,232 —
43,058 —
4,232
43,058
11
1,307
securities
58,358 23,245
35,113
42,704
Total debt securities
held-to-maturity
Mortgage-backed securities:
Federal Home Loan
105,648 23,245
82,403
44,022
—
—
—
—
4,243
44,365
77,817
126,425
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
Federal housing
authorities
Total mortgage-
backed securities
held-to-maturity
11 —
11
—
1,767,027
5,207 1,761,820
9,643
Total held-to-maturity securities
$1,872,675 28,452 1,844,223
53,665
—
—
21,455
11
9,202
9,202
1,762,261
1,888,686
(1) Net unrealized losses of held-to-maturity corporate and other debt securities represent the other than
temporary charge related to other non-credit factors and is being amortized through accumulated other
comprehensive income over the remaining life of the securities. For mortgage-backed securities,
it
represents the net loss on previously designated available-for sale securities transferred to held-to-maturity
at fair value and is being amortized through accumulated other comprehensive income over the remaining
life of the securities.
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(2) Unrecognized gains and losses of held-to-maturity securities are not reflected in the financial statements, as
they represent
the date a security is designated as
held-to-maturity; or (ii) the date that an other-than-temporary impairment charge is recognized on a
held-to-maturity security, through the date of the balance sheet.
fair value fluctuations from the later of: (i)
At December 31, 2016, corporate and other debt securities include a portfolio of collateralized debt
obligations backed by pooled trust preferred securities (“TruPS”), principally issued by banks and to a lesser
extent insurance companies, real estate investment trusts, and collateralized debt obligations. At December 31,
2016 the TruPS had an amortized cost and estimated fair value of $39.1 million and $79.2 million, respectively.
While all were investment grade at purchase, securities classified as non-investment grade at December 31, 2016
had an amortized cost and estimated fair value of $37.1 million and $72.9 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.
Approximately $469.4 million of the Company’s securities are pledged to secure borrowings. The
contractual maturities of the Bank’s mortgage-backed securities are generally less than 20 years with effective
lives expected to be shorter due to prepayments. Expected maturities may differ from contractual maturities due
to underlying loan prepayments or early call privileges of the issuer, therefore, mortgage-backed securities are
not
included in the following table. The amortized cost and estimated fair value of debt securities at
December 31, 2016, by contractual maturity, are shown below.
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Due after one year through five years
Due after five years through ten years
Due after ten years
Total
December 31, 2016
Carrying
Value
Estimated
fair value
(In thousands)
$33,348
2,203
5,000
43,647
33,348
2,215
5,003
85,312
$84,198
125,878
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Notes to Consolidated Financial Statements
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, 2016 and December 31, 2015, was as follows:
December 31, 2016
Less than 12 months
12 months or more
Total
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
(In thousands)
$
4,722
83
—
—
4,722
83
406,878
7,220
12,756
86
419,634
7,306
762,272 15,977
25,089
497
787,361 16,474
46,747
791
—
—
46,747
791
Available-for-sale:
Equity Securities
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation
Federal National Mortgage
Association
Government National
Mortgage Association
Total mortgage-backed
securities
available-for-sale
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Total available-for-sale securities
1,220,619 24,071
37,845
1,215,897 23,988
37,845
583
583
1,253,742 24,571
1,258,464 24,654
339,666
3,354
3,623
148
343,289
3,502
—
148
731
970,194 15,389
1,313,483 18,891
2,571,947 43,545
Held-to-maturity:
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation
Federal National Mortgage
Association
970,194 15,389
—
Total held-to-maturity securities
$1,309,860 18,743
3,623
Total
$2,530,479 42,814
41,468
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Notes to Consolidated Financial Statements
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)
$
4,692
16
—
—
4,692
16
263,255
2,443
—
—
263,255
2,443
375,792
2,850
14,821
449
390,613
3,299
24,874
163
—
—
24,874
163
Available-for-sale:
Equity Securities
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation
Federal National Mortgage
Association
Government National
Mortgage Association
Total mortgage-backed
securities
available-for-sale
Held-to-maturity:
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation
Federal National Mortgage
Association
Total available-for-sale securities
668,613
5,472
14,821
663,921
5,456
14,821
449
449
678,742
5,905
683,434
5,921
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342,702
2,804
4,887
278
347,589
3,082
Total held-to-maturity securities
$ 890,028
8,281
33,900
547,326
5,477
29,013
643
921
576,339
6,120
923,928
9,202
Total
$1,558,641 13,753
48,721
1,370
1,607,362 15,123
At December 31, 2016 and 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.
Other-Than-Temporary Impairment (“OTTI”)
We conduct a quarterly review and evaluation of the securities portfolio to determine if the value of any
security has declined below its cost or amortized cost, and whether such decline is other-than-temporary. If a
determination is made that a debt security is other-than-temporarily impaired, the Company will estimate the
amount of the unrealized loss that is attributable to credit and all other non-credit related factors. The credit
related component will be recognized as an other-than-temporary impairment charge in non-interest income. The
non-credit related component will be recorded as an adjustment to accumulated other comprehensive income, net
of tax.
With the assistance of a valuation specialist, we evaluate the credit and performance of each issuer
underlying our pooled trust preferred securities. Cash flows for each security are forecast using assumptions for
defaults, recoveries, pre-payments and amortization. At December 31, 2016 and 2015, management deemed that
the present value of projected cash flows for each security was greater than the book value and did not recognize
any additional OTTI charges for the periods ended December 31, 2016 and 2015. At December 31, 2016,
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non-credit related OTTI recorded on the previously impaired pooled trust preferred securities was $21.8 million
($12.9 million after-tax). This amount 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.
Balance of credit related OTTI, beginning of period
Additions:
Initial credit impairments
Subsequent credit impairments
Reductions:
For the Years Ended December 31,
2016
2015
2014
$100,200
(In thousands)
108,817
112,235
—
—
—
—
—
—
Accretion of credit loss impairment due to an increase in
expected cash flows
Reduction for securities sold or paid off during the period
(4,457)
—
(3,804)
(4,813)
(3,418)
—
Balance of credit related OTTI, end of period
$ 95,743
100,200
108,817
The credit loss component of the impairment loss represents the difference between the present value of
expected future cash flows and the amortized cost basis of the securities prior to considering credit losses. The
beginning balance represents the credit loss component for debt securities for which other-than-temporary
impairment occurred prior to the period presented. If other-than-temporary impairment is recognized in earnings
for credit impaired debt securities, they would be presented as additions based upon whether the current period is
the first time a debt security was credit impaired (initial credit impairment) or is not the first time a debt security
was credit impaired (subsequent credit impairments). The credit loss component is reduced if the Company sells,
intends to sell or believes it will be required to sell previously credit impaired debt securities. Additionally, the
credit loss component is reduced if (i) the Company receives cash flows in excess of what it expected to receive
over the remaining life of the credit impaired debt security, (ii) the security matures or (iii) the security is fully
written down.
Realized Gains and Losses
Gains and losses on the sale of all securities are determined using the specific identification method. For the
year ended December 31, 2016, the Company received sale proceeds of $57.9 million on equity securities and
pools of mortgage-backed securities sold from the available-for-sale portfolio resulting in a gross realized gain of
$2.3 million.
For the year ended December 31, 2016, the Company received sale proceeds of $14.3 million on a pool of
mortgage-backed securities from the held-to-maturity portfolio resulting in a gross realized gain of $836,000.
These securities met the criteria of principal pay downs under 85% of the original investment amount and
therefore did not result in a tainting of the held-to-maturity portfolio. The Company sells securities when, in
management’s assessment market pricing presents an economic benefit that outweighs holding such securities,
and when securities with smaller balance become cost prohibitive to carry.
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
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Notes to Consolidated Financial Statements
December 31, 2015, the Company recognized gains on available-for-sale securities of $145,000 related to capital
distributions of equity securities held in 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 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 held in 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
$19.2 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 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.
4. Loans Receivable, Net
The detail of the loan portfolio as of December 31, 2016 and December 31, 2015 was as follows:
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Multi-family loans
Commercial real estate loans
Commercial and industrial loans
Construction loans
Total commercial loans
Residential mortgage loans
Consumer and other loans
Total loans excluding PCI loans
PCI loans
Net unamortized premiums and deferred loan
costs(1)
Allowance for loan losses
Net loans
December 31,
2016
December 31,
2015
(In thousands)
$ 7,459,131
4,445,194
1,275,283
314,843
13,494,451
4,710,373
596,922
18,801,746
8,956
6,255,904
3,821,950
1,044,329
224,057
11,346,240
5,037,898
496,103
16,880,241
11,089
(12,474)
(228,373)
(11,692)
(218,505)
$18,569,855
16,661,133
(1)
Included in unamortized premiums and deferred loan costs are accretable purchase accounting adjustments
in connection with loans acquired.
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Notes to Consolidated Financial Statements
Purchased Credit-Impaired Loans
Purchased Credit-Impaired (“PCI”) loans, are loans acquired at a discount that is due, in part, to credit
quality. PCI loans are accounted for in accordance with ASC Subtopic 310-30 and are initially recorded at fair
value as determined by the present value of expected future cash flows with no valuation allowance reflected in
the allowance for loan losses.
The following table presents changes in the accretable yield for PCI loans during the years ended
December 31, 2016 and 2015:
Balance, beginning of period
Acquisitions
Accretion
Net reclassification from non-accretable difference(1)
Balance, end of period
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Years Ended
December 31,
2016
2015
(In thousands)
$ 449
—
(219)
1,221 —
971
—
(522)
$1,451
449
(1) 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.
An analysis of the allowance for loan losses is summarized as follows:
Balance at beginning of the period
Loans charged off
Recoveries
Net charge-offs
Provision for loan losses
Balance at end of the period
Years Ended December 31,
2016
2015
2014
$218,505
(14,997)
5,115
(In thousands)
200,284
(12,216)
4,437
(9,882)
19,750
(7,779)
26,000
173,928
(18,244)
7,100
(11,144)
37,500
$228,373
218,505
200,284
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
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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 its calculation of the allowance for loan loss.
For the year ended December 31, 2016, the Company recorded charge-offs of $52,000 related to PCI loans
acquired.
Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. The analysis
of the allowance for loan losses has two components: specific and general allocations. Specific allocations are
made for loans determined to be impaired. A loan is deemed to be impaired if it is a commercial loan with an
outstanding balance greater than $1.0 million and on non-accrual status, loans modified in a troubled debt
restructuring (“TDR”), and other commercial loans greater than $1.0 million if management has specific
information that it is probable they will not collect all amounts due under the contractual terms of the loan
agreement. Impairment is measured by determining the present value of expected future cash flows or, for
collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses.
The general allocation is determined by segregating the remaining loans by type of loan, risk rating (if
applicable) and payment history. In addition, the Company’s residential portfolio is subdivided between fixed
and adjustable rate loans as adjustable rate loans are deemed to be subject to more credit risk if interest rates rise.
Reserves for each loan segment or the loss factors are generally determined based on the Company’s historical
loss experience over a look-back period determined to provide the appropriate amount of data to accurately
estimate expected losses as of period end. Additionally, management assesses the loss emergence period for the
expected losses of each loan segment and adjusts each historical loss factor accordingly. The loss emergence
period is the estimated time from the date of a loss event (such as a personal bankruptcy) to the actual recognition
of the loss (typically via the first full or partial loan charge-off), and is determined based upon a study of the
Company’s past loss experience by loan segment. The loss factors may also be adjusted to account for qualitative
or environmental factors that are likely to cause estimated credit losses inherent in the portfolio to differ from
historical loss experience. This evaluation is based on among other things, loan and delinquency trends, general
economic conditions, credit concentrations, lending policies and procedures and industry trends, but is inherently
subjective as it requires material estimates that may be susceptible to significant revisions based upon changes in
economic and real estate market conditions. Actual loan losses may be different than the allowance for loan
losses we have established which could have a material negative effect on our financial results.
On a quarterly basis, management reviews the current status of various loan assets in order to evaluate the
adequacy of the allowance for loan losses. In this evaluation process, specific loans are analyzed to determine
their potential risk of loss. Loans determined to be impaired are evaluated for potential loss exposure. Any
shortfall results in a recommendation of a specific allowance or charge-off if the likelihood of loss is evaluated as
probable. To determine the adequacy of collateral on a particular loan, an estimate of the fair value of the
collateral is based on the most current appraised value available for real property or a discounted cash flow
analysis on a business. The appraised value for real property is then reduced to reflect estimated liquidation
expenses.
The allowance contains reserves identified as unallocated. These reserves reflect management’s attempt to
ensure that the overall allowance reflects a margin for imprecision and the uncertainty that is inherent in
estimates of probable credit losses.
Our 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 to our loan portfolio are increases in interest rates, a decline in
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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
in determining the value of properties. Negative changes to appraisal assumptions could
instrumental
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.
loans upon origination. An updated appraisal
For commercial real estate, multi-family and construction loans, the Company obtains an appraisal for all
collateral dependent
is obtained annually for loans rated
substandard or worse with a balance of $500,000 or greater. An updated appraisal is obtained biennially for loans
rated special mention with a balance of $2.0 million or greater. This is done in order to determine the specific
reserve or charge off needed. As part of the allowance for loan loss process, the Company reviews each collateral
dependent commercial real estate loan classified as non-accrual and/or impaired and assesses whether there has
been an adverse change in the collateral value supporting the loan. The Company utilizes information from its
commercial lending officers and its credit department and special asset department’s knowledge of changes in
real estate conditions in our lending area to identify if possible deterioration of collateral value has occurred.
Based on the severity of the changes in market conditions, management determines if an updated appraisal is
warranted or if downward adjustments to the previous appraisal are warranted. If it is determined that the
deterioration of the collateral value is significant enough to warrant ordering a new appraisal, an estimate of the
downward adjustments to the existing appraised value is used in assessing if additional specific reserves are
necessary until the updated appraisal is received.
For homogeneous residential mortgage loans, the Company’s policy is to obtain an appraisal upon the
origination of the loan and an updated appraisal in the event a loan becomes 90 days delinquent. Thereafter, the
appraisal is updated every two years if the loan remains in non-performing status and the foreclosure process has
not been completed. Management adjusts the appraised value of residential loans to reflect estimated selling costs
and declines in the real estate market.
Management believes the potential risk for outdated appraisals for impaired and other non-performing loans
has been mitigated due to the fact that the loans are individually assessed to determine that the loan’s carrying
value is not in excess of the fair value of the collateral. Loans are generally charged off after an analysis is
completed which indicates that collectability of the full principal balance is in doubt.
Although we believe we have established and maintained the allowance for loan losses at adequate levels,
additions may be necessary if the current economic environment deteriorates. Management uses relevant
information available; however, the level of the allowance for loan losses remains an estimate that is subject to
significant judgment and short-term change. In addition, the Federal Deposit Insurance Corporation and the New
Jersey Department of Banking and Insurance, as an integral part of their examination process, will periodically
review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance
based on their judgments about information available to them at the time of their examination.
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Notes to Consolidated Financial Statements
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, 2016 and 2015:
December 31, 2016
Multi-
Family
Loans
Commercial
Real Estate
Loans
Commercial
and Industrial
Loans
Construction
Loans
Residential
Mortgage
Loans
Consumer
and Other
Loans Unallocated
Total
(Dollars in thousands)
Allowance for loan losses:
Beginning balance-
December 31, 2015
$
Charge-offs
Recoveries
Provision
Ending balance-
December 31, 2016
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired with
deteriorated credit
quality
Balance at
$
$
88,223
(161)
1,885
5,614
46,999
(455)
689
5,563
40,585
(4,485)
541
6,851
6,794
(52)
267
4,644
31,443
(9,425)
1,631
(3,818)
1,306
3,155
(419) —
—
102
884
12
218,505
(14,997)
5,115
19,750
95,561
52,796
43,492
11,653
19,831
2,850
2,190
228,373
—
—
—
—
1,581
20
—
1,601
95,561
52,796
43,492
11,653
18,250
2,830
2,190
226,772
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—
—
—
—
—
—
—
—
December 31, 2016
$
95,561
52,796
43,492
11,653
19,831
2,850
2,190
228,373
Loans:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired with
deteriorated credit
quality
Balance at
$
248
5,962
3,370
—
24,453
371
—
34,404
7,458,883 4,439,232 1,271,913
314,843 4,685,920 596,551
— 18,767,342
—
7,106
—
—
1,507
343
—
8,956
December 31, 2016
$7,459,131 4,452,300 1,275,283
314,843 4,711,880 597,265
— 18,810,702
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
$
Charge-offs
Recoveries
Provision
$
$
Ending balance-
December 31, 2015
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired with
deteriorated credit
quality
Balance at December 31,
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71,147
(284)
445
16,915
44,030
(1,021)
807
3,183
20,759
(516)
295
20,047
6,488
(466)
317
455
47,936
(9,526)
2,295
(9,262)
6,577
3,347
(403) —
—
278
(5,271)
(67)
200,284
(12,216)
4,437
26,000
88,223
46,999
40,585
6,794
31,443
3,155
1,306
218,505
—
—
2,409
—
1,773
9
—
4,191
88,223
46,999
38,176
6,794
29,670
3,146
1,306
214,314
—
—
—
—
—
—
—
—
2015
$
88,223
46,999
40,585
6,794
31,443
3,155
1,306
218,505
Loans:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired with
deteriorated credit
quality
Balance at
$
3,219
18,941
9,395
2,504
22,539
389
—
56,987
6,252,685 3,803,009 1,034,934
221,553 5,015,359 495,714
— 16,823,254
—
7,149
56
1,786
1,645
453
—
11,089
December 31, 2015
$6,255,904 3,829,099 1,044,385
225,843 5,039,543 496,556
— 16,891,330
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers
to service their debt such as: current financial information, historical payment experience, credit documentation, public
information and current economic trends, among other factors. For non-homogeneous loans, such as commercial and
commercial real estate loans the Company analyzes the loans individually by classifying the loans as to credit risk and
assesses the probability of collection for each type of class. This analysis is performed on a quarterly basis. The
Company uses the following definitions for risk ratings:
Pass — “Pass” assets are well protected by the current net worth and paying capacity of the obligor (or
guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.
Watch — A “Watch” asset has all the characteristics of a Pass asset but warrant more than the normal level of
supervision. These loans may require more detailed reporting to management because some aspects of underwriting
may not conform to policy or adverse events may have affected or could affect the cash flow or ability to continue
operating profitably, provided, however, the events do not constitute an undue credit risk. Residential loans delinquent
30-59 days are considered watch if not already identified as impaired.
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Notes to Consolidated Financial Statements
Special Mention — A “Special Mention” asset has potential weaknesses that deserve management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects
for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely
classified and do not expose an institution to sufficient risk to warrant adverse classification. Residential loans
delinquent 60-89 days are considered special mention if not already identified as impaired.
Substandard — A “Substandard” asset is inadequately protected by the current worth and paying capacity
of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected. Residential loans delinquent 90 days or
greater as well as those identified as impaired are considered substandard.
Doubtful — An asset classified “Doubtful” has all the weaknesses inherent in one classified substandard
with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and
improbable on the basis of currently known facts, conditions, and values.
Loss — An asset or portion thereof, classified “Loss” is considered uncollectible and of such little value that
its continuance on the institution’s books as an asset, without establishment of a specific valuation allowance or
charge-off, is not warranted. This classification does not necessarily mean that an asset has no recovery or
salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur. As
such, it is not practical or desirable to defer the write-off.
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The following tables present the risk category of loans as of December 31, 2016 and December 31, 2015 by
class of loans excluding PCI loans:
Pass
Watch
Special Mention Substandard Doubtful Loss
Total
December 31, 2016
(In thousands)
Commercial loans:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage
Consumer and other
Total
$ 6,961,809
3,900,988
900,190
230,630
276,858
373,319
344,628
76,773
11,993,617 1,071,578
21,873
5,627
4,600,611
583,140
$17,177,368 1,099,078
165,948
134,154
23,588
3,200
326,890
10,239
719
337,848
54,516
36,733
6,877
4,240
102,366
77,650
7,436
187,452
—
—
—
—
—
—
—
—
— 7,459,131
— 4,445,194
— 1,275,283
314,843
—
— 13,494,451
— 4,710,373
596,922
—
— 18,801,746
Pass
Watch
Special Mention Substandard Doubtful Loss
Total
December 31, 2015
(In thousands)
Commercial loans:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage
Consumer and other
$ 5,876,425
3,411,876
793,527
207,499
10,289,327
4,930,961
482,715
325,414
331,429
223,474
12,833
893,150
24,584
3,987
Total
$15,703,003
921,721
17,033
38,265
13,782
—
69,080
13,796
427
83,303
37,032
40,380
13,546
3,725
94,683
68,557
8,974
172,214
—
—
—
—
—
—
—
—
— 6,255,904
— 3,821,950
— 1,044,329
224,057
—
— 11,346,240
— 5,037,898
496,103
—
— 16,880,241
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The following tables present the payment status of the recorded investment in past due loans as of
December 31, 2016 and December 31, 2015 by class of loans excluding PCI loans:
Commercial loans:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage
Consumer and other
December 31, 2016
30-59 Days
60-89 Days
Greater
than 90
Days
Total Past
Due
Current
Total
Loans
Receivable
(In thousands)
$ 5,272
6,568
864
—
12,704
24,052
5,627
1,099
31,964
885
—
33,948
10,930
719
234
6,445
2,971
—
9,650
58,119
7,065
6,605
44,977
4,720
—
56,302
93,101
13,411
7,452,526
4,400,217
1,270,563
314,843
7,459,131
4,445,194
1,275,283
314,843
13,438,149
4,617,272
583,511
13,494,451
4,710,373
596,922
Total
$42,383
45,597
74,834
162,814
18,638,932
18,801,746
Commercial loans:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage
Consumer and other
December 31, 2015
30-59 Days
60-89 Days
Greater
than 90
Days
Total Past
Due
Current
Total
Loans
Receivable
(In thousands)
$14,236
4,171
957
—
19,364
27,092
3,987
—
352
—
—
1,886
6,429
4,386
792
16,122
10,952
5,343
792
6,239,782
3,810,998
1,038,986
223,265
6,255,904
3,821,950
1,044,329
224,057
352
14,956
427
13,493
68,560
8,976
33,209
110,608
13,390
11,313,031
4,927,290
482,713
11,346,240
5,037,898
496,103
Total
$50,443
15,735
91,029
157,207
16,723,034
16,880,241
The following table presents non-accrual loans excluding PCI loans at the dates indicated:
Non-accrual:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential and consumer
Total non-accrual loans
December 31, 2016
December 31, 2015
# of loans
amount
# of loans
amount
(Dollars in thousands)
2
24
8
—
34
478
512
$
482
9,205
4,659
—
14,346
79,928
$94,274
4
37
17
4
62
500
562
$
3,467
10,820
9,225
792
24,304
91,122
$115,426
108
K
-
0
1
M
R
O
F
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Included in the non-accrual table above are troubled debt restructured (“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, 2016 and December 31, 2015, these loans are comprised of the following:
Current TDR classified as non-accrual:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage and consumer
Total current TDR classified as non-accrual
December 31, 2016
December 31, 2015
# of loans Amount
# of loans Amount
(Dollars in thousands)
1
1
1
—
3
23
26
$ 248
63
286
—
597
5,721
$6,318
1
2
2
—
5
15
20
$1,032
240
2,226
—
3,498
3,378
$6,876
The following table presents TDR loans which were also 30-89 days delinquent and classified as
non-accrual at the dates indicated:
TDR 30-89 days delinquent classified as non-accrual:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage and consumer
Total current TDR classified as non-accrual
December 31, 2016
December 31, 2015
# of loans Amount
# of loans Amount
(Dollars in thousands)
—
2
—
—
2
14
16
$ —
169
—
—
169
2,869
$3,038
1
5
1
—
7
11
18
$ 548
2,309
360
—
3,217
3,338
$6,555
The Company has no loans past due 90 days or more delinquent that are still accruing interest.
PCI loans are excluded from non-accrual loans, as they are recorded at fair value based on the present value
of expected future cash flows. As of December 31, 2016, PCI loans with a carrying value of $9.0 million
included $7.7 million of which were current, none of which were 30-89 days delinquent and $1.3 million of
which were 90 days or more delinquent. As of December 31, 2015, PCI loans with a carrying value of
$11.1 million included $9.0 million of which were current and $2.1 million of which were 90 days or more
delinquent.
At December 31, 2016 and 2015, loans meeting the Company’s definition of an impaired loan were
primarily collateral dependent loans which totaled $34.4 million and $57.0 million, respectively, with allocations
of the allowance for loan losses of $1.6 million and $4.2 million for the periods ending December 31, 2016 and
2015, respectively. During the years ended December 31, 2016 and 2015,
income received and
recognized on these loans totaled $1.5 million and $2.8 million, respectively.
interest
109
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following tables present loans individually evaluated for impairment by portfolio segment as of
December 31, 2016 and December 31, 2015:
F
O
R
M
1
0
-
K
With no related allowance:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage and consumer
With an allowance recorded:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage and consumer
Total:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage and consumer
Total impaired loans
December 31, 2016
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
(In thousands)
$
248
5,962
3,370
—
248
9,265
3,972
—
9,580
11,030
13,485
14,565
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
252
5,790
3,953
—
9,995
9,899
—
—
—
—
—
13,794
—
14,382
—
1,601
—
13,689
248
5,962
3,370
—
248
9,265
3,972
—
—
—
—
—
9,580
24,824
13,485
28,947
$34,404
42,432
—
1,601
1,601
252
5,790
3,953
—
9,995
23,588
33,583
20
301
169
—
490
483
—
—
—
—
—
479
20
301
169
—
490
962
1,452
110
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
With no related allowance:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage and consumer
With an allowance recorded:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage and consumer
Total:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage and consumer
Total impaired loans
December 31, 2015
Recorded
Investment
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
Related
Allowance
(In thousands)
$ 3,219
18,941
5,155
2,504
29,819
8,020
—
—
4,240
—
6,806
27,961
5,160
6,412
46,339
12,433
—
—
4,271
—
4,240
14,908
4,271
13,695
3,219
18,941
9,395
2,504
34,059
22,928
6,806
27,961
9,431
6,412
50,610
26,128
$56,987
76,738
—
—
—
—
—
—
—
—
2,409
—
2,409
1,782
—
—
2,409
—
2,409
1,782
4,191
2,872
19,025
3,575
4,288
29,760
7,611
—
—
4,389
—
4,389
16,424
2,872
19,025
7,964
4,288
34,149
24,035
58,184
119
1,136
200
226
1,681
463
—
—
194
—
194
476
119
1,136
394
226
1,875
939
2,814
K
-
0
1
M
R
O
F
The average recorded investment is the annual average calculated based upon the ending quarterly balances.
The interest income recognized is the year to date interest income recognized on a cash basis.
Troubled Debt Restructurings
On a case-by-case basis, the Company may agree to modify the contractual terms of a borrower’s loan to
remain competitive and assist customers who may be experiencing financial difficulty, as well as preserve the
Company’s position in the loan. If the borrower is experiencing financial difficulties and a concession has been
made at the time of such modification, the loan is classified as a TDR.
Substantially all of our TDR loan modifications involve lowering the monthly payments on such loans
through either a reduction in interest rate below a market rate, an extension of the term of the loan, or a
combination of these two methods. These modifications rarely result in the forgiveness of principal or accrued
interest. In addition, we frequently obtain additional collateral or guarantor support when modifying commercial
loans. Restructured loans remain on non accrual status until there has been a sustained period of repayment
performance (generally six consecutive months of payments) and both principal and interest are deemed
collectible.
111
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the total TDR loans at December 31, 2016 and December 31, 2015. There were
three residential PCI loans that were classified as TDRs and are included in the table below at December 31,
2016. There were three residential PCI loans that were classified as TDRs for the period ended December 31,
2015.
Commercial loans:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage and consumer
Total
F
O
R
M
1
0
-
K
Commercial loans:
Multi-family
Commercial real estate
Commercial and industrial
Construction
Total commercial loans
Residential mortgage and consumer
Total
December 31, 2016
Accrual
Non-accrual
Total
# of loans Amount
# of loans
Amount
# of loans
Amount
(Dollars in thousands)
—
2
—
—
2
40
42
$ —
352
—
—
352
9,093
$9,445
1
4
2
—
7
61
68
$
248
3,240
1,688
—
5,176
15,731
$20,907
1
6
2
—
9
101
110
$
248
3,592
1,688
—
5,528
24,824
$30,352
December 31, 2015
Accrual
Non-accrual
Total
# of loans
Amount
# of loans
Amount
# of loans
Amount
(Dollars in thousands)
—
5
1
1
7
32
39
$ —
13,161
640
313
14,114
8,375
$22,489
2
9
3
2
16
49
65
$ 1,580
5,826
2,586
405
10,397
14,553
2
14
4
3
23
81
$ 1,580
18,987
3,226
718
24,511
22,928
$24,950
104
$47,439
The following table presents information about troubled debt restructurings that occurred during the years
ended December 31, 2016 and 2015:
Years Ended December 31,
2016
2015
Pre-
modification
Recorded
Investment
Post-
modification
Recorded
Investment
Number of
Loans
Pre-
modification
Recorded
Investment
Post-
modification
Recorded
Investment
Number of
Loans
Troubled Debt Restructings:
Multi-family
Commercial real estate
Construction
Commercial and industrial
Residential mortgage
—
6
—
—
27
$ —
1,289
—
—
4,538
112
(Dollars in thousands)
$ —
1,289
—
—
4,538
1
4
2
2
19
$1,115
824
1,508
2,246
3,413
$1,115
824
1,508
2,246
3,413
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 TDRs during the year ended December 31, 2016.
During the year ended December 31, 2015 there were no charges-offs for collateral dependent TDRs. The
allowance for loan losses associated with the TDRs presented in the above tables totaled $1.6 million and
$1.8 million for the periods at December 31, 2016 and 2015, respectively.
Residential mortgage loan modifications primarily involved the reduction in loan interest rate and extension
of loan maturity dates. All residential loans deemed to be TDRs were modified to reflect a reduction in interest
rates to current market rates. Several residential TDRs include step up interest rates in their modified terms which
will impact their weighted average yield in the future. Commercial loan modifications which qualified as a TDR
comprised of terms of maturity being extended. During the year ended December 31, 2016, the Company had an
existing TDR commercial loan for which the Company extended an existing working capital line of credit;
however, that loan was subsequently repaid during the same time period.
The following table presents information about pre and post modification interest yield for troubled debt
restructurings which occurred during the years ended December 31, 2016 and 2015:
K
-
0
1
M
R
O
F
Years Ended December 31,
2016
2015
Pre-
modification
Interest
Yield
Post-
modification
Interest
Yield
Number of
Loans
Pre-
modification
Interest
Yield
Post-
modification
Interest
Yield
Number of
Loans
—
6
—
—
27
—%
5.11%
—%
—%
6.18%
—%
5.20%
—%
—%
3.61%
1
4
2
2
19
3.88%
4.53%
4.97%
6.24%
4.84%
3.88%
5.35%
4.97%
6.24%
3.40%
Troubled Debt Restructurings:
Multi-family
Commercial real estate
Construction
Commercial and industrial
Residential mortgage
Payment defaults for loans modified as a TDR in the twelve months ended December 31, 2016 consisted of
11 residential loans, 4 commercial real estate loans and 1 construction loan with a recorded investment of
$1.8 million, $573,000 and $132,000, respectively, at December 31, 2016. Of the 5 commercial
loans
(commercial real estate and construction) with payment defaults described above, 4 were paid in full prior to
December 31, 2016. Payment defaults for loans modified as a TDR in the twelve months ended December 31,
2015 consisted of 1 construction loan with a recorded investment of $225,000.
Loan Sales
For the year ended December 31, 2016, the Company sold $9.7 million of performing residential loans
resulting in a net gain of approximately $600,000.
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.
113
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
5. Office Properties and Equipment, Net
Office properties and equipment are summarized as follows:
Land
Office buildings
Leasehold improvements
Furniture, fixtures and equipment
Construction in process
Less accumulated depreciation and amortization
December 31,
2016
2015
(In thousands)
$ 20,006
83,699
95,489
83,246
13,070
20,569
87,832
79,898
77,096
12,075
295,510
118,093
277,470
104,951
$177,417
172,519
F
O
R
M
1
0
-
K
Depreciation and amortization expense for the years ended December 31, 2016, 2015 and 2014 was
$16.2 million, $13.9 million and $13.2 million, respectively.
6. Goodwill and Other Intangible Assets
The following table summarizes net intangible assets and goodwill at December 31, 2016 and 2015:
Mortgage servicing rights
Core deposit premiums
Other
Total other intangible assets
Goodwill
December 31,
2016
2015
(In thousands)
$ 14,889
8,451
928
24,268
77,571
16,248
11,332
160
27,740
77,571
Goodwill and intangible assets
$101,839
105,311
The following table summarizes other intangible assets as of December 31, 2016 and December 31, 2015:
Gross Intangible
Asset
Accumulated
Amortization
Valuation
Allowance
Net Intangible
Assets
(In thousands)
December 31, 2016
Mortgage Servicing Rights
Core Deposit Premiums
Other
Total other intangible assets
December 31, 2015
Mortgage Servicing Rights
Core Deposit Premiums
Other
Total other intangible assets
(9,286)
(16,607)
(222)
(26,115)
(7,042)
(13,726)
(140)
(20,908)
(165)
—
—
(165)
(121)
—
—
(121)
14,889
8,451
928
24,268
16,248
11,332
160
27,740
$24,340
25,058
1,150
$50,548
$23,411
25,058
300
$48,769
114
K
-
0
1
M
R
O
F
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Mortgage servicing rights are accounted for using the amortization method. Under this method, the
Company amortizes the loan servicing asset in proportion to, and over the period of, estimated net servicing
revenues. The Company sells loans on a servicing-retained basis. Loans that were sold on this basis had an
unpaid principal balance of $1.98 billion and $2.12 billion at December 31, 2016 and December 31, 2015
respectively, all of which relate to residential mortgage loans. At December 31, 2016 and 2015, the servicing
asset, included in intangible assets, had an estimated fair value of $14.9 million and $16.2 million, respectively.
For the period ending December 31, 2016, fair value was based on expected future cash flows considering a
weighted average discount rate of 14.27%, a weighted average constant prepayment rate on mortgages of 9.84%
and a weighted average life of 6.8 years.
Core deposit premiums are amortized using an accelerated method and having a weighted average
amortization period of 10 years.
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)
$461
491
508
524
541
$2,427
1,974
1,521
1,112
756
$87
87
87
87
67
2017
2018
2019
2020
2021
7. Deposits
Deposits are summarized as follows:
December 31,
2016
2015
Weighted
Average
Rate
Amount
% of Total
Weighted
Average
Rate
(In thousands)
Amount
% of Total
—% $ 2,173,493
14.22%
—% $ 1,890,536
13.44%
0.45%
0.65%
0.29%
0.91%
3,916,208
4,150,583
2,092,989
2,947,560
25.63% 0.29%
27.16% 0.67%
13.70% 0.29%
19.29% 1.14%
2,745,489
3,861,317
2,150,004
3,416,310
19.52%
27.46%
15.29%
24.29%
0.51% $15,280,833
100.00% 0.56% $14,063,656
100.00%
Non-interest bearing:
Checking accounts
Interest-bearing:
Checking accounts
Money market deposits
Savings
Certificates of deposit
Total Deposits
Included in the above balances for the years ended December 31, 2016 and December 31, 2015 are money
market deposits of $736.8 million and $614.2 million, respectively, obtained through brokers and certificates of
deposits of $687.8 million and $417.4 million, respectively, obtained through brokers.
115
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Scheduled maturities of certificates of deposit are as follows:
Within one year
One to two years
Two to three years
Three to four years
After four years
December 31,
2016
2015
(In thousands)
$1,866,000
674,552
237,506
62,500
107,002
2,586,076
496,288
167,028
57,443
109,475
$2,947,560
3,416,310
The aggregate amount of certificates of deposit
in denominations of $100,000 or more totaled
approximately $1.94 billion and $2.10 billion at December 31, 2016 and December 31, 2015, respectively.
Interest expense on deposits consists of the following:
F
O
R
M
1
0
-
K
Checking accounts
Money market deposits
Savings
Certificates of deposit
Total
8. Borrowed Funds
Borrowed funds are summarized as follows:
For the Years Ended December 31,
2016
2015
2014
$16,268
25,621
6,304
33,864
(In thousands)
9,642
24,136
6,402
31,234
8,755
13,664
6,639
30,148
$82,057
71,414
59,206
December 31,
2016
2015
Principal
Weighted
Average
Rate
Principal
Weighted
Average
Rate
(Dollars in thousands)
Funds borrowed under repurchase agreements:
FHLB
Other brokers
$
23,629
131,202
3.90% $
1.88%
24,383
131,924
3.90%
1.89%
Total funds borrowed under repurchase
agreements
Other borrowed funds:
FHLB advances
154,831
2.19%
156,307
2.21%
4,391,420
1.79%
3,106,783
2.12%
2.13%
Total borrowed funds
$4,546,251
1.81% $3,263,090
116
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Borrowed funds had scheduled maturities as follows:
December 31,
2016
2015
Weighted
Average
Rate
Principal
Weighted
Average
Rate
Within one year
One to two years
Two to three years
Three to four years
Four to five years
After five years
Principal
$ 983,629
862,202
619,567
775,000
600,000
705,853
(Dollars in thousands)
1.26% $ 500,000
249,383
2.12%
862,924
1.80%
469,782
1.96%
650,000
2.01%
531,001
1.84%
Total borrowed funds
$4,546,251
1.81% $3,263,090
1.99%
3.00%
2.13%
1.78%
1.99%
2.30%
2.13%
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.
The amortized cost and fair value of the underlying securities used as collateral for securities sold under
agreements to repurchase are as follows:
K
-
0
1
M
R
O
F
Amortized cost of collateral:
Mortgage-backed securities
Total amortized cost of collateral
Fair value of collateral:
Mortgage-backed securities
Total fair value of collateral
December 31,
2016
2015
(Dollars in thousands)
$468,159
475,984
$468,159
475,984
$469,200
481,401
$469,200
481,401
During the years ended December 31, 2016, 2015 and 2014, the maximum month-end balance of the
repurchase agreements was $153.0 million, $163.0 million and $261.2 million, respectively. The average amount
of repurchase agreements outstanding during the years ended December 31, 2016, 2015 and 2014 was
$153.0 million, $159.4 million and $192.9 million, respectively, and the average interest rate was 2.16%, 2.25%
and 2.02%, respectively.
At December 31, 2016, our borrowing capacity at the FHLB was $10.25 billion, of which the Company had
outstanding borrowings of $4.41 billion and outstanding letters of credit of $2.92 billion. In addition, the Bank
had access to unsecured overnight borrowings (Fed Funds) with other financial institutions totaling $325 million,
of which no balance was outstanding at December 31, 2016.
117
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
9. Income Taxes
The components of income tax expense are as follows:
Current tax expense:
Federal
State
Deferred tax expense (benefit):
Federal
State
Total income tax expense
Years Ended December 31,
2016
2015
2014
(In thousands)
$ 82,708
12,599
87,748
14,804
77,029
7,508
95,307
102,552
84,537
8,107
3,533
4,310
(7,490)
(3,846)
(5,940)
11,640
(3,180)
(9,786)
$106,947
99,372
74,751
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%:
“Expected” federal income tax expense
State tax, net
Bank owned life insurance
Excess tax benefits from employee share-based payments
Acquisition related net operating loss
ESOP fair market value adjustment
Non-deductible compensation
Expiration of stock options
Other
Total income tax expense
Years Ended December 31,
2016
2015
2014
$104,675
9,887
(1,548)
(7,735)
—
931
1,602
—
(865)
(In thousands)
98,307
4,753
(1,382)
—
(4,076)
947
276
19
528
72,265
1,019
(1,628)
—
—
349
3,334
2
(590)
$106,947
99,372
74,751
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The temporary differences and loss carryforwards which comprise the deferred tax asset and liability are as
follows:
Deferred tax asset:
Employee benefits
Deferred compensation
Premises and equipment
Allowance for loan losses
Net unrealized loss on securities
Net other than temporary impairment loss on securities
ESOP
Allowance for delinquent interest
Fair value adjustments related to acquisitions
Charitable contribution carryforward
Loan origination costs
Intangible assets
Other
Gross deferred tax asset
Valuation allowance
Deferred tax liability:
Intangible assets
Discount accretion
Mortgage servicing rights
Net unrealized gain on hedging activities
Gross deferred tax liability
Net deferred tax asset
December 31,
2016
2015
(In thousands)
$ 34,218
1,596
1,587
92,738
17,078
40,228
4,333
14,539
20,823
406
9,599
—
1,305
36,372
1,417
2,262
88,894
10,420
42,085
3,695
13,071
31,986
5,823
7,127
45
1,409
238,450
(346)
244,606
(346)
238,104
244,260
363
4,080
6,257
5,127
15,827
—
—
6,893
—
6,893
$222,277
237,367
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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 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 of the contribution 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, 2016
the Company’s valuation allowance pertaining to the charitable contributions remained at $346,000.
119
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2016 included approximately $45.2 million for which deferred income
taxes of approximately $19.0 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, 2016 and
2015.
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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, 2016, the Company is no longer subject to federal income tax
examination for years prior to 2013. 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 2012 and 2013, respectively.
10. 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, 2016 and 2015 was
94.92% and 99.17%, respectively. The fair value of plan assets reflects any contributions received through
June 30, 2016.
The Company’s required contribution and pension cost was $4.2 million, $6.4 million and $5.3 million in
the years ended December 31, 2016, 2015 and 2014, respectively. The accrued pension liability was $780,000
and $727,000 at December 31, 2016 and 2015, respectively. The Company’s contributions to the Pentegra DB
Plan are not more than 5% of the total contributions to the Pentegra DB Plan. The Company’s expected
contribution for the 2017 year is approximately $3.8 million.
As of December 31, 2016 the annual benefit provided under the Pentegra DB plan has been amended to
freeze the plan. Freezing the plan eliminates all future benefit accruals and each participants frozen accrued
benefit will be determined as of December 31, 2016 and no further benefits will accrue beyond such date.
120
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
the Wage
as designated by the Compensation Committee of the Board of Directors. More specifically,
Replacement Plan was designed to provide participants with a normal retirement benefit equal to an annual
benefit of 60% of the participant’s highest annual base salary and cash incentive (over a consecutive 36-month
period within the 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.
Effective as of the close of business of December 31, 2016, the Wage Replacement Plan was amended, to
cease future benefit accruals and, for certain participants, structure the benefits payable attributable attributable
solely to the participants’ 2016 year of service to vest over a two-year period such that the participants would
have a right to 50% of their accrued benefits attributable to their 2016 years of service as of December 31, 2016,
which will become 100% vested provided the participants remained continuously employed through and
including December 31, 2017.
The Supplemental ESOP compensates certain executives (as designated by the Compensation Committee of
the Board of Directors) participating in the Pentegra DB Plan and the ESOP whose contributions are limited by
the Internal Revenue Code. The Company also maintains the Amended and Restated Director Retirement Plan
(“Directors’ Plan”) for certain directors, which 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’ Plan:
K
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December 31,
2016
2015
(In thousands)
$ 47,887
2,088
1,895
(468)
1,035
(6,716)
(233)
(27)
(4,294)
(871)
40,522
3,096
1,497
(778)
(1,587)
6,008
—
—
—
(871)
40,296
47,887
$(40,296)
(47,887)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Gain due to change in mortality assumption
Loss (gain) due to change in discount rate
(Gain) loss due to demographic changes
Settlements
Actuarial gain
Curtailment
Benefits paid
Benefit obligation at end of year
Funded status
121
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The unfunded pension benefits of $40.3 million and $47.9 million at December 31, 2016 and 2015,
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, 2016 and 2015, are
summarized in the following table.
Prior service cost
Net actuarial gain
Total amounts recognized in accumulated other
comprehensive income
December 31,
2016
2015
(In thousands)
$ —
6,759
—
19,284
$6,759
19,284
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The accumulated benefit obligation for the Wage Replacement Plan and Directors’ Plan was $33.5 million
and $28.6 million at December 31, 2016 and 2015, respectively. The measurement date for our Wage
Replacement Plan and Directors’ Plan is December 31 for the years ended December 31, 2016 and 2015.
The weighted-average actuarial assumptions used in the plan determinations at December 31, 2016 and
2015 were as follows:
Discount rate
Rate of compensation increase
The components of net periodic benefit cost are as follows:
Service cost
Interest cost
Amortization of:
Prior service cost
Net loss
Total net periodic benefit cost
December 31,
2016
2015
3.80% 3.99%
—% 4.36%
Years Ended December 31,
2016
2015
2014
(In thousands)
3,096
1,497
$2,088
1,895
—
2,055
$6,038
49
1,282
5,924
2,319
1,322
98
633
4,372
The following are the weighted average assumptions used to determine net periodic benefit cost:
Years Ended December 31,
2015
2014
2016
Discount rate
Rate of compensation increase
3.99%
4.36%
3.71%
4.19%
4.53%
4.00%
122
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Estimated future benefit payments, which reflect expected future service, as appropriate for the next ten
calendar years are as follows:
2017
2018
2019
2020
2021
2022 through 2026
Amount
(In thousands)
$
942
921
899
2,092
2,728
14,146
401(k) Plan
The Company has a 401(k) plan covering substantially all employees provided 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, 2016, 2015
and 2014 were $2.6 million, $2.2 million and $2.0 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, 2016 was $92.8 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, 2016, shares allocated to participants were 4,675,456 since the plan inception. ESOP
shares that were unallocated or not yet committed to be released totaled 12,789,847 at December 31, 2016, and
had a fair value of $178.4 million. ESOP compensation expense for the years ended December 31, 2016, 2015
and 2014 was $5.4 million, $5.5 million and $5.1 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, 2016, 2015 and 2014, compensation expense related to this plan amounted to $766,000, $656,000
and $568,000, 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”) which provides for the issuance or delivery of up to 30,881,296
shares (13,234,841 restricted stock awards and 17,646,455 stock options) of Investors Bancorp, Inc. common stock.
123
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Restricted shares granted under the 2015 Plan vest in equal installments, over the service period generally
ranging from 5 to 7 years beginning one year from the date of grant. Additionally, certain restricted shares
awarded are performance vesting awards, which may or may not vest depending upon the attainment of certain
corporate financial targets. The vesting of restricted stock may accelerate in accordance with the terms of the
2015 Plan. The product of the number of shares granted and the grant date closing market price of the
Company’s common stock determine the fair value of restricted shares under the 2015 Plan. Management
recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite
service period. For the year ended December 31, 2016, the Company granted 276,890 shares of restricted stock
awards under the 2015 Plan.
Stock options granted under the 2015 Plan vest in equal installments, over the service period generally
ranging from 5 to 7 years beginning one year from the date of grant. The vesting of stock options may accelerate
in accordance with the terms of the 2015 Plan. Stock options were granted at an exercise price equal to the fair
value of the Company’s common stock on the grant date based on the closing market price and have an
expiration period of 10 years. For the year ended December 31, 2016, the Company granted 201,440 stock
options under the 2015 Plan.
During the year ended December 31, 2015, the Compensation and Benefits Committee approved the
issuance of 6,849,832 restricted stock awards and 11,576,611 stock options to certain officers under the Investors
Bancorp, Inc. 2015 Plan. During the year ended December 31, 2014, the Compensation and Benefits Committee
approved the issuance of 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”).
The fair value of stock options granted as part of the 2015 Plan was estimated utilizing the Black-Scholes
option pricing model using the following assumptions for the period presented below:
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Weighted average expected life (in years)
Weighted average risk-free rate of return
Weighted average volatility
Dividend yield
Weighted average fair value of options
granted
Total stock options granted
Year ended
December 31, 2016
Year ended
December 31, 2015
7.00
1.67%
24.05%
1.93%
7.43
1.96%
25.33%
1.59%
$
2.80
201,440
$
3.12
11,576,611
The weighted average expected life of the stock option represents the period of time that stock options are
expected to be outstanding and is estimated using historical data of stock option exercises and forfeitures. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected
volatility is based on the historical volatility of the Company’s stock. The Company recognizes compensation
expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite
service period of the awards. Upon exercise of vested options, management expects to draw on treasury stock as
the source for shares.
124
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the share based compensation expense for the years ended December 31, 2016
2015 and 2014. Upon completion of the mutual-to-stock conversion of Investors Bancorp, MHC on May 7, 2014,
vesting accelerated for both stock options and restricted stock outstanding awards and all applicable expenses
were recognized during the period.
Years Ended December 31,
2016
2015
2014
Stock option expense
Restricted stock expense
(Dollars in thousands)
2,905
6,315
$ 6,556
15,419
1,800
11,901
Total share based compensation expense
$21,975
9,220
13,701
The following is a summary of the status of the Company’s restricted shares as of December 31, 2016 and
changes therein during the year then ended:
Non-vested at December 31, 2015
Granted
Vested
Forfeited
Non-vested at December 31, 2016
Number of
Shares
Awarded
6,759,832
276,890
(1,060,026)
(100,205)
5,876,491
Weighted
Average
Grant Date
Fair Value
$12.64
11.69
12.54
12.03
$12.51
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Expected future expenses relating to the non-vested restricted shares outstanding as of December 31, 2016 is
$64.2 million over a weighted average period of 4.82 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, 2016:
Outstanding at December 31, 2015
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Number of
Stock
Options
18,804,816
201,440
(5,714,890)
(125,931)
(102)
Weighted
Average
Exercise
Price
$10.00
11.76
6.00
12.54
8.08
13,165,333
$11.74
3,735,974
$ 9.77
Weighted
Average
Remaining
Contractual
Life (in years)
6.8
9.7
0.3
8.2
6.2
Aggregate
Intrinsic
Value
$46,996
$29,101
$15,631
The weighted average grant date fair value of options granted during the years ended December 31, 2016
and 2015 was $2.80 and $3.12 per share, respectively. Expected future expense relating to the non-vested
options outstanding as of December 31, 2016 is $26.4 million over a weighted average period of 4.86 years.
125
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
11. 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, 2016, 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 $22.3 million, $19.2 million and
$17.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.
The projected annual minimum rental commitments are as follows:
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2017
2018
2019
2020
2021
Thereafter
Amount
(In thousands)
$ 23,004
23,367
22,554
20,970
19,467
128,666
$238,028
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, 2016,
the Company had commitments to originate total commercial
loans of
$451.2 million. Additionally, the Company had commitments to originate residential loans of approximately
$113.9 million, commitments to purchase residential loans of $151.6 million and unused home equity and
overdraft lines of credit, and undisbursed business and construction loans, totaling approximately $1.07 billion.
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 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.
126
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2016 and December 31, 2015 was $122.0 million, and $172.3 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.
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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.
The Company has entered into derivative financial instruments to manage exposures that arise from
business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of
which are determined by interest rates. The Company’s derivative financial instruments are used to manage
differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known
or expected cash payments principally related to the Company’s borrowings. During the year ended
December 31, 2016, such derivatives were used to hedge the variability in cash flows associated with certain
short term wholesale funding transactions. The fair value of the derivative as of December 31, 2016 was an asset
of $12.6 million.
In connection with its mortgage banking activities,
the Company has certain freestanding derivative
instruments. At December 31, 2016, the Company had commitments of approximately $47.6 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 $31.0 million to sell loans at December 31, 2016. 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,
totaled
the Company would have to perform under the guarantee. Outstanding standby letters of credit
$20.0 million at December 31, 2016. The fair values of these obligations were immaterial at December 31, 2016.
In addition, at December 31, 2016, the Company had $205,000 in commercial letters of credit outstanding.
127
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
12. Derivatives and Hedging Activities
The Company uses various financial instruments, including derivatives, to manage its exposure to interest
rate risk. Certain derivatives are designated as hedging instruments in a qualifying hedge accounting relationship
(fair value or cash flow hedge.) As of December 31, 2016 the Company has cash flow hedges.
Cash Flow Hedges of Interest Rate Risk
The Company’s objective in using interest rate derivatives are to primarily reduce cost and add stability to
interest expense in an effort to manage its exposure to interest rate movements. Interest rate swaps designated as
cash flow hedges involve the receipt of amounts subject to variability caused by changes in interest rates from a
counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without
exchange of the underlying notional amount. The effective portion of changes in the fair value of derivatives
designated and that qualify as cash flow hedges is initially recorded in Accumulated Other Comprehensive
Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects
earnings. The Company did not any have derivatives outstanding prior to September 30, 2016.
During 2016, such derivatives were used to hedge the variability in cash flows associated with certain short
term wholesale funding transactions. Since entering into the derivatives in the third quarter of 2016, the
Company did not record any hedge ineffectiveness. The ineffective portion of the change in fair value of the
derivatives would be recognized directly in earnings. Amounts reported in accumulated other comprehensive
income related to derivatives will be reclassified to interest expense as interest payments are made on the
Company’s variable rate borrowings. During the next twelve months, the Company estimates that an additional
$1.5 million will be reclassified as an increase to interest expense.
Fair Values of Derivative Instruments on the Balance Sheet
The following table presents the fair value of the Company’s derivative financial instruments as well as their
classification on the Consolidated Balance Sheets as of December 31, 2016 and December 31, 2015:
Asset Derivatives
At December 31, 2016 At December 31, 2015
Balance
Sheet
Location
Balance
Sheet
Fair Value
Location Fair Value
Liability Derivatives
At December 31, 2016
At December 31, 2015
Balance
Sheet
Location
Fair Value
Balance
Sheet
Location
Fair Value
(In thousands)
Derivatives designated
as hedging
instruments:
Interest Rate Swaps
Total derivatives
designated as hedging
instruments
Other
assets
$12,550
Other
assets
$12,550
$—
$—
Other
liabilities
$—
$—
Other
liabilities
$—
$—
128
INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effect of Derivative Instruments on the Income Statement
The following table presents the effect of the Company’s derivative financial
instruments on the
Consolidated Statement of Income as of December 31, 2016 and 2015. The Company did not any have
derivatives outstanding prior to September 30, 2016.
Amount of Gain or
(Loss) Recognized in
OCI on Derivative
(Effective Portion)
Twelve Months
Ended December 31,
2016
2015
Location of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)
Amount of Gain or
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
Twelve Months Ended
December 31,
2016
2015
(In thousands)
Location of
Gain or
(Loss)
Recognized
in Income
on
Derivative
(Ineffective
Portion)
Amount of Gain or
(Loss) Recognized
in Income on
Derivative
(Ineffective Portion)
Twelve Months
Ended December 31,
2016
2015
Derivatives in Cash Flow
Hedging Relationships:
Interest rate swaps
Total
$12,110
$12,110
$—
$—
Offsetting Derivatives
Interest
expense
$(440)
$(440)
$—
$—
Other
non-interest
income
$—
$—
$—
$—
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The following table presents a gross presentation, the effects of offsetting, and a net presentation of the
Company’s derivatives in the Consolidated Balance Sheets as of December 31, 2016 and December 31, 2015.
The net amounts of derivative liabilities can be reconciled to the tabular disclosure of fair value. The tabular
disclosure of fair value provides the location that derivative assets and liabilities are presented on the Company’s
Consolidated Balance Sheets.
December 31, 2016
Assets:
Interest Rate Swaps
Total
December 31, 2015
Assets:
Interest Rate Swaps
Total
Gross Amounts Not Offset
Gross
Amounts
Recognized
Gross
Amounts
Offset
Net Amounts
Presented
Financial
Instruments
(In thousands)
Cash
Collateral
Posted
Net Amount
$12,550
$12,550
$ —
$ —
$—
$—
$—
$—
$12,550
$12,550
$ —
$ —
$—
$—
$—
$—
$(12,550)
$(12,550)
$—
$—
$ —
$ —
$—
$—
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the
Company defaults on any of its indebtedness, then the Company could also be declared in default on its
derivative obligations and could be required to terminate its derivative positions with the counterparty. The
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Notes to Consolidated Financial Statements
Company has agreements with certain of its derivative counterparties that contain a provision where if the
company fails to maintain its status as a well capitalized institution, then the Company could be required to
terminate its derivative positions with the counterparty.
The Company has minimum collateral posting thresholds with its derivative counterparties and posts
collateral on a daily basis as required by the clearing house against the Company’s obligations, as required by
these agreements.
13. Fair Value Measurements
We use fair value measurements to record fair value adjustments to certain assets and liabilities and to
determine fair value disclosures. Our securities available-for-sale and derivatives are recorded at fair value on a
recurring basis. Additionally, from time to time, we may be required to record at fair value other assets or
liabilities on a non-recurring basis, such as held-to-maturity securities, mortgage servicing rights (“MSR”), loans
receivable and real estate owned (“REO”). These non-recurring fair value adjustments involve the application of
lower-of-cost-or-market accounting or write-downs of individual assets. Additionally, in connection with our
mortgage banking activities we have commitments to fund loans held-for-sale and commitments to sell loans,
which are considered free-standing derivative instruments, the fair values of which are not material to our
financial condition or results of operations.
In accordance with Financial Accounting Standards Board (“FASB”) ASC 820, “Fair Value Measurements
and Disclosures”, we group our assets and liabilities at fair value in three levels, based on the markets in which
the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:
• Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.
• Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not active and model-based valuation
techniques for which all significant assumptions are observable in the market.
• Level 3 — Valuation is generated from model-based techniques that use significant assumptions not
observable in the market. These unobservable assumptions reflect our own estimates of assumptions
that market participants would use in pricing the asset or liability. Valuation techniques include the use
of option pricing models, discounted cash flow models and similar techniques. The results cannot be
determined with precision and may not be realized in an actual sale or immediate settlement of the
asset or liability.
We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. ASC 820 requires us to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
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
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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.
Derivatives
Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of interest rate swap
agreements are based on a valuation model that uses primarily observable inputs, such as benchmark yield curves
and interest rate spreads.
The following tables provide the level of valuation assumptions used to determine the carrying value of our
assets and liabilities measured at fair value on a recurring basis at December 31, 2016 and December 31, 2015.
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Securities available for sale:
Equity securities
Mortgage-backed securities:
Carrying Value at December 31, 2016
Total
Level 1
Level 2
Level 3
(In thousands)
$
6,660
6,660
—
—
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
Government National Mortgage Association
Total mortgage-backed securities
available-for-sale
598,439
1,008,587
46,747
1,653,773
—
—
—
—
598,439 —
1,008,587 —
46,747 —
1,653,773 —
Total securities available-for-sale
$1,660,433
6,660
1,653,773 —
Derivative financial instruments
$
12,550
—
12,550 —
Securities available for sale:
Equity securities
Mortgage-backed securities:
Carrying Value at December 31, 2015
Total
Level 1
Level 2
Level 3
(In thousands)
$
6,495
6,495
—
—
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
Government National Mortgage Association
Total mortgage-backed securities
available-for-sale
547,451
726,072
24,679
1,298,202
—
—
—
—
547,451 —
726,072 —
24,679 —
1,298,202 —
Total securities available-for-sale
$1,304,697
6,495
1,298,202 —
Derivative financial instruments
$
—
—
—
—
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
There have been no changes in the methodologies used at December 31, 2016 from December 31, 2015, and
there were no transfers between Level 1 and Level 2 during the year ended December 31, 2016.
There were no Level 3 assets measured at fair value on a recurring basis for the years ended December 31,
2016 and December 31, 2015.
Assets Measured at Fair Value on a Non-Recurring Basis
Mortgage Servicing Rights, net
Mortgage servicing rights are carried at the lower of cost or estimated fair value. The estimated fair value of
MSR is obtained through independent
third party valuations through an analysis of future cash flows,
incorporating assumptions market participants would use in determining fair value including market discount
rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including
the market’s perception of future interest rate movements. The prepayment speed and the discount rate are
considered two of the most significant inputs in the model. At December 31, 2016, the fair value model used
prepayment speeds ranging from 3.15% to 24.18% and a discount rate of 14.27% 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.
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Impaired Loans Receivable
Loans which meet certain criteria are evaluated individually for impairment. A loan is deemed to be
impaired if it is a commercial loan with an outstanding balance greater than $1.0 million and on non-accrual
status, loans modified in a troubled debt restructuring, and other commercial loans with $1.0 million in
outstanding principal if management has specific information that it is probable they will not collect all amounts
due under the contractual terms of the loan agreement. Our impaired loans are generally collateral dependent and,
as such, are carried at the estimated fair value of the collateral less estimated selling costs. Estimated fair value is
calculated using the fair value of collateral based on independent third-party appraisals for collateral-dependent
loans. In the event the most recent appraisal does not reflect the current market conditions due to the passage of
time and other factors, management will obtain an updated appraisal or make downward adjustments to the
existing appraised value based on their knowledge of the property, local real estate market conditions, recent real
estate transactions, and for estimated selling costs, if applicable. At December 31, 2016, appraisals were
discounted in a range of 0%-25% for estimated costs to sell. For non collateral-dependent loans, management
estimates the fair value using discounted cash flows based on inputs that are largely unobservable and instead
reflect management’s own estimates of the assumptions as a market participant would in pricing such loans.
Other Real Estate Owned
Other Real Estate Owned is recorded at estimated fair value, less estimated selling costs when acquired, thus
establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include
adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are discounted
an additional 0%-25% for estimated costs to sell. When an asset is acquired, the excess of the loan balance over
fair value, less estimated selling costs, is charged to the allowance for loan losses. If the estimated fair value of
the asset declines, a writedown is recorded through expense. The valuation of foreclosed assets is subjective in
nature and may be adjusted in the future because of changes in economic conditions. Operating costs after
acquisition are generally expensed.
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Loans Held For Sale
Residential mortgage loans held for sale are recorded at the lower of cost or fair value and are therefore
measured at fair value on a non-recurring basis. When available, the Company uses observable secondary market
data, including pricing on recent closed market transactions for loans with similar characteristics.
The following tables provide the level of valuation assumptions used to determine the carrying value of our
assets measured at fair value on a non-recurring basis at December 31, 2016 and December 31, 2015. For the
year ended December 31, 2016, there was no change to carrying value of other real estate owned measured at fair
value on a non-recurring basis. For the year ended December 31, 2015, there was no change to carrying value of
MSR, impaired loans or loans held for sale measured at fair value on a non-recurring basis.
Security Type
Valuation
Technique
Unobservable
Input
Range
Weighted
Average
Input
Carrying Value at December 31, 2016
Total
Level 1 Level 2 Level 3
(In thousands)
MSR, net
Impaired loans
Estimated
cash flow
Estimated
Cash Flow
Loans held for sale Market
comparable
Prepayment
speeds
Lack of
marketability
and
probability
of default
Lack of
marketability
3.15% - 24.18%
9.84% $12,877 —
— 12,877
22.0% - 29.0% 26.00% 1,403 —
2.5% - 4.5%
3.45%
313 —
—
—
1,403
313
$14,593 —
— 14,593
Security Type
Valuation
Technique
Unobservable
Input
Range
Weighted
Average
Input
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
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
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
utilizes various inputs to determine the fair value of the portfolio. The Company obtains one price for each
security primarily from a third-party pricing service, which generally uses quoted or other observable inputs for
the determination of fair value. The pricing service normally derives the security prices through recently reported
trades for identical or similar securities, making adjustments through the reporting date based upon available
observable market information. For securities not actively traded, the pricing service may use quoted market
prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently
observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include,
but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker
quotes. In the absence of quoted prices and in an illiquid market, valuation techniques, which require inputs that
are both significant to the fair value measurement and unobservable, are used to determine fair value of the
investment. Valuation techniques are based on various assumptions, including, but not limited to forecasted cash
flows, discount rates, rate of return, adjustments for nonperformance and liquidity, and liquidation values. As the
Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received
from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the
Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the
Company compares changes in the reported market values and returns to relevant market indices to test the
reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair
value methodology documentation provided by independent pricing services has not historically resulted in
adjustment in the prices obtained from the pricing service.
FHLB Stock
The fair value of the Federal Home Loan Bank of New York (“FHLB”) stock is its carrying value, since this
is the amount for which it could be redeemed. There is no active market for this stock and the Bank is required to
hold a minimum investment based upon the balance of mortgage related assets held by the member.
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.
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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.
Carrying
value
December 31, 2016
Estimated Fair Value
Total
Level 1
Level 2
Level 3
(In thousands)
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Financial assets:
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
Stock in FHLB
Loans held for sale
Net loans
Financial liabilities:
Deposits, other than time deposits
Time deposits
Borrowed funds
Financial assets:
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
Stock in FHLB
Loans held for sale
Net loans
Financial liabilities:
Deposits, other than time deposits
Time deposits
Borrowed funds
$
164,178
1,660,433
1,755,556
237,878
38,298
18,569,855
164,178
1,660,433
1,782,801
237,878
38,298
18,391,018
—
1,653,773
— 1,703,559
—
38,298
164,178
6,660
237,878
—
—
—
—
79,242
—
—
— 18,391,018
$12,333,273
2,947,560
4,546,251
12,333,273
2,938,137
4,545,745
12,333,273
—
— 2,938,137
— 4,545,745
—
—
—
Carrying
value
December 31, 2015
Estimated Fair Value
Total
Level 1
Level 2
Level 3
(In thousands)
$
148,904
1,304,697
1,844,223
178,437
7,431
16,661,133
148,904
1,304,697
1,888,686
178,437
7,431
16,650,529
—
1,298,202
— 1,810,869
—
7,431
148,904
6,495
178,437
—
—
—
—
77,817
—
—
— 16,650,529
$10,647,346
3,416,310
3,263,090
10,647,346
3,414,528
3,277,983
10,647,346
—
— 3,414,528
— 3,277,983
—
—
—
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Notes to Consolidated Financial Statements
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and
information about the financial instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.
Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet financial
instruments without
attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not
considered financial instruments. Significant assets that are not considered financial assets include deferred tax
assets, premises and equipment and bank owned life insurance. Liabilities for pension and other postretirement
benefits are not considered financial liabilities. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in
the estimates.
14. 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
items as calculated under
involve quantitative measures of assets, liabilities and certain off-balance-sheet
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 risk-weighted assets to make them
consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain
provisions of the Dodd-Frank Act. The Final Capital Rules also revised the quantity and quality of required
minimum risk-based and leverage capital requirements, consistent with the Reform Act and the Third Basel
Accord adopted by the Basel Committee on Banking Supervision, or Basel III capital standards. 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. The required minimum Conservation Buffer will be phased in incrementally,
starting at 0.625% on January 1, 2016 and increasing to 1.25% on January 1, 2017, 1.875% on January 1, 2018
and 2.5% on January 1, 2019. The rules impose restrictions on capital distributions and certain discretionary cash
bonus payments if the minimum Conservation Buffer is not met. As of December 31, 2016 the Company and the
Bank met the currently applicable Conservation Buffer of 0.625%.
As of December 31, 2016, 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,
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2016 compared to the FDIC minimum capital adequacy requirements and the FDIC requirements
for classification as a well-capitalized institution.
As of December 31, 2016:
Bank:
Tier 1 Leverage Ratio
Common equity tier 1 risk-based
Tier 1 Risk-Based Capital
Total Risk-Based Capital
Investors Bancorp, Inc:
Tier 1 Leverage Ratio
Common equity tier 1 risk-based
Tier 1 Risk-Based Capital
Total Risk-Based Capital
As of December 31, 2015:
Bank:
Tier 1 Leverage Ratio
Common equity tier 1 risk-based
Tier 1 Risk-Based Capital
Total Risk-Based Capital
Investors Bancorp, Inc:
Tier 1 Leverage Ratio
Common equity tier 1 risk-based
Tier 1 Risk-Based Capital
Total Risk-Based Capital
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Actual
Minimum Capital
Requirement
To be Well Capitalized
Under Prompt
Corrective Action
Provisions(1)
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
$2,736,173
2,736,173
2,736,173
2,965,720
12.03% $ 909,534
14.75% 950,740
14.75% 1,229,006
15.99% 1,600,026
4.00% $1,136,917
5.125% 1,205,817
6.625% 1,484,082
8.625% 1,855,103
5.00%
6.50%
8.00%
10.00%
$3,066,401
3,066,401
3,066,401
3,295,948
13.48% $ 910,058
16.52% 951,411
16.52% 1,229,872
17.75% 1,601,155
4.00%
5.125%
6.625%
8.625%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Actual
Minimum Capital
Requirement
To be Well Capitalized
Under Prompt
Corrective Action
Provisions(1)
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
$2,558,334
2,558,334
2,558,334
2,760,081
12.41% $ 824,607
15.87% 725,523
15.87% 967,364
17.12% 1,289,819
4.00% $1,030,759
4.50% 1,047,978
6.00% 1,289,819
8.00% 1,612,274
5.00%
6.50%
8.00%
10.00%
$3,259,928
3,259,928
3,259,928
3,461,649
15.80% $ 825,139
20.20% 726,146
20.20% 968,194
21.45% 1,290,926
4.00%
4.50%
6.00%
8.00%
n/a
n/a
n/a
n/a
n/a
n/a
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.
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Notes to Consolidated Financial Statements
Balance Sheets
December 31,
2016
2015
(In thousands)
$ 195,114
6,918
2,792,474
92,839
43,711
569,513
1,733
2,611,080
94,889
45,898
$3,131,056
3,323,113
$
7,811
3,123,245
11,466
3,311,647
$3,131,056
3,323,113
Year Ended December 31,
2016
2015
2014
(In thousands)
$
3,084
30,000
2
132
72
33,290
120
3,933
29,237
452
3,151
—
2
65
1,682
4,900
54
3,170
1,676
540
2,499
—
2
64
145
2,710
43
12,197
(9,530)
(3,675)
28,785
163,340
1,136
180,370
(5,855)
137,576
$192,125
181,506
131,721
Assets:
Cash and due from bank
Securities available-for-sale, at estimated fair value
Investment in subsidiary
ESOP loan receivable
Other assets
Total Assets
Liabilities and Stockholders’ Equity:
Total liabilities
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
Statements of Operations
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Income:
Interest on ESOP loan receivable
Dividend from subsidiary
Interest on deposit with subsidiary
Interest and dividends on investments
Gain on securities transactions
Expenses:
Interest expense
Other expenses
Income (loss) before income tax expense
Income tax (benefit) expense
Income (loss) before undistributed earnings of subsidiary
Equity in undistributed earnings of subsidiary
Net income
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Notes to Consolidated Financial Statements
Other Comprehensive Income
Net income
Other comprehensive income, net of tax:
Unrealized gain on securities available-for-sale
Total other comprehensive income
Total comprehensive income
Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
(Equity in undistributed earnings of subsidiary)
Contribution in stock to charitable foundation
Gain on securities transactions
Decrease (increase) in other assets
(Decrease) increase in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital contributed to the Bank
Cash received net of cash paid for acquisition
Purchase of investments available-for-sale
Purchase of investments held-to-maturity
Redemption of equity securities available-for-sale
Principal collected on ESOP loan
Cash received from MHC merger
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Loan to ESOP
Proceeds from issuance of common stock
Proceeds from sale of treasury stock
Purchase of treasury stock
Option exercise
Dividends paid
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and due from bank
Cash and due from bank at beginning of year
Cash and due from bank at end of year
139
Year Ended December 31,
2016
2015
2014
$192,125
(In thousands)
181,506
131,721
543
543
433
433
1,482
1,482
$192,668
181,939
133,203
Year Ended December 31,
2016
2015
2014
(In thousands)
$ 192,125
181,506
131,721
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(163,340)
(180,370)
—
(72)
14,805
(3,655)
39,863
—
—
—
(5,000)
72
2,050
—
(2,878)
—
1,682
2,107
4,927
9,852
(137,576)
10,000
145
2,227
525
7,042
— (1,074,947)
48
—
(493)
—
—
—
467
2,700
2,062
3,093
11,307
—
4,762
(1,060,525)
—
—
—
(363,410)
34,317
(82,291)
(66,553)
—
— 2,149,893
38,227
—
(13,523)
3,710
(42,555)
(382,922)
2,985
(87,395)
(411,384)
(467,332)
2,069,199
(374,399)
569,513
(452,718)
1,022,231
1,015,716
6,515
$ 195,114
569,513
1,022,231
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16. Selected Quarterly Financial Data (Unaudited)
The following tables are a summary of certain quarterly financial data for the years ended December 31,
2016 and 2015. Income tax expense, net income and diluted shares included in the quarterly financial data
previously disclosed 2016 interim periods have been revised to reflect the impact of the Company’s adoption of
ASU No. 2016-09, see Note 19, Recent Accounting Pronouncements.
Interest and dividend income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan
losses
Non-interest income
Non-interest expenses
Income before income tax expense
Income tax expense
Net income
Basic earnings per common share
Diluted earnings per common share
Interest and dividend income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan
losses
Non-interest income
Non-interest expenses
Income before income tax expense
Income tax expense
Net income
Basic earnings per common share
Diluted earnings per common share
2016 Quarter Ended
March 31
June 30
September 30
December 31
(In thousands, except per share data)
$192,107
37,544
154,563
5,000
149,563
8,707
87,146
71,124
26,455
$ 44,669
$
$
0.14
0.14
194,960
37,655
157,305
5,000
152,305
11,469
91,009
72,765
27,625
45,140
0.15
0.15
198,374
38,768
159,606
5,000
154,606
8,520
91,398
71,728
21,878
49,850
0.17
0.17
208,079
39,369
168,710
4,750
163,960
8,504
89,010
83,454
30,989
52,465
0.18
0.18
2015 Quarter Ended
March 31
June 30
September 30
December 31
(In thousands, except per share data)
$175,159
30,717
144,442
9,000
135,442
8,534
76,909
67,067
25,120
$ 41,947
$
$
0.12
0.12
181,529
32,977
148,552
7,000
141,552
11,585
79,836
73,301
26,939
46,362
0.14
0.14
186,897
35,623
151,274
5,000
146,274
11,306
85,921
71,659
22,865
48,794
0.15
0.15
188,138
37,322
150,816
5,000
145,816
8,700
85,666
68,850
24,448
44,402
0.14
0.14
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Notes to Consolidated Financial Statements
17. Earnings Per Share
The following is a summary of our earnings per share calculations and reconciliation of basic to diluted
earnings per share.
Earnings for basic and diluted earnings per
common share
Earnings applicable to common stockholders
Shares
Weighted-average common shares outstanding —
basic
Effect of dilutive common stock equivalents(1)
Weighted-average common shares outstanding —
diluted
Earnings per common share
Basic
Diluted
For the Year Ended December 31,
2016
2015
2014
(Dollars in thousands, except per share data)
$
192,125
$
181,505
$
131,721
297,580,834
3,374,051
329,763,527
3,169,921
344,389,259
3,342,312
300,954,885
332,933,448
347,731,571
$
$
0.65
0.64
$
$
0.55
0.55
$
$
0.38
0.38
(1) For the years ended December 31, 2016, 2015 and 2014, there were 19,046,222, 18,200,877, and 142,953
equity awards, respectively, that could potentially dilute basic earnings per share in the future that were not
included in the computation of diluted earnings per share because to do so would have been anti-dilutive for
the periods presented.
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18. Comprehensive Income (Loss)
The components of comprehensive income (loss), both gross and net of tax, are as follows:
Net income
Other comprehensive
income (loss):
Change in funded
status of retirement
obligations
Unrealized (loss) gain
on securities
available-for-sale
Accretion of loss on
securities
reclassified to held
to maturity available
for sale
Reclassification
adjustment for
security gains
included in net
income
Other-than-temporary
impairment accretion
on debt securities
Net gains on
derivatives arising
during the period
Total other
comprehensive
(loss) income
Total
comprehensive
income
Year ended December 31, 2016 Year ended December 31, 2015 Year ended December 31, 2014
Gross
Tax
Net
Gross
Tax
Net
Gross
Tax
Net
(Dollars in thousands)
$299,072 (106,947)192,125 280,877 (99,372)181,505 206,472 (74,751)131,721
12,452
(4,981)
7,471
(2,425)
970
(1,455)
(8,402)
3,360
(5,042)
(19,399)
7,115 (12,284)
(7,982)
3,049
(4,933)
9,836
(3,884)
5,952
1,846
(754)
1,092
2,448
(1,000)
1,448
2,918
(1,192)
1,726
(2,264)
906
(1,358)
(1,553)
6
(1,547)
(233)
95
(138)
1,488
(608)
880
1,802
(736)
1,066
1,343
(549)
794
12,550
(5,126)
7,424
—
—
—
—
—
—
6,673
(3,448)
3,225
(7,710)
2,289
(5,421)
5,462
(2,170)
3,292
$305,745 (110,395)195,350 273,167 (97,083)176,084 211,934 (76,921)135,013
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The following table presents the after-tax changes in the balances of each component of accumulated other
comprehensive loss for the years ended December 31, 2016 and 2015:
Accretion of
loss on
securities
reclassified
to held to
maturity
Unrealized
gains
on securities
available-
for-sale and
gains
included in
net income
Change in
funded status of
retirement
obligations
Other-than-
temporary
impairment
accretion on
debt
securities
Total
accumulated
other
comprehensive
loss
Unrealized
gains on
derivatives
Balance — December 31, 2015
Net change
$(12,366)
7,471
Balance — December 31, 2016
$ (4,895)
Balance — December 31, 2014
Net change
$(10,911)
(1,455)
Balance —December 31, 2015
$(12,366)
(3,080)
1,092
(1,988)
(4,528)
1,448
(3,080)
(Dollars in thousands)
1,371
(13,642)
(13,750)
880
(12,271)
(12,870)
7,851
(6,480)
1,371
(14,816)
1,066
(13,750)
—
7,424
7,424
—
—
—
(27,825)
3,225
(24,600)
(22,404)
(5,421)
(27,825)
The following table presents information about amounts reclassified from accumulated other comprehensive
loss to the consolidated statements of income and the affected line item in the statement where net income is
presented.
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Year Ended December 31,
2016
2015
(In thousands)
Reclassification adjustment for gains included in net
income
Gain on security transactions
$(2,264)
(1,553)
Change in funded status of retirement obligations(1)
Compensation and fringe benefits:
Adjustment of net obligation
Amortization of net obligation or asset
Amortization of prior service cost
Amortization of net gain
Compensation and fringe benefits
Interest Expense:
Reclassification adjustment for unrealized
losses on derivatives
Total before tax
Income tax benefit
Net of tax
249
—
—
1,610
1,859
440
35
1,179
$(1,144)
2,512
—
49
1,354
3,915
—
2,362
976
1,386
(1) These accumulated other comprehensive loss components are included in the computations of net periodic
cost for our defined benefit plans and other post-retirement benefit plan. See Note 10 for additional details.
19. Recent Accounting Pronouncements
In March 2016,
the FASB issued ASU 2016-09, “Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting”, a new standard that changes the accounting for
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certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax
deficiencies to be recorded in the income statement when the awards vest or are settled. In addition, cash flows
related to excess tax benefits will no longer be separately classified as a financing activity apart from other
income tax cash flows. The standard also allows entities to repurchase more of an employee’s shares for tax
withholding purposes without triggering liability accounting, clarifies that all cash payments made on an
employee’s behalf for withheld shares should be presented as a financing activity on its cash flows statement, and
provides an accounting policy election to account for forfeitures as they occur. On December 31, 2016, The
Company adopted ASU No. 2016-09 cumulatively, effective for the first quarter of 2016. Upon adoption, the
Company recorded an cumulative-effect adjustment to the opening balances of retained earnings and additional
paid in capital. The ASU No. 2016-09 requires that excess tax benefits and shortfalls be recorded as income tax
benefit or expense in the income statement, rather than equity. This resulted in a benefit to income tax expense in
each of the quarters of 2016. Relative to forfeitures, ASU No. 2016-09 allows an entity’s accounting policy
election to either continue to estimate the number of awards that are expected to vest, as under current guidance,
or account for forfeitures when they occur. The Company has elected to continue its existing practice of
estimating the number of awards that will be forfeited. The income tax effects of ASU No. 2016-09 on the
statement of cash flows are now classified as cash flows from operating activities, rather than cash flows from
financing activities. The Company elected to apply this cash flow classification guidance prospectively and,
therefore, prior periods have not been adjusted. ASU No. 2016-09 also requires the presentation of certain
employee withholding taxes as a financing activity on the Consolidated Statement of Cash Flows; this is
consistent with the manner in which we have presented such employee withholding taxes in the past.
Accordingly, no reclassification for prior periods is required.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of
Assets Other Than Inventory.” This ASU addresses the recognition of current and deferred taxes for an intra-
entity asset transfer and amends current GAAP by eliminating the exception for intra-entity transfers of assets
other than inventory to defer such recognition until sale to an outside party. ASU No. 2016-16 is effective for
fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early
adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual)
have not been made available for issuance. The Company is currently evaluating the provisions of ASU
No. 2016-16 to determine the potential impact the new standard will have on the Company’s Consolidated
Financial Statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments”, a new standard which addresses diversity in practice related to eight
specific cash flow issues: debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments
or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate
of the borrowing, contingent consideration payments made after a business combination, proceeds from the
settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies
(including bank-owned life insurance policies), distributions received from equity method investees, beneficial
interests in securitization transactions; and separately identifiable cash flows and application of the predominance
principle. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years. Entities will apply the standard’s provisions using a retrospective transition
method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the
issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The
Company is currently evaluating the provisions of ASU No. 2016-15 to determine the potential impact the new
standard will have on the Company’s Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.”
This ASU significantly changes how entities will measure credit losses for most financial assets and certain other
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instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is
responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace
today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current
expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at
amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans,
leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply
to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure
credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances
rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to
estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The
ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13
also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating
the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for
each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU
No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early
adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will
apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the
first reporting period in which the guidance is effective (i.e., modified retrospective approach). While early
adoption is permitted, the Company does not expect to elect that option. The Company has begun its evaluation
of the amended guidance including the potential impact on its Consolidated Financial Statements. The extent of
the change is indeterminable at this time as it will be dependent upon portfolio composition and credit quality at
the adoption date, as well as economic conditions and forecasts at that time.
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 continues to evaluate the impact of the guidance, including
determining whether other contracts exist that are deemed to be in scope. As such, no conclusions have yet been
reached regarding the potential impact on adoption on the Company’s Consolidated Financial Statements.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities.” This amendment supersedes the
guidance to classify equity securities with readily determinable fair values into different categories, requires
equity securities to be measured at fair value with changes in the fair value recognized through net income, and
simplifies the impairment assessment of equity investments without readily determinable fair values. The
amendment requires public business entities that are required to disclose the fair value of financial instruments
measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The
amendment requires an entity to present separately in other comprehensive income the portion of the total change
in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has
elected to measure the liability at fair value in accordance with the fair value option. The amendment requires
separate presentation of financial assets and financial liabilities by measurement category and form of financial
asset on the balance sheet or in the accompanying notes to the financial statements. The amendment reduces
diversity in current practice by clarifying that an entity should evaluate the need for a valuation allowance on a
deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets.
This 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
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beginning of the fiscal year of adoption, with the exception of the amendment related to equity securities without
readily determinable fair values, which should be applied prospectively to equity investments that exist as of the
date of adoption. The Company intends to adopt the accounting standard during the first quarter of 2018, as
required, and is currently evaluating the impact on its results of operations, financial position, and liquidity.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The objective of
this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard
for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to
transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are
in the scope of other standards. The ASU is effective for public business entities for financial statements issued
for fiscal years beginning after December 15, 2017, and early adoption is permitted. Subsequently, the FASB
issued the following standards related to ASU 2014-09: ASU 2016-08, “Revenue from Contracts with Customers
(Topic 606): Principal versus Agent Considerations” ; ASU 2016-10, “Revenue from Contracts with Customers
(Topic 606): Identifying Performance Obligations and Licensing”; ASU 2016-11, “Revenue Recognition (Topic
605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards
Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”; and ASU
2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients”. These amendments are intended to improve and clarify the implementation guidance of ASU
2014-09 and have the same effective date as the original standard. The Company’s revenue is comprised of net
interest income on interest earning assets and liabilities and non-interest income. The scope of guidance
explicitly excludes net interest income as well as other revenues associated with financial assets and liabilities,
including loans, leases, securities and derivatives. Accordingly, the majority of the Company’s revenues will not
be affected.
In September 2015, the FASB issued ASU 2015-16, “Business Combinations—Simplifying the Accounting
for Measurement-Period Adjustments.” Under the new rules, acquirers no longer have to retrospectively adjust
provisional amounts included in acquisition-date financial statements, when final facts and circumstances are not
known on the acquisition date, and later become known in the measurement period. Instead, adjustments that are
made in a later period are to be reported in that period. However, acquirers must disclose the amount of
adjustments to current period income relating to amounts that would have been recognized in previous periods if
the adjustments were recognized as of the acquisition date. For public business entities, the guidance in the ASU
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.
This guidance did not have a material impact to the Company’s consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” The
ASU changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents
such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset.
Amortization of the costs is reported as interest expense. According to the ASU’s Basis for Conclusions, debt
issuance costs incurred before the associated funding is received should be reported on the balance sheet as
deferred charges until that debt liability amount is recorded. For public business entities, the guidance in the ASU
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.
This guidance did not have a material impact to the Company’s consolidated financial statements.
In April 2015, the FASB issued ASU 2015-04, “Practical Expedient for the Measurement Date of an
Employer’s Defined Benefit Obligation and Plan Assets.” The ASU gives an employer whose fiscal year-end
does not coincide with a calendar month-end the ability, as a practical expedient, to measure defined benefit
retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end. The ASU
also provides guidance on accounting for contributions to the plan and significant events that require a
remeasurement that occur during the period between a month-end measurement date and the employer’s fiscal
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year-end. An entity should reflect the effects of those contributions or significant events in the measurement of
the retirement benefit obligations and related plan assets. The ASU is effective for public business entities for
financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those
fiscal years. This guidance did not have a material impact to the Company’s consolidated financial statements.
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 24, 2017, the Company announced the entering into a Mutual Termination Agreement with The
Bank of Princeton to terminate the merger agreement, which was originally entered into on May 3, 2016. The
parties concluded that regulatory approval of the application submitted by Investors Bank to the Federal Deposit
Insurance Corporation would not be obtained prior to the March 31, 2017 termination deadline set forth in the
merger agreement. The Mutual Termination Agreement provides, among other things, that each party will bear
its own costs and expenses in connection with the terminated transaction, without penalties, and mutually
releases the parties from any claims of liability to one another relating to the merger transaction. As the merger
was not completed, the transaction is not reflected in the balance sheet for the period presented in this document.
The Company expensed costs which were to be capitalized in connection with the merger through its results of
operation for the period ending December 31, 2016.
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On January 26, 2017, the Company declared a cash dividend of $0.08 per share. The $0.08 dividend per
share was paid to stockholders on February 24, 2017, with a record date of February 10, 2017.
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(a)(3) Exhibits
The following exhibits are either filed as part of this report or are incorporated herein by reference:
3.1
3.2
4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
Certificate of Incorporation of Investors Bancorp, Inc.(1)
Bylaws of Investors Bancorp, Inc.(1)
Form of Common Stock Certificate of Investors Bancorp, Inc.(1)
Amended and Restated Employment Agreement between Investors Bancorp, Inc. and Kevin
Cummings(1)
Amended and Restated Employment Agreement between Investors Bancorp, Inc. and Domenick A.
Cama(1)
Amended and Restated Employment Agreement Investors Bancorp, Inc. and Richard S. Spengler(2)
Amendment to Amended and Restated Employment Agreement with Richard S. Spengler(3)
Amended and Restated Employment Agreement Investors Bancorp, Inc. and Paul Kalamaras(4)
Amendment to Amended and Restated Employment Agreement with Paul Kalamaras(3)
Employment Agreement Investors Bancorp, Inc. and Sean Burke(5)
Amendment to Employment Agreement with Sean Burke(3)
Investors Bancorp, Inc. 2015 Equity Incentive Plan(6)
Investors Bancorp, Inc. 2006 Equity Incentive Plan(7)
Roma Financial Corporation 2008 Equity Incentive Plan(8)
Investors Bank Executive Officer Annual Incentive Plan(9)
Investors Bank Amended and restated Supplemental ESOP and Retirement Plan(1)
Amended and Restated Investors Bank Executive Supplemental Retirement Wage Replacement
Plan(1)
Amendment to Amended and Restated Investors Bank Executive Supplemental Retirement Wage
Replacement Plan dated December 19, 2016
Amendment to Amended and Restated Investors Bank Executive Supplemental Retirement Wage
Replacement Plan dated February 29, 2016
Investors Bank Amended and Restated Director Retirement Plan(1)
Investors Bancorp, Inc. Deferred Directors Fee Plan(1)
Investors Bank Deferred Directors Fee Plan(1)
Split Dollar Life Insurance Agreement between Roma Bank and Robert C. Albanese, as assumed by
Investors Bank(10)
Split Dollar Life Insurance Agreement between Roma Bank and Dennis M. Bone, assumed by
Investors Bank(10)
Split Dollar Life Insurance Agreement between Roma Bank and Michele N. Siekerka, as assumed by
Investors Bank(10)
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
21
23.1
31.1
31.2
32.1
101
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Subsidiaries of Registrant
Consent of Independent Registered Public Accounting Firm
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
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
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.
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.
Incorporated by reference to Exhibit 10.1, 10.2 and 10.3 to the Quarterly Report on 10-Q of
Investors Bancorp, Inc. (Commission File No. 001-36441) filed with the Securities and Exchange
Commission on May 10, 2016.
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.
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.
Incorporated by reference to Appendix A to the Definitive Proxy Statement for Investors Bancorp,
Inc.’s 2015 Annual Meeting of Stockholders (Commission File No. 001-36441) filed with the
Securities and Exchange Commission on April 30, 2015.
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.
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.
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.
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.
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INVESTORS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
ITEM 16. FORM 10-K SUMMARY
None.
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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.
SIGNATURES
Date: March 1, 2017
INVESTORS BANCORP, INC.
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.
Signatures
Title
Date
/s/ Kevin Cummings
Kevin Cummings
/s/ Domenick Cama
Domenick Cama
/s/ Sean Burke
Sean Burke
/s/ Robert M. Cashill
Robert M. Cashill
/s/ Robert C. Albanese
Robert C. Albanese
/s/ Dennis M. Bone
Dennis M. Bone
/s/ Doreen R. Byrnes
Doreen R. Byrnes
/s/ William Cosgrove
William Cosgrove
/s/ Brian D. Dittenhafer
Brian D. Dittenhafer
/s/ James Garibaldi
James Garibaldi
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Director,
Chief Executive Officer and President
(Principal Executive Officer)
March 1, 2017
Director, Chief Operating Officer
and Senior Executive Vice President
March 1, 2017
Chief Financial Officer and
Senior Vice President
(Principal Financial and Accounting
Officer)
March 1, 2017
Director, Chairman
March 1, 2017
Director
March 1, 2017
Director
March 1, 2017
Director
March 1, 2017
Director
March 1, 2017
Director
March 1, 2017
Director
March 1, 2017
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Signatures
/s/ Michele N. Siekerka
Michele N. Siekerka
/s/ James H. Ward III
James H. Ward III
Title
Director
Date
March 1, 2017
Director
March 1, 2017
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101 JFK Parkway
Short Hills, New Jersey 07078
April 13, 2017
Dear Fellow Stockholder:
You are cordially invited to attend the 2017 Annual Meeting of Stockholders of Investors Bancorp, Inc.,
which will be held at The Grand Summit Hotel, 570 Springfield Avenue, Summit, New Jersey 07901, on May
23, 2017, at 9:00 a.m., local time.
The business to be conducted at the Annual Meeting consists of the election of four directors, an advisory
(non-binding) vote to approve the compensation paid to our Named Executive Officers and the ratification of
the appointment of KPMG LLP as our independent registered public accounting firm for the year ending
December 31, 2017. Your Board of Directors has determined that an affirmative vote on each of these matters is
in the best interests of Investors Bancorp, Inc. and its stockholders and unanimously recommends a vote
“FOR” the election of each of the nominees for director, “FOR” approval on an advisory basis of executive
compensation and “FOR” ratification of the appointment of KPMG LLP as our independent registered public
accounting firm for the year ending December 31, 2017.
Your vote is very important. Whether or not you plan to attend the Annual Meeting, please promptly
submit your vote by Internet, telephone or mail, as applicable, to ensure that your shares are represented at the
Annual Meeting.
On behalf of the Board of Directors, officers and employees of Investors Bancorp, Inc., we thank you for
your continued support.
Sincerely,
Kevin Cummings
President and Chief Executive Officer
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Investors Bancorp, Inc.
101 JFK Parkway
Short Hills, New Jersey 07078
(973) 924-5100
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 23, 2017
NOTICE IS HEREBY GIVEN THAT the 2017 Annual Meeting of Stockholders of Investors Bancorp,
Inc. will be held at The Grand Summit Hotel, 570 Springfield Avenue, Summit, New Jersey 07901, on May 23,
2017, at 9:00 a.m., local time, to consider and vote upon the following matters:
1.
2.
3.
4.
The election of four persons to serve as directors of Investors Bancorp, Inc., each for a three-year
term, and until their successors are elected and qualified.
An advisory (non-binding) vote to approve the compensation paid to our Named Executive
Officers.
The ratification of the appointment of KPMG LLP as the independent registered public accounting
firm for Investors Bancorp, Inc. for the year ending December 31, 2017.
The transaction of such other business as may properly come before the Annual Meeting, and any
adjournment or postponement of the Annual Meeting.
The Board of Directors of Investors Bancorp, Inc. has fixed March 27, 2017 as the record date for
determining the stockholders entitled to vote at the Annual Meeting and any adjournment or postponement of
the Annual Meeting. Only stockholders of record at the close of business on that date are entitled to notice of
and to vote at the Annual Meeting and any adjournment or postponement of the Annual Meeting.
The Board of Directors unanimously recommends that you vote “FOR” each of the nominees for director
listed in the Proxy Statement, “FOR” approval on an advisory basis of executive compensation and “FOR” the
ratification of the appointment of KPMG LLP as the independent registered public accounting firm for the year
ending December 31, 2017.
Whether or not you plan to attend the Annual Meeting, please promptly submit your vote by Internet,
telephone or mail, as applicable, to ensure that your shares are represented at the Annual Meeting.
By Order of the Board of Directors
Investors Bancorp, Inc.
Short Hills, New Jersey
April 13, 2017
Brian F. Doran, Esq.
Corporate Secretary
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Internet Availability of Proxy Materials
We are relying upon a U.S. Securities and Exchange Commission rule that allows us to furnish proxy
materials to stockholders over the Internet. As a result, beginning on or about April 13, 2017, we sent by mail a
Notice Regarding the Availability of Proxy Materials containing instructions on how to access our proxy
materials, including our Proxy Statement and Annual Report to Stockholders, over the Internet and how to vote.
Internet availability of our proxy materials is designed to expedite receipt by stockholders and lower the cost
and environmental impact of our Annual Meeting. However, if you received such a notice and would prefer to
receive paper copies of our proxy materials, please follow the instructions included in the Notice Regarding the
Availability of Proxy Materials.
If you hold our common stock through more than one account, you may receive multiple copies of these
proxy materials and will have to follow the instructions for each in order to vote all of your shares of our
common stock.
Our Proxy Statement and 2016 Annual Report to Stockholders are available at
www.proxydocs.com/ISBC.
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Table of Contents
General Information............................................................................................................
1
Annual Meeting of Stockholders ........................................................................................................................
Who Can Vote ....................................................................................................................................................
How Many Votes You Have...............................................................................................................................
Matters to Be Considered ...................................................................................................................................
How to Vote........................................................................................................................................................
Participants in Investors Bancorp Benefit Plans.................................................................................................
Quorum and Vote Required................................................................................................................................
Revocability of Proxies.......................................................................................................................................
Solicitation of Proxies.........................................................................................................................................
Recommendation of the Board of Directors .......................................................................................................
Security Ownership of Certain Beneficial Owners and Management................................................................
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2
2
2
2
3
3
3
4
4
Proposal I–Election of Directors.........................................................................................
6
6
General................................................................................................................................................................
Directors and Executive Officers of Investors Bancorp .....................................................................................
6
Corporate Governance Matters........................................................................................................................... 15
Risk Oversight Matters ....................................................................................................................................... 22
Audit Committee Matters ................................................................................................................................... 23
Compensation and Benefits Committee Matters ............................................................................................... 25
Compensation Discussion and Analysis ............................................................................. 26
Executive Compensation ..................................................................................................... 51
Summary Compensation Table........................................................................................................................... 51
All Other Compensation ..................................................................................................................................... 52
Perquisites........................................................................................................................................................... 52
Grants of Plan-Based Awards............................................................................................................................. 53
Outstanding Equity Awards................................................................................................................................ 53
Option Exercises and Stock Vested.................................................................................................................... 54
Pension Benefits ................................................................................................................................................. 54
Nonqualified Deferred Compensation ................................................................................................................ 55
Potential Payments Upon Termination or Change in Control ............................................................................ 55
Director Compensation ....................................................................................................... 56
Directors’ Compensation Table .......................................................................................................................... 59
Proposal II–Advisory Vote to Approve Executive Compensation .................................. 61
Proposal III–Ratification of the Appointment of the Independent Registered Public
Accounting Firm .............................................................................................................. 62
Other Matters ...................................................................................................................................................... 63
Stockholder Proposals ........................................................................................................................................ 63
Advance Notice of Business to be Conducted at an Annual Meeting ................................................................ 63
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General Information
The Board of Directors of Investors Bancorp, Inc. (“Investors Bancorp” or the “Company”) is soliciting
proxies for our 2017 Annual Meeting of Stockholders, and any adjournment or postponement of the meeting
(“Annual Meeting”). The Annual Meeting will be held on May 23, 2017 at 9:00 a.m., local time, at The Grand
Summit Hotel, 570 Springfield Avenue, Summit, New Jersey.
A Notice Regarding the Availability of Proxy Materials is first being sent to stockholders of Investors
Bancorp on or about April 13, 2017.
The 2017 Annual Meeting of Stockholders
Date, Time and Place
The Annual Meeting of Stockholders will be held at The Grand Summit
Hotel, 570 Springfield Avenue, Summit, New Jersey 07901, on May 23, 2017,
at 9:00 a.m., local time.
Record Date
March 27, 2017
Shares Entitled to Vote
310,353,472 shares of Investors Bancorp common stock were outstanding on
the Record Date and are entitled to vote at the Annual Meeting.
Purpose of the Annual Meeting To consider and vote on the election of four directors, the approval of the
compensation paid to our Named Executive Officers and the ratification of
KPMG LLP as our independent registered public accounting firm for the year
ending December 31, 2017.
Vote Required
Your Board of Directors
Recommends You Vote in
Favor of the Proposals
Investors Bancorp
Subject to the Board’s majority voting policy described below, directors are
elected by a plurality of votes cast, without regard to either broker non-votes
or proxies as to which authority to vote for the nominees being proposed is
“WITHHELD”. The advisory vote to approve executive compensation and
the ratification of KPMG LLP as the independent registered public accounting
firm is determined by a majority of the votes cast, without regard to broker
non-votes or proxies marked “ABSTAIN.”
Your Board of Directors unanimously recommends that stockholders vote
“FOR” each of the nominees for director listed in this Proxy Statement,
“FOR” approval (on an advisory non-binding basis) of the compensation paid
to our named executive officers and “FOR” the ratification of KPMG LLP as
Investors Bancorp’s independent registered public accounting firm for the
year ending December 31, 2017.
Investors Bancorp, a Delaware corporation, is the bank holding company for
Investors Bank, a FDIC-insured, New Jersey-chartered capital stock savings
bank. Investors Bancorp had $23.17 billion in total assets and 151 full-service
banking offices in New Jersey and New York at December 31, 2016. Investors
Bancorp’s principal executive offices are located at 101 JFK Parkway, Short
Hills, New Jersey 07078, and our telephone number is (973) 924-5100.
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Who Can Vote
The Board of Directors has fixed March 27, 2017 as the record date for determining the stockholders
entitled to receive notice of and to vote at the Annual Meeting. Accordingly, only holders of record of shares of
Investors Bancorp common stock, par value $0.01 per share, at the close of business on such date will be
entitled to vote at the Annual Meeting. On March 27, 2017, 310,353,472 shares of Investors Bancorp common
stock were outstanding and held by approximately 17,500 holders of record. The presence, in person or by
1
properly executed proxy, of the holders of a majority of the outstanding shares of Investors Bancorp common
stock is necessary to constitute a quorum at the Annual Meeting.
How Many Votes You Have
Each holder of shares of Investors Bancorp common stock outstanding on March 27, 2017 will be entitled
to one vote for each share held of record. However, Investors Bancorp’s certificate of incorporation provides
that stockholders of record who beneficially own in excess of 10% of the then outstanding shares of common
stock of Investors Bancorp are not entitled to vote any of the shares held in excess of that 10% limit. A person
or entity is deemed to beneficially own shares that are owned by an affiliate of, as well as by any person acting
in concert with, such person or entity.
Matters to Be Considered
The purpose of the Annual Meeting is to elect four directors, to approve the compensation paid to our
Named Executive Officers on an advisory (non-binding) basis and to ratify the appointment of KPMG LLP as
Investors Bancorp’s independent registered public accounting firm for the year ending December 31, 2017.
You may be asked to vote upon other matters that may properly be submitted to a vote at the Annual
Meeting. We may adjourn or postpone the Annual Meeting for the purpose, among others, of allowing
additional time to solicit proxies.
How to Vote
You may vote your shares:
In person at the Annual Meeting. All stockholders of record may vote in person at the Annual
Meeting. Beneficial owners may vote in person if they have a legal proxy from their bank or broker.
By telephone or Internet (see the instructions at www.proxydocs.com/ISBC). Beneficial owners
may also vote by telephone or Internet if their bank or broker makes those methods available, in
which case the bank or broker will include the instructions with the proxy materials.
By written proxy. All stockholders of record can vote by written proxy card. If you received a
printed copy of this Proxy Statement, you may vote by signing, dating and mailing the enclosed
Proxy Card, or if you are a beneficial owner, you may request a voting instruction form from your
bank or broker.
If you return an executed Proxy Card without marking your instructions, your executed Proxy Card will
be voted “FOR” the election of the four nominees for director, “FOR” approval of the executive
compensation paid to our named executive officers and “FOR” the ratification of the appointment of
KPMG LLP as our independent registered public accounting firm for the year ending December 31,
2017.
Participants in Investors Bancorp Benefit Plans
If you are a participant in our Employee Stock Ownership Plan or 401(k) Plan, or any other benefit plans
sponsored by us through which you own shares of our common stock, you will have received a Notice
Regarding the Availability of Proxy Materials. Under the terms of these plans, the trustee or administrator votes
all shares held by the plan, but each participant may direct the trustee or administrator how to vote the shares of
our common stock allocated to his or her plan account. If you own shares through any of these plans and you do
not vote by May 18, 2017, the respective plan trustees or administrators will vote your shares in accordance
with the terms of the respective plans.
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Quorum and Vote Required
The presence, in person or by properly executed proxy, of the holders of a majority of the outstanding shares
of Investors Bancorp common stock is necessary to constitute a quorum at the Annual Meeting. Abstentions and
broker non-votes will be counted solely for the purpose of determining whether a quorum is present. A proxy
submitted by a broker that is not voted on certain matters is sometimes referred to as a broker non-vote.
Directors are elected by a plurality of votes cast, without regard to either broker non-votes or proxies as to
which authority to vote for the nominees being proposed is “WITHHELD”. However, any nominee for
director in an uncontested election who receives a greater number of votes “WITHHELD” from his or her
election than votes “FOR” such election shall tender his or her resignation for consideration by the Nominating
and Corporate Governance Committee of the Board. The Committee shall recommend to the Board the action to
be taken with respect to the resignation. Any Director who tenders his or her resignation pursuant to this
provision shall not participate in the Committee's or the Board's deliberations as to whether to accept the
resignation. Should this situation occur, the Board would publicly disclose its decision within 90 days of the
certification of the election results. The advisory vote to approve the executive compensation paid to our Named
Executive Officers and the ratification of the appointment of KPMG LLP as the independent registered public
accounting firm is determined by a majority of the votes cast, without regard to broker non-votes or proxies
marked “ABSTAIN”.
Revocability of Proxies
You may revoke your proxy at any time before the vote is taken at the Annual Meeting. You may revoke
your proxy by:
submitting written notice of revocation to the Corporate Secretary of Investors Bancorp prior to the
voting of such proxy;
submitting a properly executed proxy bearing a later date;
voting again by telephone or Internet (provided such vote is received on a timely basis); or
voting in person at the Annual Meeting; however, simply attending the Annual Meeting without
voting will not revoke an earlier proxy.
Written notices of revocation and other communications regarding the revocation of your proxy should be
addressed to:
Investors Bancorp, Inc.
101 JFK Parkway
Short Hills, New Jersey 07078
Attention: Brian F. Doran, Esq., Corporate Secretary
If your shares are held in street name, you should follow your broker’s instructions regarding the
revocation of proxies.
Solicitation of Proxies
Investors Bancorp will bear the entire cost of soliciting proxies. In addition to solicitation of proxies by
mail, Investors Bancorp will request that banks, brokers and other holders of record send proxies and proxy
material to the beneficial owners of Investors Bancorp common stock and secure their voting instructions, if
necessary. Investors Bancorp will reimburse such holders of record for their reasonable expenses in taking those
actions. Laurel Hill Advisory Group, LLC will assist us in soliciting proxies and we have agreed to pay them a
fee of $7,000 plus reasonable expenses for their services. If necessary, Investors Bancorp may also use several
of its regular employees, who will not be specially compensated, to solicit proxies from stockholders, personally
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or by telephone, facsimile or letter. In the event there are not sufficient votes for a quorum, or to approve or
ratify any matter being presented at the time of this Annual Meeting, the Annual Meeting may be adjourned in
order to permit the further solicitation of proxies.
Recommendation of the Board of Directors
Your Board of Directors unanimously recommends that you vote “FOR” each of the nominees for
director listed in this Proxy Statement, “FOR” approval on a non-binding advisory basis of the executive
compensation paid to our Named Executive Officers and “FOR” the ratification of KPMG LLP as Investors
Bancorp’s independent registered public accounting firm for the year ending December 31, 2017.
Security Ownership of Certain Beneficial Owners and Management
Persons and groups who beneficially own in excess of five percent of Investors Bancorp’s common stock
are required to file certain reports with the Securities and Exchange Commission (“SEC”) regarding such
beneficial ownership. The following table sets forth, as of March 27, 2017, certain information as to the shares
of Investors Bancorp common stock owned by persons who beneficially own more than five percent of
Investors Bancorp’s issued and outstanding shares of common stock. We know of no persons, except as listed
below, who beneficially owned more than five percent of the outstanding shares of Investors Bancorp common
stock as of March 27, 2017. For purposes of the following table and the table included under the heading
“Directors and Executive Officers,” and in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended, a person is deemed to be the beneficial owner of any shares of common stock (i) over which
he or she has, or shares, directly or indirectly, voting or investment power, or (ii) as to which he or she has the
right to acquire beneficial ownership at any time within 60 days after March 27, 2017.
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Principal Stockholders
Name and Address of Beneficial Owner
Blue Harbour Group, LP
646 Steamboat Road
Greenwich, CT 06830
FMR LLC
245 Summer Street
Boston, MA 02210
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355
BlackRock, Inc.
55 East 52nd Street
New York, NY 10055
Fuller & Thaler Asset Management, Inc.
411 Borel Avenue, Suite 300
San Mateo, CA 94402
Investors Bank Employee Stock Ownership Plan
Trust Trustee: First Bankers Trust Services, Inc.
2321 Kochs Lane Quincy, IL 62305
Number of Shares Owned
and Nature of Beneficial
Ownership
Percent of Shares of
Common
Stock Outstanding (1)
29,582,428 (2)
25,421,986 (3)
23,186,583 (4)
19,353,798 (5)
19,352,150 (6)
16,350,086 (7)
9.53%
8.19%
7.47%
6.24%
6.24%
5.27%
(1)
(2)
(3)
(4)
Based on 310,353,472 shares of Investors Bancorp common stock outstanding as of March 27, 2017.
Based on a Form 13F-HR filed with the SEC on February 14, 2017.
Based on a Schedule 13G/A filed with the SEC on February 14, 2017.
Based on a Schedule 13G/A filed with the SEC on February 10, 2017.
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(5)
(6)
(7)
Based on a Schedule 13G/A filed with the SEC on January 25, 2017.
Based on a Schedule 13G filed with the SEC on February 23, 2017.
Based on a Schedule 13G filed with the SEC on February 14, 2017.
Directors and Executive Officers
The following table sets forth information about shares of Investors Bancorp common stock owned by
each nominee for election as director, each incumbent director, each Named Executive Officer identified in the
summary compensation table included elsewhere in this Proxy Statement, and all nominees, incumbent
directors and executive officers as a group, as of March 27, 2017.
Position(s) held with
Investors Bancorp
Inc. and/or Investors Bank
Shares Owned
Directly and
Indirectly (1)
Options
Exercisable
within 60 days
Beneficial
Ownership
Percent
of Class
Unvested Stock
Awards Included
in Beneficial
Ownership
Name
NOMINEES
Dennis M. Bone
Doreen R. Byrnes
Peter H. Carlin
William V. Cosgrove
INCUMBENT DIRECTORS
Robert M. Cashill
Kevin Cummings
Director
Director
Director
Director
Brian D. Dittenhafer
Michele N. Siekerka
Robert C. Albanese
Domenick A. Cama
172,744
202,638
—
157,450
50,000 222,744 *
50,000 252,638 *
— *
150,000 307,450 *
—
781,902
1,879,860
83,333 865,235 *
190,476 2,070,336 *
366,557
182,268
171,988
1,445,320
83,333 449,890 *
120,606 302,874 *
85,302 257,290 *
152,380 1,597,700 *
80,000
80,000
—
80,000
100,000
642,857
100,000
80,000
80,000
514,286
Chairman
Director, President and
Chief Executive Officer
Lead Director
Director
Director
Director, Senior Executive
Vice President and Chief
Operating Officer
Director
Director
Executive Vice
President and Chief
Lending Officer
Executive Vice President
and Chief Retail
Banking Officer
Senior Vice
President and Chief
Financial Officer
James J. Garibaldi
James H. Ward III
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Richard S. Spengler
101,550
445,969
745,947
50,000 151,550 *
50,000 495,969 *
80,000
80,000
101,904 847,851 *
402,857
Paul Kalamaras
Sean Burke
798,425
101,904 900,329 *
402,857
369,250
89,523 458,773 *
340,000
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All directors and executive officers as a group(2)
7,821,868 1,358,761 9,180,629 2.96%
3,062,857
*
(1)
(2)
Less than 1%
Unless otherwise indicated, each person effectively exercises sole, or shared with spouse, voting and dispositive power as to the
shares reported.
Includes 122,157 shares of common stock allocated to the accounts of executive officers under the Investors Bank Employee Stock
Ownership Plan (“ESOP”) and excludes the remaining 17,343,147 shares of common stock of which 12,789,847 are unallocated and
held for the future benefit of all employee participants. Under the terms of the ESOP, shares of common stock allocated to the
account of employees are voted in accordance with the instructions of the respective employees. Unallocated shares are voted by the
ESOP Trustee in the same proportion as the vote obtained from participants on allocated shares. Includes 52,924 shares of common
stock held through the Company's 401(k) Plan.
On December 18, 2016, Brendan J. Dugan, who had served on the Boards of Directors of Investors
Bancorp and Investors Bank since 2013, passed away.
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Proposal I–Election of Directors
General
Investors Bancorp’s Board of Directors currently consists of 12 members and is divided into three classes,
with one class of directors elected each year. Each of the 12 members of the Board of Directors also serves as a
director of Investors Bank. The current Bylaws of Investors Bancorp provide that a director shall retire from the
Board at the annual meeting of the Board immediately following the year in which the director attains age 75.
Four directors will be elected at the Annual Meeting. On the recommendation of the Nominating and
Corporate Governance Committee, the Board of Directors has nominated Dennis Bone, Doreen Byrnes, Peter
Carlin and William Cosgrove for election as directors, each of whom has agreed to serve if so elected. All will
serve until their respective successors have been elected and qualified.
Except as disclosed in this Proxy Statement, there are no arrangements or understandings between any
nominee and any other person pursuant to which any such nominee was selected. Unless authority to vote for
the nominees is withheld, it is intended that the shares represented by your Proxy Card, if executed and
returned, will be voted “FOR” the election of all nominees.
In the event that any nominee is unable or declines to serve, the persons named in the Proxy Card as
proxies will vote with respect to a substitute nominee designated by Investors Bancorp’s current Board of
Directors. At this time, the Board of Directors knows of no reason why any of the nominees would be unable or
would decline to serve, if elected.
Investors Bancorp’s Board of Directors recommends a vote “FOR” the election of the nominees for
Director named in this proxy statement.
Directors and Executive Officers of Investors Bancorp
The following table states our directors’ names, their ages as of March 27, 2017, and the years when they
began serving as directors of Investors Bancorp and when their current term expires.
Position(s) Held With
Investors Bancorp
Age
Director
Since
Current Term
Expires
Name
NOMINEES
Dennis M. Bone
Doreen R. Byrnes
Peter H. Carlin (1)
William V. Cosgrove
INCUMBENT DIRECTORS
Robert M. Cashill
Kevin Cummings
Director
Director
Director
Director
Chairman
Director, President and
Chief Executive Officer
Brian D. Dittenhafer
Michele N. Siekerka
Robert C. Albanese
Domenick A. Cama
Lead Director
Director
Director
Director, Senior Executive
Vice President and Chief
Operating Officer
James J. Garibaldi
James H. Ward III
Director
Director
65
67
44
69
74
62
74
52
69
60
65
68
2013
2002
2017
2011
1998
2008
1997
2013
2013
2011
2012
2009
2017
2017
2020
2017
2018
2018
2018
2018
2019
2019
2019
2019
(1)
Effective March 27, 2017, the Company appointed Peter H. Carlin to the Board of Directors for a three year term.
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The following information describes the business experience for each of Investors Bancorp's directors and
executive officers.
Nominees for Director
Term to Expire 2020
Dennis M. Bone was appointed to the Board of Directors of
Investors Bancorp and Investors Bank on December 6, 2013 upon the
consummation of Investors Bancorp’s acquisition of Roma Financial
Corporation, where he served as a director. Mr. Bone is the Director of
the Feliciano Center for Entrepreneurship at Montclair State University.
Previously, Mr. Bone served as President of Verizon New Jersey for 12
years where he was responsible for Verizon’s corporate interests across
New Jersey. Mr. Bone had over 33 years’ experience with Verizon,
where he served in executive management positions for 17 years.
Active in his community, Mr. Bone is on the Board of Trustees of the
New Jersey Institute of Technology where he is Chairman of the Audit
& Finance Committee, the New Jersey Center for Teaching and
Learning, the Citizens Campaign and was recently elected Chairman of
the Newark Alliance. In addition, Mr. Bone is Chairman of the New
Jersey State Employment and Training Commission which oversees
New Jersey’s Workforce System, and was the founding Chairman of
Choose New Jersey. Mr. Bone previously served on the Board of
Trustees of the Liberty Science Center (12 years), the Board of
Directors of the New Jersey Performing Arts Center (12 years), the
Aviation Research Technology Park (2 years), and the New Jersey
Utilities Association (12 years).
The Nominating and Corporate Governance Committee believes
that Mr. Bone's experience, which brings a broader corporate
perspective, and his extensive community involvement to be assets to
the Board of Directors.
Doreen R. Byrnes was elected to the Board of Directors of
Investors Bancorp and Investors Bank in January 2002. Ms. Byrnes
retired in 2007 after an employment career in the area of human
resources, including having served as Executive Vice President of
Human Resources of Investors Bancorp. Ms. Byrnes has a Bachelor’s
degree from the University of Florida and a Master’s degree from
Fairleigh Dickinson University. She
is a member of National
Association of Corporate Directors and was awarded the Certificate of
Director Education in 2010.
Ms. Byrnes has extensive experience with executive recruitment,
retention and compensation as well as a strong understanding of the
employees and markets served by Investors Bank. This experience
provides a unique perspective to the Board of Directors. The
Nominating
considers
and Corporate Governance Committee
Ms. Byrnes’ skills and experience to be assets to the Board of Directors.
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Peter H. Carlin was appointed to the Board of Directors of
Investors Bancorp and Investors Bank on March 27, 2017. Mr. Carlin
has been a Managing Director at Blue Harbour Group since 2014. Prior
to joining Blue Harbour Group, Mr. Carlin was a Managing Member of
Estekene Capital from 2009 to 2013. Previously, he was a Deputy
Portfolio Manager at Alson Capital, where he worked from 2002 to
2009 and at Sanford Bernstein & Co. where he was a Buyside Research
Analyst from 2000 to 2002. Mr. Carlin began his career at Morgan
Stanley in the Mergers & Acquisitions Group. Mr. Carlin earned his
MBA from Columbia Business School in 1999, a JD from Columbia
Law School in 1999, and a BA from the University of Pennsylvania in
1994.
Mr. Carlin’s tenure working with financial institutions through
the capital markets brings valuable expertise to the Board of Directors.
Mr. Carlin’s financial and leadership skills and experience and
knowledge, as well as the representation of shareholder interest bring an
important asset to the Board of Directors.
William V. Cosgrove was first appointed to the Board of
Directors of Investors Bancorp and Investors Bank in October 2011.
Mr. Cosgrove had been employed as a non Section 16 officer of
Investors Bank since Investors Bancorp’s acquisition of Summit
Federal Bankshares, Inc. and Summit Federal Savings Bank in
June 2008 through his retirement from Investors Bank on October 1,
2011. Mr. Cosgrove was President and Chief Executive Officer of
Summit Federal Savings Bank from 2003 until the acquisition of
Summit Federal Savings Bank by Investors Bank. Mr. Cosgrove has
over 40 years of experience in banking and has served as president of
the N.J. Council of Federal Savings Institutions, and the Union County
Savings League. In addition he served on the Board of Governors of the
New Jersey Savings League. Mr. Cosgrove is a member of the National
Association of Corporate Directors, where he continues his education.
Mr. Cosgrove’s extensive experience in the banking industry and
local markets bring valuable expertise to the Board of Directors. The
Nominating
considers
and Corporate Governance Committee
Mr. Cosgrove’s financial and leadership skills and his experience and
knowledge of the financial services industry in general to be assets to
the Board of Directors.
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Continuing Directors
Term to Expire 2018
Robert M. Cashill was first elected to the Board of Directors of
Investors Bancorp and Investors Bank in February 1998 and has served
as Chairman since January 2010. Mr. Cashill served as President and
Chief Executive Officer of Investors Bank from December 2002 until
his retirement on December 31, 2007. During this time Mr. Cashill was
an integral part of the conversion of the former savings bank into the
mutual holding company structure raising $500 million in the process.
Prior to joining Investors Bank, Mr. Cashill was employed as Vice
President Institutional Sales by Salomon Smith Barney from 1977 to
1998, and at Hornblower, Weeks, Hemphill, Noyes from 1966 to 1977.
For much of that time he specialized in providing investment analysis
and asset/liability management advice to thrift institutions and was,
therefore, familiar with thrift recapitalizations and debt issuance.
Mr. Cashill has a Bachelor of Science degree in Economics from Saint
Peter’s College. He is a member of the National Association of
Corporate Directors, where he continues his education and served on
the boards of both the New Jersey League of Savings Institutions and
the Paper Mill Playhouse.
Mr. Cashill’s leadership skills, extensive background in the
financial services industry and his experience working for Investors
Bank brings knowledge of industry management and local markets to
the Board of Directors. The Nominating and Corporate Governance
Committee considers Mr. Cashill’s financial and leadership skills and
his experience and knowledge of the financial services industry in
general and of Investors Bancorp in particular to be significant assets
for the Board of Directors.
Kevin Cummings was appointed President and Chief Executive
Officer of Investors Bancorp and Investors Bank effective January 1,
2008 and was also appointed to serve on the Board of Directors of
Investors Bank at that time. He previously served as Executive Vice
President and Chief Operating Officer of Investors Bank since July
2003. Prior to joining Investors Bank, Mr. Cummings had a 26-year
career with the independent accounting firm of KPMG LLP, where he
had been partner for 14 years. Immediately prior to joining Investors
Bank, he was an audit partner in KPMG’s Financial Services practice in
their New York City office and lead partner on a major commercial
banking client. Mr. Cummings also worked in the New Jersey
community bank practice for over 20 years. Mr. Cummings has a
Bachelor’s degree in Economics from Middlebury College and a
Master’s degree in Business Administration from Rutgers University.
He is the former Chairman of the Board of the New Jersey Bankers
Association and sits on the Board of Trustees of the Scholarship Fund
for Inner-City Children and Liberty Science Center and is also a
member of the Development Leadership Council of Morris Habitat for
Humanity. In addition, Mr. Cummings is a member of the Board of the
Federal Home Loan Bank of New York, the Independent College Fund
of New Jersey, the All Stars Project of New Jersey and the Community
Foundation of New Jersey.
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Mr. Cummings
is a certified public accountant and his
background in public accounting enhances the board of directors’
oversight of financial reporting and disclosure issues. The Nominating
and Corporate Governance Committee considers Mr. Cummings’
leadership skills and knowledge of accounting, auditing and corporate
governance in the financial services industry to be assets to the Board of
Directors.
Brian D. Dittenhafer was first elected to the Board of Directors
of Investors Bancorp and Investors Bank in 1997. He served as
President and Chief Executive Officer of the Federal Home Loan Bank
of New York from 1985 until his retirement in 1992. Mr. Dittenhafer
joined the FHLB in 1976 where he also served as Vice President and
Chief Economist, Chief Financial Officer and Executive Vice President.
Previously, he was employed as a Business Economist at the Federal
Reserve Bank of Atlanta from 1971 to 1976. From 1992 to 1995,
Mr. Dittenhafer served as President and Chief Financial Officer of
Collective Federal Savings Bank and as Chairman of the Resolution
Funding Corporation from 1989 to 1992. From 1995 to 2007
Mr. Dittenhafer was Chairman of MBD Management Company.
Mr. Dittenhafer has a Bachelor of Arts from Ursinus College and a
Master of Arts in Economics from Temple University where he
subsequently taught economics. He was named to Omicron Delta
Epsilon, the national honor society in Economics. Mr. Dittenhafer is a
member of the National Association for Business Economics and the
National Association of Corporate Directors. In 2007 he was awarded
the Certificate of Director Education by the National Association of
Corporate Directors, where he continues his education and has achieved
Director Professional designation. In 2012, Mr. Dittenhafer achieved
the status of
the National Association of Corporate Directors
Governance Fellow.
Mr. Dittenhafer brings extensive knowledge of the banking
industry and a strong background in economics to the Board of
Directors. The Nominating and Corporate Governance Committee
considers Mr. Dittenhafer’s experience, leadership, financial expertise
and strong economics background to be unique assets for the Board of
Directors.
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Michele N. Siekerka was appointed to the Board of Directors of
Investors Bancorp and Investors Bank on December 6, 2013 upon the
consummation of Investors Bancorp’s acquisition of Roma Financial
Corporation where she served as Chairman. Ms. Siekerka is a licensed
attorney and President and CEO of New Jersey Business and Industry
Association. From 2010 to 2014, Ms. Siekerka was employed by the
New Jersey Department of Environmental Protection, first as an
Assistant Commissioner and then she completed her service as Deputy
Commissioner. From 2004 to 2010, she served as the President and
Chief Executive Officer of
the Mercer Regional Chamber of
Commerce. From 2000 to 2004, Ms. Siekerka was employed by AAA
Mid-Atlantic, first as vice president of human resources and then as
senior counsel. Active in numerous civic/professional organizations,
Ms. Siekerka is on the Board of Choose New Jersey, New Jersey
Innovation Institute, Junior Achievement of New Jersey, Better Choices
Better Care and Opportunity New Jersey where she serves as Co-
Founder and Co-Chairman. Ms. Siekerka is a former member of the
Robbinsville Township Board of Education where she served as
President from 2002 to 2005.
The Nominating and Corporate Governance Committee considers
Ms. Siekerka’s legal and government affairs expertise and market
knowledge to be assets to the Board of Directors.
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Term to Expire 2019
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Robert C. Albanese was appointed to the Board of Directors of
Investors Bancorp and Investors Bank on December 6, 2013 upon the
consummation of Investors Bancorp’s acquisition of Roma Financial
Corporation, where he served as a director. He was the President and
Chief Executive Officer of Pentegra Retirement Services, located in
White Plains, New York, from 2007 to 2013 following an eleven year
tenure on Pentegra’s Board of Directors. Prior to his employment with
Pentegra, he served as Regional Director of the Northeast Region of the
Office of Thrift Supervision from 1996 through 2007 where he was
directly responsible for the oversight of all federally chartered
institutions and their holding companies located in the twelve states
comprising the Northeast Region. Prior to 1996, he served in various
other capacities with the Office of Thrift Supervision and its
predecessor, the Federal Home Loan Bank Board.
Mr. Albanese has also been involved in many civic activities,
most prominently as past President and Treasurer of the Waldwick,
New Jersey Jaycees. He presently sits on the Board of Trustees of the
Bridge Academy, a school for children with learning disabilities located
in Lawrenceville, New Jersey. The Nominating and Corporate
Governance Committee considers Mr. Albanese's extensive regulatory
experience with particular expertise in financial analysis, enterprise risk
analysis and audit to be assets to the Board of Directors.
Domenick A. Cama was appointed to the Board of Directors of
Investors Bancorp and Investors Bank in January 2011. He became
Chief Operating Officer of Investors Bank effective January 1, 2008
and was appointed Senior Executive Vice President in January of 2010.
Prior to this appointment, Mr. Cama had served as Chief Financial
Officer since April 2003. Prior to joining Investors Bank, Mr. Cama
was employed for 13 years by the FHLB where he served as Vice
President and Director of Sales. Mr. Cama is also a member of the
Board of Directors for the Raritan Bay Medical Center Foundation and
the Madison YMCA. Mr. Cama holds a Bachelor’s degree
in
Economics and a Master’s degree in Finance from Pace University.
Mr. Cama has extensive knowledge of the banking industry and
local markets served by Investors Bank. The Nominating and Corporate
Governance Committee considers Mr. Cama’s experience, leadership,
financial expertise and strong economics background to be unique
assets for the Board of Directors.
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James J. Garibaldi was appointed to the Board of Directors of
Investors Bancorp and Investors Bank in 2012. He is currently the Chief
Executive Officer of The Garibaldi Group, a corporate real estate
services firm headquartered in Chatham, New Jersey. Mr. Garibaldi
joined The Garibaldi Group in 1974. In 1986, Mr. Garibaldi assumed
the role of managing partner of the firm and in 1997 he became its
Chief Executive Officer. Mr. Garibaldi formerly served as President of
CORFAC International. He is also a member of the Board of Trustees
of Big Brothers and Big Sisters of North Jersey, a member of the
Advisory Board for the Community Soup Kitchen in Morristown and a
former member of the Board of Trustees for the Cancer Hope Network
as well as the Finance Council for the Diocese of Paterson.
Mr. Garibaldi has a Bachelor of Science degree from the University of
Scranton.
Mr. Garibaldi’s extensive real estate experience and knowledge of
the local real estate market bring valuable expertise to the Board of
Directors. The Nominating and Corporate Governance Committee
considers Mr. Garibaldi’s leadership skills and real estate knowledge to
be assets to the Board of Directors.
James H. Ward III was appointed to the Board of Directors of
Investors Bancorp and
in June 2009 upon
Investors Bank
consummation of Investors Bancorp’s acquisition of American Bancorp
of New Jersey, Inc. From 1998 to 2000, he was the majority stockholder
and Chief Operating Officer of Rylyn Group, which operated a
restaurant in Indianapolis, Indiana. Prior to that, he was the majority
stockholder and Chief Operating Officer of Ward and Company, an
insurance agency in Springfield, New Jersey, where he was employed
from 1968 to 1998. He is now a retired investor. In 2009 he was
awarded the Certificate of Director Education by the National
Association of Corporate Directors, where he is a member and
continues his education.
Mr. Ward brings a wide range of management experience and
business knowledge that provides a valuable resource to the Board of
Directors. These skills and experience combined with the unique
perspective Mr. Ward brings from his background as an entrepreneur
provide skills and experience which the Nominating and Corporate
Governance Committee considers to be valuable assets for the Board of
Directors.
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Executive Officers of the Bank Who Are Not Also Directors
Richard S. Spengler, age 55, was appointed Executive Vice
President and Chief Lending Officer of Investors Bank effective
January 1, 2008. Mr. Spengler began working for Investors Bank in
September 2004 as Senior Vice President. Prior to joining Investors
Bank, Mr. Spengler had a 21-year career with First Savings Bank,
Woodbridge, New Jersey where he served as Executive Vice President
and Chief Lending Officer from 1999 to 2004. Mr. Spengler holds a
Bachelor’s degree in Business Administration from Rutgers University.
Paul Kalamaras, age 58, was appointed Executive Vice President
and Chief Retail Banking Officer of Investors Bank in January of 2010.
Mr. Kalamaras joined Investors Bank as a Senior Vice President and
Director of Retail Banking in August 2008. Before joining Investors,
Mr. Kalamaras was Executive Vice President of Millennium bcp bank,
N.A., in Newark, New Jersey where he was responsible for the retail,
commercial banking and treasury lines of business. He served on the
bank’s Executive Committee and was a member of the Board of
Directors. Mr. Kalamaras previously was President and CEO of The
Barré Company, a manufacturer of precision engineered metal
components for the electronics and telecommunications industry. Mr.
Kalamaras is a member of, among other organizations, the Board of
Directors of New Jersey State Chamber of Commerce, Board of
Trustees, New Jersey SEEDS, Board of Directors Big Brothers Big
Sisters of Northern NJ and Board of Directors New Jersey Region of
the American Red Cross. Earlier, Mr. Kalamaras was Executive Vice
President at Summit Bank, where he was responsible for the retail
network and business banking. Mr. Kalamaras holds a Bachelor’s
degree in Finance from the University of Notre Dame.
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Sean Burke, age 45, was appointed Senior Vice President and
Chief Financial Officer of Investors Bank effective January 26, 2015.
Prior to joining Investors Bank, Mr. Burke was the Managing Director
and Head of U.S. Depository Institution Investment Banking for RBC
Capital Markets in New York. Mr. Burke has over 20 years of
experience working with financial institutions. Mr. Burke earned
bachelor's degrees in accounting and computer science from the
University of Notre Dame and earned an MBA from Northwestern
University's J.L. Kellogg Graduate School of Management. Prior to
attending Northwestern, Mr. Burke was a certified public accountant
and worked in the financial services audit practice of Ernst & Young.
Corporate Governance Matters
Investors Bancorp is committed to maintaining sound corporate governance guidelines and very high
standards of ethical conduct and is in compliance with applicable corporate governance laws and regulations.
Board of Directors Meetings and Committees
The Board of Directors of Investors Bancorp and Investors Bank each met 12 times during 2016. The
Board of Directors of Investors Bancorp currently maintains four standing committees: the Nominating and
Corporate Governance Committee, the Audit Committee, the Compensation and Benefits Committee and the
Risk Oversight Committee.
No director attended fewer than 75% of the total number of Board meetings held by the Investors
Bancorp and Investors Bank Board of Directors and all committees of the Boards on which they served (during
the period they served) during 2016. Investors Bancorp does not have a specific policy regarding attendance at
the annual meeting of stockholders. However, all but one of Investors Bancorp’s directors attended the annual
meeting of stockholders held on May 24, 2016.
Director Independence
A majority of the Board of Directors and each member of the Compensation and Benefits, Nominating
and Corporate Governance and Audit Committees are independent, as affirmatively determined by the Board of
Directors consistent with the listing rules of the Nasdaq Stock Market.
The Board of Directors conducts an annual review of director independence for all current nominees for
election as directors and all continuing directors. In connection with this review, the Board of Directors
considers all relevant facts and circumstances relating to relationships that each director, his or her immediate
family members and their respective related interests has with Investors Bancorp and its subsidiaries.
As a result of this review, the Board of Directors affirmatively determined that Messrs. Cashill, Albanese,
Cosgrove, Bone, Dittenhafer, Ward, Carlin and Mses. Byrnes and Siekerka, are independent as defined in the
Nasdaq corporate governance listing rules. The Board of Directors determined that Messrs. Cummings and
Cama are not independent as they are Investors Bank employees. Mr. Garibaldi is not independent due to
commercial real estate brokerage services provided by his company to Investors Bank, the subsidiary of
Investors Bancorp, in 2015.
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In establishing its structure and appointing a Lead Independent Director, Investors Bancorp has also taken
into account the extent to which a director who satisfies independence standards under the listing rules of the
Nasdaq Stock Market would also qualify as an independent outside director (as opposed to an affiliated outside
director) under the standards set forth by Institutional Shareholder Services (“ISS”).
Board Leadership Structure – Separate CEO and Chairman Role / Lead Independent
Director
Currently, the positions of Chairman of the Board and Chief Executive Officer are held by different
persons, which the Board believes is appropriate under present circumstances. However, the Board recognizes
that its optimal leadership structure can change over time to reflect our Company’s evolving needs, strategy,
and operating environment; changes in our Board’s composition and leadership needs; and other factors,
including the perspectives of stockholders and other stakeholders. The Board of Directors believes that
management accountability and the Board’s independence from management is best served by maintaining a
majority of independent directors and where required maintaining standing board committees comprised
exclusively of independent members.
In addition, the Board’s Corporate Governance Guidelines allow for the appointment of a Lead
Independent Director, who shall be an “independent outside director”, which is defined as an independent
director who is not considered an “affiliated outside director” under ISS standards. When appointed by the
Board, the Lead Independent Director has the following duties:
Preside at all meetings of the independent outside directors and independent directors;
Coordinate as necessary Investors Bancorp related activities of the independent outside
directors;
Facilitate communications between the Chairman of the Board, the CEO and the independent
outside directors;
Consult as needed with the Chairman of the Board with respect to meeting agendas and
schedules, as well as Board materials, prior to Board meetings; and
Consult with the Chairman of the Board to assure that appropriate topics are being discussed
with sufficient time allocated for each.
The Lead Independent Director has the authority to call meetings of the independent outside directors.
Pursuant to the recommendation of the Nominating and Corporate Governance Committee, the Board has
appointed Brian D. Dittenhafer as Lead Independent Director.
Corporate Governance Guidelines
The Board of Directors has adopted Corporate Governance Guidelines, which are posted on the
“Governance Documents” section of the “Investor Relations” page of Investors Bank’s website at
www.myinvestorsbank.com. The Corporate Governance Guidelines cover the general operating policies and
procedures followed by the Board of Directors including, among other things:
Mission of the Board;
Director responsibilities and qualifications;
Board nominating procedures and election criteria;
Stock ownership policies, Board size, director independence; and
Director compensation, education and code of ethics.
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The Corporate Governance Guidelines provide for the independent directors of the Board of Directors to
meet in regularly scheduled executive sessions. During 2016, eight executive sessions were held, of which three
were conducted by the independent directors.
Anti-Hedging Policy
The Corporate Governance Guidelines include an anti-hedging policy, which prohibits directors and
executive officers from engaging in or effecting any transaction designed to hedge or offset the economic risk
of owning shares of Investors Bancorp common stock. Accordingly, any hedging, derivative or other equivalent
transaction that is specifically designed to reduce or limit the extent to which declines in the trading price of
Investors Bancorp common stock would affect the value of the shares of Investors Bancorp common stock
owned by an executive officer or director is prohibited. Cashless exercises of employee stock options are not
deemed short sales and are not prohibited. This policy does not prohibit transactions in the stock of other
companies.
Prohibition on Pledging Securities
Company policy prohibits directors and executive officers from holding Company securities in a margin
account or pledging Company securities as collateral for any other loan. An exception to this prohibition may be
granted, in the sole discretion of the Board and in limited circumstances, after giving consideration to, among
other factors, the number of shares proposed to be pledged as a percentage of the director’s or executive
officer’s total shares held. No shares are currently pledged by a director or executive officer.
Stock Ownership Requirements
The Board of Directors believes that it is in the best interest of Investors Bancorp and its stockholders to
align the financial interests of its executives and directors with those of stockholders. Accordingly, the
Corporate Governance Guidelines include Stock Ownership Guidelines for Named Executive Officers and
Directors of Investors Bancorp that require the following minimum investment in Investors Bancorp common
stock:
CEO:
A number of shares having a market value equal to five times (5.0x) annual
base salary
Other Named Executive Officers: A number of shares having a market value equal to three times (3.0x) annual
Directors:
base salary
25,000 shares
Stock holdings are expected to be achieved within five (5) years of either the implementation of the
Ownership Guidelines or the starting date of the individual, whichever is later. Stock ownership for Named
Executive Officer and Directors is reviewed as of the last day of each calendar quarter.
Majority Voting Policy
The Board of Directors believes that each director of the Company should have the confidence and
support of the Company's stockholders and, to this end, the Board has adopted a majority voting policy, which
is utilized for the election of any director at any meeting of stockholders for uncontested elections and shall not
be applicable for contested elections. Pursuant to this policy, any incumbent director nominee in an uncontested
election who receives a greater number of votes “WITHHELD” than votes cast “FOR” at the stockholders
meeting shall promptly tender his or her proposed resignation following certification of the stockholder vote.
The Nominating and Corporate Governance Committee will promptly consider the resignation and will
recommend to the Board whether to accept the resignation or to take other action, including rejecting the
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resignation and addressing any apparent underlying causes of the failure of the director to obtain a majority of
votes “FOR” such nominee. The Board will act on the Nominating and Corporate Governance Committee's
recommendation no later than at its first regularly scheduled meeting following the committee's deliberation and
recommendation, but in any case, no later than 90 days following the certification of the stockholder vote. The
Company will publicly disclose the Board's decision and process in a periodic or current report filed with or
furnished with to the SEC within 90 days following the certification of the stockholder vote. Any director who
tenders his or her resignation will not participate in the Nominating and Corporate Governance Committee's or
full Board's deliberations, considerations or actions regarding whether or not to accept the resignation or take
any other related action.
Nominating and Corporate Governance Committee
The current members of the Nominating and Corporate Governance Committee are: Ms. Byrnes (Chair),
Messrs. Bone, Cosgrove, Ward, Dittenhafer and Ms. Siekerka. Each member of the Nominating and Corporate
Governance Committee is considered independent as defined in the Nasdaq corporate governance listing rules.
The Nominating and Corporate Governance Committee’s Charter and Corporate Governance Guidelines are
posted on the “Governance Documents” section of the “Investor Relations” page of the Investors Bank’s
website at www.myinvestorsbank.com. The Committee met three times during 2016.
As noted in the Nominating and Corporate Governance Committee Charter, the purpose of the committee
is to assist the Board in identifying individuals to become Board members, determine the size and composition
of the Board and its committees, monitor Board effectiveness and implement Corporate Governance Guidelines.
In furtherance of this purpose, this committee, among other things, shall:
Lead the search for individuals qualified to become members of the Board of Directors and
develop criteria (such as independence, experience relevant to the needs of Investors
Bancorp, leadership qualities, diversity, stock ownership) for board membership;
Make recommendations to the Board concerning Board nominees and stockholders
proposals;
Develop, recommend and oversee the annual self-evaluation process of the board and its
committees;
Develop and annually review corporate governance guidelines applicable to Investors
Bancorp;
Review and monitor the Board’s compliance with Nasdaq Stock Market listing standards for
independence; and
Review, in consultation with the Compensation and Benefits Committee, directors’
compensation and benefits.
In accordance with Corporate Governance Guidelines, the Committee considers all qualified director
candidates identified by members of the Committee, by other members of the Board of Directors, by senior
management and by stockholders. Stockholders recommending a director candidate to the Committee may do
so by submitting the candidate’s name, resume and biographical information to the attention of the Chairman of
this Committee in accordance with procedures listed in this proxy statement (also available on Investors
Bancorp’s website). All stockholder recommendations for director candidates that the Chairman of the
Committee receives in accordance with these procedures will be presented to the Committee for its
consideration. The Committee’s recommendations to the Board are based on its determination as to the
suitability of each individual, and the slate as a whole, to serve as directors of Investors Bancorp.
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Criteria for Election
Investors Bancorp’s goal is to have a Board of Directors whose members have diverse professional
backgrounds and have demonstrated professional achievement with the highest personal and professional ethics
and integrity and whose values are compatible with those of Investors Bancorp. The Nominating and Corporate
Governance Committee does not have a formal policy with regard to the consideration of diversity in identifying
director nominees. However, important factors considered in the selection of nominees for director include
experience in positions that develop good business judgment, that demonstrate a high degree of responsibility and
independence, and that show the individual’s ability to commit adequate time and effort to serve as a director.
Nominees should have a familiarity with the markets in which Investors Bancorp operates, be involved in
activities that do not create a conflict with his/her responsibilities to Investors Bancorp and its stockholders, and
have the capacity and desire to represent the balanced, best interests of the stockholders of Investors Bancorp as
a group, and not primarily a special interest group or constituency.
The Nominating and Corporate Governance Committee will also take into account whether a candidate
satisfies the criteria for “independence” as defined in the Nasdaq corporate governance listing rules, and, if a
candidate with financial and accounting expertise is sought for service on the Audit Committee, whether the
individual qualifies as an Audit Committee financial expert.
On March 27, 2017, Mr. Carlin was appointed to the Boards of Directors of Investors Bancorp and its
subsidiary, Investors Bank, each for a term expiring in 2020. These appointments were made in accordance with
an agreement dated as of March 27, 2017 (the “Agreement”) between Investors Bancorp and Blue Harbour
Group, L.P. (“Blue Harbour”). Blue Harbour has had a significant shareholder interest in Investors Bancorp
since 2014 and Mr. Carlin is a managing director of Blue Harbour. Mr. Carlin has substantial experience and
expertise in the capital and financial markets and is very familiar with Investors Bancorp’s operations and the
markets in which it conducts business. Mr. Carlin’s appointment further evidences Investors Bancorp’s
commitment to alignment and engagement with its shareholders.
Under the terms of the Agreement, for so long as Blue Harbour and the investment funds managed by it
own at least four percent (4%) of the outstanding shares of Investors Bancorp’s common stock, it shall be
entitled to propose one designee to the Boards of Directors of Investors Bancorp and Investors Bank, subject to
the satisfaction of applicable corporate governance requirements. If at any time Blue Harbour’s aggregate
ownership of Investors Bancorp’s common stock shall fall below four percent (4%) of the outstanding shares,
Investors Bancorp can require that Mr. Carlin, or any other designee of Blue Harbour then serving on the
Boards of Directors of Investors Bancorp and Investors Bank, resign from the Boards of Directors. For a further
discussion of the Agreement, see “Transactions with Related Persons”.
Procedures for the Nomination of Directors by Stockholders
As previously indicated, the Nominating and Corporate Governance Committee has adopted procedures
for the consideration of Board candidates submitted by stockholders. Stockholders can submit the names of
candidates for director by writing to the Chair of the Nominating and Corporate Governance Committee, at
Investors Bancorp, Inc., 101 JFK Parkway, Short Hills New Jersey 07078. The submission must include the
following information:
a statement that the writer is a stockholder and is proposing a candidate for consideration by
the Nominating and Corporate Governance Committee;
the qualifications of the candidate and why this candidate is being proposed;
the name, address and contact information for the nominated candidate, and the number of
shares of Investors Bancorp common stock that are owned by the candidate (if the candidate
is not a holder of record, appropriate evidence of the stockholder’s ownership should be
provided);
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the name and address of the nominating stockholder as he/she appears on Investors Bancorp’s
books, and number of shares of Investors Bancorp common stock that are owned beneficially
by such stockholder (if the stockholder is not a holder of record, appropriate evidence of the
stockholder’s ownership will be required);
a statement of the candidate’s business and educational experience;
such other information regarding the candidate as would be required to be included in a proxy
statement pursuant to SEC Regulation 14A;
a statement detailing any relationship between the candidate and Investors Bancorp and
between the candidate and any customer, supplier or competitor of Investors Bancorp;
detailed information about any relationship or understanding between the proposing
stockholder and the candidate; and
a statement that the candidate is willing to be considered and willing to serve as a director if
nominated and elected.
A nomination submitted by a stockholder for presentation by the stockholder at an annual meeting of
stockholders must comply with the procedural and informational requirements described in “Advance Notice of
Business to be Conducted at an Annual Meeting.” Investors Bancorp did not receive any stockholder
submission for Board nominees for this annual meeting.
Stockholder and Interested Party Communication with the Board
A stockholder of Investors Bancorp who wants to communicate with the Board or with any individual
director can write to the Chair of the Nominating and Corporate Governance Committee at Investors Bancorp,
Inc., 101 JFK Parkway, Short Hills, New Jersey 07078. The letter should indicate that the author is a
stockholder and if shares are not held of record, should include appropriate evidence of stock ownership.
Depending on the subject matter, the Chair will:
Forward the communication to the director(s) to whom it is addressed;
Handle the inquiry directly, for example where it is a request for information about Investors
Bancorp or it is a stock-related matter; or
Not forward the communication if it is primarily commercial in nature, relates to an improper
or irrelevant topic, or is unduly hostile, threatening, illegal or otherwise inappropriate.
At each Board meeting, the Chair of the Nominating and Corporate Governance Committee shall present
a summary of all communications received since the last meeting and make those communications available to
the directors upon request.
Code of Business Conduct and Ethics
The Board has adopted a Code of Business Conduct and Ethics to be followed by Investors Bancorp’s
employees, officers (including its CEO, CFO and CAO) and directors to communicate our commitment to
ethical conduct and to describe our standards and expectations for integrity and ethical behavior. Directors,
NEOs, executive officers and employees are required to read, understand and comply with the Code. Investors
Bancorp requires that all new employees take Code training shortly after their commencement of employment
and also requires periodic training for all directors and employees. All employees must certify annually that
they have read the Code and agree to abide by it.
The Code provides that any waivers for directors or executive officers may be made only by the Board of
Directors and must be promptly disclosed to the shareholders. During 2016, the Board of Directors did not
receive nor grant any request for directors or executive officers for waivers under the provisions of the Code.
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This Code was last modified on November 22, 2016 and is available on the “Governance Documents”
section of the “Investors Relations” page of the Investors Bank’s website at www.myinvestorsbank.com.
Investors Bancorp will post on its website any amendments to the Code and any waivers granted to its directors
or executive officers.
Investors Bancorp expects its employees to report behavior that concerns them or may represent a
violation of the Code. Investors Bancorp offers several channels by which employees may raise an issue or
concern, including any actual or potential violation of the Code. One such channel is EthicsPoint, a website and
telephone hotline that is available to employees 24 hours a day, 7 days a week. EthicsPoint complaints or
concerns can be submitted anonymously.
Environmental, Social and Corporate Governance
As we continuously endeavor to make Investors Bancorp a great place to work, we listen to our
employees and build on our programs and resources to enhance their experience, help cultivate their
competencies and further their careers with us. We are dedicated to the learning initiatives for our employees
that promote both their professional and personal well-being. We have a chief culture officer who focuses on
ensuring that the strategies and ideas of the Company align with the overall long-term strategy of the
organization.
Our strong sense of community is one of our main core values and we make this part of the onboarding
experience for our new employees through volunteer opportunities in the communities we serve. This
community involvement and team orientation are incorporated into our annual performance reviews. Our
contributions to community-based organizations are just a part of the commitment we make.
Our business practices and policies also promote social responsibility, both environmentally and industry-
related, to promote responsible growth. We continuously focus on our economic, social and corporate
governance responsibilities to grow in a sustainable manner.
Section 16(a) Beneficial Ownership Reporting Compliance
Investors Bancorp’s common stock is registered with the SEC pursuant to Section 12(b) of the Exchange
Act. The executive officers and directors of Investors Bancorp, and beneficial owners of greater than 10% of
Investors Bancorp’s common stock, are required to file reports on Forms 3, 4 and 5 with the SEC disclosing
beneficial ownership and changes in beneficial ownership of Investors Bancorp’s common stock. The SEC rules
require disclosure in Investors Bancorp’s Proxy Statement or Annual Report on Form 10-K of the failure of an
executive officer, director or 10% beneficial owner of Investors Bancorp’s common stock to file a Form 3, 4, or
5 on a timely basis. Based on Investors Bancorp’s review of ownership reports and confirmations by executive
officers and directors, Investors Bancorp believes that, during 2016, its officers, directors and beneficial owners
of greater than 10% of its common stock timely filed all required reports.
Transactions With Certain Related Persons
Federal laws and regulations generally require that all loans or extensions of credit to executive officers
and directors must be made on substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with the general public and must not involve more than the
normal risk of repayment or present other unfavorable features. However, regulations also permit executive
officers and directors to receive the same terms through programs that are widely available to other employees,
as long as the executive officer or director is not given preferential treatment compared to the other participating
employees. Pursuant to such a program, loans have been extended to executive officers on substantially the
same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions
with the general public, with the exception of waiving certain fees. These loans do not involve more than the
normal risk of collectability or present other unfavorable features.
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Section 402 of the Sarbanes-Oxley Act of 2002 generally prohibits an issuer from: (1) extending or
maintaining credit; (2) arranging for the extension of credit; or (3) renewing an extension of credit in the form
of a personal loan for an officer or director. However, the prohibitions of Section 402 do not apply to loans
made by a depository institution, such as Investors Bank, that is insured by the FDIC and is subject to the
insider lending restrictions of the Federal Reserve Act. The Audit Committee and the Board reviews related
party transactions, the disclosure of which is required under SEC proxy disclosure rules.
As noted above in the section entitled “Criteria for Election”, on March 27, 2017 Investors Bancorp
entered into the Agreement with Blue Harbour pursuant to which Mr. Carlin was appointed to the Boards of
Directors of Investors Bancorp and Investors Bank. Under the terms of the Agreement, for so long as Blue
Harbour and the investment funds managed by it own at least four percent (4%) of the outstanding shares of
Investors Bancorp’s common stock, it shall be entitled to have one designee serve on the Boards of Directors of
Investors Bancorp and Investors Bank, subject to the satisfaction of applicable corporate governance
requirements. If at any time Blue Harbour’s aggregate ownership of Investors Bancorp’s common stock shall
fall below four percent (4%) of the outstanding shares, Investors Bancorp can require that Mr. Carlin, or any
other designee of Blue Harbour then serving on the Boards of Directors of Investors Bancorp and Investors
Bank, resign from the Boards of Directors.
In accordance with the terms of the Agreement, during the period commencing on March 27, 2017 and
ending on the earlier of (i) the day after the Company’s 2020 Annual Meeting of Stockholders, or (ii) the date as
of which Blue Harbour’s Board designee is no longer a director of the Company and Investors Bank (the
“Restricted Period”), Blue Harbour agreed to vote its shares (A) in favor of each director nominated and
recommended by the Board for election by the stockholders, (B) against any stockholder nominations for
director that are not approved and recommended by the Board and against any proposals or resolutions to
remove any member of the Board, and (C) in accordance with the recommendations of the Board on all other
proposals of the Board set forth in the Company’s proxy statements. During the Restricted Period, Blue Harbour
also agreed to comply with the terms of customary standstill provisions.
Risk Oversight Matters
Risk Oversight Committee
The entire Board of Directors is engaged in risk oversight. However, the Board established a separate
standing Risk Oversight Committee to facilitate its risk oversight responsibilities. The current members of the
Risk Oversight Committee are Messrs. Ward (Chair), Bone, Cosgrove, Cashill, Dittenhafer, Garibaldi,
Albanese, and Mses. Byrnes and Siekerka. The Chief Executive Officer and Chief Operating Officer serve as a
resource to the Risk Oversight Committee but have no vote in the committee’s decision-making process. The
Risk Oversight Committee Charter is posted on the “Governance Documents” section of the “Investors
Relations” page of the Investors Bank’s website at www.myinvestorsbank.com. The Committee met three times
during 2016.
The Risk Oversight Committee has responsibility for enterprise-wide risk management and determining
that significant risks of Investors Bancorp are monitored by the Board of Directors or one of its standing
committees. In addition, the Risk Oversight Committee reviews new products and services proposed to be
implemented by management to determine that appropriate risk identification has occurred and that controls are
considered to mitigate identified risks to an acceptable level. The Risk Oversight Committee is also responsible
for reviewing and monitoring enterprise risk including interest rate, liquidity, operational, compliance, strategic
and reputational risks.
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Audit Committee Matters
Audit Committee
The current members of the Audit Committee are: Messrs. Albanese (Chair), Cosgrove, Dittenhafer,
Ward and Mses. Byrnes and Siekerka. Each member of the Audit Committee is considered independent as
defined in the Nasdaq corporate governance listing rules and under SEC Rule 10A-3. The Board considers Mr.
Albanese, the Chair of the Audit Committee, and Mr. Dittenhafer each an “audit committee financial expert” as
that term is used in the rules and regulations of the SEC.
The Audit Committee operates under a written charter adopted by the Board of Directors. The Audit
Committee’s Charter is posted on the “Governance Documents” section of the “Investor Relations” page of
Investors Bank’s website at www.myinvestorsbank.com.
As noted in Audit Committee Charter, the primary purpose of the Audit Committee is to assist the Board
in overseeing:
The integrity of Investors Bancorp’s financial statements;
Investors Bancorp’s compliance with legal and regulatory requirements;
The independent auditor’s qualifications and independence;
The performance of Investors Bancorp’s internal audit function and independent auditor; and
Investors Bancorp’s system of disclosure controls and system of internal controls regarding
finance, accounting, and legal compliance.
In furtherance of this purpose, this committee, among other things, shall:
Retain, oversee and evaluate a firm of independent registered public accountants to audit the
annual financial statements;
Review the integrity of Investors Bancorp’s internal controls over financial reporting, both
internal and external, in consultation with the independent registered public accounting firm
and the internal auditor;
Review the financial statements and the audit report with management and the independent
registered public accounting firm;
Review earnings and financial releases and quarterly and annual reports filed with the SEC;
and
Approve all engagements for audit and non-audit services by the independent registered
public accounting firm.
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The Audit Committee met six times during 2016. The Audit Committee reports to the Board of Directors
on its activities and findings.
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Audit Committee Report
Pursuant to rules and regulations of the SEC, this Audit Committee Report shall not be deemed
incorporated by reference by any general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except
to the extent that Investors Bancorp specifically incorporates this information by reference, and otherwise shall
not be deemed “soliciting material” or to be “filed” with the SEC subject to Regulation 14A or 14C of the SEC
or subject to the liabilities of Section 18 of the Exchange Act.
Management has the primary responsibility for Investors Bancorp’s internal control and financial
reporting process, and for making an assessment of the effectiveness of Investors Bancorp’s internal control
over financial reporting. The independent registered public accounting firm is responsible for performing an
independent audit of Investors Bancorp’s consolidated financial statements in accordance with standards of the
Public Company Accounting Oversight Board (United States) (“PCAOB”) and to issue an opinion on those
financial statements, and for providing an opinion on the Company's internal control over financial reporting.
The Audit Committee’s responsibility is to monitor and oversee these processes.
As part of its ongoing activities, the Audit Committee has:
reviewed and discussed with management, and the independent registered public accounting
firm, the audited consolidated financial statements and the internal control procedures of
Investors Bancorp for the year ended December 31, 2016;
discussed with the independent registered public accounting firm the matters required to be
discussed by Statement on Auditing Standards No. 1301, Communications with Audit
Committees, as adopted by the PCAOB; and
received the written disclosures and the letter from the independent registered public
accounting firm required by applicable requirements of the PCAOB regarding the
independent registered public accounting firm’s communications with the Audit Committee
concerning independence, and has discussed with the independent registered public
accounting firm its independence from Investors Bancorp.
Based on the review and discussions referred to above, the Audit Committee has recommended to
Investors Bancorp’s Board of Directors that the audited consolidated financial statements for the year ended
December 31, 2016 be included in Investors Bancorp’s Annual Report on Form 10-K for filing with the SEC. In
addition, the Audit Committee approved the re-appointment of KPMG LLP as the independent registered public
accounting firm for the year ending December 31, 2017, subject to the ratification of this appointment by the
stockholders of Investors Bancorp.
Audit Committee of Investors Bancorp, Inc.
Robert C. Albanese, Chair
William V. Cosgrove, Member
Brian D. Dittenhafer, Member
James H. Ward III, Member
Doreen R. Byrnes, Member
Michele N. Siekerka, Member
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Compensation and Benefits Committee Matters
Compensation and Benefits Committee
The current members of the Compensation and Benefits Committee are: Messrs. Bone (Chair), Albanese,
Cosgrove, Dittenhafer, Ward and Ms. Byrnes. Each member of the Compensation and Benefits Committee is
considered independent as defined in the Nasdaq corporate governance listing rules and SEC Rule 10C-1. The
Compensation and Benefits Committee’s Charter is posted on the “Governance Documents” section of the
“Investor Relations” page of the Investors Bank’s website at www.myinvestorsbank.com. The Committee met
seven times during 2016.
As noted in the Compensation and Benefits Committee Charter, the purpose of the committee is to assist
the Board in carrying out the Board’s overall responsibility relating to executive compensation, incentive
compensation and equity and non-equity based benefit plans.
In furtherance of this purpose, this committee, among other things, shall:
Review and recommend to the Board for approval the Chief Executive Officer’s annual
compensation, including salary, cash incentive, incentive and equity compensation;
Review and recommend to the Board the evaluation process and compensation for Investors
Bancorp’s executive officers and coordinate compensation determinations and benefit plans
for all employees of Investors Bancorp;
Review Investors Bancorp’s incentive compensation and other equity-based plans and make
changes in such plans as needed;
Review, as appropriate and in consultation with the Nominating and Corporate Governance
Committee, director compensation and benefits; and
Review the independence of the Compensation and Benefits Committee members, legal
counsel and compensation consultants.
In addition to these duties the committee shall assist the Board in recruiting and succession planning.
The Compensation and Benefits Committee retains responsibility for all compensation recommendations
to the Board of Directors as to Investors Bancorp’s executive officers. The Compensation and Benefits
Committee may utilize information and benchmarks from an independent compensation consulting firm, and
from other sources, to determine how executive compensation levels compare to those companies within the
industry. The Compensation and Benefits Committee may review published data for companies of similar size,
location, financial characteristics and stage of development among other factors.
In designing the compensation program for Investors Bancorp, the Committee takes into consideration
methods to avoid encouraging the taking of excessive risk by executive management or by any other
employees. The Committee assessed risks posed by the incentive compensation paid to executive management
and other employees and determined that Investors Bancorp’s compensation policies, practices and programs do
not pose risks that are reasonably likely to have a material adverse effect on Investors Bancorp.
The basic elements of Investors Bancorp’s executive compensation program include base salary, annual cash
incentive awards, long-term equity incentive awards and other benefit arrangements. In addition to determining the
compensation payable to Investors Bancorp’s executive officers, including the Chief Executive Officer and other
Named Executive Officers, the Compensation and Benefits Committee evaluates senior executive and director
compensation plans and programs, administers and has discretionary authority over the issuance of equity awards
under Investors Bancorp’s equity compensation plans and oversees preparation of a report on executive
compensation for inclusion in Investors Bancorp’s annual proxy statement. The Compensation and Benefits
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Committee is supported by the Chief Executive Officer and Chief Operating Officer, both of whom serve as a
resource by providing input regarding Investors Bancorp’s executive compensation program and philosophy.
Compensation and Benefits Committee Interlocks and Insider Participation
During 2016, Messrs. Dittenhafer, Dugan, Albanese, Bone and Ward served as members of the
Compensation and Benefits Committee. None of these directors has ever been an officer or employee of
Investors Bancorp; or an executive officer of another entity at which one of Investors Bancorp’s executive
officers serves on the Board of Directors, or had any transactions or relationships with Investors Bancorp in
2016 requiring specific disclosures under SEC rules or Nasdaq listing standards. Mr. Cosgrove and Ms. Byrnes,
who also served as members of the Compensation and Benefits Committee in calendar 2016, are neither an
executive officer of another entity at which one of Investors Bancorp’s executive officers serves on the Board of
Directors, nor had transactions or relationships with Investors Bancorp in 2016 requiring specific disclosures
under SEC rules. Mr. Cosgrove was a non Section 16 officer of Investors Bank commencing with Investors
Bancorp’s acquisition of Summit Federal Bankshares, Inc. and Summit Federal Savings Bank in June 2008
through his retirement from Investors Bank on October 1, 2011. Ms. Byrnes was an officer of Investors Bank
prior to her retirement in 2007.
Compensation Discussion and Analysis
Investors Bancorp’s Transformation from 2007 - 2014
Since the Company’s initial public offering in 2005, it has transitioned from a wholesale thrift to a retail
commercial bank. This transition has been primarily accomplished by growing commercial loans and shifting
the mix of deposits to a greater percentage of core deposits. A significant portion of this growth was achieved
organically and through bank acquisitions. From 2008 through 2014 the Company completed eight bank or
bank branch acquisitions which provided us with the opportunity to grow our business, expand our geographic
footprint and improve our financial performance.
Capital management is also a key component of our business strategy. In May 2014 we raised net
proceeds of $2.2 billion in equity upon the completion of the second step mutual conversion (“Second Step
Conversion”). Prior to the Second Step Conversion, our parent company held 55% of Investors Bancorp's
outstanding common stock in connection with its initial public offering in 2005. With the completion of the
Second Step Conversion, we reorganized from a two-tier mutual holding company structure to a fully public
stock holding company structure. This was an important milestone for our company which was the culmination
of the significant growth from the period 2007 through 2014, where assets grew 245% and total shareholder
return over that same period was 86%.
2007
2008
2009
2010
2011
2012
2013
2014
June 2008
Acquistion
of Summit
Federal
Savings Bank
May 2009
Acqisition of
American
Bank of New
Jersey
October 2009
Acquistion of 6
Banco Popular
branches
October 2010
Acquistion of
Millennium
Bcpbank
branches
January 2012
Acquistion of
Brooklyn Federal
Savings Bank
May 2014
$2.2 Billion
Capital
Raise
October 2012
Acquistion of
Marathon
National Bank
January 2014
Acquistion of
Gateway
Financial
December 2013
Acquistion of
Roma Financial
Corporation
2007 2008 2009 2010 2011 2012 2013 2014 Asset Growth: 245% Total Shareholder Return: 86% June 2008 Acquisition of Summit Federal Savings Bank May 2009 Acquisition of American
Bank December 2013 Acquisition of Roma Financial Corporation January 2014 Acquisition of Gateway Financial May 2014 $2.2 Billion Capital Raise
Asset Growth: 245%
Total Shareholder Return:
86%
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2016 Financial Performance
We continue to execute on a strategy of prudent capital management to create shareholder value. During
2016, we accomplished this through a combination of organic growth, stock repurchases and dividends. Since
receiving approval in March 2015 for our repurchase program, we have repurchased 62.9 million shares totaling
$746.3 million at an average price of $11.86. For the year ended 2016 our dividend payout ratio was 40% which
includes a 33% dividend increase in the fourth quarter of 2016 to $0.08 per share. These capital strategies are
important to the successful deployment of the $2.2 billion in capital raised during the Second Step Conversion.
Our total shareholder return for the one, two and three year period ended December 31, 2016 was 14.7%, 29.7%
and 46.9%, respectively.
2016 was another strong year of earnings for Investors Bancorp as earnings per share grew 16% year over
year. We continued to make significant investments in our risk management infrastructure and branch franchise.
Total assets increased $2.28 billion, or 10.9% to $23.17 billion at December 31, 2016 from $20.89 billion at
December 31, 2015, driven mainly by loan growth of $1.91 billion year-over-year. Our credit quality remains a
key focus for our Company as demonstrated by the decrease in our level of non-accrual loans to $94.3 million
in 2016 from $115.4 million in 2015.
Net Income
(in millions)
$181.5
$192.1
$131.7
Credit Quality
Non-Performing Assets / Assets
0.81%
0.69%
0.47%
2014
2015
2016
2014
2015
2016
Capital Levels
Common Equity Tier 1 Ratio
Total Shareholder Return
period ending December 31, 2016
17.01%
15.87%
14.75%
46.9%
29.7%
14.7%
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2015
2016
Net Income (in millions) $131.7 $181.5 $192.1 2014 2015 2016 Credit Quality Non-Performing Assets 0.81% 0.69% 0.47% 2014 2015 2016 Non-performing assets as a percentage of total assets Capital Levels Common Equity Tier 1 Ratio 19.06% 15.85% 13.48% 2014 2015 2016 Total Shareholder Return Three Year 13% 28% 47% 2014 2015 2016
One year
Two year Three year
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Executive Summary
As discussed in greater detail below, our compensation program is specifically designed to provide
executives with competitive compensation packages that include elements of both reward and retention. The
Compensation and Benefits Committee routinely reviews our executive compensation practices to remain
market competitive and to ensure that these practices are aligned with our compensation philosophy and
objectives, regulatory requirements and evolving best practices. Key highlights of the program include:
All members of the Compensation and Benefits Committee and all of its compensation consultants
and advisers are independent under applicable Nasdaq rules, which ensures that all aspects of the
compensation decision-making process are free from conflicts of interest.
The Compensation and Benefits Committee controls the selection and activities of any
compensation consultant or advisers who assist us with executive compensation matters.
We maintain a clawback policy for bonus and other incentive compensation paid to executive
officers, which mitigates risk-taking behavior.
Our directors and Named Executive Officers are required to hold our common stock at specified
minimum levels, which recognizes the importance of aligning their interests with those of
stockholders. In particular, our Chief Executive Officer is required to hold Investors Bancorp
common stock valued at five times his annual base salary.
The Compensation and Benefits Committee continually reviews all incentive compensation
programs with respect to risk-taking behavior, with the guiding principle being the safety and
soundness of Investors Bancorp and Investors Bank as paramount to all compensation incentives.
The Compensation and Benefits Committee consults with the Risk Oversight Committee on these
matters.
A significant portion of each Named Executive Officer's compensation is in the form of short and
long-term performance-based pay, which reflects and reinforces our pay for performance
philosophy.
Compensation packages for Named Executive Officers include an appropriate mix of fixed and
variable pay, which provides Named Executive Officers with both reward and retention incentives.
We provide limited executive perquisites.
Assistance is regularly provided to the Compensation and Benefits Committee by an independent
compensation consultant selected by such committee.
This discussion is focused specifically on the compensation of the following executive officers, each of
whom is named in the Summary Compensation Table and other compensation tables which appears later in this
section. The following executives are referred to in this discussion as “Named Executive Officers.”
Name
Title
Kevin Cummings
Domenick A. Cama
Richard S. Spengler
Paul Kalamaras
Sean Burke
President and Chief Executive Officer
Senior Executive Vice President and Chief Operating Officer
Executive Vice President and Chief Lending Officer
Executive Vice President and Chief Retail Banking Officer
Senior Vice President and Chief Financial Officer
Executive Compensation Philosophy
Investors Bancorp’s executive compensation program is designed to offer competitive cash and equity
compensation and benefits that will attract, motivate and retain highly qualified and talented executives who
will help maximize Investors Bancorp’s financial performance and earnings growth. Investors Bancorp’s
executive compensation program is also intended to align the interests of its executive officers with
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stockholders by rewarding performance against established corporate financial targets, and by motivating strong
executive leadership and superior individual performance. In this regard: (1) a substantial portion of the
compensation payable to our Named Executive Officers is linked to financial and individual performance; (2)
the interests of our Named Executive Officers are aligned with the long-term interests of our stockholders
through their stock-based and non-equity incentive compensation, which are earned primarily based on the
satisfaction of corporate performance metrics; (3) our focus is providing compensation that is commensurate
with the achievement of short-term and long-term financial goals and individual performance; and (4) our
executive compensation program is competitive to attract, retain and motivate our Named Executive Officers.
Investors Bancorp’s executive compensation program allocates portions of total compensation between
long-term and short-term compensation and between cash and non-cash compensation by including competitive
base salaries, an annual cash incentive plan, stock options and performance and time-based stock awards,
supplemental executive retirement benefits and executive perquisites, which encourage long term employment
with Investors Bancorp.
The compensation paid to each Named Executive Officer is based on the executive officer’s level of job
responsibility, corporate financial performance measured against corporate financial targets, and an assessment
of individual performance. A significant portion of each Named Executive Officer's total compensation is
performance-based because each executive is in a leadership role that can significantly impact corporate
performance.
The following are key features of our executive compensation program:
What We Don’t Do
We don’t modify annual
incentive compensation
performance objectives during the year in which those
objectives apply.
We don’t award stock compensation with short vesting
periods to Named Executive Officers
We don’t require the base salaries and total cash
compensation of our Named Executive Officers to attain
any
the
compensation of executives in our peer comparator
companies.
percentile
particular
position
versus
We don’t allow directors and executive officers to
engage in or effect transactions designed to hedge or
offset economic risk of owning shares of our stock.
We don’t allow directors and executive officers to hold
company stock in a margin account or pledge securities
as collateral.
We no longer enter into change of control agreements
with single triggers.
We don’t have excessive perquisites.
We don’t enter into new employment contracts with tax
gross up provisions.
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What We Do
We carefully control business risk by ensuring that the
structure and administration of our executive and
incentive compensation plans are reasonable and
appropriate.
We utilize an independent compensation consultant to
annually evaluate Named Executive Officer cash and
stock compensation based on
levels of
comparable executives
fifteen-to-twenty peer
comparator banking companies.
the pay
in
We pay equity and non equity incentive compensation
based on our most important measurable and verifiable
corporate performance objectives.
We award long-term stock compensation, the vesting of
which depends on multi-year financial performance.
We conservatively vest stock compensation over long
periods of time (generally five years for performance-
based stock awards and five-to-seven years for time-
vested stock awards).
We require each of our Named Executive Officers to
own Company common stock valued at a minimum of
three-to-five times their annual salary.
We maintain a clawback policy for bonus and other
incentive compensation paid to executive officers,
which mitigates risk-taking behavior.
We will place greater weight on performance when
granting future equity awards.
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Summary of Shareholder Engagement
Following Investors Bancorp’s Annual Meeting of Stockholders in May 2016, the Compensation and
Benefits Committee reviewed the results of the stockholder advisory vote on our 2015 executive compensation
program for our Named Executive Officers and related compensation policies and decisions. At our 2016
annual meeting, approximately 52% of the votes cast on the proposal were voted in support of the compensation
outlined in last year’s proxy statement (commonly referred to as “Say-on-Pay”). This was a significant
departure from the support stockholders expressed in the 2014 and 2015 Say-on-Pay votes (approximately 98%
and 96%, respectively) even though the core philosophy and design of our annual compensation programs
remained materially consistent across all three years.
Throughout the course of 2016, management met with the majority of shareholders, primarily through
individual conversations, investor conferences, investor roadshows, through our investor relations channel and
at our annual shareholder meeting. Management reached out to over 50% of outstanding shareholders over the
course of 2016 and had interaction with over 40% of outstanding shareholders. Over the course of the
interaction and meetings, management discussed the Company’s most recent financial results, capital
management and execution of business strategies. In addition to these items, stockholder feedback following the
2016 Say-on-Pay was also discussed. Below is a summary of the areas discussed with regard to Say-on-Pay:
What We Heard
The 2015 Stock and Option Awards granted to our CEO were viewed as excessive and were not well
understood.
We had extensive discussions with shareholders relating to Say-on-Pay, primarily related to the size of the
2015 grant of Stock and Option awards granted to our CEO under the 2015 Equity Incentive Plan. As part of
these discussions, we found that these shareholders understood the Company’s rationale in making such awards
and were also familiar with marketplace precedents in the banking industry that the Company relied upon in
establishing the size and structure of such awards. Management believes our shareholders understood the
transformation the Company underwent up through 2014 and the strong incentive and retention features
embedded in the awards.
How We Responded
Future awards will not be of this magnitude.
The magnitude of the 2015 stock grant was made in the context of an important milestone in the
Company’s historic Second Step Conversion to a fully public company. The Company does not anticipate that
future awards of stock compensation to the Named Executive Officers will be similar to the 2015 grant in size
or in potential compensation value.
In 2016, the Compensation and Benefits Committee determined that no awards to Named Executive
Officers were necessary, as the number of restricted stock awards and stock options provided to the Named
Executive Officers in June 2015 were effective in achieving performance incentive and management retention.
The sustained service requirements and future performance contingencies included in the 2015 stock awards
will be effective in retaining and motivating our senior management team to continue their dedication and
loyalty to the Company, as well as their concentrated efforts toward furthering Company growth and
shareholder value creation.
Based on information provided to the Compensation and Benefits Committee, future stock awards granted
to the Named Executive Officers will not be similar in size or potential value to those provided in June 2015.
The future use of stock incentive compensation as an element of the Company’s overall executive compensation
program will depend on specific items, including but not limited to individual and company performance,
succession and leadership evaluation, comparative compensation data and prevailing marketplace practice.
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Greater emphasis on performance based compensation.
Since the June 2015 stock awards were primarily focused on the future retention and stability of our key
management team, 75% of the awards were made in the form of time-vested restricted stock with seven-year
vesting. We believe that our seven-year vesting schedule is an extraordinarily long and stringent requirement as
compared to the compensation practices of our peers, and that it will ensure the strong retention of our key
executives in the years ahead.
25% of the equity grants made in 2015 to the NEO’s were performance based and will measure certain
performance metrics over a three year period (2015-2017). The Compensation and Benefits Committee is aware
of the use of performance-based compensation made by its selected peer comparator companies in recent years
and expects that future awards of stock incentive compensation to the Named Executive Officers will be
weighted more heavily towards performance-based compensation.
The Compensation and Benefits Committee does not have any immediate plans or any explicit intentions
to make additional stock awards to the Chief Executive Officer or Chief Operating Officer or to establish
commensurate performance periods or requirements since the Company is still in the midst of the performance
period established in 2015. Should any such stock awards and their related contingencies be established by the
Compensation and Benefits Committee going forward, the Company expects that a greater number of future
stock awards will be associated with specific performance requirements reflective of the Company’s strategic
multi-year performance objectives.
Changes made to pension benefits.
The Compensation and Benefits Committee carefully and diligently reviews all elements of compensation
on an annual basis. The Committee utilizes information and benchmarks to determine how executive
compensation levels compare to those companies within the industry. As a result of their review, changes were
made to the pension benefits.
As of December 31, 2016, the annual benefit provided under the tax-qualified defined benefit plan (the
“Defined Benefit Plan”) was frozen. As a result, each participant’s frozen accrued benefit will be determined as
of December 31, 2016 and no further benefits will accrue beyond such date.
Additionally, effective December 31, 2016, the Executive Supplemental Retirement Wage Replacement
Plan (“SERP II”) was frozen. The SERP II was amended to freeze future benefit accruals and, for certain
participants, structure the benefits payable attributable solely to the participants’ 2016 year of service to vest
over a two-year period. Messrs. Cummings, Cama, Kalamaras and Spengler are participants in the SERP II and
were impacted by this freeze.
Continue to enhance shareholder engagement.
Throughout 2016, management met with over 40% of outstanding shareholders, with an outreach to over
50% of outstanding shareholders. We meet with the majority of our shareholders through individual
conversations, at certain investor conferences, investor roadshows, through our investor relations channel and at
our annual shareholder meeting. We will continue to create opportunities for shareholder engagement going
forward through similar channels as we did in 2016. In addition, we have a structure in place to allow
shareholders to communicate directly with our Board (see “Corporate Governance Matters” section above).
We have regular dialogue with members of Blue Harbor Group, one of our largest shareholders since
2014 and remain aligned on strategy and practices that deliver shareholder value. Blue Harbor Group supported
Say-on-Pay at our 2016 annual meeting because they understood the principles under which those shares were
granted.
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On March 27, 2017 the Company announced the appointment of Peter Carlin to the 2020 class of
Directors for Investors Bancorp and Investors Bank. Mr. Carlin has been a Managing Director at Blue Harbour
since 2014. We believe that having one of our largest shareholders represented as a member of our Boards
demonstrates our commitment to further aligning our interests with shareholders. Mr. Carlin’s strong financial
background and operational expertise will enhance our Boards as we continue to grow our franchise.
Role of Executive Officers
Although the Compensation and Benefits Committee is ultimately responsible for designing our executive
compensation program, the Chief Executive Officer and Chief Operating Officer serve as a resource to the
Compensation and Benefits Committee and are critical in ensuring that the Compensation and Benefits
Committee has the pertinent information needed to make well-informed and appropriate decisions. The Chief
Executive Officer and Chief Operating Officer participate in compensation-related activities purely in an
informational and advisory capacity and have no votes in the committee’s decision-making process.
The Compensation and Benefits Committee meets regularly with the Chief Executive Officer and Chief
Operating Officer regarding the potential incentive compensation performance metrics, including their
respective weightings, and to review the progress towards the achievement of the pre-established corporate
financial targets and individual performance goals related to our cash and equity incentive plans. Also, the Chief
Executive Officer and Chief Operating Officer provide the Compensation and Benefits Committee with
performance assessments and compensation recommendations for each of the other Named Executive Officers,
which are considered by the Compensation and Benefits Committee in arriving at its compensation
determinations. However, the Chief Executive Officer and Chief Operating Officer do not attend portions of
committee meetings during which their performance is being evaluated or their compensation is being
determined.
Role of Compensation Consultant
For 2016, the Compensation and Benefits Committee engaged GK Partners, an independent compensation
consultant, to assist in its evaluation of Investors Bancorp’s executive compensation program and providing an
annual competitive evaluation of the total compensation of the Named Executive Officers. GK Partners reported
directly to the Compensation and Benefits Committee, and did not perform any other services to Investors
Bancorp or Investors Bank. GK Partners provided the Compensation and Benefits Committee with executive
compensation benchmarking trends and external developments, and also provided input on Investors Bancorp
and Investors Bank's short-term and long-term incentive plans for best practices and market competitiveness.
The Compensation and Benefits Committee considered the independence of GK Partners under the
Securities and Exchange Commission rules and NASDAQ corporate governance listing standards. The
Compensation and Benefits Committee requested and received a report from GK Partners regarding its
independence, including information relating to the following factors: (1) other services provided to Investors
Bancorp by GK Partners; (2) fees paid by Investors Bancorp as a percentage of GK Partners’ total revenue;
(3) policies or procedures maintained by GK Partners that are designed to prevent a conflict of interest; (4) any
business or personal relationships between the senior advisors and any member of the Compensation and
Benefits Committee; (5) any Investors Bancorp common stock owned by the senior advisors; and (6) any
business or personal relationships between Investors Bancorp’s executive officers and GK Partners. The
Compensation and Benefits Committee discussed these considerations and concluded that GK Partners was
independent and had no conflicts of interest with respect to its engagement.
Market Comparison
For 2016, GK Partners compared Investors Bancorp’s executive compensation program to peer group
compensation data. GK Partners provided the Compensation and Benefits Committee with relevant competitive
cash and stock compensation information obtained from public disclosures of a selected peer group of 17
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banking institutions to be used for evaluating 2016 compensation. These included thrift and banking institutions
with assets of $14.6 billion to $48.6 billion, having an asset mix similar to Investors Bancorp and doing
business predominately in the Northeast and Central regions of the United States.
The 17 peer comparator companies selected for inclusion in the Compensation and Benefits Committee’s
evaluation of 2016 compensation represented a group of companies whose aggregate Average and Median
performance on the above-specified banking industry metrics closely approximated that of Investors Bancorp.
As has been the practice of our Compensation and Benefits Committee, the composition of this peer group is
carefully reviewed and appropriately modified from year-to-year based on several factors, including significant
changes and developments in the size, scope, business mix and financial condition of Investors Bancorp and
each of the potential peer comparators. In addition, the Compensation and Benefits Committee considers the
impact of completed mergers and acquisitions activity in our geographic region and relevant areas of
competitive banking operations, as well as other publicly-announced business combinations within the broader
banking industry. The Compensation and Benefits Committee also considers pertinent competitive industry
knowledge and information provided by its compensation advisors and senior management.
Changes in Peer Group – 2015 to 2016
Regarding the changes in the composition of our selected peer group of comparator companies from 2015
to 2016, the Compensation and Benefits Committee eliminated eight banking companies and added seven other
banking companies which resulted in the reduction in the size of our selected comparator group from a total of
18 peer companies to a revised total of 17 peer companies. The eight banking companies eliminated from 2015
were eliminated as a result of merger/acquisition activity or asset size (total assets of less than $10 billion). The
seven banking companies added each had similar business models and total assets of between $15 billion and
$25 billion.
Due to Merger/Acquisition:
Due to Size:
Companies Removed
Companies Added
Astoria Financial Corp.
First Niagara Financial Group, Inc.
Susquehanna Bancshares
Dime Community Bancshares
Flushing Financial Corp.
NBT Bancorp, Inc.
Northwest Bancshares, Inc.
Provident Financial Services, Inc.
Associated Banc-Corp
Commerce Bancshares Inc.
F.N.B. Corporation
IBERIABANK Corporation
TCF Financial Corporation
UMB Financial Corporation
Umpqua Holdings Corporation
2016 Peer Group
As a result, the group of companies approved by the Compensation and Benefits Committee for the
evaluation of 2016 Named Executive Officer compensation consisted of the 17 peer banking institutions
identified below:
Associated Banc-Corp-WI
BankUnited, Inc.- FL
Commerce Bancshares Inc.-MO
F.N.B. Corporation-PA
FirstMerit Corporation-OH
Fulton Financial Corporation-PA
IBERIABANK Corporation-LA
MB Financial, Inc.- IL
New York Community Bancorp.-NY
People’s United Financial, Inc.-CT
Signature Bank-NY
TCF Financial Corporation-MN
UMB Financial Corporation-MO
Umpqua Holdings Corporation-OR
Valley National Bancorp.-NJ
Webster Financial Corporation-CT
Wintrust Financial Corporation- IL
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While our executive compensation program targets each Named Executive Officer’s base salary, annual
cash incentives and long-term equity compensation at fully competitive levels commensurate with corporate
and personal performance, Investors Bancorp has no formal policy that requires the compensation of the Named
Executive Officers to attain any specific percentile position within our peer group. However, the Compensation
and Benefits Committee carefully reviewed detailed comparative information provided by its compensation
consultant regarding the cash and stock compensation of each Named Executive Officer for the fiscal year
ending December 31, 2015, which included the following items:
A detailed comparative study of the cash and stock compensation of the Named Executive Officers
of the selected peer companies on a functionally position-matched basis.
Statistical Median and Average value of the detailed array of comparative executive compensation
data for each element of Named Executive Officer compensation
o
o
o
o
o
o
base salary;
non-equity incentive compensation;
total cash compensation;
stock option present value at the date of award;
restricted stock present value at the date of award; and
total direct compensation
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This comparative compensation study also includes specific information regarding the cash and stock
compensation provided to the non-employee Directors of each of the peer comparator companies.
In connection with the Compensation and Benefits Committee’s understanding and utilization of
comparative compensation data in the context of its pay-for-performance philosophy, it should be noted that
Investors Bancorp’s one-year, three-year and five-year Total Shareholder Returns (TSR) for the period ending
December 31, 2015 were 13.2%, 86.0% and 152.8%, respectively, which the Compensation and Benefits
Committee regarded as highly competitive and favorable as compared with our selected peer banking
companies. For the year ending December 31, 2015, our net income was 99% of the average net income of our
seventeen peer banking institutions and our 0.92% return on average assets (ROAA), which is a standard
banking industry measure, exceeded the 0.83% ROAA of those seventeen comparator banks.
In understanding and directing the relationship between Investors Bancorp’s corporate performance and
its Named Executive Officers’ compensation, the Compensation and Benefits Committee is focused on
balancing its consideration of Investors Bancorp’s short-term financial results versus the Company’s long-term
economic growth and increasing shareholder value. With a clear recognition of senior management’s
demanding operational challenges in leading and managing a fast-growing business enterprise over the past
decade, the Compensation and Benefits Committee endeavors to fairly apply its pay-for-performance
philosophy with a view towards both the critical decisions and actions taken by the senior management team on
a day-to-day basis, as well as the strategies and initiatives regularly implemented by management that have built
and sustained our corporate reputation as a successful, stable and trustworthy financial institution. It is
important to the Compensation and Benefits Committee not only to administer Named Executive Officer
compensation to meet prevailing banking industry levels and standards, but also to ensure that senior
management continues to take a hard-working, reasonable and balanced approach to Investors Bancorp’s short-
term and long-term condition and performance.
Given the availability of a substantial amount of directly relevant comparative financial and compensation
information, as well as the Compensation and Benefits Committee’s careful review and interpretation of this
information with the assistance of its consultant, the Company believes that the 2016 executive compensation
program for the Named Executive Officers was appropriate relative to our corporate goals and relative to our
peer group because it continued to be commensurate with our growth and strong corporate performance, as well
as each Named Executive Officer's individual contributions and experience. We believe our 2016 executive
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compensation program is consistent with our performance-based approach based on our business results relative
to our peers, as well as the overall market conditions in our geographical area and nationally. We therefore
believe that our administration of Named Executive Officer compensation continues to be reasonable and fully
consistent with our ongoing pay-for-performance philosophy.
Elements of Executive Compensation for 2016
The Compensation and Benefits Committee used a total compensation approach in establishing our
elements of executive compensation, which consist of base salary, annual cash incentive awards, long-term
incentive awards (such as stock option and restricted stock awards), a competitive benefits package and limited
perquisites.
Base Salary
Base salary is the primary fixed component of our executive compensation package for our Named
Executive Officers. Base salary levels for the Named Executive Officers are evaluated by the Compensation and
Benefits Committee on an annual basis. In general, base salaries are reviewed considering the experience and
market value of each Named Executive Officer based on the competitive executive salary information furnished
to the Compensation and Benefits Committee by GK Partners. Specifically, each Named Executive Officer’s
base salary level is determined by his sustained individual performance, leadership, operational effectiveness,
tenure in office, experience in the industry and employment market conditions in our geographical area. In
determining base salary adjustments for 2016, the Compensation and Benefits Committee considered Investors
Bancorp’s financial performance, and peer group and market-based industry salary data provided by GK
Partners, our independent consultant, as well as the individual factors identified above. Based on this analysis,
the Compensation and Benefits Committee made no changes to the base salary amounts for each Named
Executive Officer for 2016.
The following table sets forth for the calendar years ended December 31, 2016, 2015 and 2014 salary
earned to Named Executive Officers:
Executive Officer
2016 Salary ($)
2015 Salary ($)
Kevin Cummings
Domenick A. Cama
Richard S. Spengler
Paul Kalamaras
Sean Burke(1)
1,000,000
675,000
430,000
415,000
400,000
1,000,000
675,000
430,000
415,000
376,923
2014 Salary ($)
1,000,000
675,000
430,000
415,000
N/A
(1)
Mr. Burke was appointed Senior Vice President and Chief Financial Officer on January 26, 2015. Mr. Burke’s 2015 full year
annualized base salary was $400,000.
Executive Officer Annual Incentive Plan
The Executive Officer Annual Incentive Plan was adopted, and approved by shareholders, in 2013 such
that, under Section 162(m) of the Internal Revenue Code, awards issued under the plan may be treated as
performance-based compensation for purposes of the exemption from the $1 million limit on deductibility of
compensation paid to each Named Executive Officer of a publicly traded company (other than the principal
financial officer). Ms. Byrnes did not participate in any decisions related to the annual incentive awards issued
to the Named Executive Officers in 2016 because as a former officer of Investors Bank, she is not an “outside
director” as determined under Code Section 162(m). Each of the Named Executive Officers participated in the
Executive Officer Annual Incentive Plan in 2016.
The Compensation and Benefits Committee assigns corporate financial targets and individual
performance goals and a range of annual cash incentive award opportunities to each executive officer, or group
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of officers participating in the plan. The award opportunities for each Named Executive Officer are linked to
specific targets and range of performance results for both annual corporate financial performance and individual
goals. In the context of the structure of the Investors Bancorp Executive Officer Annual Incentive Plan, the use
of individual goals represents the clear assignment by the Board and its Compensation and Benefits Committee
of direct personal accountability for specific financial, organizational, operational, risk management, and
information systems objectives to one or more of our Named Executive Officers. In this context, the individual
goals assigned by the Compensation and Benefits Committee are quantifiable, measurable and otherwise
verifiable performance objectives, the attainment of which contribute significantly to the growth, profitability,
productivity and efficiency of our business operations and corporate health.
In many cases, these individual goals include personal accountability on the part of one or more Named
Executive Officer (including the Chief Executive Officer) for critical performance with respect to standard
banking industry and other public company metrics (e.g., deposit growth, efficiency ratio, loan delinquency,
regulator/investor relations, marketing, and other such goals). In our view, the assignment of personal
accountability in the form of individual goals has served to strength the effectiveness our executive
compensation program, and continues to have a significant positive impact on our managerial performance. The
Company believes that this incentive plan structure allows our Named Executive Officers to effectively plan,
organize, supervise, monitor and evaluate the key functional areas and departments for which they are
responsible, and through which our most important corporate objectives are achieved.
In recent years, our Chief Executive Officer’s personal goals have been weighted as 40% of his incentive
award opportunity with a weighting of 60% given to corporate objectives. Particularly with respect to our Chief
Executive Officer and Chief Operating Officer, the personal goals assigned by the Compensation and Benefits
Committee are fundamentally “corporate goals” in that they are aligned closely with our strategic objectives for
growth, productivity, profitability and risk management. The Company believes that the Chief Executive
Officer’s and the Chief Operating Officer’s direct personal accountability for the achievement of objectively
measurable and verifiable goals that are particularly relevant to our industry, our strategy, and our stage of
corporate development has contributed in a meaningful way to our success.
Each Named Executive Officer's annual cash incentive award is defined as a percentage of base salary.
The corporate financial targets and individual goals are established by the Compensation and Benefits
Committee no later than 90 days after the commencement of the period of service to which the performance
goal relates, but in no event after 25% of the performance period has elapsed, and in either case, so long as the
outcome is substantially uncertain at the time that the goal is established. Such targets and goals are weighted in
relation to the Named Executive Officer's position and duties. As corporate financial targets and/or individual
performance goals exceed or fall short of achievement levels (which are established at Threshold, Target and
Maximum Achievements), the actual amount paid under the plan will exceed or fall short of the targeted
payment amount.
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Annual Incentive Opportunity
As stated above, the Compensation and Benefits Committee did not increase the base salary of any of our
Named Executive Officers during 2015 and similarly, there were no salary increases during 2016. However, the
Compensation and Benefits Committee also regularly evaluates the level of annual incentive compensation,
including the annual incentive compensation opportunity available to each of our Named Executive Officers
based on the Company’s growth and financial performance, as well as peer competitive compensation practices,
and overall marketplace conditions. The Company’s objective is to continue to provide annual incentive
opportunities that are commensurate with our annual financial and operational results, as well as each Named
Executive Officer’s personal contribution to those results. In that context, the Committee determined that an
increase in each Named Executive Officer’s annual incentive opportunity was warranted considering the
following important factors directly related to the Company’s ongoing transformation into a larger and more
successful financial institution:
The Company’s continued consistent and profitable growth in assets;
The Company’s extraordinary track record of identifying, negotiating, closing and integrating
strategic acquisitions during the period from 2008 to 2014;
The Company’s successful 2015 Second Step Conversion and related public offering resulting in
new equity capital of $2.2 billion;
The consecutive annual increases in net income;
The significant enhancement and upgrading of our core operating system;
Successful recruitment of integral senior management personnel; and
The increase placed greater emphasis on performance as a percentage of total compensation.
Therefore, in 2015, the Compensation and Benefits Committee determined to increase the maximum
annual incentive compensation opportunity of each of the Named Executive Officers consistent with the
increasing size and scope of their management responsibilities, their individual accountability for corporate
results, and the actual incentive compensation amounts paid to named executives among our comparator
companies. The effect of these increases in maximum incentive opportunity was to increase the percentage of
each Named Executive Officer’s total cash compensation that is directly performance-driven. Currently, at
Investors Bancorp, each Named Executive Officer is eligible to receive an annual cash incentive award in the
range of zero to a maximum percent of base salary that is specified below for each executive. Among our
Named Executive Officers (other than the Chief Executive Officer), these maximum cash incentive
opportunities range from 100% of base salary to 160% of base salary. The maximum cash incentive opportunity
for our Chief Executive Officer is 200% of base salary. Actual 2015 incentive compensation to the CEOs of our
seventeen comparator banks ranged from a low of 37% of base salary to a high of 400% of base salary with an
average of 143% of base salary.
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2016 Incentive Opportunity
For 2016, the Compensation and Benefits Committee established the following range of annual cash
incentive award opportunities for Threshold, Target and Maximum Achievements as a percentage of base
salary:
Executive Officer
Threshold (1)
Target (1)
Maximum
Kevin Cummings
Domenick A. Cama
Richard S. Spengler
Paul Kalamaras
Sean Burke
122.0%
97.6%
81.0%
81.0%
67.5%
161.0%
128.8%
100.5%
100.5%
83.75%
200.0%
160.0%
120.0%
120.0%
100.0%
(1)
Assumed 100% achievement of all individual goals.
The Compensation and Benefits Committee weighted each Named Executive Officer's 2016 annual cash
incentive award opportunity under the plan (as a percentage of the total award opportunity) with respect to
corporate financial targets and individual goals as follows:
Executive Officer
Kevin Cummings
Domenick A. Cama
Richard S. Spengler
Paul Kalamaras
Sean Burke
Corporate
Financial
Targets
Individual
Goals
60%
60%
50%
50%
50%
40%
40%
50%
50%
50%
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The Compensation and Benefits Committee feels strongly that executive compensation should be
formally tied to the attainment of certain corporate financial targets and individual performance goals to more
closely align the executive’s performance with providing value for our stockholders. The corporate financial
targets for 2016 were based on: (1) net income, weighted at 70%; and (2) enhanced risk management, weighted
at 30%.
The Compensation and Benefits Committee established the following corporate financial targets for net
income:
Net Income
70% $173 million $177 million $181 million
Metric
Weighting
Threshold
Target
Maximum
The net income goals at threshold, target and maximum were 12%, 11% and 10% higher than the
corresponding net income goals for 2015. In establishing the net income goal, management discussed with the
Compensation and Benefits Committee some specific challenges in attaining the 2016 net income projection.
The first factor was the change to forecasted interest rates utilized for the business plan in light of the current
consensus forecast as a result of several macro-economic factors occurring in the market. The second factor was
the continued build out of the risk management and operational infrastructure. Based these factors, the
Compensation and Benefits Committee concluded that the net income corporate goal appeared reasonable and
challenging.
The enhanced risk management was viewed by the Compensation and Benefits Committee as a company-
wide performance target metric, as many groups within the Bank worked towards its achievement. In
establishing the enhanced risk management goal, management discussed with the Compensation and Benefits
Committee the Company’s strong growth in recent years and given the size and future growth expectations
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management believed that a robust risk management structure and culture was the most important strategy to
focus on during 2016. The Compensation and Benefits Committee agreed with this assessment.
In comparing the target percentages to the 2015 incentive opportunity, the change in the target is directly
tied to the weighting of corporate financial targets. For both 2016 and 2015 Net Income goals were given
specific amounts for threshold, target and maximum achievement with weightings being the same in both years.
For 2016, the enhanced risk management goal was weighted at 0%, 50%, and 100% at the threshold, target and
maximum. For 2015, the corporate financial target related to the completion of the core operating system goal
was weighted at 0%, 0%, and 100% at the threshold, target and maximum.
The individual goals established by the Compensation and Benefits Committee were therefore aligned
with each Named Executive Officer's area of responsibility at Investors Bancorp and related to the successful
implementation of our strategic initiatives. For 2016, each Named Executive Officer's individual goals were
related to the following:
Messrs. Cummings’ and Cama’s individual goals included achieving certain core deposit growth,
maintaining loan quality versus peers and promoting Investors Bancorp to various audiences,
including but not limited to: stockholders, customers, investment bankers, analysts and employees.
In establishing the individual goals of both Messrs. Cummings and Cama the Compensation and
Benefits Committee considered the following for each:
o
o
Deposits are the primary source of funds used for our lending and investment activities. Low
cost core deposits are essential to fund our continued growth.
One of the Company’s key operating objectives has been, and continues to be, maintaining a
high level of loan quality to ensure that Investors Bancorp does not take any undue risk.
Mr. Spengler’s individual goals included achieving certain loan growth, maintaining loan quality
versus our peers and growing deposits for new loan customers.
Mr. Kalamaras’ individual goals included achieving growth in certain core deposit, loan and non-
deposit investment products.
Mr. Burke's individual goals were related to the successful execution of the strategic plan and
budget approval by the Board of Directors, DFAST process enhancements and submission as well
as the implementation of a new ALM model and profitability system.
2016 Incentive Achievement
For 2016, the net income utilized for evaluation of the corporate goal achievement was $182.6 million
which met the Maximum achievement level. For purposes of evaluating net income, adjustments were made to
recorded net income as it included both the early adoption of ASU 2016-09 related to the accounting of stock
compensation and compensation expenses related to the accelerated vesting of equity awards upon the death of
our director, Brendan Dugan, see reconciliation below:
Net Income
Compensation and fringe benefits
Income taxes
Adjusted net income
2016
192,125
878
(10,414)
182,589
$
$
For the enhanced risk management goal, there were four criteria which needed to be met. The
Compensation and Benefits Committee determined that based on the information provided, the achievement of
the enhanced risk management goal was assessed at 50%. Based upon the foregoing and the assessment of the
Named Executive Officer’s individual performance relative to his pre-established individual goals, the
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Compensation and Benefits Committee approved the following annual cash incentive awards on January 23,
2017:
2016 Annual Cash Incentive Awards
Bonus Guidelines
Achievement
Maximum
Bonus (%)
Corporate
Goals
Individual
Goals
Corporate
Goals
Individual
Goals
Percent of
Salary
Executive Officer
Kevin Cummings
Domenick A. Cama
Richard S. Spengler
Paul Kalamaras
Sean Burke
Eligible
Earnings ($)
1,000,000
675,000
430,000
415,000
400,000
200%
160%
120%
120%
100%
60%
60%
50%
50%
50%
40%
40%
50%
50%
50%
85%
85%
85%
85%
85%
Cash
Incentive ($)
100% 1,820,000
100% 982,800
96.4% 468,012
100% 460,650
100% 370,000
182%
146%
109%
111%
93%
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Other Elements of Compensation
2015 Equity Incentive Plan
At the annual meeting of stockholders held on June 9, 2015, stockholders of the Company approved the
Investors Bancorp, Inc. 2015 Equity Incentive Plan (“2015 Equity Plan”). Under this plan, individuals may
receive awards of Investors Bancorp common stock (restricted stock) and grants of options to purchase shares
of Investors Bancorp common stock at a specified exercise price during a specified time period. The 2015
Equity 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 common stock.
During the year ended 2016 the Company awarded 276,890 restricted stock awards and 201,440 options
under the 2015 Equity Plan. None of the 2016 grants were issued to Named Executive Officers. On June 23,
2015, Investors Bancorp granted to executive officers, employees and directors a total of 6,849,832 restricted
stock awards and 11,576,612 stock options to purchase Investors Bancorp common stock. Of the 2015 grant, a
total of 3,333,333 restricted stock awards and 4,453,331 stock options were awarded to Named Executive
Officers. As a result of these grants, the CEO’s total beneficial stock ownership of Investors Bancorp stock was
0.9% of common stock outstanding on that date. The Compensation and Benefits Committee reviewed
comparable levels of beneficial stock ownership among the CEOs of the Company’s peer comparator group,
which showed an average of 1.4% shares outstanding per CEO. The 2015 grant of stock awards was effective in
increasing the CEO’s potential for additional stock ownership and thereby reinforcing his alignment of long-
term economic interest with all Company shareholders.
The Compensation and Benefits Committee believes that officer and employee stock ownership provides
a significant incentive in building stockholder value by further aligning the interests of our officers and
employees with stockholders because such compensation is directly linked to the performance of Investors
Bancorp common stock. This element of compensation increases in importance as Investors Bancorp, Inc.
common stock appreciates in value and serves as a retention tool for executives. The inclusion of performance-
vesting awards also encourages long-term strategic focus of our executives.
Background
From 2007 through 2015, Investors Bancorp experienced substantial growth in assets, revenues and
profitability based on senior management’s and the Board’s consistent and concerted efforts. With oversight
from the Board, the Named Executive Officers successfully executed the Company’s long-term business
strategy which resulted in the transformation of Investors Bancorp from a relatively small community-based
banking organization into a much larger, nationally-recognized, and financially strong institution. We believe
that senior management was particularly successful in achieving the long-term strategic objectives approved by
our Board, and in the process, Investors Bancorp has become a substantially larger, stronger and more profitable
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company. Investors Bancorp’s senior management team successfully completed its Second Step Conversion,
raising $2.2 billion of equity that resulted in Investors Bancorp becoming a fully-public company.
In light of the Company’s growth and success and its resulting Second Step Conversion and given that no
further stock grants were available under the Investors Bancorp 2006 Equity Plan, the Company believed that a
new management stock incentive compensation plan was clearly necessary and warranted as an essential
element of its overall executive compensation program. The establishment and structure of the 2015 Equity
Incentive Plan was in line with prevailing marketplace executive compensation practices, as well as the
precedents established by other banking companies both in their initial conversions to public ownership and in
their ongoing administration of executive compensation as exchange-listed companies.
The Company undertook the following in establishing the 2015 Equity Plan approved by Investors
Bancorp shareholders:
Researched comparative financial and compensation data;
Reviewed directly-related marketplace precedents concerning similar equity compensation plans
implemented by the Company’s regional competitors at the time of their respective public offerings
and conversions from mutual holding companies (MHCs) to exchange-listed companies;
The Board set an overall limit of 14% of the shares sold in the Company’s Second Step Conversion;
and
Received relevant data concerning the appropriate percentages and number of shares typically
awarded to the Chief Executive Officer and other Named Executive Officers of competing banks at
the time of their “second step” public offerings.
Emphasis on Retention of Key Management
In granting the June 2015 stock awards to the Chief Executive Officer and the other Named Executive
Officers, our Compensation and Benefits Committee and Board intended to recognize and reward what had
been accomplished by our senior management team, but most importantly, the Compensation and Benefits
Committee wished to ensure the retention and stability of those high-performing key executives (who are
individually and collectively responsible for Investors Bancorp’s growth and success) going forward. These
stock awards were made at an important milestone in the Company’s history, namely, its conversion to a fully
public company, and were atypical in nature. The Company does not anticipate that any future awards of stock
compensation to the Named Executive Officers will be similar to the 2015 grant in size or in potential
compensation value.
Longer Vesting Term
Since the June 2015 stock awards were primarily focused on the future retention and stability of our key
management team, 75% of the awards were made in the form of time-vested restricted stock with seven-year
vesting. We believe that our seven-year vesting schedule is an extraordinarily long and stringent requirement as
compared to the compensation practices of our peers, and that it will ensure the strong retention of our key
executives in the years ahead. Also, the June 2015 stock awards included competitively-based awards of stock
options with an option exercise price (“strike price”) of $12.54 per share. We believe that these stock options,
whose value are dependent on the performance of Investors Bancorp Inc. stock are a motivational and cost-
effective element of our long-term management incentive program, and that they will create a strong mutuality
of economic interest with all our shareholders.
Greater Emphasis on Performance-Based Equity Awards
The Compensation and Benefits Committee also approved strict performance-vesting requirements for
25% of the 2015 stock awards that were not stock options or time-vested restricted stock. The June 2015
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performance-based stock awards included three key banking industry performance metrics that our
Compensation and Benefits Committee and Board believe are accurate indicators of our long-term, multi-year
corporate performance. Two of the three performance metrics will measure our financial performance relative
to our peer compensation comparators (i.e., the seventeen banking companies listed in the Market Comparison
section that our Compensation and Benefits Committee utilizes for its annual marketplace research and
benchmarking of executive compensation amounts and practices). Our performance on these indicators will be
measured over a three-year performance period ending on December 31, 2017. If all or any portion of these
performance-based stock awards are thereby earned by participating executives, the vesting and payout of any
earned shares will be 1/3 at the end of the three-year performance period, 1/3 one year thereafter, and 1/3 two
years thereafter (resulting in a total performance and vesting period of five years). The Company believes that
the five-year period for performance-vested stock awards is longer and stricter than what is found in similar
stock compensation programs among our competitors. The selected performance metrics for the 2015
performance-based stock awards are described in detail below.
The performance-based restricted stock that is deemed to have been earned at the conclusion of a three-
year performance (i.e., the specific number of shares earned based on Investors’ three-year performance, and
thereafter subject to further time-vesting and subsequent distribution to the participating executives) is based on
the satisfaction of the following performance metrics: (1) Net Charge-Offs as a Percentage of Average Loans
and Leases vs. Peers; (2) Return on Average Tangible Core Equity vs. Pre-Established Board-Approved
Strategic Plan; and (3) Total Shareholder Return vs. Peers. The peer group is established by the Compensation
and Benefits Committee with input from our independent compensation consultant and is currently comprised
of companies with asset sizes ranging from approximately $14.6 billion to $48.6 billion.
Net Charge-Offs as a Percentage of Average Loans and Leases vs. Peers. Up to 40% of the
Performance-Based Restricted Stock can be earned based on the following:
If Investors Bancorp’s 3-year
average peer percentile is equal
to or less than 50th percentile
40% of Shares vest
If Investors Bancorp’s 3-year
average peer percentile is 51st
percentile to 65th percentile
20% of Shares vest
If Investors Bancorp’s 3-year
average peer percentile is 66th
percentile or higher
0% of Shares vest
Return on Average Tangible Core Equity vs. Board-Approved Strategic Plan. 30% of the
Performance-Based Restricted Stock can be earned based on the following:
If Investors Bancorp’s 3 year average Return on
Average Tangible Core Equity is equal to or
greater than that projected in the 2014 Strategic
Plan
30% of Shares vest
If Investors Bancorp’s 3 year average Return on
Average Tangible Core Equity is less than that
projected in the 2014 Strategic Plan
0% of Shares vest
Total Shareholder Return vs. Peers. 30% of the Performance-Based Restricted Stock can be
earned based on the following:
If Investors Bancorp’s 3 year TSR is equal to or
greater than the 50th percentile
30% of Shares vest
If Investors Bancorp’s 3 year TSR is less than
the 50th percentile
0% of Shares vest
Following the completion of the three-year performance period, the Performance-Based Restricted Stock
that has been earned based on the satisfaction of the foregoing performance metrics will be subject to further
service requirements (i.e., time-vesting) such that 1/3 of such earned shares will be vested on February 15,
2018, 1/3 on February 15, 2019 and 1/3 on February 15, 2020. No dividends will be paid with respect to any
stock award subject to performance-vesting conditions unless and until the performance conditions are met and
vesting occurs, and only on that portion of the stock award that actually vests.
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Future Grants under the 2015 Equity Incentive Plan
The Compensation and Benefits Committee carefully and diligently reviews all elements of compensation
for the Named Executive Officers on an annual basis. As the June 2015 awards were atypical in nature, future
stock awards granted to the Named Executive Officers will not be similar in size or potential value. The future
use of stock incentive compensation as an element of executive compensation will depend on the below factors:
Named Executive Officers’ individual and company performance;
the condition of management leadership and succession, as well as other organizational needs of the
Company;
pertinent comparative compensation data provided by our compensation advisors; and
prevailing marketplace compensation practices, good corporate governance principles, and
competitive business requirements at various points in the future.
The Compensation and Benefits Committee is aware of the use of performance-based restricted stock
awards made by its selected peer comparator companies in recent years and expects that future awards of stock
incentive compensation to the Named Executive Officers will be weighted more towards performance. In
addition, the Compensation and Benefits Committee has determined that no additional awards of any form of
stock compensation will be made to the CEO and the COO until the completion of the current three-year
performance period, which ends on December 31, 2017. The Compensation and Benefits Committee may
consider additional awards in the future to ensure a sound and competitive executive compensation program.
2006 Equity Incentive Plan
At the October 24, 2006 annual meeting of stockholders, the stockholders approved the Investors
Bancorp, Inc. 2006 Equity Incentive Plan (“2006 Equity Incentive Plan”). Under this plan, individuals received
awards of Investors Bancorp common stock (restricted stock) and grants of options to purchase shares of
Investors Bancorp common stock at a specified exercise price during a specified time period. Upon completion
of the Second Step Conversion and related stock offering on May 7, 2014, vesting accelerated for all stock
options and stock awards outstanding and all applicable expenses were recognized at that time. No further
grants will be made under the 2006 Equity Incentive Plan or under any equity incentive plan previously
maintained by any entity that we acquired.
Benefits
Investors Bank provides its executives, including the Named Executive Officers, with medical and dental
insurance, disability insurance and group life insurance coverage consistent with the same benefits provided to
all of its full-time employees. The Named Executive Officers are participants in our qualified retirement plans,
including the ESOP, and 401(k) Plan offered to all full-time employees of Investors Bank and designated
subsidiaries, and the Bank’s non-qualified Supplemental ESOP and Retirement Plan (“SERP I”). The Named
Executive Officers have accrued benefits under the Defined Benefit Plan and SERP II that were each frozen as
of December 31, 2016. Additionally, Investors Bank sponsors a long-term care program for certain of its
executive officers, senior vice presidents and their spouses or spousal equivalents. Each individual policy is
owned by the covered person. Investors Bank pays all premiums under the long term care program but will stop
paying premiums in the event of the participant’s: (i) termination for cause; (ii) retirement; (iii) relocation
outside of the country; or (iv) death. Spousal coverage will be terminated upon: (i) a participant’s termination or
retirement; (ii) divorce from the participant; (iii) the participant no longer qualifying for coverage; (iv) the
spouse’s permanent relocation outside of the country; or (v) death. Participants who cannot be insured through
an insurance company under the long-term care program will be self-insured by Investors Bank.
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ESOP
Under the ESOP, employees of Investors Bank and any subsidiary (unless excluded by the ESOP) who
have been credited with at least 1,000 hours of service during a 12-month period are eligible to participate in the
ESOP. In 2005, the ESOP utilized proceeds from a loan made to it by Investors Bancorp to purchase 10,847,883
shares of common stock for the ESOP in connection with Investors Bancorp’s initial public offering in 2005. In
connection with the completion of the Second-Step Conversion and related stock offering on May 7, 2014, the
ESOP purchased an additional 6,617,421 shares of common stock. 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 purchased shares serve as collateral for the loan. The loan is being repaid principally
through annual contributions to the ESOP by Investors Bank and dividends paid on the unallocated ESOP
shares over the 30 year loan. Shares purchased by the ESOP are held in a suspense account for allocation among
the participants’ accounts as the loan is repaid on a pro-rata basis.
Contributions to the ESOP and shares released from the suspense account in an amount proportional to
the repayment of the ESOP loan will be allocated to each eligible participant’s plan account, based on the ratio
of each participant’s compensation to the total compensation of all eligible participants. Vested benefits will be
payable generally upon the participants’ termination of employment, and will be paid in the form of Investors
Bancorp common stock. Pursuant to FASB ASC Topic 718-40, we are required to record a compensation
expense each year in an amount equal to the fair market value of the shares released from the suspense account.
401(k) Plan
Investors Bank maintains the 401(k) Plan, a tax-qualified defined contribution retirement plan, for all
employees who have satisfied the 401(k) Plan’s eligibility requirements. All eligible employees may begin
participation in the 401(k) Plan on the first day of the plan year or the first day of the month following the date
on which the employee attains age 21. A participant may contribute up to 60% of his or her compensation to the
401(k) Plan on a pre-tax basis, subject to the limitations imposed by the Internal Revenue Code. For 2016, the
salary deferral contribution limit is $18,000. However, a participant over age 50 may contribute an additional
$6,000 to the 401(k) Plan. A participant is always 100% vested in his or her salary deferral contributions. In
addition to salary deferral contributions, the 401(k) Plan provides that Investors Bank will make an employer
contribution equal to 50% of the participant’s salary deferral contribution, provided that such amount does not
exceed 6% of the participant’s compensation earned during the plan year. Participants will become 100% vested
in their employer contributions after completing three years of credited service (which is a three-year cliff
vesting schedule). However a participant will immediately become 100% vested in any employer contributions
upon the participant’s disability or attainment of age 65 while employed with Investors Bank. Generally, unless
a participant elects otherwise, the participant’s benefit under the 401(k) Plan is generally payable in the form of
a lump sum payment as soon as administratively feasible following his or her termination of employment with
Investors Bank, provided, however that a participant can elect to receive a distribution of his or her vested
account upon attaining age 59 1⁄2.
Each participant has an individual account under the 401(k) Plan and may direct the investment of his or
her account among a variety of investment options or vehicles available. In connection with the Second-Step
Conversion and related stock offering, each participant was eligible to make a one-time purchase of Investors
Bancorp common stock through the 401(k) Plan, provided that the purchase did not exceed 50% of the
participant’s account balance. Investors Bancorp common stock is not currently an investment option available
under the 401(k) Plan.
Defined Benefit Pension Plan
As of December 31, 2016 the annual benefit provided under the Defined Benefit Plan was amended to
freeze the plan. Freezing the plan eliminates all future benefit accruals and each participant’s frozen accrued
benefit was determined as of December 31, 2016 and no further benefits will accrue beyond such date.
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Investors Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions, formerly
known as the Financial Institutions Retirement Fund, which is a tax-qualified defined benefit pension plan (the
“Defined Benefit Plan”). All employees age 21 or older who have completed one year of employment with
Investors Bank are eligible for participation in the Defined Benefit Plan the first of the month following their
one year anniversary; however, only employees who have been credited with 1,000 or more hours of service
with Investors Bank are eligible to accrue benefits under the Defined Benefit Plan. Effective with the freezing
of the plan on December 31, 2016, employees hired after November 30, 2015 would be ineligible for
participation in the plan as they would not meet the service eligibility requirement. Investors Bank annually
contributes an amount to the plan necessary to satisfy the minimum funding requirements established under the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
The retirement benefit formula under the Defined Benefit Plan provides for a nonintegrated unit accrual
formula with an annual accrual rate of 1.25% of the participant’s high five year average salary, with a 30-year
salary cap. A participant’s average annual compensation is the average annual compensation over the five
consecutive calendar years out of the last 10 calendar years in which the participant’s compensation was the
greatest, or over all calendar years if less than five.
The regular form of retirement benefit is a straight life annuity (if the participant is single) and a joint and
survivor annuity (if the participant is married). However, various alternative forms of joint and survivor
annuities may be selected instead. If a participant dies while in active service, and after having become fully
vested, a qualified 100% survivor benefit will be payable to the participant’s beneficiary. Benefits payable upon
death may be paid in a lump sum, installments, or in the form of a life annuity. Upon termination of
employment due to disability, the participant will be entitled to a disability retirement benefit at age 65.
SERP I
SERP I is intended to compensate certain executives participating in the Defined Benefit Plan and the
ESOP whose contributions or benefits are limited by Sections 415 and/or 401(a)(17) of the Internal Revenue
Code, applicable to tax-qualified retirement plans (the “Tax Law Limitations”). As of December 31, 2016,
Messrs. Cummings, Cama, Spengler, Kalamaras and Burke were participants in the SERP I.
SERP I provides benefits attributable to participation in the Defined Benefit Plan equal to the excess, if
any, of the vested accrued benefit to which the participant would be entitled under the Defined Benefit Plan,
determined without regard to the Tax Law Limitations, over the vested accrued benefit to which the participant
is actually entitled under the Defined Benefit Plan, taking into account the Tax Law Limitations (the
“Supplemental Retirement Plan Benefit”).
SERP I also provides benefits attributable to participation in the ESOP equal to the difference between the
allocation of shares of Investors Bancorp common stock the participant would have received under the ESOP
without regard to the Tax Law Limitations, and the number of shares of stock that are actually allocated as a
result of the Tax Law Limitations (the “Supplemental ESOP Benefit”). The Supplemental ESOP Benefit under
the plan is denominated in phantom shares of stock such that one phantom share has a value equal to the fair
market value of one share of Investors Bancorp common stock. Each participant’s phantom shares are held in a
bookkeeping account established on his or her behalf. Each plan year, the dollar amount of appreciation on the
phantom shares deemed allocated to each participant’s account will be converted into phantom shares and
credited to each participant’s account.
As a long-term compensation plan, the participant’s vested interest in the Supplemental Retirement Plan
Benefit and in the Supplemental ESOP Benefit is based on a five-year cliff vesting schedule where participants
with less than five years of employment will not be vested in their benefits, and will become 100% vested upon
the completion of five years of employment.
In the event of a participant’s separation from service prior to attainment of age 55, the participant’s
accrued Supplemental Retirement Plan Benefit will be paid in a single lump sum payment within 30 days of the
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participant’s separation from service. In the event of separation from service after age 55, the participant’s
Supplemental Retirement Plan Benefit will be payable upon the participant’s early retirement date (age 55 with
10 years of service) or normal retirement date (age 65 with five years of service) in either a lump sum or an
annuity (single life, single life with 120 months guaranteed, joint and 100% survivor annuity or joint and 50%
survivor annuity) as elected by the participant, subject to the requirements of Section 409A of the Internal
Revenue Code. In the event of a participant’s separation from service within two years following a change in
control (as defined in the Plan), the participant will receive his Supplemental Retirement Plan Benefit in a lump
sum within 30 days after his separation from service. The participant’s Supplemental ESOP Benefit will be
payable in cash in either a lump sum or annual installments over a period not to exceed five years, as elected by
the participant, and will commence within 30 days following the earlier of the participant’s: (i) separation from
service, (ii) death or (iii) disability, subject to the requirements of Section 409A of the Internal Revenue Code.
Notwithstanding the foregoing, in the event the participant is a “specified employee”, as defined under
Section 409A of the Internal Revenue Code, no benefit will be payable under the plan during the first six
months following the participant’s separation from service (except in the event of death or disability).
SERP II
SERP II was frozen effective as of the close of business on December 31, 2016. SERP II was originally
designed to provide participants with a normal retirement benefit, which is an annual benefit equal to 60% of
the participant’s highest average annual base salary and cash incentive (over a consecutive 36-month period
within the participant’s credited service period) reduced by the sum of the benefits provided under the Defined
Benefit Plan and the annuitized value of his or her benefits payable from the defined benefit portion of the
SERP I (which is referred to above as the Supplemental Retirement Plan Benefit).
The SERP II was amended to freeze future benefit accruals, and for certain participants, structure the
benefits payable attributable solely to the participants’ 2016 year of service to vest over a two-year period such
that the participants would have a right to 50% of their accrued benefits attributable to their 2016 year of service
as of December 31, 2016, which will become 100% vested provided the participants remained continuously
employed through and including December 31, 2017. As a result, each participant would be entitled to receive
his vested frozen accrued benefit as of December 31, 2016, upon his qualifying termination event (the “Frozen
Accrued Benefit”). In the event that the participant’s Termination Event (as defined below) occurs prior to
attaining age 65, the Frozen Accrued Benefit would be subject to further reduction by multiplying the Frozen
Accrued Benefit by a percentage equal to: (i) 2% multiplied by (ii) the numerical difference between 65 and the
participant’s age on the date of his termination, provided, however, that if: (i) the participant has completed 25
years of employment with Investors Bank as of his date of termination; or (ii) the participant’s termination is
due to death or disability, the participant’s Frozen Accrued Benefit would not be reduced pursuant to the
foregoing.
Payment of the Frozen Accrued Benefit (as quantified above) would commence upon the earlier of the
participant’s: (i) separation from service; (ii) disability; or (iii) death (the “Termination Event”), which would
be paid generally in the form of a life annuity with 120 monthly payments guaranteed, unless the participant
elected an alternative form of distribution.
At December 31, 2016, Messrs. Cummings, Cama, Kalamaras and Spengler were participants in the
SERP II.
Perquisites
The Compensation and Benefits Committee believes that perquisites should be provided on a limited
basis, and only to the most senior level of executive officers. As of December 31, 2016, the following
perquisites were available for Messrs. Cummings, Cama, Spengler and Kalamaras: (i) club membership;
(ii) automobile allowance; (iii) long term care insurance and (iv) an annual medical examination. For Mr. Burke
available perquisites included an annual medical examination and long term care insurance.
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Elements of Post-Termination Benefits
Employment Agreements
Investors Bancorp entered into employment agreements with each of Messrs. Cummings, Cama,
Spengler, Kalamaras and Burke. The employment agreements for Messrs. Cummings, Cama and Spengler were
originally entered into on October 11, 2005, the employment agreement for Mr. Kalamaras was originally
entered into on August 18, 2008 and the employment agreement for Mr. Burke was entered into on January 26,
2015.
Each of these agreements has an initial term of three years. Unless notice of non-renewal is provided, the
agreements renew annually. Each executive is entitled to base salary and is eligible to participate in employee
benefit plans and arrangements, including incentive compensation and nonqualified compensation plans,
generally made available by Investors Bancorp or Investors Bank to its senior executives and key management
employees.
Each executive is entitled to a severance payment and benefits in the event of his termination of
employment under specified circumstances. In the event the executive’s employment is terminated for reasons
other than for just cause, disability or retirement, provided that such termination of employment constitutes a
“separation from service” under Internal Revenue Code Section 409A, or in the event the executive resigns
during the term of the agreement following: (i) the failure to elect or reelect or to appoint or reappoint the
executive to his executive position; (ii) a material change in the executive’s functions, duties, or responsibilities,
which change would cause the executive’s position to become one of lesser responsibility, importance or scope;
(iii) the liquidation or dissolution of Investors Bancorp or Investors Bank, other than a liquidation or dissolution
caused by a reorganization that does not affect the status of the executive; (iv) a change in control of Investors
Bancorp (for Mr. Burke in the event of involuntary termination for any reason other than cause or voluntary
termination for good reason); or (v) a material breach of the employment agreement by Investors Bancorp or
Investors Bank; then the executive would be entitled to a severance payment equal to three times the sum of his
base salary and the highest amount of cash incentive compensation awarded to him during the prior three years,
payable in a lump sum. In addition, the executive would be entitled to, at Investors Bancorp’s sole expense, the
continuation of nontaxable life and medical, dental and disability coverage for 36 months after termination of
employment. The executive would also receive a lump sum payment of the excess, if any, of the present value
of the benefits he would be entitled to under any defined benefit pension plan maintained by Investors Bank or
Investors Bancorp if he had continued working for Investors Bancorp and Investors Bank for 36 months over
the present value of the benefits to which he is actually entitled as of the date of termination. The executives
would be entitled to no additional benefits under the employment agreement upon retirement at age 65 or if
terminated for just cause.
Should the executive become disabled, Investors Bancorp would continue to pay the executive his base
salary for the longer of the remaining term of the agreement or one year, provided that any amount paid to the
executive pursuant to any employer-provided disability insurance would reduce the compensation he would
receive. In the event the executive dies while employed by Investors Bancorp, the executive’s estate will be
paid the executive’s base salary for one year and the executive’s family will be entitled to continuation of
medical and dental benefits for one year after the executive’s death. The employment agreement terminates
upon retirement (as defined therein), and the executive would only be entitled to benefits under any retirement
plan of Investors Bancorp and other plans to which the executive is a party.
The employment agreements for Messrs. Cummings and Cama also provide for indemnification against
any excise taxes which may be owed by the executive for any payments made in connection with a change in
control that would constitute “excess parachute payments” under Section 280G of the Internal Revenue Code.
The indemnification payment would be the amount necessary to ensure that the amount of such payments and
the value of such benefits received by the executive equal the amount of such payments and the value of such
benefits the executive would have received in the absence of an excise tax attributable to Sections 280G and
4999 of the Internal Revenue Code, including any federal, state and local taxes on Investors Bancorp’s payment
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to the executive attributable to such tax. The employment agreements for Messrs. Spengler, Kalamaras and
Burke, as amended, provide that the gross benefits under the employment agreements would be reduced to
avoid penalties under Section 280G of the Internal Revenue Code if doing so results in a greater after-tax
benefit to the executive.
Upon any termination of the executive’s employment, other than a termination (whether voluntary or
involuntary) following a change in control as a result of which Investors Bancorp has paid the executive
severance benefits, the executive is prohibited from competing with Investors Bank and/or Investors Bancorp
for a period of one year following such termination within 25 miles of any existing branch of Investors Bank or
any subsidiary of Investors Bancorp or within 25 miles of any office for which Investors Bank, Investors
Bancorp or a bank subsidiary of Investors Bancorp has filed an application for regulatory approval to establish
an office, determined as of the effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board of Directors. The executive is also subject to confidentiality provisions during and
after the term of the employment agreement.
Other Matters
Stock Ownership Requirements
The Board of Directors adopted stock ownership guidelines for our Named Executive Officers that
require the following minimum investment in Investors Bancorp common stock:
Chief Executive Officer
A number of shares having a market value equal to 5x annual base salary
Other Named Executive Officers A number of shares having a market value equal to 3x annual base salary
Equity Retention Policy
In 2013, the Board of Directors adopted the Equity Retention Policy, which is independent of the stock
ownership guidelines described above. This policy applies to all executive officers of Investors Bancorp and all
members of the Board of Directors. Under the policy, each executive officer is required to retain direct
ownership of at least 50% of his or her “covered shares,” net of taxes and transaction costs, until three months
following the date of the executive officer’s termination of employment. Each director is required to retain
direct ownership of at least 50% of his or her “covered shares,” net of taxes and transaction costs, until
termination of service from the Board of Directors. A “covered share” means any share acquired by an
executive officer or director pursuant to an award granted after July 23, 2013 under any equity compensation
plan or other written compensatory arrangement.
Anti-Hedging Policy
The Board of Directors adopted an anti-hedging policy, which prohibits directors and executive officers,
including the Named Executive Officers, from engaging in or effecting any transaction designed to hedge or
offset the economic risk of owning shares of Investors Bancorp common stock. Accordingly, any hedging,
derivative or other equivalent transaction that is specifically designed to reduce or limit the extent to which
declines in the trading price of Investors Bancorp common stock would affect the value of shares of Investors
Bancorp common stock owned by an executive officer or director is prohibited. Cashless exercises of stock
options are not deemed short sales and are permitted. This policy does not prohibit transactions involving the
stock of other unrelated companies.
Prohibition on Pledging Securities
Company policy prohibits directors and executive officers from holding Company securities in a margin
account or pledging Company securities as collateral for any other loan. An exception to this prohibition may be
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granted, in the sole discretion of the Board and in limited circumstances, after giving consideration to, among
other factors, the number of shares proposed to be pledged as a percentage of the director’s or executive
officer’s total shares held. No shares are currently pledged by a director or executive officer.
Clawback Policy
In accordance with a clawback policy adopted by the Board of Directors, as a condition to receiving
incentive compensation, Named Executive Officers agree to return bonus and other incentive compensation
paid by Investors Bancorp (including cancellation of outstanding equity awards and reimbursement of any gains
realized on such awards) if: (i) the payments or awards were based on reported financial statement or financial
information or (any performance metrics or criteria that were based on such financial statements or
information); (ii) there is an accounting restatement of financial statements due to material noncompliance with
financial reporting requirements under the federal securities laws; and (iii) the amount of the bonus or incentive
compensation, as calculated under the restated financial results, is less than the amount actually paid or awarded
under the original financial results.
Tax Deductibility of Executive Compensation
Under Section 162(m) of the Internal Revenue Code, companies are subject to limits on the deductibility
of executive compensation. Deductible compensation is limited to $1 million per year for each Named
Executive Officer listed in the summary compensation table, except for the principal financial officer.
Compensation that is “qualified performance-based” as defined under Section 162(m) of the Internal Revenue
Code is exempt from this limit. Stock option grants are intended to qualify as performance-based compensation.
A number of requirements must be met for particular compensation to qualify for tax deductibility, so
there can be no assurance that the incentive compensation awarded will be fully deductible in all circumstances.
While the Compensation and Benefits Committee currently does not have a formal policy with respect to the
payment of compensation in excess of the deduction limit, the Committee’s practice is to structure
compensation programs offered to the Named Executive Officers with a view to maximizing the tax
deductibility of amounts paid. However, in structuring compensation programs and making compensation
decisions, the Compensation and Benefits Committee considers a variety of factors, including Investors
Bancorp’s tax position, the materiality of the payment and tax deductions involved and the need for flexibility
to address unforeseen circumstances and Investors Bancorp’s incentive and retention requirement for its
management personnel. After considering these factors, the Compensation and Benefits Committee may decide
to authorize payments, all or part of which would be nondeductible for federal tax purposes.
Compensation Risk Management
The Compensation and Benefits Committee believes that any risks arising from Investors Bancorp’s
compensation policies and practices for all of its employees, including the Named Executive Officers, are not
reasonably likely to have a material adverse effect on Investors Bancorp or Investors Bank. In addition, the
Compensation and Benefits Committee believes that the mix and design of the elements of the compensation
program will encourage senior management to act in a manner that is focused on long-term valuation of
Investors Bancorp and Investors Bank.
The Compensation and Benefits Committee regularly reviews Investors Bancorp’s compensation program
to ensure that controls are in place so that employees are not presented with opportunities to take unnecessary
and excessive risks that could threaten the value of Investors Bancorp or Investors Bank. With respect to the
Executive Officer Annual Incentive Plan, the Compensation and Benefits Committee reviews and approves the
company-wide performance objectives that determine the bonus payments to be made thereunder. The
performance objectives are selected in consultation with an outside independent consultant, and are customary
performance metrics for financial institutions in Investors Bancorp’s peer group. Furthermore, all bonus
payments are subject to clawback in accordance with our clawback policy, which ensures that performance
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awards are linked to the actual performance of Investors Bancorp and Investors Bank and promotes the long-
term value creation of Investors Bancorp and Investors Bank. Moreover, we instituted our equity retention
policy to more closely align the interests of management and the Board with those of our stockholders.
Finally, by implementing the ESOP, the 2006 Equity Plan, the 2015 Equity Plan and by having an
executive stock ownership requirement and an equity retention policy, our executive management team and
employees have a significant ownership interest in Investors Bancorp, which will align their interests with those
of the stockholders, and in turn will contribute to long-term stockholder value and decrease the likelihood that
they would take excessive risks that could threaten the value of their Investors Bancorp common stock.
Compensation and Benefits Committee Report
Pursuant to rules and regulations of the SEC, this Compensation and Benefits Committee Report shall not
be deemed incorporated by reference to any general statement incorporating by reference this Proxy Statement
into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, except to the extent that Investors Bancorp specifically incorporates this information by reference,
and otherwise shall not be deemed “soliciting material” or to be “filed” with the SEC subject to Regulation
14A or 14C of the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as
amended.
The Compensation and Benefits Committee (the Committee) of Investors Bancorp has reviewed and
discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with
management and, based on such review and discussions, the Compensation and Benefits Committee
recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this
Proxy Statement and our Annual Report on Form 10-K.
The Committee understands its fiduciary responsibility to shareholders. The Committee has worked
diligently with the assistance of management and our compensation consultant to implement a performance
driven compensation program.
We operate in a very competitive banking market. To ensure fairness and competiveness, the Committee
collects and analyzes an extensive amount of information about executive compensation values and practices in
our marketplace. In our region, obtaining and retaining talented people is a serious challenge. The worldwide
financial services industry has a large footprint in the New York and New Jersey area and consequently many
opportunities exist for employment. It is important to make Investors Bancorp attractive to this important talent
pool.
The Committee believes that our Executive Officer Annual Incentive Plan is competitive and has had a
positive effect on employee performance and has properly stimulated and motivated our employees to
contribute to the overall success of Investors Bancorp. Each year a participant is assigned personal goals and a
share of the overall corporate goals. Each participant is advised of the cash incentive opportunity for meeting
his/her goals. Careful selection of goals in a way that aligns the employees’ performance with advancing the
overall strategic objectives of Investors Bancorp moves the entire company along its carefully designed
strategic path.
The Committee has also utilized equity grants to drive long term performance and to align employees’
financial interests with those of our stockholders. Recent grants have been made with not less than a five- or
seven-year vesting requirement, which is much longer than the vesting requirements of our peers and also
included performance requirements for the restricted stock awards. Investors Bank also sponsors the ESOP,
through which all eligible employees are eligible to receive Investors Bancorp common stock. By ensuring that
all employees are shareholders, the Committee believes that the entire workforce has a personal financial stake
in the success of Investors Bancorp.
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Investors Bancorp has adopted a clawback policy, in order to recapture inappropriate incentive
compensation payments, should that ever occur. At the same time, the Committee recognizes the need to
discourage the taking of undue risk to achieve short term goals. We have built into our overall compensation
philosophy elements that encourage longer term thinking and in particular, the preservation of asset quality. It is
the Committee’s belief that our compensation program spends company funds in a way that effectively drives
superior employee performance and the success of Investors Bancorp.
Compensation and Benefits Committee of Investors Bancorp, Inc.
Dennis M. Bone, Chair
Robert C. Albanese, Member
Doreen R. Byrnes, Member
William V. Cosgrove, Member
Brian D. Dittenhafer, Member
James H. Ward, III, Member
Executive Compensation
The following table sets forth for the calendar years ended December 31, 2016, 2015 and 2014 certain
information as to the total remuneration earned to Named Executive Officers with respect to the applicable year.
Summary Compensation Table
Stock
Awards
($) (1)
Option
Awards
($) (1)
Domenick A. Cama,
Name and Principal Position
Kevin Cummings,
President and
Chief Executive Officer
Year Salary ($) Bonus ($)
—
—
—
2016 1,000,000
— 12,540,000 4,159,999
2015 1,000,000
—
—
—
2014 1,000,000
—
675,000
—
—
2016
— 10,032,000 3,327,998
675,000
Senior Executive Vice President 2015
—
675,000
2014
—
—
and Chief Operating Officer
—
—
—
430,000
2016
— 6,687,996 2,225,599
430,000
2015
—
—
—
430,000
2014
—
415,000
2016
—
—
— 6,687,996 2,225,599
415,000
2015
—
—
—
415,000
2014
—
400,000
2016
—
—
2015(5)
— 5,852,004 1,955,198
376,923
Executive Vice President and
Chief Retail Banking Officer
Executive Vice President
and Chief Lending Officer
Richard S. Spengler,
Paul Kalamaras,
Sean Burke,
Senior Vice President and
Chief Financial Officer
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($) (3)
1,982,000
2,411,000
5,058,000
1,091,000
1,200,000
2,799,000
410,000
295,000
1,049,000
663,000
541,000
935,000
20,000
—
Non-Equity
Incentive Plan
Compensation
($) (2)
1,820,000
2,076,923
1,500,000
982,800
1,121,539
810,000
468,012
535,846
381,195
460,650
516,223
371,633
370,000
376,923
All Other
Compensation ($) (4) Total ($)
265,911 5,067,911
230,035 22,417,957
278,700 7,836,700
180,396 2,929,196
161,720 16,518,257
180,794 4,464,794
99,287 1,407,299
94,231 10,268,672
105,118 1,965,313
94,333 1,632,983
84,559 10,470,377
91,726 1,813,359
44,441
834,441
38,159 8,599,207
(1)
(2)
(3)
The amounts in this column reflect the aggregate grant date fair value computed in accordance with FASB ASC 718, of restricted
stock and stock option awards granted pursuant to the 2015 Equity Incentive Plan. The grant date fair value for each option award
and stock award was $3.12 and $12.54, respectively. Assumptions used in the calculation of these amounts are included in Note 10
to Investors Bancorp’s audited financial statements for the calendar year ended December 31, 2016 included in Investors Bancorp’s
Annual Report on Form 10-K.
The amounts were earned pursuant to the Executive Officer Annual Incentive Plan.
The amounts in this column reflect the aggregate change in the actuarial present value of the Named Executive Officer's
accumulated benefit under all defined benefit and actuarial pension plans (including supplemental plans) from the measurement date
in the immediately preceding calendar year to the measurement date in such calendar year, determined using the interest rate and
mortality rate assumptions consistent with those used in Investors Bancorp’s financial statements. Effective December 31, 2016 the
SERP II was frozen. For Mr. Cummings, Cama and Spengler, the benefit attributable to their 2016 year of service vests over two
years. Earnings under the SERP I attributable to the Supplemental ESOP Benefit are not included in this column because the
earnings were not “above-market,” as defined by the SEC. For 2014, the change in pension value was substantially higher than 2015
and 2016 primarily as a result of the decrease in the discount rate assumption due to market conditions, as well as the Society of
Actuaries’ 2014 issuance of new mortality tables projecting longer life expectancies. In particular, 53% of Mr. Cummings change in
pension value in 2014 was due solely to changes in these assumptions.
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(4)
(5)
The amounts in this column represent all other compensation not reported in prior columns in this table, including perquisites, the
aggregate value of which exceeds $10,000, and employer contributions to defined contribution plans. See the “All Other
Compensation” and “Perquisites” tables below for a breakdown of these amounts for the year ended December 31, 2016.
Mr. Burke was appointed Senior Vice President and Chief Financial Officer on January 26, 2015. Mr. Burke's full year annualized
base salary was $400,000.
Amounts included in the “Stock Awards” and “Option Awards” columns of the Summary Compensation
Table represent the grant date fair value of the awards issued to the Named Executive Officers under the 2015
Equity Plan, as determined in accordance with applicable accounting standards. The 2015 Equity Plan was
adopted following, and in connection with, the completion of the Company’s Second Step Conversion to stock
form. Notwithstanding that (1) stock options and time-based restricted stock awards vest ratably over a seven-
year period and the performance-based restricted stock awards are subject to a three-year performance period
ending on December 31, 2017; and (2) the annual financial statement expense that we are required to recognize
for these grants will be expensed ratably over the vesting period and will be significantly less than the amounts
included in the “Stock Awards” and “Option Awards” columns for the year ended December 31, 2015, SEC
rules require that we report the full grant date fair value of restricted stock and stock option awards in the year
in which the grants are made even though the value cannot be received by the officers in that year. In addition,
with respect to the performance-based restricted stock awards, the actual value, if any, realized by the Named
Executive Officers will depend on the satisfaction of the performance metrics related to the awards. Moreover,
with respect to the stock options, the actual value, if any, realized by any Named Executive Officers will depend
on the extent to which the market value of the Investors Bancorp common stock exceeds the exercise price of
the stock option on the date of exercise. Accordingly, there is no assurance that the values realized by the
Named Executive Officer will be at or near the amounts in the “Stock Awards” and “Option Awards” columns.
All Other Compensation
Name
Kevin Cummings
Domenick A. Cama
Richard S. Spengler
Paul Kalamaras
Sean Burke
Calendar
or Fiscal
Year
2016
2016
2016
2016
2016
Perquisites
and Other
Personal
Benefits ($)(1)
Company
Contribution
for Medical
and Insurance
Benefits ($)
Company
Contributions
to ESOP and
401(k) Plan and
SERP I ($)
30,335
24,959
8,767
20,989
—
26,618
29,235
18,560
3,360
26,018
208,958
126,202
71,960
69,984
18,423
Total ($)
265,911
180,396
99,287
94,333
44,441
(1)
A detailed description of the perquisites included in this column is set forth in the table below.
Perquisites
Name
Kevin Cummings
Domenick A. Cama
Richard S. Spengler
Paul Kalamaras
Sean Burke
Calendar
or Fiscal
Year
2016
2016
2016
2016
2016
Automobile
Allowance ($)
Long Term
Care ($)
Club
Dues ($)
Executive
Health
Exam ($)
11,887
6,864
4,130
7,230
—
8,107
11,383
2,176
12,262
—
4,646
3,642
2,461
1,497
—
5,695
3,070
—
—
—
Total
Perquisites
and Other
Personal
Benefits ($)
30,335
24,959
8,767
20,989
—
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Grants of Plan-Based Awards for 2016
The following table sets forth certain information as to grants during calendar 2016 of plan-based awards
to the Named Executive Officers under the Executive Officer Annual Incentive Plan.
Estimated Payouts Under Non-
Equity Incentive Plan Awards (1)
Target
($)
Threshold
($)
Maximum
($)
Grant
Date
All Other
Stock
Awards
Number
of Shares
of Units(#)
All Other
Option Awards
Number of
Securities
Underlying
Options
(#)
Exercise
or Base
Price of
Option
Awards
($/Sh)
2/22/2016 1,220,000 1,610,000 2,000,000
2/22/2016 658,800 869,400 1,080,000
2/22/2016 348,300 432,150 516,000
2/22/2016 336,150 417,075 498,000
2/22/2016 270,000 335,000 400,000
—
—
—
—
—
— $
— $
— $
— $
— $
Grant Date
Fair Value of
Stock and
Option
Awards ($)
—
—
—
—
—
— $
— $
— $
— $
— $
Name
Kevin Cummings
Domenick A. Cama
Richard S. Spengler
Paul Kalamaras
Sean Burke
(1)
Amounts shown assume achievement of 100% of individual goals and objectives. The range of estimated possible payouts reflects
payouts under the Executive Officer Annual Incentive Plan.
For a narrative description of the material factors necessary to an understanding of the information
disclosed in the Summary Compensation Table and in the Grants of Plan-Based Awards Table for 2016, please
see “Compensation Discussion and Analysis” above.
Outstanding Equity Awards at December 31, 2016
The following table sets forth information with respect to outstanding equity awards as of December 31,
2016 for the Named Executive Officers.
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#) (1)
Unexercisable
Number of
Shares or
Units of
Stock That
Have Not
Vested (#) (1)
6/23/15 190,476 1,142,857 12.54 6/23/25 642,857
914,286 12.54 6/23/25 514,286
611,429 12.54 6/23/25 342,857
611,429 12.54 6/23/25 342,857
537,143 12.54 6/23/25 300,000
Name
Kevin Cummings
Domenick A. Cama 6/23/15 152,380
Richard S. Spengler 6/23/15 101,904
6/23/15 101,904
Paul Kalamaras
89,523
6/23/15
Sean Burke
Option
Expiration
Date (2)
Option
Exercise
Price ($)
Grant
Date
Market
Value of
Shares or Units
of Stock That
Have Not
Vested ($) (3)
8,967,855
7,174,290
4,782,855
4,782,855
4,185,000
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units,
or Other
Rights That
Have Not
Vested (#) (4)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($) (3)
250,000 3,487,500
200,000 2,790,000
133,333 1,859,995
133,333 1,859,995
116,667 1,627,505
(1)
(2)
(3)
(4)
Stock option and restricted stock awards generally vest over a seven-year period commencing on the first anniversary of the date
granted.
Stock options generally expire if unexercised 10 years after the grant date.
Amounts shown are based on the fair market value of Investors Bancorp common stock on December 31, 2016 of $13.95.
Amounts shown represent the number of stock awards that may vest if performance goals are achieved over a three-year period
2015-2017 at Target level.
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Option Exercises and Stock Vested at December 31, 2016
The following table provides information concerning stock option exercises and the vesting of stock
awards for each Named Executive Officer during 2016.
Name
Kevin Cummings(1)
Domenick A. Cama(1)
Richard S. Spengler(1)
Paul Kalamaras
Sean Burke
Option Awards
Stock Awards
Number of
Shares
Acquired on
Exercise (#)
Value
Realized on
Exercise ($)
Number of
Shares
Acquired on
Vesting (#)
Value
Realized on
Vesting ($)
1,147,500
1,020,000
110,000
182,000
—
6,524,636
5,755,533
645,770
1,196,230
—
107,143
85,714
57,143
57,143
50,000
1,271,787
1,017,425
678,287
678,287
593,500
(1)
Option awards exercised for the period ending December 31, 2016 had an expiration date of November 2016.
Pension Benefits at or for the year ended December 31, 2016
The table below shows the present value of accumulated benefits payable to each of the Named Executive
Officers, including the number of years of service credited to each such Named Executive Officer, under our
pension plans determined using interest rate and mortality rate assumptions consistent with those used in
Investors Bancorp’s financial statements. The Defined Benefit Plan and SERP II were frozen effective as of the
close of business on December 31, 2016. For a narrative description of each applicable plan, please see
“Compensation Discussion and Analysis” above.
Name
Kevin Cummings
Domenick A. Cama
Richard S. Spengler
Paul Kalamaras
Sean Burke
Plan Name
Defined Benefit Plan
SERP I and SERP II
Defined Benefit Plan
SERP I and SERP II
Defined Benefit Plan
SERP I and SERP II
Defined Benefit Plan
SERP I and SERP II
Defined Benefit Plan
SERP I and SERP II
Number of Years
Credited
Service($) (1)
Present Value of
Accumulated
Benefit ($) (2)
Payment During
Last Year ($)
12.5
12.5
26.0
26.0
30.0
30.0
7.3
7.3
0.9
—
604,000
15,743,000
1,088,000
8,115,000
868,000
2,425,000
258,000
2,813,000
20,000
—
—
—
—
—
—
—
—
—
—
—
(1)
(2)
The number of years of credited service represents all years of service, including years following the change in benefit formula for
the Defined Benefit Plan on January 1, 2006. For Messrs. Cama and Spengler, credited service years include qualified years served
at other financial institutions that participated in the Defined Benefit Plan, formerly known as the Financial Institutions Retirement
Fund.
The figures shown are determined as of the plan’s measurement date of December 31, 2016 for purposes of Investors Bancorp’s
audited financial statements. For discount rate and other assumptions used for this purpose, please refer to Note 10 to the audited
financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2016.
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Nonqualified Deferred Compensation at or for the year ended December 31, 2016
The following table sets forth information with respect to the Supplemental ESOP portion of SERP I at
and for the year ended December 31, 2016 for the Named Executive Officers. For a narrative description of
SERP I, please see “Compensation Discussion and Analysis” above.
Name
Kevin Cummings
Domenick A. Cama
Richard S. Spengler
Paul Kalamaras
Sean Burke
Plan Name
SERP I
SERP I
SERP I
SERP I
SERP I
Executive
Contributions
in Last Year ($)
—
—
—
—
—
Registrant
Contributions
in Last Year ($)(1)
181,113
98,356
44,113
42,138
—
Aggregate
Earnings in
Last Year ($)(2)
194,045
95,909
34,102
23,063
—
Aggregate
Withdrawals/
Distributions ($)
—
—
—
—
—
Aggregate
Balance at Last
Year-End ($)(3)
1,973,782
984,399
359,160
255,204
—
(1)
(2)
(3)
The value of the non-qualified Supplemental ESOP contribution made pursuant to SERP I in calendar 2016 is based on the fair
market value of Investors Bancorp common stock on December 31, 2016 of $13.95. These contributions are included in the
Summary Compensation Table.
The aggregate earnings for the Supplemental ESOP and Retirement Plan reflect the change in value of phantom shares issued prior
to calendar 2016, based on the fair market value of Investors Bancorp common stock on December 31, 2016 of $13.95. This amount
is not included in the Summary Compensation Table because the rate of earnings was not “above-market,” as defined by the SEC.
The aggregate balances reported for the Supplemental ESOP Plan are based on the market value of Investors Bancorp common
stock on December 31, 2016 of $13.95. For Messrs. Cummings, Cama, Spengler and Kalamaras, $976,054, $486,709, $179,037 and
$133,875, respectively, of their total aggregate balance was previously reported as compensation to them in our Summary
Compensation Tables for previous years.
Potential Payments Upon Termination or Change in Control
At December 31, 2016, Investors Bancorp has entered into employment agreements with Messrs. Cummings,
Cama, Spengler, Kalamaras and Burke. A narrative description of the material terms of the agreements is set forth in
“Compensation Discussion and Analysis.” The table below reflects the amount of compensation and benefits payable
to each Named Executive Officer pursuant to his employment agreement in the event of termination of his
employment. No payments are required under the employment agreements due to the Named Executive Officers’
voluntary termination prior to a change in control. The amount of compensation payable to each Named Executive
Officer upon: (i) retirement; (ii) early retirement; (iii) involuntary termination (other than for cause); (iv) termination
following a change of control; and (v) in the event of disability is shown below. The amounts shown assume that such
termination was effective as of December 31, 2016, and thus includes amounts earned through such time and are
estimates of the amounts that would be paid to the Named Executive Officer upon termination. The amounts shown
relating to unvested stock options and restricted stock awards are based on the fair market value of Investors Bancorp
common stock on December 31, 2016 of $13.95 per share. Messrs. Cummings and Cama are entitled to tax
indemnification payments for any excess parachute payments under Section 280G of the Internal Revenue Code.
With respect to the change in control benefits payable to Messrs. Spengler, Kalamaras and Burke, the amounts shown
in the table below do not take into account any reductions that may be required in order to comply with the Internal
Revenue Code Section 280G cut back or net best benefit provision in each of their employment agreements. The
actual amounts to be paid out can only be determined at the time of such executive’s date of termination with
Investors Bancorp. The following table does not include amounts payable upon termination of employment under
SERP I and SERP II that are vested as of December 31, 2016 because the present value of the accumulated vested
benefits under each of those plans as of December 31, 2016 is set forth in the tables above.
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Retirement (1)
Retiree Health/Life Insurance
Stock Option Vesting
Restricted Stock Vesting
Early Retirement (1)
Retiree Health/Life Insurance
Stock Option Vesting
Restricted Stock Vesting
Disability
Salary Continuation (2)
Stock Option Vesting
Restricted Stock Vesting
Other benefits (3)
Death
Salary Continuation (5)
Stock Option Vesting
Restricted Stock Vesting
Other benefits (3)
Discharge w/o Cause or Resignation w/ Good
Reason-no Change in Control
Stock Option Vesting
Restricted Stock Vesting
Salary and Cash Incentive (6)
Other benefits (3)
Excess Pension Benefit (4)(6)
Discharge w/o Cause or Resignation w/ Good
Reason-Change in Control-related
Stock Option Vesting
Restricted Stock Vesting
Salary and Cash Incentive (6)
Other benefits (3)
Excess Pension Benefit (4)(6)
Tax Indemnification Payment (7)
Mr.
Cummings
Mr.
Cama
Mr.
Mr.
Spengler
Kalamaras
Mr.
Burke
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
663,542
2,383,542 1,488,542 1,033,542
1,611,428 1,289,143
757,372
862,115
12,455,355 9,964,290 6,642,851 6,642,851 5,812,505
17,830
988,542
862,115
13,063
21,884
20,173
6,941
400,000
1,000,000
675,000
1,611,428 1,289,143
757,372
12,455,355 9,964,290 6,642,851 6,642,851 5,812,505
34,185
430,000
862,115
415,000
862,115
22,474
34,185
27,487
144
—
—
—
—
—
—
8,460,000 4,973,400 2,694,036 2,626,950 2,310,000
110,402
—
83,598
147,100
131,302
746,514
121,039
365,081
46,865
—
—
—
—
—
862,115
1,611,428 1,289,143
757,372
12,455,355 9,964,290 6,642,851 6,642,851 5,812,505
8,460,000 4,973,400 2,694,036 2,626,950 2,310,000
110,402
—
—
121,039
365,081
9,115,629 6,572,096
83,598
147,100
—
46,865
—
—
131,302
746,514
862,115
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(1)
(2)
(3)
(4)
(5)
(6)
(7)
As of December 31, 2016, none of the Named Executive Officers were eligible for early retirement or retirement.
Upon disability, the Named Executive Officer is entitled to base salary for the longer of the remaining term of his employment
agreement or one year. Such benefit is reduced by the amount paid under our disability plan or policy, which is not reflected in this
table.
Other benefits include amounts for benefits in effect prior to termination; life, medical, dental, disability and long term care, and is
calculated based on the terms specified in the employment agreements.
Each employment agreement provides that Investors Bancorp will pay the excess, if any of: (i) the present value of benefits to which
the Named Executive Officer would be entitled to under the defined benefit plans if he had continued working for Investors Bancorp
for 36 months and (ii) the present value of the benefits to which he is actually entitled.
This amount is payable according to normal payroll practices for one year following the Named Executive Officer's date of death.
This amount is paid in a lump sum following the Named Executive Officer's date of termination.
This amount is generally payable in a lump sum to the Named Executive Officer following the date of termination, but it may be
timely paid directly to the applicable taxing authorities on behalf of the named executive officer.
Director Compensation
Director Fees
Each of the individuals who serve as a director of Investors Bancorp also serves as a director of Investors
Bank. The non-employee directors of Investors Bancorp and Investors Bank are compensated separately for
service on each entity’s board. Each non-employee director of Investors Bancorp is paid a monthly retainer of
$2,000 ($4,000 per month for the Chairman), and $2,500 for each committee meeting attended. The Chairman
of the Audit Committee, Compensation and Benefits Committee, Nominating and Corporate Governance
Committee and Risk Oversight Committee are each paid an annual retainer of $10,000. Each non-employee
director of Investors Bank is paid a monthly retainer of $4,000 ($8,000 per month for the Chairman) and $2,100
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for each Board meeting attended ($4,200 per meeting for the Chairman). Employee directors are not
compensated for serving as directors.
The Board of Directors establishes non-employee director compensation based on recommendations of
the Compensation and Benefits Committee. Periodically, the Compensation and Benefits Committee engages
the services of GK Partners and its external surveys to assist in the committee’s review of director
compensation.
Stock Option and Stock Award Program
At the annual meeting of stockholders held on June 9, 2015, stockholders of the Company approved the
Investors Bancorp, Inc. 2015 Equity Plan, as described above in “Compensation Discussion and Analysis.”
Directors are eligible to participate in the 2015 Equity Incentive Plan. Under this plan, individuals may receive
awards of Investors Bancorp common stock (restricted stock) and grants of options to purchase shares of
Investors Bancorp common stock at a specified exercise price during a specified time period. The
Compensation and Benefits Committee engaged GK Partners, an independent compensation consultant to
assess the Committee’s recommendations for granting stock options and restricted stock awards to non-
employee directors. In determining the amount of restricted stock awards and stock options non-employee
directors would receive, the Compensation and Benefits Committee considered the Board’s role in setting the
strategic direction for the Company, most notably, their role in completing the mutual to stock public offering in
2014. The Committee also considered the directors’ past contributions, their industry knowledge, their financial
expertise and the role they would play in the Company’s future. The Committee also reviewed survey data
regarding awards made to directors of other companies that had undertaken a mutual to stock public offering.
GK Partners concluded that the Committee’s recommendations for the awards were fair and reasonable and
intended to align the economic interest of the directors with that of other shareholders consistent with prevailing
director compensation practices in the competitive marketplace for similarly situated public companies.
For the year ended 2016 there were no grants awarded to the directors.
Director Benefits
For directors and their spouses or spousal equivalents as of 2007, Investors Bank sponsors a long-term
care program. Directors become eligible to participate after one year of service either on the Board of Directors,
through past employment or as counsel prior to becoming a director. Each individual policy is owned by the
covered person. Investors Bank pays all premiums under the long term care program but will stop paying
premiums in the event of the participant’s: (i) resignation from the Board of Directors prior to attaining normal
retirement age (except for health reasons); (ii) relocation outside of the country; or (iii) death. Spousal coverage
will be terminated upon: (i) a participant’s resignation prior to normal retirement age (except for health
reasons); (ii) divorce from the participant; (iii) the participant no longer qualifying for coverage; (iv) the
spouse’s permanent relocation outside of the country; or (v) death. Participants who cannot be insured through
an insurance company under the long-term care program will be self-insured by Investors Bank.
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Investors Bank maintains the Amended and Restated Director Retirement Plan. Effective November 21,
2006, the Amended and Restated Director Retirement Plan was frozen such that no new benefits accrued under,
and no new directors were eligible to participate in, the plan. A director who: (i) was not an active employee of
Investors Bank upon retirement from board service; (ii) has provided at least ten years of “cumulative service”
(service on the board and, if applicable, as an employee or counsel); and (iii) retired at age 65 or later or as a
result of disability, was eligible to participate in the plan prior to November 21, 2006. Directors Cashill and
Dittenhafer are the only directors currently participating in the plan.
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An eligible director with at least 15 years of cumulative service will be entitled to an annual retirement
benefit equal to the sum of 60% of the annual retainer and 13 times the regular board meeting fee in effect for
the calendar year preceding the director’s year of retirement. A director with at least 10 years of cumulative
service but less than 15 years will be entitled to 40% of the sum of the annual retainer and 13 times the regular
meeting fee in effect for the calendar year preceding the director’s year of retirement, plus a pro-rated
percentage of 20% of the sum of the annual retainer and 13 times the regular board meeting fee in effect for the
calendar year preceding the director’s year of retirement. The plan includes the annual retainer and board fees,
if any, paid by Investors Bancorp in determining a director’s retirement benefit.
In the event of a change in control, a director who has not yet attained ten years of service will be deemed
to have ten years of service and attained age 65 in order to calculate his benefit under the plan. In the event a
director dies prior to retirement, the director’s beneficiary will be entitled to benefit payments in the form of a
joint and survivor benefit payable at 100% of the amount paid to the director. Retirement benefits may be paid,
at the director’s election, either in monthly payments until the eligible director’s death, or as a joint and survivor
form of benefit payable for the lifetime of the eligible director and, upon the eligible director’s death, at 50% of
the benefit amount, to the director’s beneficiary, or a joint and survivor form of benefit payable for the lifetime
of the director and, upon the director’s death, at 100% of the amount, to the director’s beneficiary during the
beneficiary’s lifetime. In order to receive retirement benefits under the plan, the director must remain a director
emeritus in good standing after retirement and must not engage in any business enterprise which competes with
Investors Bank nor disclose any confidential information relative to the business of Investors Bank.
Deferred Directors Fee Plans
Investors Bank maintains the Investors Bank Deferred Directors Fee Plan. Each non-employee member of
the Board of Directors of Investors Bank is eligible to participate in the plan and has the right to elect to defer
the receipt of all or any part of the director fees earned as a member of the Board of Directors of Investors
Bank. Compensation deferred under the plan and interest (at a rate equal to one and one-half percent below the
Wall Street Journal prime rate) thereon is payable upon the earlier of the participant’s death, disability or
separation from service. Such deferred compensation will be payable in a lump sum, unless the participant has
elected payment in monthly installments over a period of up to ten years. At December 31, 2016 there were no
participants in the Investors Bank Deferred Directors Fee Plan.
Investors Bancorp maintains the Investors Bancorp, Inc. Deferred Directors Fee Plan. Each non-employee
member of the Board of Directors of Investors Bancorp is eligible to participate in the plan and has the right to
elect to defer the receipt of all or any part of the director fees earned as a member of the Board of Directors of
Investors Bancorp. Compensation deferred under the plan and interest (at a rate equal to one and one-half
percent below the Wall Street Journal prime rate) thereon is payable upon the earlier of the participant’s death,
disability or separation from service. Such deferred compensation will be payable in a lump sum, unless the
participant has elected payment in monthly installments over a period of up to ten years. At December 31, 2016
there were no participants in the Investors Bancorp Inc. Deferred Directors Fee Plan.
Split Dollar Life Insurance Agreements
Mr. Albanese, Mr. Bone and Ms. Siekerka are each parties to individual split dollar life insurance
agreements with Roma Bank, which were assumed by Investors Bank on December 6, 2013 in connection with
the merger between Investors Bancorp and Roma Financial Corporation. Investors Bank owns a life insurance
policy on the lives of Messrs. Albanese, Bone and Ms. Siekerka. Under the agreement, upon the death of the
director, the proceeds of the policy are divided between the director’s beneficiary, who is entitled to $100,000
on the director’s death, and Investors Bank, which is entitled to the remainder of the death benefit. The director
has the right to designate the beneficiary who will receive his or her share of the proceeds payable upon death.
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Summary of Directors’ Compensation
The following table sets forth for the year ended December 31, 2016 certain information as to total
compensation paid to non-employee directors.
Directors’ Compensation Table
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
Investors Bancorp
Fees Earned or
Paid in Cash
($)
Option
Awards
($) (2)
Investors Bank
Stock
Fees Earned or
Awards
Paid in Cash
($) (1)
($)
73,200 — —
73,200 — —
73,200 — —
134,200 — —
73,200 — —
73,200 — —
67,100 — —
73,200 — —
73,200 — —
73,200 — —
74,000
66,500
81,500
44,000
71,500
71,500
57,000
31,500
54,000
81,500
All Other
Compensation
($) (3)
Total
($)
—
—
—
—
—
—
—
—
—
—
413 147,613
312 140,012
11,234 165,934
14,306 192,506
26,674 171,374
15,200 159,900
— 124,100
— 104,700
281 127,481
— 154,700
Name
Robert C. Albanese
Dennis M. Bone
Doreen R. Byrnes
Robert M. Cashill
William V. Cosgrove
Brian D. Dittenhafer
Brendan J. Dugan(4)
James J. Garibaldi
Michele N. Siekerka
James H. Ward III
(1)
(2)
(3)
(4)
Messrs. Albanese, Bone, Cashill, Cosgrove, Dittenhafer, Garibaldi and Ward and Mses. Byrnes and Siekerka had unvested stock
awards of 80,000, 80,000, 100,000, 80,000, 100,000, 80,000, 80,000, 80,000 and 80,000, respectively, at December 31, 2016. All
unvested stock awards were granted June 23, 2015 under the 2015 Equity Incentive Plan.
Messrs. Albanese, Bone, Cashill, Cosgrove, Dittenhafer, Garibaldi and Ward and Mses. Byrnes and Siekerka each had unexercised
stock option awards of 250,000, respectively, at December 31, 2016 which were granted June 23, 2015 under the 2015 Equity
Incentive Plan. Mr. Cosgrove had unexercised stock option awards of 100,000 at December 31, 2016 which were received as an
employee of Investors Bank under the 2006 Equity Incentive Plan. Mr. Albanese and Ms. Siekerka had unexercised stock option
awards of 35,302 and 70,606 options, respectively, at December 31, 2016, which were granted under the Roma Financial
Corporation 2008 Equity Incentive Plan.
This amount includes perquisites and other personal benefits, or property, if the aggregate amount for each director is at least
$10,000. Specifically, this amount represents the premiums paid for long term care coverage for Messrs. Cashill and Dittenhafer and
Ms. Byrnes and their spouses. In addition, the amount includes automobile allowance and club dues for Mr. Cosgrove. For Messrs.
Albanese and Bone and Ms. Siekerka includes imputed income with respect to their split dollar life insurance agreements.
Director Brendan J. Dugan passed away on December 18, 2016. Upon his death, all outstanding stock options and awards vested.
Other Matters
Director Stock Ownership Requirements
The Board believes its directors should have a financial investment in Investors Bancorp to further align
their interests with stockholders. Directors are expected to own at least 25,000 shares of common stock
(excluding stock options). Stock holdings are expected to be achieved within five (5) years of either the
implementation of the ownership guidelines or the starting date of the individual, whichever is later.
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Securities Authorized for Issuance Under Equity Compensation Plans
Set forth below is information as of December 31, 2016 regarding equity compensation plans categorized
by those plans that have been approved by stockholders and those plans that have not been approved by
stockholders.
Equity compensation plans approved by
stockholders
Equity compensation plans not approved by
stockholders
Total
Number of
Securities to
be Issued Upon
Exercise of
Outstanding
Options and
Rights(1)
Weighted
Average
Exercise
Price(2)
Number of
Securities
Remaining
Available For
Issuance
Under
Plan
13,998,666 $
11.74 11,976,522 (3)
— $
13,998,666 $
—
—
11.74 11,976,522
(1)
(2)
(3)
Includes outstanding stock options to purchase 1,107,249 shares of common stock granted under the 2006 Equity Incentive Plan,
outstanding stock options to purchase 574,678 shares of common stock granted under the Roma Financial Corporation 2008 Equity
Incentive Plan and 833,333 performance-based stock awards granted under the 2015 Equity Incentive Plan.
With respect to the stock options, the weighted average exercise price reflects an exercise price of $5.27 for 640,191 stock options
granted in 2008; an exercise price of $3.91 for 25,500 stock options granted in 2009; an exercise price of $4.97 for 12,750 stock
options granted in 2010; an exercise price of $5.78 for 12,750 stock options granted in 2011; an exercise price of $7.00 for 8,925
stock options granted in 2012; an exercise price of $6.77 for 871,753 stock options granted in 2013; an exercise price of $10.25 for
110,058 stock options granted in 2014; an exercise price of $12.54 for 11,311,966 stock options granted in 2015; an exercise price
of $11.60 for 171,440 stock options granted in 2016 under the Company’s stock-based compensation plans.
Represents the number of available shares that may be granted as stock options and other stock awards under the Company’s stock-
based compensation plans.
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Proposal II–Advisory Vote to Approve Executive Compensation
The Compensation Discussion and Analysis appearing earlier in this Proxy Statement describes the
executive compensation program and the compensation decisions made by the Compensation and Benefits
Committee with respect to the Chief Executive Officer and other officers named in the Summary Compensation
Table (who are referred to as the “Named Executive Officers”).
This proposal, commonly known as a “Say-on-Pay” proposal, gives you as a stockholder the opportunity
to vote on our executive pay program. In accordance with Section 14A of the Exchange Act, the Board of
Directors is requesting stockholder to cast a non-binding advisory vote on the following resolution:
“RESOLVED, that the stockholders of Investors Bancorp, Inc. approve the compensation paid to
the Named Executive Officers, as disclosed in this Proxy Statement pursuant to the compensation
disclosure rules of the SEC, including the Compensation Discussion and Analysis, the
compensation tables and narrative accompanying the tables.”
Our executive compensation program is based on a pay for performance philosophy that is designed to
support our business strategy and align the interests of our executives with our stockholders. The Board of
Directors believes that the link between compensation and the achievement of our long- and short-term business
goals has helped our financial performance over time, while not encouraging excessive risk taking.
For these reasons, the Board of Directors is requesting stockholders to support this proposal. While this
advisory vote is non-binding, the Compensation and Benefits Committee and the Board of Directors value the
views of the stockholders and will consider the outcome of this vote in future executive compensation
decisions.
The Board of Directors recommends a vote “FOR” approval of the compensation paid to Investors
Bancorp’s Named Executive Officers.
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Proposal III–Ratification of the Appointment of the Independent
Registered Public Accounting Firm
Investors Bancorp’s independent registered public accounting firm for the year ended December 31, 2016
was KPMG LLP. The Audit Committee has re-appointed KPMG LLP to continue as the independent registered
public accounting firm for Investors Bancorp for the year ending December 31, 2017, subject to the ratification
by the stockholders at the Annual Meeting. Representatives of KPMG LLP are expected to attend the Annual
Meeting. They will be given an opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions.
Stockholder ratification of the appointment of KPMG LLP is not required by Investors Bancorp’s Bylaws
or otherwise. However, the Board of Directors is submitting the appointment of the independent registered
public accounting firm to the stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the appointment of KPMG LLP, the Audit Committee will reconsider whether it
should select another independent registered public accounting firm. Even if the selection is ratified, the Audit
Committee in its discretion may direct the appointment of a different independent registered public accounting
firm at any time during the year if it determines that such a change is in the best interests of Investors Bancorp
and its stockholders.
Audit Fees. The aggregate fees billed to Investors Bancorp for professional services rendered by KPMG
LLP for the audit of the Investors Bancorp’s annual financial statements, review of the financial statements
included in the Investors Bancorp’s Quarterly Reports on Form 10-Q and services that are normally provided by
KPMG LLP in connection with statutory and regulatory filings and engagements were $1,180,000 and
$1,260,000 during the years ended December 31, 2016 and 2015, respectively.
Audit Related Fees. The aggregate fees billed to Investors Bancorp for assurance and related services
rendered by KPMG LLP that are reasonably related to the performance of the audit of and review of the
financial statements and that are not already reported in “Audit Fees,” above, were $130,875 and $104,500
during the years ended December 31, 2016 and 2015, respectively. These services included audits of employee
benefit plans, acquisition and transaction related procedures for a subsidiary of the Company.
Tax Fees. The aggregate fees billed to Investors Bancorp for professional services rendered by KPMG
LLP for tax compliance, tax advice and tax planning were $159,970 and $118,200 during the years ended
December 31, 2016 and 2015, respectively.
All Other Fees. The aggregate fees billed to Investors Bancorp for compliance reviews was $127,000
during the year ended December 31, 2016. There were no “Other Fees” during the years ended December 31,
2015.
The Audit Committee has considered whether the provision of non-audit services is compatible with
maintaining the independence of KPMG LLP. The Audit Committee concluded that performing such services
does not affect the independence of KPMG LLP in performing its function as Investors Bancorp’s independent
registered public accounting firm.
The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve
audit and audit-related services between meetings of the Audit Committee, provided the Chair reports any such
approvals to the full Audit Committee at its next meeting. The full Audit Committee pre-approves all other
services to be performed by the independent registered public accounting firm and the related fees.
The Board of Directors recommends a vote “FOR” the ratification of KPMG LLP as the independent
registered public accounting firm.
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Other Matters
As of the date of this document, the Board of Directors knows of no matters that will be presented for
consideration at the Annual Meeting other than as described in this document. However, if any other matter
shall properly come before the Annual Meeting or any adjournment or postponement thereof and shall be voted
upon, the proposed proxy will be deemed to confer authority to the individuals named as authorized therein to
vote the shares represented by the proxy in accordance with their best judgment as to any matters that fall
within the purposes set forth in the notice of Annual Meeting.
Stockholder Proposals
To be eligible for inclusion in the proxy materials for next year’s annual meeting of stockholders under
SEC Rule 14(a)-8, any stockholder proposal to take action at such meeting must be received at Investors
Bancorp’s executive office, 101 JFK Parkway, Short Hills, New Jersey 07078, no later than December 14,
2017. Any such proposals shall be subject to the requirements of the proxy rules adopted under the Securities
Exchange Act of 1934, as amended.
Advance Notice of Business to be Conducted at an Annual Meeting
The Bylaws of Investors Bancorp also provide an advance notice procedure for certain business, or
nominations to the Board of Directors, to be brought before an annual meeting of stockholders. In order for a
stockholder to properly bring business before an annual meeting, the stockholder must give written notice to the
Corporate Secretary of Investors Bancorp not less than 90 days prior to the date of Investors Bancorp’s proxy
materials for the preceding year’s annual meeting; provided, however, that if the date of the annual meeting is
advanced more than 30 days prior to or delayed by more than 30 days after the anniversary of the preceding
year’s annual meeting, notice by the stockholder to be timely must be so delivered not later than the close of
business on the tenth day following the day on which public announcement of the date of such annual meeting
is first made. The notice must include the stockholder’s name, record address, and number of shares owned,
describe briefly the proposed business, the reasons for bringing the business before the annual meeting, and any
material interest of the stockholder in the proposed business. Nothing in this paragraph shall be deemed to
require Investors Bancorp to include in its proxy statement and proxy relating to an annual meeting any
stockholder proposal under SEC Rule 14a-8. In accordance with the foregoing, in order for a proposal or a
nomination to be brought before the annual meeting of stockholders to be held following the year ending
December 31, 2017, notice must be provided to the Corporate Secretary by January 12, 2018.
The following documents are available on the “Governance Documents” section of the “Investor
Relations” page of the Investors Bank’s website at www.myinvestorsbank.com:
Audit Committee Charter
Compensation and Benefits Committee Charter
Nominating and Corporate Governance Charter
Investors Bancorp’s Corporate Governance Guidelines
Investors Bancorp’s Code of Business Conduct and Ethics
Investors Bancorp’s Independence Standards
Copies of each will be furnished without charge upon written request to the Corporate Secretary,
Investors Bancorp, Inc., 101 JFK Parkway, Short Hills, New Jersey 07078.
An additional copy of Investors Bancorp’s Annual Report on Form 10-K (without exhibits) for the year
ended December 31, 2016, as filed with the Securities and Exchange Commission, will be furnished
without charge to stockholders upon written request to the Corporate Secretary, Investors Bancorp, Inc.,
101 JFK Parkway, Short Hills, New Jersey 07078. The Form 10-K is also available free of charge on the
“Investor Relations” page of the Investors Bank’s website at www.myinvestorsbank.com.
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CORPORATE INFORMATION
BOARD OF DIRECTORS
Robert M. Cashill
Chairman of the Board
Robert C. Albanese
Dennis M. Bone
Doreen R. Byrnes
Domenick Cama
Senior Executive
Vice President
& Chief Operating Officer
Kevin Cummings
President &
Chief Executive Officer
Peter H. Carlin
William V. Cosgrove
Brian D. Dittenhafer
James J. Garibaldi
Michele N. Siekerka
James H. Ward, III
Paul N. Stathoulopoulos*
EXECUTIVE OFFICERS
Kevin Cummings
President &
Chief Executive Officer
Richard Spengler
Executive Vice President &
Chief Lending Officer
Sean Burke
Senior Vice President &
Chief Financial Officer
Domenick Cama
Senior Executive Vice President
& Chief Operating Officer
Paul Kalamaras
Executive Vice President &
Chief Retail Banking Officer
CORPORATE COUNSEL
Luse Gorman, PC
5335 Wisconsin Ave., NW
Suite 780
Washington, DC 20015
INVESTOR RELATIONS
Stockholders, Investors, and
Analysts may also contact:
Marianne Wade
Vice President
973.924.5100
investorrelations@investorsbank.com
INDEPENDENT AUDITORS
KPMG, LLP
51 JFK Parkway
Short Hills, NJ 07078
TRANSFER AGENT & REGISTRAR
Inquiries regarding stock certificate
administration, address changes and other
related services should be directed to:
Computershare
P O Box 30170
College Station, TX
77842-3170
800.851.9677
CORPORATE OFFICE
101 JFK Parkway
Short Hills, NJ 07078
973.924.5100
www.investorsbank.com
*Member of the Investors Bank Board of Directors
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investorsBancorp, INC.
101 JFK PARKWAY • SHORT HILLS, NJ • 07078
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