UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

Investors Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Delaware		22-3493930
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

101 JFK Parkway, Short Hills, New Jersey 07078
(Address of principal executive offices)

(973) 924-5100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all the reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a 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 o No þ

As of April 30, 2008 there were 116,275,688 shares of the Registrant’s common stock, par value $0.01 per share, issued and 107,995,967 outstanding, of which 63,099,781 shares, or 58.42% of the Registrant’s outstanding common stock, were held by Investors Bancorp, MHC, the Registrant’s mutual holding company parent.

 

 

Investors Bancorp, Inc.
FORM 10-Q

Index

		Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2008 (unaudited) and June 30, 2007			1
Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2008 and 2007 (unaudited)			2
Consolidated Statements of Stockholders’ Equity for the Nine Months Ended March 31, 2008 and 2007 (unaudited)			3
Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2008 and 2007 (unaudited)			4
Notes to Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			30
Part II. Other Information
Item 1. Legal Proceedings			30
Item 1A. Risk Factors			30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			30
Item 3. Defaults upon Senior Securities			31
Item 4. Submission of Matters to a Vote of Security Holders			31
Item 5. Other Information			31
Item 6. Exhibits			31
Signature Page			33
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION

INVESTORS BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

March 31, 2008 (Unaudited) and June 30, 2007

		March 31,				June 30,
		2008				2007
		(In thousands)
Assets
Cash and cash equivalents		$	90,938				24,810
Securities available-for-sale, at estimated fair value			214,049				251,970
Securities held-to-maturity, net (estimated fair value of $1,271,313 and $1,472,385 at March 31, 2008 and June 30, 2007, respectively)			1,302,356				1,517,664
Loans receivable, net			4,078,254				3,589,373
Loans held-for-sale			6,722				3,410
Stock in the Federal Home Loan Bank			41,846				33,887
Accrued interest receivable			26,183				24,300
Office properties and equipment, net			28,009				27,155
Net deferred tax asset			38,571				39,399
Bank owned life insurance contract			90,949				88,018
Other assets			1,153				1,102
Total assets		$	5,919,030				5,601,088
Liabilities and Stockholders’ Equity
Liabilities:
Deposits		$	3,887,967				3,664,966
Borrowed funds			1,155,589				1,038,710
Advance payments by borrowers for taxes and insurance			19,374				17,671
Other liabilities			36,215				36,376
Total liabilities			5,099,145				4,757,723
Stockholders’ equity:
Preferred stock, $0.01 par value, 50,000,000 authorized shares; none issued			—				—
Common stock, $0.01 par value, 200,000,000 shares authorized; 116,275,688 issued; 108,135,665 and 111,468,952 outstanding at March 31, 2008 and June 30, 2007, respectively			532				532
Additional paid-in capital			511,850				506,016
Retained earnings			465,575				453,751
Treasury stock, at cost; 8,276,765 and 4,806,736 shares at March 31, 2008 and June 30, 2007, respectively			(116,774	)			(70,973	)
Unallocated common stock held by the employee stock ownership plan			(37,932	)			(38,996	)
Accumulated other comprehensive loss			(3,366	)			(6,965	)
Total stockholders’ equity			819,885				843,365
Total liabilities and stockholders’ equity		$	5,919,030				5,601,088

See accompanying notes to consolidated financial statements.

INVESTORS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

(Unaudited)

		For the Three Months								For the Nine Months
		Ended March 31,								Ended March 31,
		2008				2007				2008				2007
		(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable and loans held-for-sale		$	57,123				45,868				166,777				131,906
Securities:
Government-sponsored enterprise obligations			1,042				1,339				3,714				4,017
Mortgage-backed securities			14,919				18,286				47,358				60,988
Equity securities available-for-sale			—				443				—				1,370
Municipal bonds and other debt			2,627				2,410				8,773				7,228
Interest-bearing deposits			151				154				452				545
Repurchase agreements			162				—				162				—
Federal Home Loan Bank stock			971				798				2,364				2,248
Total interest and dividend income			76,995				69,298				229,600				208,302
Interest expense:
Deposits			37,980				35,673				116,899				100,467
Secured borrowings			12,887				11,995				41,414				42,744
Total interest expense			50,867				47,668				158,313				143,211
Net interest income			26,128				21,630				71,287				65,091
Provision for loan losses			1,000				200				2,950				525
Net interest income after provision for loan losses			25,128				21,430				68,337				64,566
Non-interest income:
Fees and service charges			740				642				2,219				1,961
Income on bank owned life insurance contract			954				910				2,931				2,629
Gain on sales of mortgage loans, net			234				135				466				89
Gain (loss) on securities transactions, net			(17	)			—				1				(3,666	)
Other income			171				23				301				65
Total non-interest income			2,082				1,710				5,918				1,078
Non-interest expenses:
Compensation and fringe benefits			13,027				12,962				37,378				35,520
Advertising and promotional expense			635				767				1,865				2,525
Office occupancy and equipment expense			2,565				2,469				7,703				7,407
Federal insurance premiums			112				108				326				326
Stationery, printing, supplies and telephone			465				399				1,305				1,172
Legal, audit, accounting, and supervisory examination fees			543				504				1,517				1,551
Data processing service fees			1,076				1,004				3,061				2,912
Other operating expenses			878				891				3,043				3,025
Total non-interest expenses			19,301				19,104				56,198				54,438
Income before income tax expense (benefit)			7,909				4,036				18,057				11,206
Income tax expense (benefit)			2,905				1,042				6,244				(8,159	)
Net income		$	5,004				2,994				11,813				19,365
Earnings per share — basic and diluted		$	0.05			$	0.03			$	0.11			$	0.17
Weighted average shares outstanding
Basic			102,952,725				109,165,928				104,064,944				111,066,524
Diluted			103,080,783				109,252,301				104,208,845				111,071,493

See accompanying notes to consolidated financial statements.

INVESTORS BANCORP, INC.

Consolidated Statements of Stockholders’ Equity

Nine months ended March 31, 2008 and 2007

(Unaudited)

																						Accumulated
						Additional												Unallocated				other				Total
		Common				paid-in				Retained				Treasury				Common Stock				comprehensive				stockholders’
		stock				capital				earnings				stock				Held by ESOP				loss				equity
														(In thousands)
Balance at June 30, 2006		$	532				524,962				426,233				—				(40,414	)			(11,126	)			900,187
Comprehensive income:
Net income			—				—				19,365				—				—				—				19,365
Unrealized gain on securities available- for-sale, net of tax expense of $6,760			—				—				—				—				—				10,117				10,117
Reclassification adjustment for losses included in net income, net of tax benefit of $1,347			—				—				—				—				—				(1,951	)			(1,951	)
Total comprehensive income																											27,531
Cummulative effect of change in accounting for bank owned life insurance			—				—				5,564				—				—				—				5,564
Purchase of treasury stock (4,856,295 shares)			—				—				—				(74,082	)			—				—				(74,082	)
Treasury stock allocated to restricted stock plan			—				(25,421	)			(312	)			25,733				—				—				—
Compensation cost for stock options and restricted stock			—				3,458				—				—				—				—				3,458
ESOP shares allocated or commited to be released			—				512				—				—				1,064				—				1,576
Balance at March 31, 2007		$	532				503,511				450,850				(48,349	)			(39,350	)			(2,960	)			864,234
Balance at June 30, 2007		$	532				506,016				453,751				(70,973	)			(38,996	)			(6,965	)			843,365
Comprehensive income:
Net income			—				—				11,813				—				—				—				11,813
Change in funded status of postretirement plan due to plan curtailment and settlement, net of tax expense of $891			—				—				—				—				—				1,337				1,337
Amortization related to postretirement obligations, net of tax expense of $54			—				—				—				—				—				80				80
Unrealized gain on securities available- for-sale, net of tax expense of $1,521			—				—				—				—				—				2,182				2,182
Total comprehensive income																											15,412
Cummulative effect adjustment upon adoption of FIN 48			—				—				300				—				—				—				300
Purchase of treasury stock (3,470,029 shares)			—				—				—				(47,920	)			—				—				(47,920	)
Treasury stock allocated to restricted stock plan			—				(1,830	)			(289	)			2,119				—				—				—
Compensation cost for stock options and restricted stock			—				7,215				—				—				—				—				7,215
ESOP shares allocated or committed to be released			—				449				—				—				1,064				—				1,513
Balance at March 31, 2008		$	532				511,850				465,575				(116,774	)			(37,932	)			(3,366	)			819,885

See accompanying notes to consolidated financial statements.

INVESTORS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows
(Unaudited)

		For the Nine Months Ended
		March 31,
		2008				2007
		(In thousands)
Cash flows from operating activities:
Net income		$	11,813				19,365
Adjustments to reconcile net income to net cash provided by operating activities:
ESOP and stock-based compensation expense			8,728				5,034
Amortization of premiums and accretion of discounts on securities, net			785				1,228
Amortization of premium and accretion of fees and costs on loans, net			1,559				1,386
Provision for loan losses			2,950				525
Depreciation and amortization of office properties and equipment			2,026				2,106
(Gain) loss on securities transactions, net			(1	)			3,666
Mortgage loans originated for sale			(59,982	)			(35,225	)
Proceeds from mortgage loan sales			57,136				30,471
Gain on sales of mortgage loans, net			(466	)			(89	)
Income on bank owned life insurance contract			(2,931	)			(2,629	)
Increase in accrued interest receivable			(1,883	)			(2,819	)
Deferred tax benefit			(1,638	)			(14,058	)
(Increase) decrease in other assets			(51	)			147
Increase (decrease) in other liabilities			2,501				(4,709	)
Total adjustments			8,732				(14,966	)
Net cash provided by operating activities			20,545				4,399
Cash flows from investing activities:
Purchases of loans receivable			(467,362	)			(503,647	)
Net (originations) repayments of loans receivable			(26,028	)			73,334
Purchases of mortgage-backed securities held-to-maturity			—				(22,701	)
Purchases of debt securities held-to-maturity			(23,118	)			(13,000	)
Purchases of other investments available-for-sale			(1,400	)			—
Proceeds from paydowns/maturities on mortgage-backed securities held-to-maturity			170,072				214,761
Proceeds from calls/maturities on debt securities held-to-maturity			67,508				2,063
Proceeds from paydowns/maturities on mortgage-backed securities available-for-sale			43,087				70,809
Proceeds from call of equity securities available-for-sale			—				10,000
Proceeds from sale of mortgage-backed securities held-to-maturity			—				22,942
Proceeds from sale of mortgage-backed securities available-for-sale			—				161,112
Proceeds from redemptions of Federal Home Loan Bank stock			21,323				29,251
Purchases of Federal Home Loan Bank stock			(29,282	)			(16,650	)
Purchases of office properties and equipment			(2,880	)			(1,396	)
Net cash (used in) provided by investing activities			(248,080	)			26,878
Cash flows from financing activities:
Net increase in deposits			223,001				282,066
Net decrease in funds borrowed under short-term repurchase agreements			(160,000	)			(125,000	)
Proceeds from funds borrowed under other repurchase agreements			590,000				310,000
Repayments of funds borrowed under other repurchase agreements			(80,000	)			(475,000	)
Net (decrease) increase in other borrowings			(233,121	)			34,977
Net increase in advance payments by borrowers for taxes and insurance			1,703				689
Purchase of treasury stock			(47,920	)			(74,082	)
Net cash provided by (used in) financing activities			293,663				(46,350	)
Net increase (decrease) in cash and cash equivalents			66,128				(15,073	)
Cash and cash equivalents at beginning of period			24,810				39,824
Cash and cash equivalents at end of period		$	90,938				24,751
Supplemental cash flow information:
Cash paid during the period for:
Interest			155,635				143,168
Income taxes			2,194				7,615

See accompanying notes to consolidated financial statements.

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

1. Basis of Presentation

The consolidated financial statements are composed of the accounts of Investors Bancorp, Inc. and its wholly owned subsidiary, Investors Savings Bank (Bank) (collectively, the Company) and the Bank’s wholly-owned significant subsidiaries, ISB Mortgage Company LLC and ISB Asset Corporation.

In the opinion of management, all the adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the three and nine month periods ended March 31, 2008 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending June 30, 2008.

Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the preparation of the Form 10-Q. The consolidated financial statements presented should be read in conjunction with the Company’s audited consolidated financial statements and notes to consolidated financial statements included in the Company’s June 30, 2007 Annual Report on Form 10-K.

2. Earnings Per Share

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

		For the Three Months Ended March 31,
		2008												2007
										Per												Per
										Share												Share
		Income				Shares				Amount				Income				Shares				Amount
						(In thousands, except per share data)
Net Income		$	5,004											$	2,994
Basic earnings per share:
Income available to common stockholders		$	5,004				102,952,725			$	0.05			$	2,994				109,165,928			$	0.03
Effect of dilutive common stock equivalents			—				128,058								—				86,373
Diluted earnings per share:
Income available to common stockholders		$	5,004				103,080,783			$	0.05			$	2,994				109,252,301			$	0.03

		For the Nine Months Ended March 31,
		2008												2007
										Per												Per
										Share												Share
		Income				Shares				Amount				Income				Shares				Amount
						(In thousands, except per share data)
Net Income		$	11,813											$	19,365
Basic earnings per share:
Income available to common stockholders		$	11,813				104,064,944			$	0.11			$	19,365				111,066,524			$	0.17
Effect of dilutive common stock equivalents			—				143,901								—				4,969
Diluted earnings per share:
Income available to common stockholders		$	11,813				104,208,845			$	0.11			$	19,365				111,071,493			$	0.17

Anti-dilutive stock options and awards totaling 4,925,994 shares at March 31, 2008 were excluded from the earnings per share calculations.

3. Loans Receivable, Net

Loans receivable, net are summarized as follows:

		March 31,				June 30,
		2008				2007
		(In thousands)
Residential mortgage loans		$	3,488,985				3,153,212
Multi-family and commercial			155,106				107,350
Construction loans			254,766				152,670
Consumer and other loans			166,745				161,395
Total loans			4,065,602				3,574,627
Premiums and deferred costs			25,011				23,587
Deferred loan fees			(2,522	)			(1,924	)
Allowance for loan losses			(9,837	)			(6,917	)
Net loans		$	4,078,254				3,589,373

4. Deposits

Deposits are summarized as follows:

		March 31,				June 30,
		2008				2007
		(In thousands)
Savings accounts		$	362,694				320,880
Checking accounts			382,866				388,215
Money market accounts			211,193				182,274
Total core deposits			956,753				891,369
Certificates of deposit			2,931,214				2,773,597
		$	3,887,967				3,664,966

5. Equity Incentive Plan

During the nine months ended March 31, 2008 and 2007, the Company recorded $7.2 million and $3.5 million, respectively, of share-based compensation expense, comprised of stock option expense of $3.0 million and $1.5 million, respectively, and restricted stock expense of $4.2 million and $2.0 million, respectively.

At the January 2008 Compensation and Benefits Committee meeting, the Committee approved the issuance of an additional 136,742 restricted stock awards and 341,851 stock options to the independent directors of the Board. Additionally, during the quarter ended March 31, 2008, 10,000 stock options were issued to certain officers. The awards were made pursuant to the shareholder approved 2006 Equity Incentive Plan.

The following is a summary of the Company’s stock option activity and related information for its option plans for the nine months ended March 31, 2008 and 2007:

		Nine months ended March 31,
		2008								2007
						Weighted								Weighted
		Number of				Average				Number of				Average
		Stock				Exercise				Stock				Exercise
		Options				Price				Options				Price
Outstanding at beginning of period			4,437,401			$	15.26				—			$	—
Granted			351,851				13.39				4,447,401				15.26
Exercised			—				—				—				—
Forfeited			—				—				—				—
Outstanding at end of period			4,789,252			$	15.12				4,447,401			$	15.26
Exercisable at end of period			887,480			$	15.26				—			$	—

The following is a summary of the status of the Company’s non-vested options as of March 31, 2008 and 2007 and changes therein during the nine months then ended:

		Nine months ended March 31,
		2008								2007
						Weighted								Weighted
		Number of				Average				Number of				Average
		Stock				Grant Date				Stock				Grant Date
		Options				Fair Value				Options				Fair Value
Non-vested at the beginning of period			4,437,401			$	4.17				—			$	—
Granted			351,851				3.46				4,447,401				4.17
Vested			(887,480	)			4.17				—				—
Forfeited			—				—				—				—
Non-vested at end of period			3,901,772			$	4.10				4,447,401			$	4.17

Expected future expense relating to the 3.9 million non-vested options outstanding as of March 31, 2008 is $14.1 million over a weighted average period of 3.8 years.

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

The following is a summary of the status of the Company’s restricted shares as of March 31, 2008 and 2007 and changes therein during the nine months then ended:

		Nine months ended March 31,
		2008								2007
						Weighted								Weighted
		Number of				Average				Number of				Average
		Shares				Grant Date				Shares				Grant Date
		Awarded				Fair Value				Awarded				Fair Value
Non-vested at the beginning of period			1,666,959			$	15.25				—			$	—
Granted			136,742				13.38				1,666,959				15.25
Vested			(333,389	)			15.25				—				—
Forfeited			—				—				—				—
Non-vested at end of period			1,470,312			$	15.08				1,666,959			$	15.25

Expected future compensation expense relating to the 1.5 million restricted shares at March 31, 2008 is $19.5 million over a weighted average period of 3.8 years.

6. Net Periodic Benefit Plans Expense

The Company has a Supplemental Employee Retirement Plan (SERP). The SERP is a nonqualified, defined benefit plan which provides benefits to all employees of the Company if their benefits and/or contributions under the pension plan are limited by the Internal Revenue Code. The Company also has a nonqualified, defined benefit plan which provides benefits to its directors. The SERP and the directors’ plan are unfunded and the costs of the plans are recognized over the period that services are provided.

Effective December 31, 2006, the Company limited participation in the Directors’ retirement plan to the current participants and placed a cap on director’s fees for plan purposes at the December 31, 2006 rate.

The Company also provided (i) postretirement health care benefits to retired employees hired prior to April 1991 who attained at least ten years of service and (ii) certain life insurance benefits to all retired employees. In December 2007, the Company curtailed the benefits to current employees and settled its obligations to retired employees related to the postretirement benefit plan and recognized a pre-tax gain of $2.3 million as a reduction of compensation and fringe benefits expense in the consolidated statements of income.

The components of net periodic benefit expense are as follows:

		Three months ended March 31,
		SERP and directors’ plan								Other Benefits
		2008				2007				2008				2007
						( In thousands)
Service cost		$	135				296				—				40
Interest cost			253				225				12				135
Amortization of:
Transition obligation			—				—				9				50
Prior service cost			(25	)			5				—				—
Net loss (gain)			49				37				(5	)			—
Total net periodic benefit expense		$	412				563				16				225

		Nine months ended March 31,
		SERP and directors’ plan								Other Benefits
		2008				2007				2008				2007
						(In thousands)
Service cost		$	404				888				46				119
Interest cost			758				674				229				404
Amortization of:
Transition obligation			—				—				66				150
Prior service cost			(74	)			14				—				—
Net loss (gain)			146				113				(4	)			—
Total net periodic benefit expense		$	1,234				1,689				337				673

Due to the unfunded nature of these plans, no contributions are expected to be made to the SERP and Directors’ plans and Other Benefits plan in fiscal year 2008.

The Company also maintains a defined benefit pension plan for employees. Since it is a multiemployer plan, costs of the pension plan are based on contributions required to be made to

the pension plan. The Company contributed $1.5 million to the defined benefit pension plan during the first nine months of fiscal year 2008. We anticipate contributing funds to the plan to meet any minimum funding requirements.

7. Income Taxes

Effective July 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,” or FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of this standard. Tax positions must meet the more-likely-than-not recognition threshold at the effective date in order for the related tax benefits to be recognized or continue to be recognized upon adoption of FIN 48. As a result of the adoption of FIN 48, the Company recognized a $300,000 decrease in the liability for unrecognized tax benefits, which was accounted for as an addition to the July 1, 2007, balance of retained earnings. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, where applicable, in income tax expense.

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. On a quarterly basis the Company assesses the realizability of its deferred tax assets. In December 2006, the Company performed an assessment of its ability to realize certain deferred tax assets and concluded that, based on the facts and circumstances at the time, a portion of the associated valuation allowance was no longer required. Those facts and circumstances included, but were not limited to, the projected amount of taxable income the Company and its subsidiaries are expected to generate in future years, the Company’s ability to generate capital gains, and the decision to discontinue the operations of the Company’s Real Estate Investment Trust’s (“REIT”) operations and transfer the REIT’s assets to the Bank due to legislation passed in the State of New Jersey. As a result, the Company recognized a deferred tax benefit of $9.9 million related to the reversal of the previously established deferred tax asset valuation allowance during the quarter ended December 31, 2006. This benefit was partially offset by an additional valuation allowance established for the contribution to the charitable foundation.

The Company files income tax returns in the United States federal jurisdiction and in the state of New Jersey jurisdiction. With few exceptions, the Company is no longer subject to federal and state income tax examinations by tax authorities for years prior to 2002. Currently, the Company is not under examination by any taxing authority.

8. Stock Repurchase Program

At its January 2008 meeting, the Board of Directors approved a third share repurchase program which authorizes the repurchase of an additional 10% of the Company’s publicly-held outstanding common stock, or 4,307,248 shares. The newly approved share repurchase program will commence immediately upon completion of the current program, under which an additional

159,697 shares may be purchased as of March 31, 2008. Under these programs, Investors Bancorp, Inc. common stock may be purchased in the open market and through other privately negotiated transactions in accordance with applicable federal securities laws. During the nine month period ended March 31, 2008, the Company repurchased 3,470,029 shares of its common stock at an average cost of $13.81 per share. At March 31, 2008, a total of 4,466,945 shares remained available for repurchase under the share repurchase programs. As of March 31, 2008, a total of 9,943,724 shares have been purchased, at an average cost of $14.54 per share, under Board authorized share repurchase programs, of which 1,803,701 shares were allocated to fund the restricted stock portion of the Company’s 2006 Equity Incentive Plan. The remaining repurchased shares are held for general corporate use, including stock option exercises.

9. Pending Acquisition

In August 2007, the Company entered into an Agreement and Plan of Merger with Summit Federal Bankshares, Inc. As required by the Office of Thrift Supervision (OTS), Investors Bancorp has agreed to issue additional shares of its common stock to Investors Bancorp, MHC (“Investors MHC”), based on a pro forma market valuation of Summit Federal. An independent appraisal has determined that, as of March 17, 2008, Summit Federal had a pro forma market value of $25.0 million.

At the closing of the merger, which is expected to occur in June 2008 subject to receipt of depositor (Summit Federal) and regulatory approvals, Investors Bancorp will issue the additional shares of common stock to Investors MHC. The number of shares of common stock to be issued to Investors MHC will equal $25.0 million divided by the average of the closing sales price of a share of Investors Bancorp common stock, as reported on the Nasdaq Stock Market, for the twenty (20) consecutive trading days ending on the second trading day preceding the completion date of the merger. The merger will be accounted for as a pooling of interest of mutual enterprises. As of March 31, 2008, Summit Federal Savings Bank had $112 million in assets.

10. Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140.” This statement permits fair value remeasurement of certain hybrid financial instruments, clarifies the scope of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” regarding interest-only and principal-only strips, and provides further guidance on certain issues regarding beneficial interests in securitized financial assets, concentrations of credit risk and qualifying special purpose entities. SFAS No. 155 is effective as of the beginning of the first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 155 on July 1, 2007 did not impact the Company’s financial condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements and requires various additional fair value disclosures, but does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company does not expect that the adoption of SFAS No. 157 on July 1, 2008 will have a material impact on its financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007 with early adoption permitted as of the beginning of a fiscal year that begins on or before November 15, 2007. The Company did not elect early adoption. The Company does not expect that the adoption of SFAS No. 159 on July 1, 2008 will have a material impact on its financial statements.

In December 2007, the FASB issued SFAS No.141R, “Business Combinations.” SFAS 141R requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value.” SFAS No. 141R applies to all business combinations, including combinations among mutual entities and combinations by contract alone. Under SFAS No. 141R, all business combinations will be accounted for by applying the acquisition method. SFAS No. 141R is effective for business combinations completed on or after January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160 will require noncontrolling interests (previously referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. SFAS No. 160 applies to the accounting for noncontrolling interests and transactions with noncontrolling interest holders in consolidated financial statements. SFAS No. 160 is effective for periods beginning on or after December 15, 2008. Earlier application is prohibited. SFAS No. 160 is not expected to have a material impact on the Company’s financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not expect that the adoption of SFAS No. 161 will have a material impact on its financial statements.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

Certain statements contained herein are not based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the economic environment, particularly in the market areas in which Investors Bancorp, Inc. (the Company)

operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations or interpretations of regulations affecting financial institutions, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake and specifically declines any obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Executive Summary

Investors Bancorp’s fundamental business strategy is to be a well capitalized, full service, community bank and to provide high quality customer service and competitively priced products and services to individuals and businesses in the communities we serve.

Our results of operations depend primarily on net interest income, which is directly impacted by the market interest rate environment. Net interest income is the difference between the interest income we earn on our interest-earning assets, primarily mortgage loans and investment securities, and the interest we pay on our interest-bearing liabilities, primarily time deposits, interest-bearing transaction accounts and borrowed funds. Net interest income is affected by the shape of the market yield curve, the timing of the placement and repricing of interest-earning assets and interest-bearing liabilities on our balance sheet, and the prepayment rate on our mortgage-related assets.

The Federal Reserve Board aggressively reduced the Fed Funds rate during the quarter ended March 31, 2008, including a surprise 75 basis point rate cut on January 22, 2008. These rate reductions combined with those enacted by the Fed in late 2007 caused a steepening of the yield curve which should have a positive impact on net interest income going forward as the cost of interest-bearing liabilities will decrease at a faster pace than the yield on interest-earning assets.

While the interest rate environment is important to our net interest income, so is the composition of our balance sheet. Although the recent turmoil in the financial markets has created uncertainty and volatility, we remain committed to the strategy of replacing wholesale assets and liabilities with more loans and deposits. However, we will evaluate and take advantage of favorable pricing in the wholesale markets when opportunities exist. This may include purchasing loans on a “bulk purchase” basis from well established financial institutions to supplement our normal loan production as well as borrowing in the wholesale markets when those costs are less than the cost of raising deposits.

Total loans have increased to $4.07 billion at March 31, 2008 from $3.57 billion at June 30, 2007, an increase of 13.7%. The majority of the growth came from residential mortgage loans which grew 10.6%, or $335.8 million to $3.49 billion. In order to diversify our loan portfolio we have continued our expansion into commercial real estate lending. During the nine months ended March 31, 2008 commercial real estate, construction and multi-family loans increased $150.0 million or

57.6%. We believe this may provide us with an opportunity to increase net interest income and improve our interest rate risk position.

During the nine months ended March 31, 2008, we recorded a $3.0 million provision for loan losses. This reflected the growth in our loan portfolio, particularly in commercial real estate and the risk associated with this type of lending and an internal downgrade of the risk ratings on two construction loans. Our nonperforming assets have increased in line with our recent loan growth, such that the ratio of non-performing assets to total loans has remained consistent at 0.14% at both March 31, 2008 and June 30, 2007.

Total deposits increased by $223.0 million to $3.89 billion at March 31, 2008, an increase of 6.1%. We continue to focus on increasing core deposits and de-emphasizing certificates of deposit, however, this task has proven difficult given the interest rate environment, consumer preference and the extreme competition in the New Jersey marketplace.

As a result of strong loan growth that exceeded the available cash flows from the investment, loan and deposit portfolios, borrowed funds increased $116.9 million, or 11.3%, to $1.16 billion at March 31, 2008 from $1.04 billion at June 30, 2007.

In August 2007, the Company entered into an Agreement and Plan of Merger with Summit Federal Bankshares, Inc. As required by the Office of Thrift Supervision (OTS), Investors Bancorp has agreed to issue additional shares of its common stock to Investors Bancorp, MHC (“Investors MHC”), based on a pro forma market valuation of Summit Federal. An independent appraisal has determined that, as of March 17, 2008, Summit Federal had a pro forma market value of $25.0 million.

At the closing of the merger, which is expected to occur in June 2008 subject to receipt of depositor (Summit Federal) and regulatory approvals, Investors Bancorp will issue the additional shares of common stock to Investors MHC. The number of shares of common stock to be issued to Investors MHC will equal $25.0 million divided by the average of the closing sales price of a share of Investors Bancorp common stock, as reported on the Nasdaq Stock Market, for the twenty (20) consecutive trading days ending on the second trading day preceding the completion date of the merger. The merger will be accounted for as a pooling of interest of mutual enterprises. As of March 31, 2008, Summit Federal Savings Bank had $112 million in assets and five branch locations that complement our current geographic markets.

Comparison of Financial Condition at March 31, 2008 and June 30, 2007

Total Assets. Total assets increased by $317.9 million, or 5.7%, to $5.92 billion at March 31, 2008 from $5.60 billion at June 30, 2007. This increase was largely the result of an increase in our loan portfolio partially offset by a decrease in the securities portfolio.

Securities. Securities, in the aggregate, decreased by $253.2 million, or 14.3%, to $1.52 billion at March 31, 2008, from $1.77 billion at June 30, 2007. The cash flows from our securities portfolio are being used to fund our loan growth. This is consistent with our strategic plan to change our mix of assets by reducing the size of our securities portfolio and increasing the size of our loan portfolio.

Net Loans. Net loans, including loans held for sale, increased by $492.2 million, or 13.7%, to $4.08 billion at March 31, 2008 from $3.59 billion at June 30, 2007. This increase in loans

reflects our continued focus on loan originations and purchases. The loans we originate and purchase are made primarily on properties in New Jersey. To a lesser degree, we originate and purchase loans in states in close proximity to New Jersey as a way to geographically diversify our loan portfolio. We do not originate or purchase, and our loan portfolio does not include, any sub-prime loans or option ARMs.

We originate residential mortgage loans directly and through our mortgage subsidiary, ISB Mortgage Co. During the nine months ended March 31, 2008, we originated $173.5 million in residential mortgage loans. In addition, we purchased mortgage loans from correspondent entities including other banks and mortgage bankers. Our agreements with these correspondent entities require them to originate loans that adhere to our underwriting standards. During the nine months ended March 31, 2008, we purchased loans totaling $404.4 million from these entities. We also purchase pools of mortgage loans in the secondary market on a “bulk purchase” basis from several well-established financial institutions. During the nine months ended March 31, 2008, we purchased loans totaling $62.9 million on a “bulk purchase” basis.

Additionally, for the nine months ended March 31, 2008, we originated $65.0 million in multi-family and commercial real estate loans and $146.4 million in construction loans. This is consistent with our strategy of originating multi-family, commercial real estate and construction loans to diversify our loan portfolio.

The Company also originates 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 loan repayment when the contractually required repayments increase due to the required amortization of the principal amount. These payment increases could affect the borrowers’ ability to repay the loan. The amount of interest-only one-to four-family mortgage loans at March 31, 2008 was $318.2 million compared to $287.9 million at June 30, 2007. The ability of borrowers to repay their obligations is 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 maintains stricter underwriting criteria for these interest-only loans than it does for its amortizing loans. The Company believes these criteria adequately lessen the potential exposure to such risks and that adequate provisions for loan losses are provided for all known and inherent risks.

The allowance for loan losses increased by $2.9 million to $9.8 million at March 31, 2008 from $6.9 million at June 30, 2007. The increase in the allowance reflects the overall growth in the loan portfolio, particularly commercial real estate loans, as well as the credit risk associated with this type of lending and an internal downgrade of the risk ratings on two construction loans. The allowance for loan losses also reflects the overall inherent credit risk in our loan portfolio, the level of our non-performing loans and our charge-off experience.

Total non-performing loans, defined as non-accruing loans, increased by $556,000 to $5.7 million at March 31, 2008 from $5.1 million at June 30, 2007. The ratio of non-performing loans to total loans was 0.14% at both March 31, 2008 and June 30, 2007. The allowance for loan losses as a percentage of non-performing loans was 172.43% at March 31, 2008 compared with

134.33% at June 30, 2007. At March 31, 2008 our allowance for loan losses as a percentage of total loans was 0.24% compared with 0.19% at June 30, 2007.

Although we believe we have established and maintained an adequate level of allowance for loan losses, additions may be necessary based on growth of the loan portfolio, the change in composition of the loan portfolio, and the possible continuation of the current adverse economic environment. Although we use the best information available, the level of allowance for loan losses remains an estimate that is subject to significant judgment and short-term change. See “Critical Accounting Policies.”

Stock in the Federal Home Loan Bank, Bank Owned Life Insurance and Other Assets. The amount of stock we own in the Federal Home Loan Bank (FHLB) increased by $8.0 million from $33.9 million at June 30, 2007 to $41.8 million at March 31, 2008 as a result of an increase in our level of borrowings at March 31, 2008. Bank owned life insurance increased by $2.9 million from $88.0 million at June 30, 2007 to $90.9 million at March 31, 2008. There was also an increase in accrued interest receivable of $1.9 million resulting from an increase in the yield on interest-earning assets and the timing of certain cash flows resulting from the change in the mix of our assets.

Deposits. Deposits increased by $223.0 million, or 6.1%, to $3.89 billion at March 31, 2008 from $3.66 billion at June 30, 2007. The increase was due primarily to a $157.6 million increase in certificates of deposits. Savings account deposits and money market account deposits also increased by $41.8 million and $28.9 million, respectively. These increases were partially offset by a $7.0 million decrease in checking account deposits.

Borrowed Funds. Borrowed funds increased $116.9 million, or 11.3%, to $1.16 billion at March 31, 2008 from $1.04 billion at June 30, 2007. This increase in borrowed funds was the result of strong loan growth that exceeded the available cash flows from the investment, loan and deposit portfolios.

Stockholders’ Equity. Stockholders’ equity decreased $23.5 million to $819.9 million at March 31, 2008 from $843.4 million at June 30, 2007. The decrease is primarily attributed to the repurchase of our common stock totaling $45.8 million partially offset by net income of $11.8 million for the nine months ended March 31, 2008. Other factors impacting stockholders’ equity were compensation costs associated with stock options and restricted stock, the change in the accumulated other comprehensive loss, and the allocation of ESOP shares.

Average Balance Sheets for the Three and Nine Months ended March 31, 2008 and 2007

The following tables present certain information regarding Investors Bancorp, Inc.’s financial condition and net interest income for the three and nine months ended March 31, 2008 and 2007. The tables present the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the periods indicated. Interest income includes fees that we consider adjustments to yields.

		For Three Months Ended
		March 31, 2008												March 31, 2007
		Average												Average
		Outstanding				Interest				Average				Outstanding				Interest				Average
		Balance				Earned/Paid				Yield/Rate				Balance				Earned/Paid				Yield/Rate
		(Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits		$	27,013			$	151				2.24	%		$	18,317			$	154				3.36	%
Repurchase agreements and Fed Funds			23,626				162				2.74	%			—				—				—
Securities available-for-sale (1)			221,914				2,557				4.61	%			318,611				3,643				4.57	%
Securities held-to-maturity			1,355,945				16,031				4.73	%			1,573,901				18,835				4.79	%
Net loans			4,020,387				57,123				5.68	%			3,313,269				45,868				5.54	%
Stock in FHLB			44,088				971				8.81	%			35,541				798				8.98	%
Total interest-earning assets			5,692,973				76,995				5.41	%			5,259,639				69,298				5.27	%
Non-interest-earning assets			176,304												173,157
Total assets		$	5,869,277											$	5,432,796
Interest-bearing liabilities:
Savings		$	353,576				2,014				2.28	%		$	275,530				1,306				1.90	%
Interest-bearing checking			330,973				1,595				1.93	%			303,904				1,817				2.39	%
Money market accounts			208,798				1,225				2.35	%			174,671				856				1.96	%
Certificates of deposit			2,880,853				33,146				4.60	%			2,711,528				31,694				4.68	%
Borrowed funds			1,190,571				12,887				4.33	%			1,003,698				11,995				4.78	%
Total interest-bearing liabilities			4,964,771				50,867				4.10	%			4,469,331				47,668				4.27	%
Non-interest-bearing liabilities			93,214												83,284
Total liabilities			5,057,985												4,552,615
Stockholders’ equity			811,292												880,181
Total liabilities and stockholders’ equity		$	5,869,277											$	5,432,796
Net interest income						$	26,128											$	21,630
Net interest rate spread (2)											1.31	%											1.00	%
Net interest-earning assets (3)		$	728,202											$	790,308
Net interest margin (4)											1.84	%											1.64	%
Ratio of interest-earning assets to total interest- bearing liabilities			1.15	X											1.18	X

		For Nine Months Ended
		March 31, 2008												March 31, 2007
		Average												Average
		Outstanding				Interest				Average				Outstanding				Interest				Average
		Balance				Earned/Paid				Yield/Rate				Balance				Earned/Paid				Yield/Rate
		(Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits		$	19,039			$	452				3.17	%		$	20,346			$	545				3.57	%
Repurchase agreements and Fed Funds			7,732				162				2.79	%			—				—				—
Securities available-for-sale (1)			236,034				8,130				4.59	%			441,337				14,541				4.39	%
Securities held-to-maturity			1,428,165				51,715				4.83	%			1,650,542				59,062				4.77	%
Net loans			3,893,275				166,777				5.71	%			3,204,120				131,906				5.49	%
Stock in FHLB			43,145				2,364				7.31	%			42,903				2,248				6.99	%
Total interest-earning assets			5,627,390				229,600				5.44	%			5,359,248				208,302				5.18	%
Non-interest-earning assets			176,401												159,065
Total assets		$	5,803,791											$	5,518,313
Interest-bearing liabilities:
Savings		$	324,851				5,471				2.25	%		$	247,467				2,740				1.48	%
Interest-bearing checking			338,648				5,920				2.33	%			303,209				5,452				2.40	%
Money market accounts			201,230				3,889				2.58	%			189,401				2,658				1.87	%
Certificates of deposit			2,851,958				101,619				4.75	%			2,633,313				89,617				4.54	%
Borrowed funds			1,170,464				41,414				4.72	%			1,165,815				42,744				4.89	%
Total interest-bearing liabilities			4,887,151				158,313				4.32	%			4,539,205				143,211				4.21	%
Non-interest-bearing liabilities			97,620												83,321
Total liabilities			4,984,771												4,622,526
Stockholders’ equity			819,020												895,787
Total liabilities and stockholders’ equity		$	5,803,791											$	5,518,313
Net interest income						$	71,287											$	65,091
Net interest rate spread (2)											1.12	%											0.97	%
Net interest-earning assets (3)		$	740,239											$	820,043
Net interest margin (4)											1.69	%											1.62	%
Ratio of interest-earning assets to total interest- bearing liabilities			1.15	X											1.18	X