##### 



SECURITIES AND EXCHANGE COMMISSION
100 F Street, N.E.
 Washington, D.C. 20549
 FORM 10-K
 Special Financial Report
 Pursuant to Rule 15d-2 of the Securities Exchange Act of 1934
for the fiscal year ended June 30, 2005
 Commission File No. 0-51557
 INVESTORS BANCORP, INC.
  Delaware
    
    22-3493930(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)101 JFK Parkway, Short Hills, New Jersey
    
    07078(Address of Principal Executive Offices)
    
    Zip Code
 (973) 924-5100
 Securities Registered Pursuant to Section 12(b) of the Act:
    
    NoneSecurities Registered Pursuant to Section 12(g) of the Act:
    
    Common Stock, par value $.01 per share(Title of Class)
 X
  X
 X
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 Consolidated
Financial Statements:Report of
Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets  at June 30, 2005 and 2004
    
    
    F-3Consolidated Statements of Operations  Years ended June 30, 2005, 2004 and 2003
    
    
    F-4Consolidated Statements of Stockholders Equity  Years
ended June 30, 2005, 2004 and 2003
    
    
    F-5Consolidated Statements of Cash Flows  Years ended June 30, 2005, 2004 and 2003
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7SignaturesExhibit 31.1Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




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##### 



Report of Independent Registered Public Accounting Firm
 
    
 F-2




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   2005
    
    
    2004(In thousands)AssetsCash and cash equivalents
    
    $
    81,329
    
    
    
    37,653Securities available-for-sale, at estimated fair value (notes 4 and 10)
    
    
    673,951
    
    
    
    1,421,073Securities held-to-maturity, net (estimated fair value of
$2,032,939 and $2,504,518 at June 30, 2005
and 2004, respectively) (notes 3 and 10)
    
    
    2,040,882
    
    
    
    2,522,811Loans receivable, net (note 5)
    
    
    1,993,904
    
    
    
    1,105,881Loans held-for-sale
    
    
    3,412
    
    
    
    1,428Stock in the Federal Home Loan Bank (note 10)
    
    
    60,688
    
    
    
    81,990Accrued interest and dividends receivable (note 6)
    
    
    18,263
    
    
    
    22,661Other real estate owned, net
    
    
    
    
    
    
    154Office properties and equipment, net (note 8)
    
    
    29,544
    
    
    
    26,948Net deferred tax asset (note 11)
    
    
    13,128
    
    
    
    18,788Premium on deposit acquisition
    
    
    
    
    
    
    1,102Bank owned life insurance contract (note 2)
    
    
    76,229
    
    
    
    75,543Other assets
    
    
    1,423
    
    
    
    2,108$
    4,992,753
    
    
    
    5,318,140Liabilities and Stockholders EquityLiabilities:Deposits (note 9)
    
    $
    3,240,420
    
    
    
    3,266,935Borrowed funds (note 10)
    
    
    1,313,769
    
    
    
    1,604,798Advance payments by borrowers for taxes and insurance
    
    
    10,817
    
    
    
    7,087Other liabilities
    
    
    19,920
    
    
    
    37,657Total liabilities
    
    
    4,584,926
    
    
    
    4,916,477Stockholders equity (notes 15 and 17):Common stock, par value $0.10. Authorized 3,000 shares;
outstanding 50 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    25
    
    
    
    25Retained earnings
    
    
    411,219
    
    
    
    414,361Accumulated other comprehensive loss:Net unrealized loss on securities available for sale, net of tax
    
    
    (2,316
    )
    
    
    (11,968
    )Minimum pension liability, net of tax
    
    
    (1,101
    )
    
    
    (755
    )(3,417
    )
    
    
    (12,723
    )Total stockholders equity
    
    
    407,827
    
    
    
    401,663Commitments and contingencies (notes 7 and 13)$
    4,992,753
    
    
    
    5,318,140
  F-3




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   2005
    
    
    2004
    
    
    2003(In thousands)Interest and dividend income:Loans receivable and loans held-for-sale
    
    $
    76,857
    
    
    
    47,709
    
    
    
    54,421Securities:Government-sponsored enterprise obligations
    
    
    5,496
    
    
    
    5,851
    
    
    
    1,817Mortgage-backed securities
    
    
    138,210
    
    
    
    151,850
    
    
    
    175,643Equity securities available-for-sale
    
    
    1,776
    
    
    
    1,523
    
    
    
    918Municipal bonds and other debt
    
    
    1,369
    
    
    
    1,633
    
    
    
    2,373Interest-bearing deposits
    
    
    489
    
    
    
    866
    
    
    
    1,385Federal Home Loan Bank stock
    
    
    2,327
    
    
    
    1,142
    
    
    
    4,681Total interest and dividend income
    
    
    226,524
    
    
    
    210,574
    
    
    
    241,238Interest expense:Deposits (note 9)
    
    
    69,862
    
    
    
    65,445
    
    
    
    83,806Secured borrowings
    
    
    56,817
    
    
    
    62,113
    
    
    
    74,315Total interest expense
    
    
    126,679
    
    
    
    127,558
    
    
    
    158,121Net interest income
    
    
    99,845
    
    
    
    83,016
    
    
    
    83,117Provision for loan losses (note 5)
    
    
    600
    
    
    
    600
    
    
    
    600Net interest income after provision
for loan losses
    
    
    99,245
    
    
    
    82,416
    
    
    
    82,517Other (loss) income:Fees and service charges
    
    
    2,642
    
    
    
    2,319
    
    
    
    2,170Increase and death benefits on bank owned
life insurance contract (note 2)
    
    
    3,977
    
    
    
    1,002
    
    
    
    3,885Gain on sales of mortgage loans, net
    
    
    406
    
    
    
    814
    
    
    
    1,087(Loss) gain on securities transactions, net (notes 3 and 4)
    
    
    (9,494
    )
    
    
    2,824
    
    
    
    Loss on securities due to other-than-temporary
decline in fair value (note 4)
    
    
    
    
    
    
    (3,094
    )
    
    
    Gain (loss) on sale of other real estate owned, net
    
    
    38
    
    
    
    25
    
    
    
    (4
    )Total other (loss) income
    
    
    (2,431
    )
    
    
    3,890
    
    
    
    7,138Operating expenses:Compensation and fringe benefits (note 12)
    
    
    35,695
    
    
    
    31,578
    
    
    
    28,896Advertising and promotional expense
    
    
    2,636
    
    
    
    1,914
    
    
    
    1,497Office occupancy and equipment expense (notes 8 and 13)
    
    
    10,340
    
    
    
    9,517
    
    
    
    7,994Federal insurance premiums
    
    
    470
    
    
    
    490
    
    
    
    485Stationery, printing, supplies and telephone
    
    
    1,711
    
    
    
    1,734
    
    
    
    1,742Legal, audit, accounting, and supervisory examination fees
    
    
    1,456
    
    
    
    997
    
    
    
    628Data processing service fees
    
    
    3,340
    
    
    
    3,491
    
    
    
    3,126Amortization of premium on deposit acquisition
    
    
    1,102
    
    
    
    1,946
    
    
    
    1,946Loss on early extinguishment of debt (note 10)
    
    
    43,616
    
    
    
    
    
    
    
    Other operating expenses
    
    
    2,936
    
    
    
    3,136
    
    
    
    2,839Total operating expenses
    
    
    103,302
    
    
    
    54,803
    
    
    
    49,153(Loss) income before income tax (benefit)
expense
    
    
    (6,488
    )
    
    
    31,503
    
    
    
    40,502Income tax (benefit) expense (note 11)
    
    
    (3,346
    )
    
    
    11,666
    
    
    
    12,232Net (loss) income
    
    $
    (3,142
    )
    
    
    19,837
    
    
    
    28,270
  F-4




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   Accumulated othercomprehensive lossAdditional
    
    
    
    
    
    
    Minimum
    
    
    Unrealized
    
    
    TotalCommon
    
    
    paid-in
    
    
    Retained
    
    
    pension
    
    
    losses on
    
    
    stockholdersstock
    
    
    capital
    
    
    earnings
    
    
    liability
    
    
    securities
    
    
    equity(In thousands)Balance at June 30, 2002
    
    $
    
    
    
    
    25
    
    
    
    366,254
    
    
    
    (441
    )
    
    
    (617
    )
    
    
    365,221Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    28,270
    
    
    
    
    
    
    
    
    
    
    
    28,270Change in minimum pension liability, net
of tax benefit of $273
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (409
    )
    
    
    
    
    
    
    (409
    )Unrealized loss on securities available-for-sale, net of tax benefit
of $320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (545
    )
    
    
    (545
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,316Balance at June 30, 2003
    
    
    
    
    
    
    25
    
    
    
    394,524
    
    
    
    (850
    )
    
    
    (1,162
    )
    
    
    392,537Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    19,837
    
    
    
    
    
    
    
    
    
    
    
    19,837Change in minimum pension liability, net
of tax expense of $64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    95Unrealized loss on securities available-for-sale, net of tax benefit
of $7,163
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,726
    )
    
    
    (12,726
    )Reclassification adjustment for losses
included in net income, net of tax
of $551
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,920
    
    
    
    1,920Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,126Balance at June 30, 2004
    
    
    
    
    
    
    25
    
    
    
    414,361
    
    
    
    (755
    )
    
    
    (11,968
    )
    
    
    401,663Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    (3,142
    )
    
    
    
    
    
    
    
    
    
    
    (3,142
    )Change in minimum pension liability, net
of tax benefit of $234
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (346
    )
    
    
    
    
    
    
    (346
    )Unrealized gain on securities available-for-sale, net of tax expense
of $2,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,212
    
    
    
    3,212Reclassification adjustment for losses
included in net income, net of tax
of $3,656
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,440
    
    
    
    6,440Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,164Balance at June 30, 2005
    
    $
    
    
    
    
    25
    
    
    
    411,219
    
    
    
    (1,101
    )
    
    
    (2,316
    )
    
    
    407,827
  F-5




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INVESTORS BANCORP, INC. AND SUBSIDIARY
   2005
    
    
    2004
    
    
    2003(In thousands)Cash flows from operating activities:Net (loss) income
    
    $
    (3,142
    )
    
    
    19,837
    
    
    
    28,270Adjustments to reconcile net (loss) income to net cash provided by operating activities:Amortization of premiums and accretion of discounts on securities, net
    
    
    5,542
    
    
    
    22,690
    
    
    
    34,098Amortization of premium on deposit acquisition
    
    
    1,102
    
    
    
    1,946
    
    
    
    1,946Provision for loan losses
    
    
    600
    
    
    
    600
    
    
    
    600Depreciation and amortization of office properties and equipment
    
    
    2,807
    
    
    
    2,304
    
    
    
    2,516Loss (gain) on securities transactions, net
    
    
    9,494
    
    
    
    (2,824
    )
    
    
    Loss on securities due to other-than-temporary decline in fair value
    
    
    
    
    
    
    3,094
    
    
    
    Loss on early extinguishment of debt
    
    
    43,616
    
    
    
    
    
    
    
    Mortgage loans originated for sale
    
    
    (53,548
    )
    
    
    (51,021
    )
    
    
    (83,784
    )Proceeds from mortgage loan sales
    
    
    51,970
    
    
    
    61,398
    
    
    
    76,482Gain on sales of mortgage loans, net
    
    
    (406
    )
    
    
    (814
    )
    
    
    (1,087
    )Proceeds from sales of other real estate owned
    
    
    315
    
    
    
    135
    
    
    
    1,668Net (gain) loss on sales of other real estate owned
    
    
    (38
    )
    
    
    (25
    )
    
    
    4Death benefits on bank owned life insurance contract
    
    
    (2,800
    )
    
    
    
    
    
    
    (6,210
    )(Increase) decrease in bank owned life insurance contract
    
    
    (1,177
    )
    
    
    (1,002
    )
    
    
    2,325Decrease in accrued interest and dividends receivable
    
    
    4,398
    
    
    
    2,394
    
    
    
    1,883Deferred tax benefit
    
    
    (69
    )
    
    
    (1,979
    )
    
    
    (5,101
    )Decrease (increase) in other assets
    
    
    570
    
    
    
    350
    
    
    
    (840
    )(Decrease) increase in other liabilities
    
    
    (18,201
    )
    
    
    1,168
    
    
    
    (1,265
    )Total adjustments
    
    
    44,175
    
    
    
    38,414
    
    
    
    23,235Net cash provided by operating activities
    
    
    41,033
    
    
    
    58,251
    
    
    
    51,505Cash flows from investing activities:Net (increase) decrease in loans receivable
    
    
    (888,746
    )
    
    
    (328,185
    )
    
    
    212,280Purchases of mortgage-backed securities held-to-maturity
    
    
    (261,064
    )
    
    
    (863,170
    )
    
    
    (3,075,015
    )Purchases of mortgage-backed securities available-for-sale
    
    
    (62,175
    )
    
    
    (1,436,645
    )
    
    
    (226,812
    )Purchases of equity securities available-for-sale
    
    
    
    
    
    
    
    
    
    
    (35,000
    )Proceeds from sale of equity securities available-for-sale
    
    
    20,729
    
    
    
    
    
    
    
    Proceeds from calls/maturities on debt securities held-to-maturity
    
    
    25,351
    
    
    
    27,218
    
    
    
    40,316Purchases of debt securities held-to-maturity
    
    
    (23,000
    )
    
    
    (25,000
    )
    
    
    (164,351
    )Proceeds from paydowns/maturities on mortgage-backed securities held-to-maturity
    
    
    689,885
    
    
    
    2,035,506
    
    
    
    3,143,228Proceeds from paydowns/maturities on mortgage-backed securities available-for-sale
    
    
    242,890
    
    
    
    267,196
    
    
    
    74,340Proceeds from sales of mortgage-backed securities held-to-maturity
    
    
    46,942
    
    
    
    135,688
    
    
    
    Proceeds from sales of mortgage-backed securities available-for-sale
    
    
    550,071
    
    
    
    30,390
    
    
    
    Proceeds from redemptions of Federal Home Loan Bank stock
    
    
    82,376
    
    
    
    17,001
    
    
    
    25,001Purchases of Federal Home Loan Bank stock
    
    
    (61,074
    )
    
    
    (11,749
    )
    
    
    (10,750
    )Purchases of office properties and equipment
    
    
    (5,403
    )
    
    
    (6,406
    )
    
    
    (5,843
    )Purchase of bank owned life insurance contract
    
    
    
    
    
    
    
    
    
    
    (40,000
    )Proceeds from death benefits on bank owned life insurance contract
    
    
    3,291
    
    
    
    
    
    
    
    6,806Net cash provided by (used in) investing activities
    
    
    360,073
    
    
    
    (158,156
    )
    
    
    (55,800
    )Cash flows from financing activities:Net (decrease) increase in deposits
    
    
    (26,515
    )
    
    
    94,109
    
    
    
    338,406Net decrease in funds borrowed under short-term repurchase agreements
    
    
    
    
    
    
    (140
    )
    
    
    (182,379
    )Proceeds from funds borrowed under other repurchase agreements
    
    
    605,000
    
    
    
    115,000
    
    
    
    356,000Repayments of funds borrowed under other repurchase agreements
    
    
    (1,027,616
    )
    
    
    (255,000
    )
    
    
    (400,000
    )Proceeds from (repayments of) Federal Home Loan Bank advances
    
    
    87,971
    
    
    
    (29
    )
    
    
    (28
    )Net increase (decrease) in advance payments by borrowers for taxes and insurance
    
    
    3,730
    
    
    
    1,773
    
    
    
    (1,542
    )Net cash (used in) provided by financing activities
    
    
    (357,430
    )
    
    
    (44,287
    )
    
    
    110,457Net increase (decrease) in cash and cash
equivalents
    
    
    43,676
    
    
    
    (144,192
    )
    
    
    106,162Cash and cash equivalents at beginning of year
    
    
    37,653
    
    
    
    181,845
    
    
    
    75,683Cash and cash equivalents at end of year
    
    $
    81,329
    
    
    
    37,653
    
    
    
    181,845Supplemental cash flow information:Noncash investing activities:Real estate acquired through foreclosure
    
    $
    123
    
    
    
    154
    
    
    
    1,580Cash paid during the year for:Interest
    
    
    127,307
    
    
    
    127,423
    
    
    
    159,630Income taxes
    
    
    16,388
    
    
    
    12,993
    
    
    
    20,947
  F-6




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   (1)
    
    Summary of Significant Accounting PoliciesThe following significant accounting and reporting policies of Investors Bancorp, Inc. and
subsidiary (collectively, the Bancorp) conform to accounting principles generally accepted in
the United States of America, or GAAP, and are used in preparing and presenting these
consolidated financial statements:
 (a)
    
    Basis of PresentationThe consolidated financial statements are composed of the accounts of the Bancorp and its
wholly owned subsidiary, Investors Savings Bank (Bank) and its wholly owned significant
subsidiaries, ISB Mortgage Company LLC and ISB Asset Corporation. All significant
intercompany accounts and transactions have been eliminated in consolidation.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 owns 100%
of the common stock of the Bank and formed a New Jersey-chartered mutual holding company
(Investors Bancorp, MHC) which initially owns all of the common stock of the Bancorp. See
note 17 regarding a Stock Issuance Plan which is expected to be completed in October
2005.In preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and revenues and expenses during the reporting periods.
Actual results may differ significantly from those estimates and assumptions. A material
estimate that is particularly susceptible to significant change in the near term is the
allowance for loan losses. In connection with the determination of this allowance,
management generally obtains independent appraisals for significant properties.(b)
    
    BusinessThe Bank provides banking services to customers primarily through branch offices in New
Jersey. 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.(c)
    
    Cash EquivalentsCash equivalents consist of cash on hand, due from banks and interest-bearing deposits in
other financial institutions.(d)
    
    SecuritiesSecurities 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 and the Bancorp has the ability to hold debt and
mortgage-backed securities until 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 for which the
 F-7
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   Bancorp does not have the positive intent to hold 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 stockholders equity. Realized gains and losses are
recognized when securities are sold using the specific identification method.A decline in the fair value of any available-for-sale or held-to-maturity security below
cost that is deemed to be other-than-temporary results in a reduction in carrying amount
to fair value. The impairment loss is charged to earnings and a new cost basis for the
security is established. To determine whether an impairment is other-than-temporary, the
Bancorp considers, among other things, the severity and duration of the impairment,
changes in value subsequent to year-end, forecasted performance of the issuer and whether
the Bancorp has the ability and intent to hold the investment until a market price
recovery.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.(e)
    
    Loans Receivable, NetLoans 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, 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 life of
the loan as an adjustment to yield. Loans held-for-sale are recorded at lower of cost or
fair value in the aggregate.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 Bancorps past loan loss experience, 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
conditions. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bancorps allowance for loan losses. Such
agencies may require the Bancorp 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 past due when a payment has not been received in accordance with the
contractual terms. Loans in which interest is more than 90 days past due, including
impaired loans, and other loans in the process of foreclosure are placed on nonaccrual
status. Interest income previously accrued on these loans, but not yet received, is
credited to income in the period of recovery. A loan is returned to accrual status when
all amounts due have been received and the remaining principal is deemed collectible.
Mortgage loans are generally charged off after an analysis is completed which indicates
that collectibility of the full principal balance is in doubt.
 F-8
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   The Bancorp 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 Bancorp has defined the population of impaired loans to be all
nonaccrual loans greater than $300,000. Impaired loans are individually assessed 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 collectively evaluated for impairment, such as residential mortgage
loans and installment loans, are specifically excluded from the impaired loan portfolio.(f)
    
    Office Properties and Equipment, NetLand 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.(g)
    
    Other Real Estate OwnedOther real estate owned consists of properties acquired in settlement of loans. Such
assets are carried at the lower of cost or fair value, less estimated cost to sell, based
on independent appraisals.(h)
    
    Bank Owned Life Insurance ContractThe Bancorp has purchased a bank owned life insurance contract in consideration of its
obligation for certain employee benefit costs. The Bancorps investment in such insurance
contract has been reported in the consolidated balance sheets at its cash surrender
value. Changes in the cash surrender value and death benefit proceeds received in excess
of the related cash surrender value are recorded as other income. As described in note 2,
the portion of the insurance contract value consisting of deferred acquisition costs and
claims stabilization reserve has not been recognized as an asset.(i)
    
    Intangible AssetDeposit acquisition premiums were amortized on a straight-line basis over ten years.
There are no unamortized premiums remaining at June 30, 2005.(j)
    
    Federal Home Loan Bank StockThe Bank, as a member of the Federal Home Loan Bank (FHLB), is required to hold shares of
capital stock of the FHLB based on a specified formula. The stock is carried at cost,
less any impairment.(k)
    
    Borrowed FundsThe Bank 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
 F-9
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   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.The Bank also obtains advances from the FHLB, which are secured primarily by stock in the
FHLB, and mortgage loans and mortgage-backed securities under a blanket collateral pledge
agreement.(l)
    
    Income TaxesThe Bancorp uses the asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred income taxes are recognized for the tax consequences
of temporary differences by applying enacted statutory tax rates applicable to future
years to temporary differences between the financial statement carrying amounts and tax
bases of existing assets and liabilities. The effect on deferred taxes of a change in tax
rates is recognized in income tax expense in the period that includes the enactment date.(m)
    
    Employee BenefitsThe Bancorp has a defined benefit pension plan which covers all employees who satisfy the
eligibility requirements. The Bancorp participates in a multiemployer plan. Costs of the
pension plan are based on the contribution required to be made to the program.The Bancorp has a Supplemental Employee Retirement Plan (SERP). The SERP is a
nonqualified, defined benefit plan which provides benefits to all employees of the
Bancorp if their benefits and/or contributions under the pension plan are limited by the
Internal Revenue Code. The Bancorp also has a nonqualified, defined benefit plan which
provides benefits to its directors. The SERP and the directors plan are unfunded and the
costs of the plans are recognized over the period that services are provided.The Bancorp provides (i) health care benefits to retired employees hired prior to April
1, 1991 who attained at least ten years of service and (ii) certain life insurance
benefits to all retirees. Accordingly, the Bancorp accrues the cost of retiree health
care and other benefits during the employees period of active service.In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of
2003 (the Act) became law in the United States. The Act introduces a prescription drug
benefit under Medicare as well as a federal subsidy to sponsors of retiree health care
benefit plans that provide a benefit that is at least actuarially equivalent to the
Medicare benefit. In accordance with FASB Staff Position FAS 106-2, Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003, the Bancorp is in the process of determining if its plan
qualifies for the subsidy under the Act. Amounts reported for the accumulated
post-retirement benefit obligation and net periodic cost do not reflect any amounts
associated with the potential subsidy.
 (2)
    
    Bank Owned Life Insurance ContractIn fiscal 2002, the Bancorp purchased a bank owned life insurance contract at a cost of
$40,000,000. Certain components of the insurance contract value, referred to as deferred
acquisition costs (DAC) and claims stabilization reserve (CSR), were not guaranteed by the
insurance carrier. In fiscal 2003, the
 F-10
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   Bancorp made an additional purchase of bank owned life insurance at a cost of $40,000,000, and
charged $1,720,000 to other income pertaining to the DAC for the new purchase; charged
$605,000 to other income for the net decrease in the cash surrender value; and credited
$6,210,000 to other income for insurance proceeds received for death benefits during the year.
In fiscal 2004, $1,002,000 was credited to other income for the net increase in the cash
surrender value. In fiscal 2005, $1,177,000 was credited to other income for the net increase
in the cash surrender and $2,800,000 was credited to other income for insurance proceeds
received for death benefits during the year. The net increases and decreases in cash surrender
values in fiscal 2003, 2004 and 2005 include the effect of transferring amounts from the cash
surrender value to the CSR, in accordance with the contract terms, to segregate a portion of
the total insurance contract value as CSR for the payment of future death benefit claims.Effective December 31, 2003, the Bancorp entered into a modification of its insurance contract
with the carrier which provides that, upon full and complete surrender of all outstanding
certificates under the group policy held by the Bancorp, the carriers repayment of the DAC
and CSR would be guaranteed if certain conditions are met at the time of surrender. The
purpose of the guarantee was to enable the Bancorp to recognize the DAC and CSR as components
of the insurance contract value reported as an asset under generally accepted accounting
principles. The conditions that must be met at the time of surrender to obtain repayment of
the DAC and CSR are as follows: (i) the Bancorp must hold harmless and absolve the carrier
from payment of all incurred but not reported claims; (ii) the Bancorp must be a well
capitalized institution under the regulatory capital rules; (iii) the Bancorp cannot be
transacting a nontaxable policy exchange as defined in the Internal Revenue Code; and (iv) the
Bancorp cannot have undergone a change in control (as defined) within 30 months prior to
payment of the CSR. If these conditions have been met, the terms of the guarantee provide that
(i) the CSR will be paid in full six months after the surrender date of all outstanding
certificates, and (ii) future payments of the DAC will continue to be made in accordance with
the terms of the insurance contract (generally based on a predetermined payment schedule over
a period of 11 years from the date of original purchase). Management believes that the Bancorp
has continuously satisfied the conditions of the guarantee subsequent to the modification
date, and it is probable that the conditions will continue to be satisfied for the foreseeable
future. Absent a surrender of all outstanding certificates under the group policy, the
guaranteed amounts are expected to be realized through the passage of time (in the case of the
DAC) or the collection of future death benefit claims (in the case of the CSR).In December 2004, the Federal Deposit Insurance Corporation and the other federal bank
regulatory agencies issued an Interagency Statement on the Purchase and Risk Management of
Life Insurance (the Interagency Statement). With respect to accounting considerations, the
Interagency Statement provided guidance on accounting for cash surrender values when an
institution has purchased multiple permanent insurance policies with each policy having its
own surrender charges that will be waived by the carrier if all the policies are surrendered
at the same time. The Interagency Statement indicates that, in such cases, the institution
should report an asset for bank owned life insurance equal to the cash surrender value less
any applicable surrender charges without regard to the waiver, since the waiver is deemed to
be a gain contingency. However, the Interagency Statement does not specifically address DAC
and CSR terms contained in a group policy structure such as that held by the Bancorp.While the Bancorp believes its guaranteed DAC and CSR will be fully realized, the Interagency
Statement does not specifically permit recognition of these amounts as assets and,
accordingly, the Bancorp has not recognized the guaranteed DAC and CSR as assets in the
accompanying consolidated financial statements
 F-11
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   as of and for the years ended June 30, 2005 and 2004. The balances of the guaranteed DAC and
CSR were $2,398,000 and $3,087,000, respectively, at June 30, 2005, and $2,740,000 and
$3,483,000, respectively, at June 30, 2004. Management intends to hold the Bancorps group
contract on a long-term basis or otherwise take actions to fully realize these balances, as
well as future additions to the CSR, which will result in the recognition of nontaxable income
at the time of such realization.(3)
    
    Securities Held-to-MaturityThe amortized cost, gross unrealized gains and losses and estimated fair value of securities
held-to-maturity are as follows:
 June 30, 2005Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair value(In thousands)Debt securities:Government-sponsored enterprises
    
    $
    120,633
    
    
    
    47
    
    
    
    1,034
    
    
    
    119,646Municipal bonds
    
    
    18,220
    
    
    
    567
    
    
    
    75
    
    
    
    18,712Other debt securities
    
    
    8,000
    
    
    
    
    
    
    
    15
    
    
    
    7,985146,853
    
    
    
    614
    
    
    
    1,124
    
    
    
    146,343Mortgage-backed securities:Federal Home Loan
Mortgage Corporation
    
    
    1,072,121
    
    
    
    2,366
    
    
    
    8,615
    
    
    
    1,065,872Federal National Mortgage
Association
    
    
    612,556
    
    
    
    3,347
    
    
    
    4,102
    
    
    
    611,801Government National
Mortgage Association
    
    
    16,465
    
    
    
    480
    
    
    
    13
    
    
    
    16,932Federal housing authorities
    
    
    3,336
    
    
    
    439
    
    
    
    
    
    
    
    3,775Non-agency securities
    
    
    189,551
    
    
    
    217
    
    
    
    1,552
    
    
    
    188,2161,894,029
    
    
    
    6,849
    
    
    
    14,282
    
    
    
    1,886,596Total securities
held-to-maturity
    
    $
    2,040,882
    
    
    
    7,463
    
    
    
    15,406
    
    
    
    2,032,939
 F-12
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   June 30, 2004Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair value(In thousands)Debt securities:Government-sponsored enterprises
    
    $
    130,986
    
    
    
    15
    
    
    
    4,363
    
    
    
    126,638Municipal bonds
    
    
    18,326
    
    
    
    596
    
    
    
    116
    
    
    
    18,806Total debt securities
    
    
    149,312
    
    
    
    611
    
    
    
    4,479
    
    
    
    145,444Mortgage-backed securities:Federal Home Loan
Mortgage Corporation
    
    
    1,339,589
    
    
    
    7,158
    
    
    
    20,004
    
    
    
    1,326,743Federal National Mortgage
Association
    
    
    694,302
    
    
    
    7,620
    
    
    
    8,699
    
    
    
    693,223Government National
Mortgage Association
    
    
    73,769
    
    
    
    1,851
    
    
    
    
    
    
    
    75,620Federal housing authorities
    
    
    1,525
    
    
    
    
    
    
    
    
    
    
    
    1,525Non-agency securities
    
    
    264,314
    
    
    
    661
    
    
    
    3,012
    
    
    
    261,963Total mortgage-backed
securities
    
    
    2,373,499
    
    
    
    17,290
    
    
    
    31,715
    
    
    
    2,359,074Total securities
held-to-maturity
    
    $
    2,522,811
    
    
    
    17,901
    
    
    
    36,194
    
    
    
    2,504,518
 During the year ended June 30, 2005, proceeds from sales of securities from the
held-to-maturity portfolio were $46,942,000 resulting in gross realized gains of $616,000 and
gross realized losses of $14,000. For the year ended June 30, 2004, proceeds from sales of
securities from the held-to-maturity portfolio were $135,688,000 resulting in gross realized
gains of $2,201,000. There were no sales during fiscal 2003 from the held-to-maturity
portfolio. The held-to-maturity securities sold in fiscal 2005 and 2004 represented
mortgage-backed securities for which principal payments had been received in an amount greater
than 85% of the securities original amortized cost. Accordingly, these sales do not call into
question the Bancorps intent to hold to maturity other securities classified as
held-to-maturity.
 F-13
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   The contractual maturities of mortgage-backed securities held-to-maturity generally exceed 20
years; however, the effective lives are expected to be shorter due to anticipated prepayments.
The amortized cost and estimated fair value of debt securities at June 30, 2005, by
contractual maturity, are shown below. Expected maturities may differ from contractual
maturities due to prepayment or early call privileges of issuer.
 June 30, 2005Amortized
    
    
    Estimatedcost
    
    
    fair value(In thousands)Due in one year or less
    
    $
    
    
    
    
    Due after one year through five years
    
    
    15,000
    
    
    
    14,686Due after five years through ten years
    
    
    111,636
    
    
    
    111,300Due after ten years
    
    
    20,217
    
    
    
    20,357Total
    
    $
    146,853
    
    
    
    146,343
 A portion of the Bancorps securities are pledged to secure borrowings. See note 10 for
additional information.Gross unrealized losses on securities held-to-maturity and the 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 June 30, 2005 and 2004, were as follows:
 June 30, 2005Less than 12 months
    
    
    12 months or more
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealizedfair value
    
    
    losses
    
    
    fair value
    
    
    losses
    
    
    fair value
    
    
    losses(In thousands)Debt securities:Government-sponsored
enterprises
    
    $
    
    
    
    
    
    
    
    
    89,086
    
    
    
    1,034
    
    
    
    89,086
    
    
    
    1,034Municipal bonds
    
    
    1,708
    
    
    
    32
    
    
    
    3,611
    
    
    
    43
    
    
    
    5,319
    
    
    
    75Other debt securities
    
    
    5,985
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    5,985
    
    
    
    157,693
    
    
    
    47
    
    
    
    92,697
    
    
    
    1,077
    
    
    
    100,390
    
    
    
    1,124Mortgage-backed securities:Federal Home Loan
Mortgage Corporation
    
    
    154,611
    
    
    
    1,175
    
    
    
    577,331
    
    
    
    7,440
    
    
    
    731,942
    
    
    
    8,615Federal National Mortgage
Association
    
    
    126,539
    
    
    
    588
    
    
    
    246,417
    
    
    
    3,514
    
    
    
    372,956
    
    
    
    4,102Government National
Mortgage Association
    
    
    4,489
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    4,489
    
    
    
    13Non-agency securities
    
    
    29,633
    
    
    
    209
    
    
    
    114,786
    
    
    
    1,343
    
    
    
    144,419
    
    
    
    1,552315,272
    
    
    
    1,985
    
    
    
    938,534
    
    
    
    12,297
    
    
    
    1,253,806
    
    
    
    14,282Total
    
    $
    322,965
    
    
    
    2,032
    
    
    
    1,031,231
    
    
    
    13,374
    
    
    
    1,354,196
    
    
    
    15,406
 F-14
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   June 30, 2004Less than 12 months
    
    
    12 months or more
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealizedfair value
    
    
    losses
    
    
    fair value
    
    
    losses
    
    
    fair value
    
    
    losses(In thousands)Debt securities:Government-sponsored
enterprises
    
    $
    62,875
    
    
    
    1,157
    
    
    
    61,914
    
    
    
    3,206
    
    
    
    124,789
    
    
    
    4,363Municipal bonds
    
    
    
    
    
    
    
    
    
    
    3,583
    
    
    
    116
    
    
    
    3,583
    
    
    
    11662,875
    
    
    
    1,157
    
    
    
    65,497
    
    
    
    3,322
    
    
    
    128,372
    
    
    
    4,479Mortgage-backed securities:Federal Home Loan
Mortgage Corporation
    
    
    777,567
    
    
    
    17,183
    
    
    
    100,092
    
    
    
    2,821
    
    
    
    877,659
    
    
    
    20,004Federal National Mortgage
Association
    
    
    370,599
    
    
    
    7,851
    
    
    
    21,818
    
    
    
    848
    
    
    
    392,417
    
    
    
    8,699Non-agency securities
    
    
    118,811
    
    
    
    1,670
    
    
    
    81,876
    
    
    
    1,342
    
    
    
    200,687
    
    
    
    3,0121,266,977
    
    
    
    26,704
    
    
    
    203,786
    
    
    
    5,011
    
    
    
    1,470,763
    
    
    
    31,715Total
    
    $
    1,329,852
    
    
    
    27,861
    
    
    
    269,283
    
    
    
    8,333
    
    
    
    1,599,135
    
    
    
    36,194
 The unrealized losses on investments in debt securities were attributable to interest
rate increases. The contractual terms of these investments do not permit the issuer to settle
the securities at a price less than the par value of the investment. Since the Bancorp has the
ability and intent to hold these investments to maturity, these investments are not considered
other-than-temporarily impaired.The unrealized losses on investments in mortgage-backed securities were attributable to
interest rate increases. The contractual cash flows of most of these securities are guaranteed
by Freddie Mac and Fannie Mae (U.S. government-sponsored enterprises). Securities not
guaranteed by these entities comply with the investment and credit standards set in the
investment policy of the Bancorp. It is expected that the securities would not be settled at a
price substantially less than the amortized cost of the investment. Since the decline in fair
value is attributable to changes in interest rates and not credit quality, and because the
Bancorp has the ability and intent to hold these investments to maturity, these investments
are not considered other-than-temporarily impaired.
 F-15
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   (4)
    
    Securities Available-for-SaleThe amortized cost, gross unrealized gains and losses and estimated fair value of securities
available-for-sale are as follows:
 June 30, 2005Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair value(In thousands)Equity securities
    
    $
    35,000
    
    
    
    
    
    
    
    175
    
    
    
    34,825Mortgage-backed securities:Federal Home Loan Mortgage
Corporation
    
    
    156,162
    
    
    
    136
    
    
    
    1,192
    
    
    
    155,106Federal National Mortgage
Association
    
    
    262,644
    
    
    
    763
    
    
    
    1,071
    
    
    
    262,336Non-agency securities
    
    
    223,861
    
    
    
    221
    
    
    
    2,398
    
    
    
    221,684642,667
    
    
    
    1,120
    
    
    
    4,661
    
    
    
    639,126Total securities
available-for-sale
    
    $
    677,667
    
    
    
    1,120
    
    
    
    4,836
    
    
    
    673,951
 June 30, 2004Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair value(In thousands)Equity securities
    
    $
    56,875
    
    
    
    56
    
    
    
    
    
    
    
    56,931Mortgage-backed securities:Federal Home Loan Mortgage
Corporation
    
    
    422,859
    
    
    
    
    
    
    
    5,957
    
    
    
    416,902Federal National Mortgage
Association
    
    
    699,542
    
    
    
    1,131
    
    
    
    10,987
    
    
    
    689,686Non-agency securities
    
    
    261,129
    
    
    
    163
    
    
    
    3,738
    
    
    
    257,5541,383,530
    
    
    
    1,294
    
    
    
    20,682
    
    
    
    1,364,142Total securities
available-for-sale
    
    $
    1,440,405
    
    
    
    1,350
    
    
    
    20,682
    
    
    
    1,421,073
 During the year ended June 30, 2005, proceeds from sales of securities from the
available-for-sale portfolio were $570,800,000 resulting in gross realized gains of $409,000
and gross realized losses of $10,505,000.
 F-16
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   During the year ended June 30, 2004, proceeds from
sales of securities from the available-for-sale portfolio were $30,390,000 resulting in gross
realized gains of $623,000. There were no sales from the securities available-for-sale
portfolio during the year ended June 30, 2003.At June 30, 2004, the Bancorp deemed the decline in market value below carrying value of
investments in certain FHLMC preferred stocks to be other-than-temporary. The Bancorp believes
the decline in fair value of the investment was due, in part, to changes in interest rates, as
well as market concerns regarding the uncertainties pertaining to the issuers financial
stability. During the year ended June 30, 2004, the Bancorp recorded an impairment loss of
$3,094,000 and reduced the cost basis of the investment to fair value. In fiscal 2005, the
Bancorp sold these FHLMC preferred stocks and recorded a loss on sale of $1,145,000.The contractual maturities of mortgage-backed securities available for sale generally exceed
20 years; however, the effective lives are expected to be shorter due to anticipated
prepayments.A portion of the Bancorps securities are pledged to secure borrowings. See note 10 for
additional information.Gross unrealized losses on securities available-for-sale and the fair values of the related
securities, aggregated by investment category and length of time that individual securities
have been in a continuous unrealized loss position at June 30, 2005 and 2004, were as follows:
 June 30, 2005Less than 12 months
    
    
    12 months or more
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealizedfair value
    
    
    losses
    
    
    fair value
    
    
    losses
    
    
    fair value
    
    
    losses(In thousands)Equity securities
    
    $
    34,825
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    34,825
    
    
    
    175Mortgage-backed securities:Federal Home Loan Mortgage
Corporation
    
    
    
    
    
    
    
    
    
    
    134,014
    
    
    
    1,192
    
    
    
    134,014
    
    
    
    1,192Federal National Mortgage
Association
    
    
    57,283
    
    
    
    300
    
    
    
    92,842
    
    
    
    771
    
    
    
    150,125
    
    
    
    1,071Non-agency securities
    
    
    27,825
    
    
    
    229
    
    
    
    134,557
    
    
    
    2,169
    
    
    
    162,382
    
    
    
    2,39885,108
    
    
    
    529
    
    
    
    361,413
    
    
    
    4,132
    
    
    
    446,521
    
    
    
    4,661Total
    
    $
    119,933
    
    
    
    704
    
    
    
    361,413
    
    
    
    4,132
    
    
    
    481,346
    
    
    
    4,836
 F-17
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   June 30, 2004Less than 12 months
    
    
    12 months or more
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealizedfair value
    
    
    losses
    
    
    fair value
    
    
    losses
    
    
    fair value
    
    
    losses(In thousands)Mortgage-backed securities:Federal Home Loan Mortgage
Corporation
    
    $
    416,902
    
    
    
    5,957
    
    
    
    
    
    
    
    
    
    
    
    416,902
    
    
    
    5,957Federal National Mortgage
Association
    
    
    561,930
    
    
    
    9,419
    
    
    
    60,776
    
    
    
    1,568
    
    
    
    622,706
    
    
    
    10,987Non-agency securities
    
    
    225,391
    
    
    
    3,135
    
    
    
    19,325
    
    
    
    603
    
    
    
    244,716
    
    
    
    3,738Total
    
    $
    1,204,223
    
    
    
    18,511
    
    
    
    80,101
    
    
    
    2,171
    
    
    
    1,284,324
    
    
    
    20,682
 The unrealized losses on equity securities are not deemed an other-than-temporary
impairment based on the extent and duration of the declines in value below cost. The
unrealized losses on investments in mortgage-backed securities were attributed to interest
rate increases. The contractual cash flows of most of these securities are guaranteed by
Freddie Mac and Fannie Mae (U.S. government-sponsored enterprises).
Securities not guaranteed by these entities comply with the investment and credit standards
set in the investment policy of the Bancorp. It is expected that the securities would not be
settled at a price substantially less than the amortized cost of the investment. Since the
decline in fair value is attributable to changes in interest rates and not credit quality, and
because the Bancorp has the ability and intent to hold these investments until a market price
recovery (which may occur at or near maturity), these investments are not considered
other-than-temporarily impaired.(5)
    
    Loans Receivable, NetLoans receivable, net are summarized as follows:
 June 30,2005
    
    
    2004(In thousands)Residential mortgage loans:One- to four-family
    
    $
    1,850,806
    
    
    
    987,958FHA
    
    
    30,273
    
    
    
    43,923Multi-family and commercial
    
    
    17,181
    
    
    
    6,147Construction loans
    
    
    6,465
    
    
    
    845Consumer and other loans
    
    
    81,641
    
    
    
    67,832Total loans
    
    
    1,986,366
    
    
    
    1,106,705Premiums on purchased loans
    
    
    14,113
    
    
    
    5,274Deferred loan fees, net
    
    
    (881
    )
    
    
    (905
    )Allowance for loan losses
    
    
    (5,694
    )
    
    
    (5,193
    )$
    1,993,904
    
    
    
    1,105,881
 F-18
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   A substantial portion of the Bancorps loans are secured by real estate located in New Jersey.
Accordingly, as with most financial institutions in the market area, the ultimate
collectibility of a substantial portion of the Bancorps loan portfolio is susceptible to
changes in market conditions in this area. See note 7 for further discussion of concentration
of credit risk.An analysis of the allowance for loan losses is as follows:
 Year ended June 30,2005
    
    
    2004
    
    
    2003(In thousands)Balance at beginning of year
    
    $
    5,193
    
    
    
    4,750
    
    
    
    4,320Loans charged off
    
    
    (125
    )
    
    
    (306
    )
    
    
    (448
    )Recoveries
    
    
    26
    
    
    
    149
    
    
    
    278Net charge-offs
    
    
    (99
    )
    
    
    (157
    )
    
    
    (170
    )Provision for loan losses
    
    
    600
    
    
    
    600
    
    
    
    600Balance at end of year
    
    $
    5,694
    
    
    
    5,193
    
    
    
    4,750
 A comparative summary of loans receivable contractually in arrears for three months or more is
as follows:
 No. of loans
    
    Amount(In thousands)June 30, 2005
    
    
    64
    
    
    $
    7,865June 30, 2004
    
    
    85
    
    
    
    9,066June 30, 2003
    
    
    98
    
    
    
    10,697
 The total amount of interest income received on nonaccrual loans outstanding and the
additional interest income on nonaccrual loans that would have been recognized if interest on
all such loans had been recorded based upon the original contract terms were immaterial for
each year presented. The Bancorp is not committed to lend additional funds to borrowers on
nonaccrual status.At June 30, 2005 and 2004, impaired loans were primarily collateral dependent and totaled
$740,000 and $749,000, for which allocations to the allowance for loan losses of $175,000 and
$350,000, were identified, respectively. Interest income received and recognized on these
loans was immaterial for each year presented. The average balance of impaired loans was
$478,000, $962,000 and $844,000 during the years ended on June 30, 2005, 2004 and 2003,
respectively.
 F-19
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   (6)
    
    Accrued Interest and Dividends ReceivableAccrued interest and dividends receivable are summarized as follows:
 June 30,2005
    
    
    2004(In thousands)Securities
    
    $
    11,071
    
    
    
    18,769Loans receivable
    
    
    7,192
    
    
    
    3,892$
    18,263
    
    
    
    22,661
 (7)
    
    Financial Transactions with Off-Balance-Sheet Risk and Concentrations of Credit RiskThe Bancorp 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 sheets.At June 30, 2005 and 2004, outstanding commitments to purchase and originate loans for
portfolio totaled approximately $231,000,000 and $250,000,000, respectively. Additionally,
undisbursed home equity credit lines totaled $66,237,000 and $61,246,000 at June 30, 2005 and
2004, respectively.The Bancorp 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 Bancorp evaluates each
customers creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Bancorp upon extension of credit is based on managements credit
evaluation of the borrower. Collateral held varies but primarily includes residential
properties.The Bancorp grants residential and commercial real estate loans to borrowers throughout New
Jersey. 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 Bancorps lien on the
property. Such factors are dependent upon various economic conditions and individual
circumstances beyond the Bancorps control; the Bancorp is, therefore, subject to risk of
loss. The Bancorp 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.In connection with its mortgage banking activities, the Bancorp had certain freestanding
derivative instruments at June 30, 2005 and 2004. At June 30, 2005 and 2004, the Bancorp had
commitments of $4,712,000 and $16,297,000, respectively, 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 SFAS
 F-20
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Bancorp also had commitments of $3,412,000 and $1,428,000 to sell
loans classified as held-for-sale at June 30, 2005 and 2004, respectively. The fair values of
these derivative instruments are immaterial.(8)
    
    Office Properties and Equipment, NetOffice properties and equipment are summarized as follows:
 June 30,2005
    
    
    2004(In thousands)Land
    
    $
    5,458
    
    
    
    3,981Office buildings
    
    
    11,266
    
    
    
    8,973Leasehold improvements
    
    
    13,489
    
    
    
    13,571Furniture, fixtures and equipment
    
    
    16,284
    
    
    
    12,665Construction in process
    
    
    464
    
    
    
    2,43746,961
    
    
    
    41,627Less accumulated depreciation and amortization
    
    
    17,417
    
    
    
    14,679$
    29,544
    
    
    
    26,948
 Depreciation and amortization expense for the years ended June 30, 2005, 2004 and 2003 was
$2,807,000, $2,304,000 and $2,516,000, respectively.During 2004, the Bancorp consolidated its corporate operations into one location in Short
Hills, New Jersey. Due to this consolidation, a leased office building was closed by the
Bancorp. At June 30, 2004, the Bancorp recorded a charge of $1,040,000 for the leasehold
improvements and obligations under the lease.
The Bancorp ceased use of the building on June 1, 2004. At June 30, 2005, the Bancorp has a
remaining accrued liability of $293,000 for its obligations in terminating this lease.
 F-21
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   (9)
    
    DepositsDeposits are summarized as follows:
 June 30,2005
    
    
    2004Weighted
    
    
    
    
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    
    
    
    
    averagerate
    
    
    Amount
    
    
    %
    
    
    rate
    
    
    Amount
    
    
    %(Dollars in thousands)Savings
    
    
    0.83
    %
    
    $
    271,071
    
    
    
    8.36
    %
    
    
    0.84
    %
    
    $
    289,682
    
    
    
    8.87
    %NOW and Super NOW accounts
    
    
    1.30
    
    
    
    277,317
    
    
    
    8.56
    
    
    
    0.96
    
    
    
    232,900
    
    
    
    7.13Money market deposits
    
    
    1.32
    
    
    
    318,432
    
    
    
    9.83
    
    
    
    1.34
    
    
    
    410,855
    
    
    
    12.58Total transaction
accounts
    
    
    1.16
    
    
    
    866,820
    
    
    
    26.75
    
    
    
    1.10
    
    
    
    933,437
    
    
    
    28.58Certificates of deposit
    
    
    2.87
    
    
    
    2,373,600
    
    
    
    73.25
    
    
    
    2.29
    
    
    
    2,333,498
    
    
    
    71.422.42
    %
    
    $
    3,240,420
    
    
    
    100.00
    %
    
    
    1.95
    %
    
    $
    3,266,935
    
    
    
    100.00
    %
 A summary of certificates of deposit by maturity follows:
 June 30, 2005(In thousands)Within one year
    
    $
    1,598,180One to two years
    
    
    386,354Two to three years
    
    
    95,864Three to four years
    
    
    158,051After four years
    
    
    135,151$
    2,373,600
 The aggregate amount of certificates of deposit in denominations of $100,000 or more totaled
approximately $442,456,000 and $373,815,000 as of June 30, 2005 and 2004, respectively.Interest expense on deposits consists of the following:
 Year ended June 30,2005
    
    
    2004
    
    
    2003(In thousands)Savings
    
    $
    2,349
    
    
    
    2,576
    
    
    
    3,896NOW and Super NOW accounts
    
    
    2,533
    
    
    
    2,087
    
    
    
    2,515Money market deposits
    
    
    5,075
    
    
    
    5,231
    
    
    
    5,739Certificates of deposit
    
    
    59,905
    
    
    
    55,551
    
    
    
    71,656$
    69,862
    
    
    
    65,445
    
    
    
    83,806
 F-22
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   (10)
    
    Borrowed FundsBorrowed funds are summarized as follows:
 June 30,2005
    
    
    2004Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averagePrincipal
    
    
    rate
    
    
    Principal
    
    
    rate(Dollars in thousands)Funds borrowed under repurchase
agreements:FHLB
    
    $
    1,125,000
    
    
    
    3.58
    %
    
    $
    1,604,000
    
    
    
    3.80
    %Other brokers
    
    
    100,000
    
    
    
    2.96
    
    
    
    
    
    
    
    Total funds borrowed
under repurchase
agreements
    
    
    1,225,000
    
    
    
    3.53
    
    
    
    1,604,000
    
    
    
    3.80FHLB advances
    
    
    88,769
    
    
    
    3.49
    
    
    
    798
    
    
    
    1.98Total borrowed funds
    
    $
    1,313,769
    
    
    
    3.53
    
    
    $
    1,604,798
    
    
    
    3.80
 Borrowed funds had scheduled maturities as follows:
 June 30,2005
    
    
    2004Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averagePrincipal
    
    
    rate
    
    
    Principal
    
    
    rate(Dollars in thousands)Within one year
    
    $
    893,000
    
    
    
    3.40
    %
    
    
    536,000
    
    
    
    2.58
    %One to two years
    
    
    275,000
    
    
    
    3.94
    
    
    
    405,000
    
    
    
    3.22Two to three years
    
    
    80,107
    
    
    
    3.62
    
    
    
    120,000
    
    
    
    3.35Three to four years
    
    
    65,000
    
    
    
    3.52
    
    
    
    30,798
    
    
    
    3.01Four to five years
    
    
    
    
    
    
    
    
    
    
    65,000
    
    
    
    2.79After five years
    
    
    662
    
    
    
    1.25
    
    
    
    448,000
    
    
    
    6.08Total borrowed funds
    
    $
    1,313,769
    
    
    
    3.53
    
    
    
    1,604,798
    
    
    
    3.80
 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 Bancorp. 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 Bancorp.
 F-23
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   The amortized cost and fair value of the underlying securities used as collateral for
securities sold under agreements to repurchase are as follows:
 June 30,2005
    
    
    2004(In thousands)Amortized cost of collateral:Government-sponsored enterprises
    
    $
    69,000
    
    
    
    104,152Mortgage-backed securities
    
    
    970,746
    
    
    
    985,852Total amortized cost of collateral
    
    $
    1,039,746
    
    
    
    1,090,004Fair value of collateral:Government-sponsored enterprises
    
    $
    68,288
    
    
    
    99,967Mortgage-backed securities
    
    
    965,802
    
    
    
    980,538Total fair value of collateral
    
    $
    1,034,090
    
    
    
    1,080,505
 In addition to the above securities, the Bancorp has also pledged mortgage loans as collateral
for these borrowings.During the years ended June 30, 2005 and 2004, the maximum month-end balance of the repurchase
agreements was $1,673,000,000 and $1,859,000,000, respectively. The average amount of
repurchase agreements outstanding during the years ended June 30, 2005 and 2004 was
$1,475,269,000 and $1,729,818,000, respectively, and the average interest rate was 3.80% and
3.59%, respectively.During the year ended June 30, 2005, the Bancorp prepaid $448,000,000 in borrowings from the
FHLB under repurchase agreements and incurred a loss of $43,616,000 on early extinguishment of
debt.
 F-24
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   (11)
    
    Income TaxesThe components of income tax (benefit) expense are as follows:
 Year ended June 30,2005
    
    
    2004
    
    
    2003(In thousands)Current tax (benefit) expense:Federal
    
    $
    (4,179
    )
    
    
    12,791
    
    
    
    15,818State
    
    
    902
    
    
    
    854
    
    
    
    1,515(3,277
    )
    
    
    13,645
    
    
    
    17,333Deferred tax (benefit) expense:Federal
    
    
    (25
    )
    
    
    (1,580
    )
    
    
    (3,388
    )State
    
    
    (44
    )
    
    
    (399
    )
    
    
    (1,713
    )(69
    )
    
    
    (1,979
    )
    
    
    (5,101
    )Total income tax
(benefit) expense
    
    $
    (3,346
    )
    
    
    11,666
    
    
    
    12,232
 The following table presents a reconciliation between the actual income tax (benefit) expense
and the expected amount computed using the applicable statutory federal income tax rate of
35% as follows:
 Year ended June 30,2005
    
    
    2004
    
    
    2003(In thousands)Expected federal income tax (benefit)
expense
    
    $
    (2,271
    )
    
    
    11,026
    
    
    
    14,176State tax, net
    
    
    558
    
    
    
    295
    
    
    
    (129
    )Bank owned life insurance
    
    
    (1,392
    )
    
    
    (351
    )
    
    
    (1,360
    )Change in valuation allowance for deferred
tax assets
    
    
    401
    
    
    
    1,083
    
    
    
    Dividend received deduction
    
    
    (435
    )
    
    
    (343
    )
    
    
    (178
    )Other
    
    
    (207
    )
    
    
    (44
    )
    
    
    (277
    )Actual income tax (benefit)
expense
    
    $
    (3,346
    )
    
    
    11,666
    
    
    
    12,232
 F-25
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   The temporary differences which comprise the deferred tax assets and liabilities are as
follows:
 June 30,2005
    
    
    2004(In thousands)Deferred tax assets:Employee benefits
    
    $
    6,623
    
    
    
    5,894Minimum pension liability
    
    
    734
    
    
    
    503Deferred compensation
    
    
    1,198
    
    
    
    1,089State net operating loss carryforwards
    
    
    8,604
    
    
    
    2,816Allowance for delinquent interest
    
    
    311
    
    
    
    377Intangible assets
    
    
    2,353
    
    
    
    2,499Allowance for loan losses
    
    
    1,784
    
    
    
    1,454Net unrealized loss on securities available-for-sale
    
    
    1,404
    
    
    
    7,364New Jersey alternative minimum assessment
    
    
    3,249
    
    
    
    2,347Capital losses on equity securities
    
    
    1,732
    
    
    
    1,238Other
    
    
    524
    
    
    
    671Valuation allowance
    
    
    (13,585
    )
    
    
    (6,401
    )14,931
    
    
    
    19,851Deferred tax liabilities:Discount accretion
    
    
    558
    
    
    
    743Premises and equipment, differences in depreciation
    
    
    663
    
    
    
    320Undistributed income of real estate investment trust
subsidiary
    
    
    582
    
    
    
    1,803
    
    
    
    1,063Net deferred tax asset
    
    $
    13,128
    
    
    
    18,788
 In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. At June 30,
2005 and 2004, the Bancorp also has state net operating loss carryforwards of approximately
$96,000,000 and $31,000,000, respectively. Based upon projections of future taxable income for
the periods in which the temporary differences are expected to be deductible, management
believes it is more likely than not the Bancorp will realize the deferred tax assets, net of
the existing valuation allowances. The increases in the total valuation allowance during the
years ended June 30, 2005, 2004 and 2003 were $7,184,000, $3,594,000 and $2,807,000,
respectively. These amounts relate to state net operating loss carryfowards and minimum
assessments, as well as capital losses on equity securities, for which tax benefits are not
more likely than not to be realized.Retained earnings at June 30, 2005 included approximately $36,528,000 for which deferred
income taxes of approximately $14,900,000 have not been provided. The retained earnings amount
represents the base year allocation of income to bad debt deductions for tax purposes only.
Under Statement of Financial Accounting Standards No. 109, this amount is treated as a
permanent difference and deferred taxes are not
 F-26
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   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.(12)
    
    Benefit PlansSERP and Directors PlanThe following table sets forth the change in projected benefit obligation and the funded
status for the SERP and the directors defined benefit plan:
 SERP and directors planJune 30,2005
    
    
    2004(In thousands)Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    12,082
    
    
    
    10,981Service cost
    
    
    729
    
    
    
    427Interest cost
    
    
    751
    
    
    
    687Actuarial loss
    
    
    1,564
    
    
    
    761Benefits paid
    
    
    (775
    )
    
    
    (774
    )Benefit obligation at end of year
    
    $
    14,351
    
    
    
    12,082Funded status
    
    $
    (14,351
    )
    
    
    (12,082
    )Unrecognized prior service cost
    
    
    220
    
    
    
    308Unrecognized net actuarial loss
    
    
    4,074
    
    
    
    2,711Net amount recognized in the consolidated
balance sheets
    
    $
    (10,057
    )
    
    
    (9,063
    )Amounts recognized in the consolidated balance sheets:Accrued pension cost
    
    $
    (12,148
    )
    
    
    (10,690
    )Intangible asset for prior service cost
    
    
    255
    
    
    
    369Pre-tax charge to accumluated other comprehensive loss
for additional minimum pension liability
    
    
    1,836
    
    
    
    1,258Net amount recognized
    
    $
    (10,057
    )
    
    
    (9,063
    )
 The discount rate used in computing the actuarial present value of the projected benefit
obligation was 5.25% (2005) and 6.25% (2004). The weighted average rate of increase in future
compensation levels used was 7.2% (2005) and 6.6% (2004).The accumulated benefit obligation for the SERP and directors defined benefit plan was
$12,148,000 and $10,690,000 at June 30, 2005 and 2004, respectively.
 F-27
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   The components of net periodic benefit expense are as follows:
 SERP and directors planYears ended June 30,2005
    
    
    2004
    
    
    2003(In thousands)Service cost
    
    $
    729
    
    
    
    427
    
    
    
    404Interest cost
    
    
    751
    
    
    
    687
    
    
    
    656Amortization of:Prior service cost
    
    
    89
    
    
    
    70
    
    
    
    168Net loss
    
    
    199
    
    
    
    203
    
    
    
    133Total net periodic benefit
expense
    
    $
    1,768
    
    
    
    1,387
    
    
    
    1,361
  2005
    
    2004
    
    2003Discount rate
    
    
    6.3
    %
    
    
    6.0
    %
    
    
    7.0
    %Rate of increase in future compensation
levels
    
    
    6.6
    
    
    
    4.1
    
    
    
    4.0
 The benefits expected to be paid under the SERP and directors plan in fiscal years 2006-2010
are $864,000, $848,000, $886,000, $862,000, and $929,000, respectively. The aggregate benefits
expected to be paid in the five years from 2011-2015 are $4,685,000. The expected benefits are
based on the same assumptions used to measure the Bancorps benefit obligation at June 30,
2005 and include estimated future employee service.Defined Benefit Pension PlanThe Bancorp also maintains a defined benefit pension plan. Since it is a multiemployer plan,
costs of the pension plan are based on contributions required to be made to the pension plan.
The Bancorps required
contribution and pension cost was $2,610,000, $1,785,000 and $1,016,000 in 2005, 2004 and
2003, respectively. The accrued pension liability was $829,000 and $589,000 at June 30, 2005
and 2004, respectively.Other Postretirement BenefitsThe Bancorp provides certain health care and life insurance benefits to eligible retired
employees. The Bancorp elected to amortize the transition obligation of $4,016,000 related to
postretirement benefits other than pensions as of July 1, 1995 over the maximum of 20 years.
 F-28
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   The following table sets forth the change in benefit obligations and the funded status for the
postretirement benefits plan:
 June 30,2005
    
    
    2004(In thousands)Accumulated postretirement benefit obligation:Retirees
    
    $
    (3,742
    )
    
    
    (3,459
    )Active employees
    
    
    (8,063
    )
    
    
    (5,817
    )Total
    
    
    (11,805
    )
    
    
    (9,276
    )Unrecognized net loss
    
    
    4,290
    
    
    
    2,384Unrecognized transition obligation
    
    
    2,009
    
    
    
    2,209Accrued postretirement benefit obligation
    
    $
    (5,506
    )
    
    
    (4,683
    )
 The components of net periodic postretirement benefit expense are as follows:
 Years ended June 30,2005
    
    
    2004
    
    
    2003(In thousands)Service cost
    
    $
    217
    
    
    
    175
    
    
    
    177Interest cost
    
    
    572
    
    
    
    440
    
    
    
    468Amortization of:Net loss
    
    
    86
    
    
    
    12
    
    
    
    1Transition obligation
    
    
    201
    
    
    
    201
    
    
    
    200Net periodic postretirement
benefit expense
    
    $
    1,076
    
    
    
    828
    
    
    
    846
 Benefit payments of approximately $253,000, $234,000 and $232,000 were made in the years ended
June 30, 2005, 2004 and 2003, respectively. The plan is unfunded and the Bancorp funds
benefits on a current basis.For measurement purposes, the cost of medical benefits was projected to increase at a rate of
9% in 2005, thereafter decreasing 1% per year through 2007 and decreasing 0.5% per year until
a stable 5% medical
inflation rate is reached. The present value of the accumulated benefit obligation assumed a
5.25%, 6.25%, and 6.00% discount rate compounded annually for 2005, 2004 and 2003,
respectively.The benefits expected to be paid under the postretirement health benefits plan in fiscal years
2006-2010 are $257,000, $287,000, $301,000, $325,000, and $353,000, respectively. The
aggregate benefits expected to be paid in the five years from 2011-2015 are $2,102,000. The
expected benefits are based on the same assumptions used to measure the Bancorps benefit
obligation at June 30, 2005 and include estimated future employee service.
 F-29
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   (13)
    
    Commitments and ContingenciesThe Bancorp is a defendant in certain claims and legal actions arising in the ordinary course
of business. Management and the Bancorps legal counsel are of the opinion that the ultimate
disposition of these matters will not have a material adverse effect on the Bancorps
financial condition, results of operations or liquidity.At June 30, 2005, the Bancorp was obligated under noncancelable operating leases for premises.
Rental expense under these leases aggregated approximately $3,700,000, $2,775,000 and
$1,920,000 for the fiscal years 2005, 2004 and 2003, respectively. The projected minimum
rental commitments are as follows:
 Amount(In thousands)Year ending June 30,2006
    
    $
    3,5492007
    
    
    3,5352008
    
    
    3,3872009
    
    
    3,1422010
    
    
    3,044Thereafter
    
    
    26,394$
    43,051
 (14)
    
    Fair Value of Financial InstrumentsSFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires that the Bancorp
disclose estimated fair values for its financial instruments. Fair value estimates, methods
and assumptions are set forth below for the Bancorps financial instruments.Cash and Cash EquivalentsFor cash and due from banks, the carrying amount approximates fair value.SecuritiesThe fair values of securities are estimated based on market values provided by an independent
pricing service, where prices are available. If a quoted market price was not available, the
fair value was estimated using quoted market values of similar instruments, adjusted for
differences between the quoted instruments and the instruments being valued.FHLB StockThe fair value of FHLB stock is its carrying value, since this is the amount for which it
could be redeemed. There is no active market for this stock and the Bank is required to hold a
minimum investment based upon the unpaid principal of home mortgage loans and/or FHLB advances
outstanding.
 F-30
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   LoansFair 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
nonperforming categories.Fair value of performing loans was estimated using the quoted market prices for securities
backed by similar loans, adjusted for differences in loan characteristics, if applicable.Fair value for significant nonperforming loans is based on recent external appraisals of
collateral securing such loans, adjusted for the timing of anticipated cash flows.Fair values of loans held-for-sale were estimated based on secondary market prices for loans
with similar terms. For commitments to sell loans, fair value also considers the difference
between current levels of interest rates and the committed rates.Deposit LiabilitiesThe fair value of deposits with no stated maturity, such as noninterest-bearing demand
deposits, savings, and NOW 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 currently offered for
deposits of similar remaining maturities.Commitments to Extend CreditThe 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.
 F-31
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   The carrying amounts and estimated fair values of the Bancorps financial instruments are
presented in the following table. The table does not include off-balance-sheet commitments
since the fair values approximate the carrying amounts which are not significant.
 June 30,2005
    
    2004Carrying
    
    
    
    
    
    Carryingamount
    
    Fair value
    
    amount
    
    Fair value(In thousands)Financial assets:Cash and cash equivalents
    
    $
    81,329
    
    
    
    81,329
    
    
    
    37,653
    
    
    
    37,653Securities available-for-sale
    
    
    673,951
    
    
    
    673,951
    
    
    
    1,421,073
    
    
    
    1,421,073Securities held-to-maturity
    
    
    2,040,882
    
    
    
    2,032,939
    
    
    
    2,522,811
    
    
    
    2,504,518Stock in FHLB
    
    
    60,688
    
    
    
    60,688
    
    
    
    81,990
    
    
    
    81,990Loans
    
    
    1,997,316
    
    
    
    1,986,715
    
    
    
    1,107,309
    
    
    
    1,091,467Financial liabilities:Deposits
    
    
    3,240,420
    
    
    
    3,233,958
    
    
    
    3,266,935
    
    
    
    3,263,048Borrowed funds
    
    
    1,313,769
    
    
    
    1,311,994
    
    
    
    1,604,798
    
    
    
    1,655,649
 LimitationsFair 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 Bancorps entire
holdings of a particular financial instrument. Because no market exists for a significant
portion of the Bancorp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.(15)
    
    Regulatory CapitalThe Bancorp and the Bank 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 Bancorps consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bancorp and the Bank must meet specific
 F-32
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   capital guidelines that involve
quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. Capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and other factors.Quantitative measures established by regulation to ensure capital adequacy require the Bancorp
and the Bank to maintain minimum amounts and ratios of total and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of June 30, 2005 and 2004, that the
Bancorp and the Bank met all capital adequacy requirements to which they are subject.As of June 30, 2005, 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 must maintain minimum total
risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or events since
that notification that management believes have changed the Banks category.The Bancorps actual and minimum required capital amounts and ratios are shown below on a
consolidated basis, which are substantially the same as the amounts and ratios for the Bank.
 Minimum requirementsTo be well capitalizedunder prompt correctiveActual
    
    For capital adequacy purposes
    
    action provisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)As of June 30, 2005:Total capital (to risk-weighted
assets)
    
    $
    415,477
    
    
    
    21.5
    %
    
    $
    154,767
    
    
    
    8.0
    %
    
    $
    193,459
    
    
    
    10.0
    %Tier I capital (to risk-weighted
assets)
    
    
    409,783
    
    
    
    21.2
    
    
    
    77,383
    
    
    
    4.0
    
    
    
    116,075
    
    
    
    6.0Tier I capital (to average assets)
    
    
    409,783
    
    
    
    8.3
    
    
    
    197,983
    
    
    
    4.0
    
    
    
    247,479
    
    
    
    5.0As of June 30, 2004:Total capital (to risk-weighted
assets)
    
    $
    418,249
    
    
    
    26.6
    %
    
    $
    125,931
    
    
    
    8.0
    %
    
    $
    157,413
    
    
    
    10.0
    %Tier I capital (to risk-weighted
assets)
    
    
    413,056
    
    
    
    26.2
    
    
    
    62,965
    
    
    
    4.0
    
    
    
    94,448
    
    
    
    6.0Tier I capital (to average assets)
    
    
    413,056
    
    
    
    7.7
    
    
    
    214,843
    
    
    
    4.0
    
    
    
    268,554
    
    
    
    5.0
 F-33
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   (16)
    
    Parent Company Only Financial StatementsThe following condensed financial statements for Investors Bancorp, Inc. (parent company only)
reflect the investment in its wholly owned subsidiary, Investors Savings Bank, using the
equity method of accounting.
 Balance Sheets
 June 30,2005
    
    
    2004(In thousands)Assets:Cash and due from bank
    
    $
    25
    
    
    
    25Investment in subsidiary
    
    
    407,802
    
    
    
    401,638Total assets
    
    $
    407,827
    
    
    
    401,663Liabilities and stockholders equity:Total liabilities
    
    $
    
    
    
    
    Total stockholders equity
    
    
    407,827
    
    
    
    401,663Total liabilities and stockholders equity
    
    $
    407,827
    
    
    
    401,663
 Statements of Operations
 Year ended June 30,2005
    
    
    2004
    
    
    2003(In thousands)Income before undistributed earnings of
subsidiary
    
    $
    
    
    
    
    
    
    
    
    Equity in (loss) undistributed earnings of
subsidiary
    
    
    (3,142
    )
    
    
    19,837
    
    
    
    28,270Net (loss) income
    
    $
    (3,142
    )
    
    
    19,837
    
    
    
    28,270
 F-34
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   Statements of Cash Flows
 Year ended June 30,2005
    
    
    2004
    
    
    2003(In thousands)Cash flows from operating activities:Net (loss) income
    
    $
    (3,142
    )
    
    
    19,837
    
    
    
    28,270Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:Equity in loss (undistributed
earnings) of subsidiary
    
    
    3,142
    
    
    
    (19,837
    )
    
    
    (28,270
    )Net cash provided by
operating activities
    
    
    
    
    
    
    
    
    
    
    Cash flows from investing activities
    
    
    
    
    
    
    
    
    
    
    Cash flows from financing activites
    
    
    
    
    
    
    
    
    
    
    Net change in cash and due
from bank
    
    
    
    
    
    
    
    
    
    
    Cash and due from bank at beginning of year
    
    
    25
    
    
    
    25
    
    
    
    25Cash and due from bank at end of year
    
    $
    25
    
    
    
    25
    
    
    
    25
 (17)
    
    Stock OfferingOn February 15, 2005, the boards of directors of the Bancorp and the Bank adopted a plan of
stock issuance pursuant to which the Bancorp will sell common stock representing a minority
ownership of the estimated pro forma market value of the Bancorp which will be determined by
an independent appraisal, to eligible depositors of the Bank and the Bancorps qualified
employee benefit plans in a stock subscription offering and, if necessary, to the general
public in a community and/or syndicated community offering. The majority of the common stock
will be owned by Investors Bancorp, MHC (a mutual holding company). The Plan was approved by
the appropriate regulatory agencies and the offering commenced in August 2005. Management
expects that the offering will be completed in October 2005.(18)
    
    Recent Accounting PronouncementsThe guidance in Emerging Issues Task Force (EITF) 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments, was originally effective for
other-than-temporary impairment evaluations made in reporting periods beginning after June 15,
2004. However, the guidance contained in paragraphs 10-20 of the Issue was delayed by FASB
Staff Position (FSP) EITF Issue 03-1-1, The Effective Date of Paragraphs 10-20 of EITF Issue
No. 03-1, posted on September 30, 2004. The
disclosure requirements continue to be effective in annual financial statements for fiscal
years ending after December 15, 2003. On June 29, 2005, the FASB decided not to provide
additional guidance on this issue, but directed its staff to issue proposed FSP EITF 03-1a
Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1, as final.
The final FSP will replace guidance set forth in paragraphs 10-18 of Issue 03-01 with
references to existing literature such as SFAS No. 115, Accounting for Certain
 F-35
    
    (Continued)




---



##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   Investments in
Debt and Equity Securities. The final FSP will be effective for periods beginning after
September 15, 2005. The Bancorp does not expect the adoption of FSP EITF 03-1a will have a
material impact on its financial condition or results of operations.In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, which amends
APB Opinion No. 29, Accounting for Nonmonetary Transactions. SFAS No. 153 eliminates the
exception from fair value measurement for nonmonetary exchanges of similar assets in Opinion
No. 29 and replaces it with an exception for exchanges that do not have commercial substance.
SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the exchange. SFAS No.
153 is effective for nonmonetary exchanges occurring in fiscal periods beginning after June
15, 2005. The Bancorp does not expect the adoption of SFAS No. 153 will have a material impact
on its financial condition or results of operations.In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share Based Payment. This
Statement is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employeesand its related
guidance. SFAS No. 123 (revised 2004) established standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods and services. This
Statement requires that the cost resulting from all share-based payment transactions be
recognized in the financial statements. This Statement establishes fair value as the
measurement objective in accounting for share-based payment arrangements and requires all
entities to apply a fair-value-based measurement method in accounting for share-based payment
transactions with employees, except for equity instruments held by employee share ownership
plans. This Statement is effective for public entities that do not file as small business
issuers as of the beginning of the first annual reporting period that begins after June 15,
2005. The Bancorp does not expect the adoption of SFAS No. 123 (revised 2004) will have a
material impact on its financial condition or result of operations.In December 2003, the Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position (SOP) No. 03-3, Accounting for
Certain Loans or Debt Securities Acquired in a Transfer. SOP No. 03-3 addresses accounting for
differences between contractual cash flows and cash flows expected to be collected from an
investors initial investment in loans or debt securities acquired in a transfer if those
differences are attributable, at least in part, to credit quality. This SOP prohibits carry
over or creation of valuation allowances in the initial accounting of all loans acquired in
transfers within the scope of SOP No. 03-3, which includes loans acquired in a purchase
business combination. SOP No. 03-3 is effective for loans acquired in fiscal years beginning
after December 15, 2004. The Bancorp adopted SOP No. 03-3 as of July 1, 2005. SOP No. 03-3 is
not expected to have a material impact on the Bancorps consolidated financial statements.
 F-36
    
    (Continued)




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##### 



INVESTORS BANCORP, INC. AND SUBSIDIARY
   In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This
statement replaces APB Opinion No. 20, Accounting Changesand SFAS No. 3, Reporting Accounting
Changes in Interim Financial Statements. SFAS No. 154 changes the requirements for the
accounting for and reporting of a voluntary change in accounting principle. SFAS No. 154
requires retrospective application to prior periods financial statements of changes in
accounting principles or error corrections, unless it is impractical to determine the
period-specific effects or when a pronouncement includes specific transition provisions. This
Statement is effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005.
 F-37




---



##### 



SIGNATURES
  INVESTORS BANCORP, INC.Date: November 3, 2005
    By:
    /s/ Robert M. CashillRobert M. CashillChief Executive Officer and
President
(Principal Executive Officer)  Signatures
    
    Title
    
    Date/s/ Robert M. Cashill

Robert M. Cashill
    
    Chief Executive
Officer and President
(Principal Executive
Officer)
    
    November  3, 2005/s/ Domenick A. Cama

Domenick A. Cama
    
    Senior Vice President
and Chief Financial
Officer (Principal
Financial and
Accounting Officer)
    
    November  3, 2005/s/ Doreen R. Byrnes

Doreen R. Byrnes
    
    Director
    
    November  3, 2005/s/ Brian D. Dittenhafer

Brian D. Dittenhafer
    
    Director
    
    November  3, 2005/s/ Patrick J. Grant

Patrick J. Grant
    
    Director
    
    November  3, 2005/s/ John A. Kirkpatrick

John A. Kirkpatrick
    
    Director
    
    November  3, 2005/s/ Vincent D. Manahan, III

Vincent D. Manahan, III
    
    Director
    
    November  3, 2005/s/ Joseph H. Shepard III

Joseph H. Shepard III
    
    Director
    
    November  3, 2005/s/ Rose Sigler

Rose Sigler
    
    Director
    
    November  3, 2005/s/ Stephen J. Szabatin

Stephen J. Szabatin
    
    Director
    
    November  3, 2005