Since the Company's initial public offering in 2005, we have transitioned from a
wholesale thrift business to a retail commercial bank. This transition has been
primarily accomplished by increasing the amount of our commercial loans and core
deposits (savings, checking and money market accounts). Our transformation can
be attributed to a number of factors, including organic growth, de novo branch
openings, bank and branch acquisitions, as well as product expansion. We believe
the attractive markets we operate in, namely, New Jersey and the greater New
York metropolitan area, will continue to provide us with growth opportunities.
In addition, we have national exposure through our Investors eAccess online
deposit platform and our equipment finance, healthcare and leveraged lending
portfolios. Our primary focus is to build and develop profitable customer
relationships across all lines of business, both consumer and commercial.
Our results of operations depend primarily on net interest income, which is
directly impacted by the interest rate environment. Net interest income is the
difference between the interest income we earn on our interest-earning assets,
primarily loans and investment securities, and the interest we pay on our
interest-bearing liabilities, primarily interest-bearing transaction accounts,
time deposits, and borrowed funds. Net interest income is affected by the level
and direction of interest rates, the shape of the market yield curve, the timing
of the placement and the repricing of interest-earning assets and
interest-bearing liabilities on our balance sheet, and the rate of prepayments
on our loans and mortgage-related assets.
A flat yield curve, caused primarily by rising short-term interest rates and
lower long-term interest rates, combined with competitive pricing in both the
loan and deposit markets, continues to create a challenging net interest margin
environment. We continue to manage our interest rate risk against a backdrop of
interest rate uncertainty. Should the yield curve steepen, we may experience an
improvement in net interest income, particularly if short-term interest rates do
not increase. If the yield curve stays flat, inverts or deposit competition
increases, we may be subject to net interest margin compression.
Our results of operations are also significantly affected by general economic
conditions. While the domestic consumer continues to generally benefit from
improved housing and employment metrics, the velocity of economic growth,
domestically and internationally, is challenged by global trade discord and
pockets of socioeconomic and political unrest. In addition, our tax rate was
negatively impacted by the State of New Jersey tax legislation enacted on July
1, 2018. In December 2019, the State of New Jersey provided clarification in
regard to the previously enacted tax law changes and as a result, we expect that
our state tax rate will be lower going forward.
Total assets increased $469.8 million, or 1.8%, to $26.70 billion at
December 31, 2019 from $26.23 billion at December 31, 2018. Net loans increased
$97.9 million, or 0.5%, to $21.48 billion at December 31, 2019 from $21.38
billion at December 31, 2018. Securities increased $167.2 million, or 4.5%, to
$3.85 billion at December 31, 2019 from $3.68 billion at December 31, 2018.
During the year ended December 31, 2019, we originated or funded $1.27 billion
in commercial and industrial loans, $861.0 million in commercial real estate
loans, $793.6 million in multi-family loans, $462.6 million in residential
loans, $76.2 million in consumer and other loans and $69.8 million in
construction loans. Our ongoing strategy is to continue to enhance our
commercial banking capabilities and maintain a well-diversified loan portfolio.
We have shifted focus to C&I originations while maintaining our commercial real
estate and multi-family portfolio and continue to be diligent in our
underwriting and credit risk monitoring of these portfolios. The overall level
of non-performing loans remains low compared to our national and regional peers.
Capital management is a key component of our business strategy. We continue to
manage our capital through a combination of organic growth, stock repurchases
and cash dividends. Effective capital management and prudent growth allows us to
effectively leverage the capital from the Company's public offerings, while
being mindful of tangible book value for stockholders. Our capital to total
assets ratio has decreased to 9.82% at December 31, 2019 from 11.46% at
December 31, 2018. Since the commencement of our first stock repurchase plan
post second step stock offering, the Company has repurchased a total of 127.1
million shares at an average cost of $12.11 per share totaling $1.54 billion.
Stockholders' equity was impacted for the year ended December 31, 2019 by the
repurchase of 39.4 million shares of common stock for $475.9 million as well as
cash dividends of $0.44 per share totaling $122.2 million. In December 2019, we
entered into a purchase and sale agreement with Blue Harbour, pursuant to which
we repurchased from Blue Harbour the 27,318,628 shares of our common stock
beneficially owned by Blue Harbour, at a purchase price of $12.29 per share,
representing aggregate cost of approximately $335.7 million.
In addition to its branch network, the Bank offers online banking capabilities
for consumers as well as small business, working to provide more robust treasury
capabilities to its customers. During 2019, the company launched Investors
eAccess, a secure online channel to attract deposits nationwide. Mobile and
online banking services allow the Bank to serve our customers' needs and adapt
to a changing environment. In addition to our deposit-related digital
capabilities, the Bank continues to enhance

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its digital capabilities related to originating and servicing loans. The Bank
has partnered with ODX, a leading digital small business originations platform,
to streamline its small business lending process. We continue to enhance our
digital capabilities as a way to enhance the customer experience and deliver our
services in a safe and secure manner. We will continue to execute our business
strategies with a focus on prudent and opportunistic growth while striving to
produce financial results that will create value for our stockholders. We intend
to continue to grow our business by successfully attracting deposits,
identifying favorable loan and investment opportunities, acquiring other banks
and non-bank entities, enhancing our market presence and product offerings as
well as continuing to invest in our people.

Critical Accounting Policies
We consider accounting policies that require management to exercise significant
judgment or discretion or to make significant assumptions that have, or could
have, a material impact on the carrying value of certain assets or on income to
be critical accounting policies. As of December 31, 2019, we consider the
following to be our critical accounting policies.
Allowance for Loan Losses. The allowance for loan losses is the estimated amount
considered necessary to cover credit losses inherent in the loan portfolio at
the balance sheet date. The allowance is established through the provision for
loan losses that is charged against income. The methodology for determining the
allowance for loan losses is considered a critical accounting policy by
management because of the high degree of judgment involved, the subjectivity of
the assumptions used, and the potential for changes in the economic environment
that could result in changes to the amount of the recorded allowance for loan
losses.
The allowance for loan losses has been determined in accordance with U.S.
generally accepted accounting principles, under which we are required to
maintain an allowance for probable losses at the balance sheet date. We are
responsible for the timely and periodic determination of the amount of the
allowance required. We believe that our allowance for loan losses is adequate to
cover specifically identifiable losses, as well as estimated losses inherent in
our portfolio for which certain losses are probable but not specifically
identifiable. Loans acquired are marked to fair value on the date of acquisition
with no valuation allowance reflected in the allowance for loan losses. In
conjunction with the quarterly evaluation of the adequacy of the allowance for
loan losses, the Company performs an analysis on acquired loans to determine
whether or not an allowance should be ascribed to those loans.
Management performs a quarterly evaluation of the adequacy of the allowance for
loan losses. The analysis of the allowance for loan losses has two elements:
loans collectively evaluated for impairment and loans individually evaluated for
impairment. Specific allocations are made for loans determined to be impaired. A
loan is deemed to be impaired if it is a commercial loan with an outstanding
balance greater than $1.0 million and on non-accrual status, loans modified in a
troubled debt restructuring ("TDR"), and other commercial loans greater than
$1.0 million if management has specific information that it is probable it will
not collect all amounts due under the contractual terms of the loan agreement.
Impairment is measured by determining the present value of expected future cash
flows or, for collateral-dependent loans, the fair value of the collateral
adjusted for market conditions and selling expenses.
The allowance for loans collectively evaluated for impairment consists of both
quantitative and qualitative loss components. The Company determines the
quantitative component by applying quantitative loss factors to the loans
collectively evaluated for impairment segregated by type of loan, risk rating
(if applicable) and payment history. In addition, the Company's residential
portfolio is subdivided between fixed and adjustable rate loans as adjustable
rate loans are deemed to be subject to more credit risk if interest rates rise.
Quantitative loss factors for each loan segment are generally determined based
on the Company's historical loss experience over a look-back period.
Additionally, management assesses the loss emergence period for the expected
losses of each loan segment and adjusts each quantitative loss factor
accordingly. The loss emergence period is the estimated time from the date of a
loss event (such as a personal bankruptcy) to the actual recognition of the loss
(typically via the first full or partial loan charge-off), and is determined
based upon a study of the Company's past loss experience by loan segment. The
quantitative loss factors may also be adjusted to account for qualitative
factors, both internal and external to the Company, which are made to reflect
risks inherent in the portfolio not captured by the quantitative component. This
evaluation is based on among other things, loan and delinquency trends, general
economic conditions, credit concentrations, industry trends and lending and
credit management policies and procedures, but is inherently subjective as it
requires material estimates that may be susceptible to significant revisions
based upon changes in economic and real estate market conditions. Actual loan
losses may be different than the allowance for loan losses we have established
which could have a material negative effect on our financial results.
On a quarterly basis, management reviews the current status of various loan
assets in order to evaluate the adequacy of the allowance for loan losses. In
this evaluation process, specific loans are analyzed to determine their
potential risk of loss. Loans determined to be impaired are evaluated for
potential loss exposure. Any shortfall results in a recommendation of a specific
allowance or charge-off if the likelihood of loss is evaluated as probable. To
determine the adequacy of collateral on a particular loan, an estimate of the
fair value of the collateral is based on the most current appraised value
available for real property or a

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discounted cash flow analysis on a business. The appraised value for real
property is then reduced to reflect estimated liquidation expenses.
The allowance contains reserves identified as unallocated. These reserves
reflect management's attempt to provide for the imprecision and the uncertainty
that is inherent in estimates of probable credit losses.
Our lending emphasis has been the origination of multi-family loans, commercial
real estate loans, commercial and industrial loans, one- to four-family
residential mortgage loans secured by one- to four-family residential real
estate, construction loans, and consumer loans. The majority of consumer loans
are cash surrender value lending on life insurance contracts, home equity loans
and home equity lines of credit. These activities resulted in a concentration of
loans secured by real estate property and businesses located in New Jersey and
New York. Based on the composition of our loan portfolio, we believe the primary
risks to our loan portfolio are increases in interest rates, a decline in the
general economy, and declines in real estate market values in New Jersey, New
York and surrounding states. Any one or combination of these events may
adversely affect our loan portfolio resulting in increased delinquencies, loan
losses and future levels of loan loss provisions. As a substantial amount of our
loan portfolio is collateralized by real estate, appraisals of the underlying
value of property securing loans are critical in determining the amount of the
allowance required for specific impaired loans. Assumptions for appraisal
valuations are instrumental in determining the value of properties. Negative
changes to appraisal assumptions could significantly impact the valuation of a
property securing a loan and the related allowance determined. The assumptions
supporting such appraisals are carefully reviewed to determine that the
resulting values reasonably reflect amounts realizable on the related loans.
The Company obtains an appraisal for all commercial loans that are collateral
dependent upon origination. Updated appraisals are generally obtained for
substandard loans $1.0 million or greater and special mention loans with a
balance of $2.0 million or greater in the process of collection by the Company's
special assets department. This is done in order to determine the specific
reserve or charge off needed. As part of the allowance for loan losses process,
the Company reviews each collateral dependent commercial loan classified as
non-accrual and/or impaired and assesses whether there has been an adverse
change in the collateral value supporting the loan. The Company utilizes
information from its commercial lending officers and its credit department and
special assets department's knowledge of changes in real estate conditions in
our lending area to identify if possible deterioration of collateral value has
occurred. Based on the severity of the changes in market conditions, management
determines if an updated appraisal is warranted or if downward adjustments to
the previous appraisal are warranted. If it is determined that the deterioration
of the collateral value is significant enough to warrant ordering a new
appraisal, an estimate of the downward adjustments to the existing appraised
value is used in assessing if additional specific reserves are necessary until
the updated appraisal is received.
For homogeneous residential mortgage loans, the Company's policy is to obtain an
appraisal upon the origination of the loan and an updated appraisal in the event
a loan becomes 90 days delinquent. Thereafter, the appraisal is updated every
two years if the loan remains in non-performing status and the foreclosure
process has not been completed. Management adjusts the appraised value of
residential loans to reflect estimated selling costs and declines in the real
estate market.
Management believes the potential risk for outdated appraisals for impaired and
other non-performing loans has been mitigated due to the fact that the loans are
individually assessed to determine that the loan's carrying value is not in
excess of the fair value of the collateral. Loans are generally charged off
after an analysis is completed which indicates that collectability of the full
principal balance is in doubt.
Although we believe we have established and maintained the allowance for loan
losses at adequate levels, additions may be necessary based on the growth and
composition of the loan portfolio, the level of loan delinquency and the
economic conditions in our lending area. Management uses relevant information
available; however, the level of the allowance for loan losses remains an
estimate that is subject to significant judgment and short-term change. In
addition, the Federal Deposit Insurance Corporation and the New Jersey
Department of Banking and Insurance, as an integral part of their examination
process, will periodically review our allowance for loan losses. Such agencies
may require us to recognize adjustments to the allowance based on their
judgments about information available to them at the time of their examination.
Derivative Financial Instruments. As required by ASC 815, the Company records
all derivatives on the balance sheet at fair value.  The accounting for changes
in the fair value of derivatives depends on the intended use of the derivative,
whether the Company has elected to designate a derivative in a hedging
relationship and apply hedge accounting and whether the hedging relationship has
satisfied the criteria necessary to apply hedge accounting. Derivatives
designated and qualifying as a hedge of the exposure to changes in the fair
value of an asset, liability, or firm commitment attributable to a particular
risk, such as interest rate risk, are considered fair value hedges. Derivatives
designated and qualifying as a hedge of the exposure to variability in expected
future cash flows, or other types of forecasted transactions, are considered
cash flow hedges.  Hedge accounting generally provides for the matching of the
timing of gain or loss recognition on the hedging instrument with the
recognition of the changes in the fair value of the hedged asset or liability
that are attributable to the hedged risk in a fair value hedge or the earnings
effect of the hedged forecasted transactions in a cash flow hedge.  The Company
may enter into derivative contracts that are intended

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to economically hedge certain of its risks, even though hedge accounting does
not apply or the Company elects not to apply hedge accounting.
Comparison of Financial Condition at December 31, 2019 and December 31, 2018
Total Assets. Total assets increased by $469.8 million, or 1.8%, to $26.70
billion at December 31, 2019 from $26.23 billion at December 31, 2018. Net loans
increased by $97.9 million, or 0.5%, to $21.48 billion at December 31, 2019.
Securities increased by $167.2 million, or 4.5%, to $3.85 billion at
December 31, 2019 from $3.68 billion at December 31, 2018.
Net Loans. Net loans increased by $97.9 million, or 0.5%, to $21.48 billion at
December 31, 2019 from $21.38 billion at December 31, 2018. The detail of the
loan portfolio (including PCI loans) is below:
                                        December 31, 2019      December 31, 2018
                                                 (Dollars in thousands)
Commercial Loans:
Multi-family loans                     $        7,813,236              8,165,187
Commercial real estate loans                    4,831,347              

4,786,825

Commercial and industrial loans                 2,951,306              2,389,756
Construction loans                                262,866                227,015
Total commercial loans                         15,858,755             15,568,783
Residential mortgage loans                      5,144,718              5,351,115
Consumer and other                                699,796                707,866
Total Loans                                    21,703,269             21,627,764
Deferred fees, premiums and other, net                907                (13,811 )
Allowance for loan losses                        (228,120 )             (235,817 )
Net loans                              $       21,476,056$       21,378,136


During the year ended December 31, 2019, we originated or funded $1.27 billion
in commercial and industrial loans, $861.0 million in commercial real estate
loans, $793.6 million in multi-family loans, $462.6 million in residential
loans, $76.2 million in consumer and other loans and $69.8 million in
construction loans. The growth in the loan portfolio reflects our continued
focus on growing and diversifying our loan portfolio. A significant portion of
our commercial loan portfolio, including commercial and industrial loans, are
secured by commercial real estate and are primarily on properties and businesses
located in New Jersey and New York. In addition to the loans originated for our
portfolio, we originated residential mortgage loans for sale to third parties
totaling $269.8 million for the year ended December 31, 2019. We also purchased
mortgage loans from correspondent entities including other banks and mortgage
bankers. During the year ended December 31, 2019, we purchased loans totaling
$294.1 million from these entities but no longer purchase such loans.


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

                      December 31, 2019              September 30, 2019                June 30, 2019                March 31, 2019             December 31, 2018
                    # of Loans      Amount         # of Loans       Amount         # of Loans      Amount       # of Loans      Amount       # of Loans      Amount
                                                                                (Dollars in millions)
Multi-family           8          $    23.3           6           $    19.6             14       $   34.1             14      $   34.1          15         $   33.9
Commercial real
estate                22               12.0          30                12.3             27            8.1             32           9.8          35             12.4
Commercial and
industrial            18               12.5          16                12.0             13           18.0             14          17.2          14             19.4
Construction           -                  -           -                   -              1            0.2              1           0.2           1              0.2
Total commercial
loans                 48               47.8          52                43.9             55           60.4             61          61.3          65             65.9
Residential and
consumer             255               47.4         261                48.2            275           51.2            296          56.4         320             59.0
Total
non-accrual
loans                303          $    95.2         313           $    92.1            330       $  111.6            357      $  117.7         385         $  124.9
Accruing
troubled debt
restructured
loans                 57          $    13.1          58           $    12.5             56       $   12.2             54      $   13.6          54         $   13.6
Non-accrual
loans to total
loans                                  0.44 %                          0.42 %                        0.51 %                       0.54 %                       0.58 %
Allowance for
loan losses as a
percent of
non-accrual
loans                                239.66 %                        247.62 %                      207.83 %                     199.44 %                     188.78 %
Allowance for
loan losses as a
percent of total
loans                                  1.05 %                          1.05 %                        1.05 %                       1.08 %                       1.09 %


Total non-accrual loans decreased to $95.2 million at December 31, 2019 compared
to $124.9 million at December 31, 2018. At December 31, 2019, there were $3.9
million of commercial real estate loans and $3.8 million of commercial and
industrial loans that were classified as non-accrual which were performing in
accordance with their contractual terms. During the year ended December 31,
2019, we sold $173,000 of non-performing commercial real estate loans. There
were no sales of non-performing loans during the year ended December 31, 2018.
Criticized and classified loans as a percent of total loans decreased to 5.36%
at December 31, 2019 from 5.72% at December 31, 2018. In assessing and
classifying our commercial loan portfolio, the Company places significant
emphasis on the borrower's ability to service its debt. At December 31, 2019,
our allowance for loan losses as a percent of total loans was 1.05%. At
December 31, 2019, there were $36.6 million of loans deemed as TDRs, of which
$27.0 million were residential and consumer loans, $7.2 million were commercial
and industrial loans and $2.4 million were commercial real estate loans. TDRs of
$13.1 million were classified as accruing and $23.5 million were classified as
non-accrual at December 31, 2019. We continue to proactively and diligently work
to resolve our troubled loans.
In addition to non-accrual loans, we continue to monitor our portfolio for
potential problem loans. Potential problem loans are defined as loans about
which we have concerns as to the ability of the borrower to comply with the
current loan repayment terms and which may cause the loan to be placed on
non-accrual status. As of December 31, 2019, the Company has deemed potential
problem loans totaling $68.1 million, which is comprised of 6 multi-family loans
totaling $47.6 million, 24 commercial and industrial loans totaling $13.7
million and 9 commercial real estate loans totaling $6.8 million. Management is
actively monitoring all of these loans.
The allowance for loan losses decreased by $7.7 million to $228.1 million at
December 31, 2019 from $235.8 million at December 31, 2018. Our allowance for
loan losses was positively impacted by improved credit quality, including the
level of non-accrual loans and charge-offs/recoveries, and modest loan growth.
Future increases in the allowance for loan losses may be necessary based on the
growth and composition of the loan portfolio, the level of loan delinquency and
the economic conditions in our lending area. At December 31, 2019, our allowance
for loan losses as a percent of total loans was 1.05%.
Securities. Securities are held primarily for liquidity, interest rate risk
management and yield enhancement. Our Investment Policy requires that investment
transactions conform to Federal and State investment regulations. Our
investments purchased

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may include, but are not limited to, U.S.Treasury obligations, securities
issued by various Federal Agencies, State and Municipal subdivisions,
mortgage-backed securities, certain certificates of deposit of insured financial
institutions, overnight and short-term loans to other banks, investment grade
corporate debt instruments, and mutual funds. In addition, the Company may
invest in equity securities subject to certain limitations. Purchase decisions
are based upon a thorough analysis of each security to determine if it conforms
to our overall asset/liability management objectives. The analysis must consider
its effect on our risk-based capital measurement, prospects for yield and/or
appreciation and other risk factors. Debt securities are classified as
held-to-maturity or available-for-sale when purchased.
At December 31, 2019, our securities portfolio represented 14.4% of our total
assets. Securities, in the aggregate, increased by $167.2 million, or 4.5%, to
$3.85 billion at December 31, 2019 from $3.68 billion at December 31, 2018. This
increase was a result of purchases, partially offset by sales and paydowns.
Stock in the Federal Home Loan Bank, Bank Owned Life Insurance and Other Assets.
The amount of stock we own in the FHLB increased by $7.0 million, or 2.7% to
$267.2 million at December 31, 2019 from $260.2 million at December 31, 2018.
The amount of stock we own in the FHLB is primarily related to the balance of
our outstanding borrowings from the FHLB. Bank owned life insurance was $218.5
million at December 31, 2019 and $211.9 million at December 31, 2018. Other
assets were $82.3 million at December 31, 2019 and $29.3 million at December 31,
2018.
Deposits.  At December 31, 2019, deposits totaled $17.86 billion, representing
74.2% of our total liabilities. Our deposit strategy is focused on attracting
core deposits (savings, checking and money market accounts), resulting in a
deposit mix of lower cost core products. We remain committed to our plan of
attracting more core deposits because core deposits represent a more stable
source of low cost funds and may be less sensitive to changes in market interest
rates.
Deposits increased by $280.1 million, or 1.6%, from $17.58 billion at
December 31, 2018 to $17.86 billion at December 31, 2019. Total checking
accounts increased $665.8 million to $7.99 billion at December 31, 2019 from
$7.32 billion at December 31, 2018. At December 31, 2019, we held $13.85 billion
in core deposits, representing 77.6% of total deposits, of which $266.4 million
are brokered money market deposits. At December 31, 2019, $4.01 billion, or
22.4%, of our total deposit balances were certificates of deposit, of which
included $1.31 billion of brokered certificates of deposit. At December 31,
2019, $4.89 billion, or 27.4%, of our total deposits consisted of public fund
deposits from local government entities, predominately domiciled in the state of
New Jersey. Core deposits are an attractive funding alternative because they are
generally a more stable source of low cost funding and are less sensitive to
changes in market interest rates.
Borrowed Funds.  Borrowings are primarily with the FHLB which are collateralized
by our residential and commercial mortgage portfolios. Borrowed funds increased
by $391.4 million, or 7.2%, to $5.83 billion at December 31, 2019 from $5.44
billion at December 31, 2018 to help fund the growth of the security and loan
portfolios and our share repurchases. In June 2019, we prepaid $200.0 million of
FHLB advances and a $150.0 million repurchase agreement with a total average
interest rate of 3.00% and maturity dates in 2020 and 2021.  The prepaid
borrowings were replaced with $200.0 million of FHLB advances and a $150.0
million repurchase agreement with a total average interest rate of 2.55% and
maturity dates averaging 4 years.  Included in the interest rate is a prepayment
penalty of 0.47%. In August 2019, we prepaid $275.0 million of FHLB advances
with a total average interest rate of 2.46% and maturity dates in 2021.  The
prepaid borrowings were replaced with $275.0 million of FHLB advances with a
total average interest rate of 2.16% and maturity dates of 5 years.  Included in
the interest rate is a prepayment penalty of 0.27%.  The prepayment penalties
are amortized over the life of the new debt instruments in accordance with ASC
470-50, Debt - Modifications and Extinguishments.
Stockholders' Equity. Stockholders' equity decreased by $383.4 million to $2.62
billion at December 31, 2019 from $3.01 billion at December 31, 2018. The
decrease was primarily attributed to the repurchase of 39.4 million shares of
common stock for $475.9 million and cash dividends of $0.44 per share totaling
$122.2 million for the year ended December 31, 2019. As previously noted, in
December 2019, we repurchased 27,318,628 shares beneficially owned by Blue
Harbour for approximately $335.7 million. These decreases were partially offset
by net income of $195.5 million and share-based plan activity of $26.3 million
for the year ended December 31, 2019.
Analysis of Net Interest Income
Net interest income represents the difference between income we earn on our
interest-earning assets and the expense we pay on interest-bearing liabilities.
Net interest income depends on the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned on such assets and
paid on such liabilities.

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


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For the Year Ended December 31,

                                                 2019                                      2018                                      2017
                                  Average         Interest     Average       Average        Interest     Average       Average        Interest     Average
                                Outstanding       Earned/       Yield/     Outstanding       Earned/      Yield/     Outstanding       Earned/      Yield/
                                  Balance           Paid         Rate        Balance          Paid         Rate        Balance          Paid         Rate
                                                                                  (Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits      $    215,447$    2,805       1.30 %   $    212,980$   2,435       1.14 %        272,382     $   2,164       0.79 %
Equity securities                     5,938            143       2.41            5,754           134       2.33            5,699           139       2.44
Debt securities
available-for-sale                2,395,047         67,822       2.83        2,042,129        46,057       2.26        1,844,887        37,152       2.01
Debt securities
held-to-maturity                  1,317,322         40,017       3.04        1,668,106        48,989       2.94        1,704,333        44,923       2.64
Net loans                        21,576,829        912,091       4.23       20,498,857       854,595       4.17       19,414,842       783,938       4.04
Stock in FHLB                       274,661         17,341       6.31          247,513        16,206       6.55          243,409        13,367       5.49
Total interest-earning
assets                           25,785,244      1,040,219       4.03      

24,675,339 968,416 3.92 23,485,552 881,683 3.75
Non-interest-earning assets 975,585

   707,370                                   758,134
Total assets                   $ 26,760,829$ 25,382,709$ 24,243,686
Interest-bearing
liabilities:
Savings deposits               $  1,985,142$   17,148       0.86 %   $  2,170,510$  13,240       0.61 %   $  2,107,363$   8,395       0.40 %
Interest-bearing checking         5,020,991         84,698       1.69        4,651,313        62,447       1.34        4,383,110        37,091       0.85
Money market accounts             3,703,413         60,896       1.64        3,837,174        46,394       1.21        4,240,775        34,366       0.81
Certificates of deposit           4,609,274         99,115       2.15        4,149,438        66,564       1.60        3,202,312        33,691       1.05
Total interest-bearing
deposits                         15,318,820        261,857       1.71       14,808,435       188,645       1.27       13,933,560       113,543       0.81
Borrowed funds                    5,611,206        123,289       2.20        4,898,867        99,754       2.04        4,675,626        88,364       1.89
Total interest-bearing
liabilities                      20,930,026        385,146       1.84       19,707,302       288,399       1.46       18,609,186       201,907       1.08
Non-interest-bearing
liabilities                       2,887,601                                  2,590,675                                 2,468,005
Total liabilities                23,817,627                                 22,297,977                                21,077,191
Stockholders' equity              2,943,202                                  3,084,732                                 3,166,495
Total liabilities and
stockholders' equity           $ 26,760,829$ 25,382,709$ 24,243,686
Net interest income                             $  655,073$ 680,017$ 679,776
Net interest rate spread (1)                                     2.19 %                                    2.46 %                                    2.67 %
Net interest-earning assets
(2)                            $  4,855,218$  4,968,037$  4,876,366
Net interest margin (3)                                          2.54 %                                    2.76 %                                    2.89 %
Ratio of interest-earning
assets to total
interest-bearing liabilities           1.23                                       1.25                                      1.26



(1)  Net interest rate spread represents the difference between the yield on

average interest-earning assets and the cost of average interest-bearing

liabilities.

(2) Net interest-earning assets represent total interest-earning assets less

total interest-bearing liabilities.



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



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Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our
net interest income for the periods indicated. The rate column shows the effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The volume column shows the effects attributable to changes in volume (changes
in volume multiplied by prior rate). The net column represents the sum of the
prior columns. For purposes of this table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately, based
on the changes due to rate and the changes due to volume.

                                         Years Ended December 31,                          Years Ended December 31,
                                               2019 vs. 2018                                     2018 vs. 2017

                                 Increase (Decrease) Due to           Net          Increase (Decrease) Due to           Net
                                                                   Increase                                          Increase
                                   Volume             Rate        (Decrease)         Volume             Rate        (Decrease)
                                                                       (In 

thousands)

Interest-earning assets:
Interest-earning cash
accounts                      $          28               342           370     $        (471 )             742           271
Equities                                  4                 5             9                 1                (6 )          (5 )
Debt securities
available-for-sale                    8,027            13,738        21,765             3,892             5,013         8,905
Debt securities
held-to-maturity                     (5,724 )          (3,248 )      (8,972 )             (28 )           4,094         4,066
Net loans                            46,098            11,398        57,496            44,129            26,528        70,657
Federal Home Loan Bank
stock                                 1,790              (655 )       1,135               225             2,614         2,839
Total interest-earning
assets                               50,223            21,580        71,803            47,748            38,985        86,733
Interest-bearing
liabilities:
Savings                              (1,117 )           5,025         3,908               254             4,591         4,845
Interest-bearing checking             4,893            17,358        22,251             2,306            23,050        25,356
Money market accounts                (1,600 )          16,102        14,502            (3,278 )          15,306        12,028
Certificates of deposit               7,322            25,229        32,551             9,977            22,896        32,873
Total deposits                        9,498            63,714        73,212             9,259            65,843        75,102
Borrowed funds                       15,450             8,085        23,535             4,257             7,133        11,390
Total interest-bearing
liabilities                          24,948            71,799        96,747            13,516            72,976        86,492
(Decrease) increase in net
interest income               $      25,275           (50,219 )     (24,944 )   $      34,232           (33,991 )         241


Comparison of Operating Results for the Year Ended December 31, 2019 and 2018
Net Income.  Net income for the year ended December 31, 2019 was $195.5 million
compared to net income of $202.6 million for the year ended December 31, 2018.
Included for the year ended December 31, 2019 is $7.8 million of additional
income tax expense resulting from the revaluation of our net deferred tax asset
as the State of New Jersey provided clarification in December 2019 relating to
previously enacted tax law changes. Included in net income for the year ended
December 31, 2018 was a $32.8 million loss on the sale of debt securities
available-for-sale.
Net Interest Income.  Net interest income decreased by $24.9 million to $655.1
million for the year ended December 31, 2019 from $680.0 million for the year
ended December 31, 2018. The net interest margin decreased 22 basis points to
2.54% for the year ended December 31, 2019 from 2.76% for the year ended
December 31, 2018.
Interest and Dividend Income. Total interest and dividend income increased by
$71.8 million, or 7.4%, to $1.04 billion for the year ended December 31, 2019.
Interest income on loans increased by $57.5 million, or 6.7%, to $912.1 million
for the year ended December 31, 2019, as a result of a $1.08 billion, or 5.3%,
increase in the average balance of net loans to $21.58 billion for the year
ended December 31, 2019, primarily attributed to loan originations, offset by
paydowns and payoffs. In addition, the weighted average yield on net loans
increased 6 basis points to 4.23%. Prepayment penalties, which are included in
interest income, totaled $16.8 million for the year ended December 31, 2019
compared to $20.6 million for the year ended December 31, 2018. Interest income
on all other interest-earning assets, excluding loans, increased by $14.3
million, or 12.6%, to $128.1 million for the year ended December 31, 2019 which
is attributable to an increase of 31 basis points to 3.04% in the weighted
average yield on interest-earning assets, excluding loans. In addition, the
average balance of all other interest earning assets, excluding loans, increased
$31.9 million to $4.21 billion for the year ended December 31, 2019.

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Interest Expense. Total interest expense increased by $96.7 million, or 33.5%,
to $385.1 million for the year ended December 31, 2019. Interest expense on
interest-bearing deposits increased $73.2 million, or 38.8%, to $261.9 million
for the year ended December 31, 2019. The weighted average cost of
interest-bearing deposits increased 44 basis points to 1.71% for the year ended
December 31, 2019. In addition, the average balance of total interest-bearing
deposits increased $510.4 million, or 3.5%, to $15.32 billion for the year ended
December 31, 2019. Interest expense on borrowed funds increased by $23.5
million, or 23.6%, to $123.3 million for the year ended December 31, 2019. The
weighted average cost of borrowings increased 16 basis points to 2.20% for the
year ended December 31, 2019. In addition, the average balance of borrowed funds
increased $712.3 million, or 14.5%, to $5.61 billion for the year ended
December 31, 2019.
Non-Interest Income.  Total non-interest income increased by $43.3 million to
$53.4 million for the year ended December 31, 2019. The increase was primarily
due to an increase of $26.1 million in non-interest income on securities
predominately resulting from a $5.7 million loss on the sale of securities
during 2019 as compared to a $32.8 million loss on the sale of securities during
2018. In addition, other income increased $11.8 million primarily attributed to
customer swap fee income, gains on our equipment finance portfolio,
non-depository investment products and a sale-leaseback transaction.
Non-Interest Expense. Total non-interest expenses were $422.8 million for the
year ended December 31, 2019, an increase of $15.1 million, or 3.7%, as compared
to the year ended December 31, 2018. This increase was due to an increase of
$7.9 million in compensation and fringe benefit expense, an increase of $4.8
million in other non-interest expense, an increase of $4.2 million in data
processing and communication expense, and an increase of $2.0 million in
professional fees for the year ended December 31, 2019. These increases were
partially offset by a decrease of $4.6 million in federal insurance premiums.
Income Taxes. Income tax expense was $91.2 million and $67.8 million for the
years ended December 31, 2019 and December 31, 2018, respectively. The effective
tax rate was 31.8% for the year ended December 31, 2019 and 25.1% for the year
ended December 31, 2018. The increase in the tax rate primarily resulted from
the State of New Jersey providing clarification on mandatory combined reporting,
causing a remeasurement of the Company's deferred tax balances.
Comparison of Operating Results for the Year Ended December 31, 2018 and 2017
Refer to "Item 7. - Management's Discussion and Analysis of Financial Condition
and Results of Operations" of our Annual Report on Form 10-K for the year ended
December 31, 2018 for a discussion of 2018 results as compared to 2017 results.
Management of Market Risk
Qualitative Analysis. One significant form of market risk is interest rate risk.
Interest rate risk results from timing differences in the cash flow or
re-pricing of our assets, liabilities and off-balance sheet contracts (i.e.,
loan commitments); the effect of loan prepayments, deposit activity; potential
differences in the behavior of lending and funding rates arising from the use of
different indices; and "yield curve risk" arising from changes in the term
structure of interest rates. Changes in market interest rates can affect net
interest income by influencing the amount and rate of new loan originations, the
ability of borrowers to repay variable rate loans, the volume of loan
prepayments and the mix and flow of deposits.
The general objective of our interest rate risk management process is to
determine the appropriate level of risk given our business model and then to
manage that risk in a manner consistent with that risk appetite. Our Asset
Liability Committee, which consists of senior management and executives,
evaluates the interest rate risk inherent in our balance sheet, the operating
environment and capital and liquidity requirements and may modify our lending,
investing and deposit gathering strategies accordingly. On a quarterly basis,
our Board of Directors reviews various Asset Liability Committee reports that
estimate the sensitivity of the economic value of equity and net interest income
under various interest rate scenarios.
Our tactics and strategies may include the use of various financial instruments,
including derivatives, to manage our exposure to interest rate risk. Certain
derivatives are designated as hedging instruments in a qualifying hedge
accounting relationship (fair value or cash flow hedge). Hedged items can be
either assets or liabilities. As of December 31, 2019 and December 31, 2018, the
Company had cash flow and fair value hedges with aggregate notional amounts of
$2.68 billion and $2.61 billion, respectively. Included in the fair value hedges
are $475.0 million in asset swap transactions where fixed rate loan payments are
exchanged for variable rate payments. These transactions were executed in an
effort to reduce the Company's exposure to rising rates. During the year ended
December 31, 2019, the Company terminated three interest rate swaps with an
aggregate notional amount of $1.00 billion which had been included in asset swap
transactions.
  We actively evaluate interest rate risk in connection with our lending,
investing and deposit activities and our off-balance sheet positions. At
December 31, 2019, 23.7% of our total loan portfolio was comprised of
residential mortgages, of which approximately 28.5% was in variable rate
products, while 71.5% was in fixed rate products. Our variable rate and short
term fixed rate mortgage related assets have helped to reduce our exposure to
interest rate fluctuations. Long term fixed-rate products may adversely impact
our net interest income in a rising rate environment. The origination of
commercial loans, particularly commercial

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and industrial loans, commercial real estate loans and multi-family loans, which
have outpaced the growth in the residential portfolio in recent years, generally
help reduce our interest rate risk due to their shorter term compared to fixed
rate residential mortgage loans. In addition, we primarily invest in securities
which display relatively conservative interest rate risk characteristics.
We use an internally managed and implemented industry standard asset/liability
model to complete our quarterly interest rate risk reports. The model projects
net interest income based on various interest rate scenarios and horizons. We
use a combination of analyses to monitor our exposure to changes in interest
rates.
Our net interest income sensitivity analysis determines the relative balance
between the repricing of assets, liabilities and off-balance sheet positions
over various horizons. This asset and liability analysis includes expected cash
flows from loans and securities, using forecasted prepayment rates, reinvestment
rates, as well as contractual and forecasted liability cash flows. This analysis
identifies mismatches in the timing of asset and liability cash flows but does
not necessarily provide an accurate indicator of interest rate risk because the
rate forecasts and assumptions used in the analysis may not reflect actual
experience. The economic value of equity ("EVE") analysis estimates the change
in the net present value ("NPV") of assets and liabilities and off-balance sheet
contracts over a range of immediate rate shock interest rate scenarios. In
calculating changes in EVE, for the various scenarios we forecast loan and
securities prepayment rates, reinvestment rates and deposit decay rates.
In July 2017, the Financial Conduct Authority (the authority that regulates
LIBOR) announced it intends to stop compelling banks to submit rates for the
calculation of LIBOR after 2021. The Alternative Reference Rates Committee
("ARRC") has proposed that the Secured Overnight Financing Rate ("SOFR") is the
rate that represents best practice as the alternative to USD-LIBOR for use in
derivatives and other financial contracts that are currently indexed to
USD-LIBOR. The ARRC has proposed a paced market transition plan to SOFR from
USD-LIBOR and organizations are currently working on industry wide and company
specific transition plans as it relates to derivatives and cash markets exposed
to USD-LIBOR. The Company has approximately $5.00 billion in financial
instruments which are indexed to USD-LIBOR for which it is monitoring the
activity and evaluating the related risks.
Quantitative Analysis. The table below sets forth, as of December 31, 2019, the
estimated changes in our EVE and our net interest income that would result from
the designated changes in interest rates. Such changes to interest rates are
calculated as an immediate and permanent change for the purposes of computing
EVE and a gradual change over a one-year period for the purposes of computing
net interest income. Computations of prospective effects of hypothetical
interest rate changes are based on numerous assumptions including relative
levels of market interest rates, loan prepayments and deposit decay, and should
not be relied upon as indicative of actual results. The following table reflects
management's expectations of the changes in EVE and net interest income for an
interest rate decrease of 100 basis points and increase of 200 basis points.

                                      EVE (1) (2)                           

Net Interest Income (3)

                                                                                                  Estimated Increase
Change in                            Estimated Increase (Decrease)        Estimated  Net              (Decrease)
Interest Rates      Estimated                                                Interest
(basis points)         EVE              Amount             Percent            Income           Amount          Percent
                                                          (Dollars in thousands)
+ 200bp           $ 3,300,884             (400,120 )         (10.8 )%   $        639,962      (34,198 )         (5.1 )%
0bp               $ 3,701,004                    -               -      $        674,160            -              -
-100bp            $ 3,915,477              214,473             5.8  %   $        690,721       16,561            2.5  %


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


(2) EVE is the discounted present value of expected cash flows from assets,

      liabilities and off-balance sheet contracts.


(3)   Assumes a gradual change in interest rates over a one year period at all
      maturities.


The table above indicates that at December 31, 2019, in the event of a 200 basis
point increase in interest rates, we would be expected to experience a 10.8%
decrease in EVE and a $34.2 million, or 5.1%, decrease in net interest income.
In the event of a 100 basis point decrease in interest rates, we would be
expected to experience a 5.8% increase in EVE and a $16.6 million, or 2.5%,
increase in net interest income. This data does not reflect any future actions
we may take in response to changes in interest rates, such as changing the mix
in or growth of our assets and liabilities, which could change the results of
the EVE and net interest income calculations.
As mentioned above, we use an internally developed asset liability model to
compute our quarterly interest rate risk reports. Certain shortcomings are
inherent in any methodology used in the above interest rate risk measurements.
Modeling EVE and net interest income sensitivity requires certain assumptions
that may or may not reflect the manner in which actual yields and costs respond
to changes in market interest rates. The EVE and net interest income table
presented above assumes no balance sheet growth and that generally the
composition of our interest-rate sensitive assets and liabilities existing at
the beginning of the analysis remains constant over the period being measured
and, accordingly, the data does not reflect any actions we may take in

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response to changes in interest rates. The table also assumes a particular
change in interest rates is reflected uniformly across the yield curve.
Accordingly, although the EVE and net interest income table provide an
indication of our sensitivity to interest rate changes at a particular point in
time, such measurement is not intended to and does not provide a precise
forecast of the effects of changes in market interest rates on our EVE and net
interest income.
Liquidity and Capital Resources
Liquidity is the ability to economically meet current and future financial
obligations. The Company's primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, FHLB and other
borrowings and, to a lesser extent, proceeds from the sale of loans and
investment maturities. While scheduled amortization of loans is a predictable
source of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition. Our Asset
Liability Committee is responsible for establishing and monitoring our liquidity
targets and strategies to ensure that sufficient liquidity exists for meeting
the needs of our customers as well as unanticipated contingencies. The Company
has other sources of liquidity, including unsecured overnight lines of credit,
brokered deposits and other borrowings from correspondent banks.
A primary source of funds is cash provided by cash flows on loans and
securities. Principal repayments on loans for the years ended December 31, 2019,
2018 and 2017 were $3.66 billion, $3.47 billion and $2.81 billion, respectively.
Principal repayments on securities for the years ended December 31, 2019, 2018
and 2017 were $744.0 million, $685.5 million and $660.3 million, respectively.
There were sales of securities during years ended December 31, 2019, 2018 and
2017 of $399.4 million, $632.4 million and $102.1 million, respectively. There
were no unusual payoffs or paydowns of TruPs for the year ended December 31,
2019. For the year ended December 31, 2018, the Company received proceeds of
$7.3 million from the payoff and paydown of TruPs which resulted in $3.2 million
of interest income from securities, as well as a gain of $1.2 million recognized
as non-interest income. For the year ended December 31, 2017, the Company
received proceeds of $3.1 million from the liquidation of one TruP security. As
a result, $1.9 million was recognized as interest income from securities.

In addition to cash provided by principal and interest payments on loans and
securities, our other sources of funds include cash provided by operating
activities, deposits and borrowings. Net cash provided by operating activities
for the years ended December 31, 2019, 2018 and 2017 totaled $160.7 million,
$275.6 million and $302.4 million, respectively. For the years ended
December 31, 2019, 2018 and 2017 deposits increased $280.1 million, $222.6
million and $2.08 billion, respectively. Deposit flows are affected by the
overall level of and direction of changes in market interest rates, the pricing
of products offered by us and our local competitors, and other factors.
For the year ended December 31, 2019, net borrowed funds increased $391.4
million to help fund the growth of the security and loan portfolios and our
share repurchases. For the year ended December 31, 2018, net borrowed funds
increased $974.1 million. For the year ended December 31, 2017 net borrowed
funds decreased $84.7 million.
Our primary use of funds is for the origination and purchase of loans and the
purchase of securities. During the years ended December 31, 2019, 2018 and 2017,
we originated loans of $3.53 billion, $4.15 billion and $3.60 billion,
respectively. During the year ended December 31, 2019 we purchased loans of
$427.1 million. During the year ended December 31, 2018, excluding loans and
leases acquired in the acquisition of the equipment finance portfolio, we
purchased loans of $514.0 million. During the year ended December 31, 2017, we
purchased loans of $540.9 million. During the year ended December 31, 2019, 2018
and 2017 we purchased securities of $1.27 billion, $1.24 billion and $1.15
billion, respectively. In addition, we utilized $475.9 million, $258.2 million
and $59.1 million during the years ended December 31, 2019, 2018 and 2017,
respectively, to repurchase shares of our common stock. Included in the shares
repurchased during the year ended December 31, 2019 is the Blue Harbour
transaction.
At December 31, 2019, we had commitments to originate commercial loans of $407.3
million. Additionally, we had commitments to originate residential loans of
approximately $36.5 million. While we purchased residential loans from
correspondent banks during 2019, we no longer purchase such loans and have no
purchase commitments as of December 31, 2019. Unused home equity lines of credit
and undisbursed business and constructions loans totaled approximately $1.62
billion at December 31, 2019. Certificates of deposit due within one year of
December 31, 2019 totaled $3.63 billion, or 20.3% of total deposits. If these
deposits do not remain with us, we will be required to seek other sources of
funds, including but not limited to other retail and commercial deposits and
wholesale funding. Depending on market conditions, we may be required to pay
higher rates on such deposits or other borrowings than we currently pay.
Liquidity management is both a short and long-term function of business
management. Our most liquid assets are cash and cash equivalents. The levels of
these assets depend upon our operating, financing, lending and investing
activities during any given period. At December 31, 2019, cash and cash
equivalents totaled $174.9 million. Securities, which provide an additional
source of liquidity, totaled $3.85 billion at December 31, 2019, of which $920.5
million are pledged to secure borrowings and

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municipal deposits. If we require funds beyond our ability to generate them
internally, we have wholesale funding alternatives, which provide an additional
source of funds. At December 31, 2019, our borrowing capacity at the FHLB was
$12.45 billion, of which we had outstanding borrowings of $9.01 billion, which
included letters of credit totaling $4.02 billion. In addition, the Bank had
unsecured overnight borrowings (Fed Funds) with other financial institutions
totaling $750.0 million, of which $400.0 million was outstanding at December 31,
2019.

Investors Bank is subject to various regulatory capital requirements, including
a risk-based capital measure. The risk-based capital guidelines include both a
definition of capital and a framework for calculating risk-weighted assets by
assigning balance sheet assets and off-balance sheet items to broad risk
categories. At December 31, 2019, Investors Bank exceeded all regulatory capital
requirements. Investors Bank is considered "well capitalized" under regulatory
guidelines. See "Item 1. Supervision and Regulation - Federal Banking
Regulation - Capital Requirements."
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Off-Balance Sheet Arrangements. As a financial services provider, we routinely
are a party to various financial instruments with off-balance-sheet risks, such
as commitments to extend credit and unused lines of credit. While these
contractual obligations represent our potential future cash requirements, a
significant portion of our commitments to extend credit may expire without being
drawn upon. Such commitments are subject to the same credit policies and
approval processes that we use for loans that we originate.
Contractual Obligations. In the ordinary course of our operations, we enter into
certain contractual obligations. Such obligations include operating leases for
premises and equipment.
The following table summarizes our significant fixed and determinable
contractual obligations and other funding needs by payment date at December 31,
2019. The payment amounts represent those amounts due to the recipient and do
not include any unamortized premiums or discounts or other similar carrying
amount adjustments.

                                                 Payments Due by Period
                           Less than        One to       Three to      More than
Contractual Obligations     One Year     Three Years    Five Years    Five Years      Total
                                                     (In thousands)
Other borrowed funds      $ 1,436,000      1,724,958     1,918,243       300,000    5,379,201
Repurchase agreements         100,000              -       347,910             -      447,910
Operating leases               24,013         67,384        59,503        62,322      213,222
Total                     $ 1,560,013      1,792,342     2,325,656       362,322    6,040,333


During the year ended December 31, 2019, the Company invested in a low income
housing tax credit program that qualifies for community reinvestment tax
credits. These commitments are payable on demand and are recorded in other
liabilities on our Consolidated Balance Sheets. Total commitments entered into
in 2019 equal $10.0 million, of which the remaining commitment outstanding
equals $9.2 million as of December 31, 2019.
The Company has entered into derivative financial instruments to manage
exposures that arise from business activities that result in the receipt or
payment of future known and uncertain cash amounts, the value of which are
determined by interest rates. The Company's derivative financial instruments are
used to manage differences in the amount, timing, and duration of the Company's
known or expected cash receipts and its known or expected cash payments
principally related to the Company's borrowings and loans. During the year ended
December 31, 2019, such derivatives were used (i) to hedge the variability in
cash flows associated with borrowings and (ii) to hedge changes in the fair
value of certain pools of prepayable fixed- and adjustable-rate assets. These
derivatives had an aggregate notional amount of $2.68 billion as of December 31,
2019. The fair value of derivatives designated as hedging activities as of
December 31, 2019 was an asset of $559,000, inclusive of accrued interest and
variation margin posted in accordance with the Chicago Mercantile Exchange. The
Company has also entered into derivatives not designated as hedging activities
resulting from participations in interest rate swaps provided to external
lenders as part of loan participation arrangements and interest rate risk
management services to commercial customers utilizing interest rate swaps. The
fair value of the derivatives resulting from participations in interest rate
swaps provided to lenders was a liability of $125,000 and the fair value of the
derivatives resulting from customer interest rate risk management services was
an asset of $5.4 million, respectively, as of December 31, 2019. Interest rate
swaps with customers under interest rate risk management services are offset by
interest rate swaps that the Company executes with a third party, which
minimizes the Company's net risk in these transactions.

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Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of Investors Bancorp,
Inc. have been prepared in accordance with U.S. generally accepted accounting
principles ("GAAP"). GAAP generally requires the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The impact of inflation is reflected in the increased cost of our
operations. Unlike industrial companies, our assets and liabilities are
primarily monetary in nature. As a result, changes in market interest rates have
a greater impact on performance than the effects of inflation.
Recent Accounting Pronouncements
See Note 22 in the notes to our Consolidated Financial Statements in "Item 15 -
Exhibits and Financial Statement Schedules" for a description of recent
accounting pronouncements already adopted.
New Accounting Pronouncements Issued But Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL"),
further amended by ASU 2019-04, Codification Improvements to Topic 326,
Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and
Topic 825, Financial Instruments. Topic 326 pertains to the measurement of
credit losses on financial instruments. This update requires the measurement of
all expected credit losses for financial instruments held at the reporting date
based on historical experience, current conditions, and reasonable and
supportable forecasts. Financial institutions and other organizations will now
use forward-looking information to better inform their credit loss estimates.
This update is intended to improve financial reporting by requiring timelier
recording of credit losses on loans and other financial instruments held by
financial institutions and other organizations. This update will be effective
for financial statements issued for fiscal years and interim periods beginning
after December 15, 2019.
Subsequent to year-end, the Company adopted the above mentioned ASUs related to
Financial Instruments -Credit Losses (Topic 326) as of January 1, 2020, using a
modified retrospective approach. Our implementation process included scoping,
segmentation and the design of a methodology appropriate for each respective
financial instrument.  The process also included the development of loss
forecasting models as well as the incorporation of qualitative adjustments.
Evaluation of technical accounting topics, updates to our allowance policy
documentation, model validation, governance and reporting, processes and related
internal controls, as well as overall operational readiness were significant
activities completed throughout 2019 in preparation for adoption.
   The Company's CECL methodology for loans and leases involves the following
key factors and assumptions:
•  an estimation method utilizing probability of default and loss given default

modeled results which are conditioned by macroeconomic scenarios;

• a reasonable and supportable forecast period determined based on management’s

current review of macroeconomic factors and economic scenarios;

• a reversion period after the reasonable and supportable forecast period;

• expected prepayment rates based on the Company’s historical experience; and

• incorporation of qualitative factors not captured within the modeled results.



Based on several analyses performed in the third and fourth quarter of 2019, as
well as an implementation analysis utilizing exposures and forecasts of
macroeconomic conditions as of year-end, the Company currently expects the
adoption of ASU 2016-13 will result in an allowance for credit losses amount at
January 1, 2020 in the range of $215 million to $245 million, which includes
unfunded commitments and held to maturity debt securities. The impact will be
reflected as a cumulative effect adjustment, net of taxes. At December 31, 2019,
the allowance for loan losses totaled $228 million. As the Company is currently
finalizing the execution of its implementation controls and processes, the
review of the most recent model run and assumptions including qualitative
factors, the ultimate impact of the adoption of ASU 2016-13 as of January 1,
2020 could differ from our current expectation.
   The cumulative-effect adjustment to retained earnings for the change in the
allowance for credit losses upon adoption will not have a material effect on the
Company's capital and regulatory capital amounts and ratios. Federal banking
regulatory agencies have provided relief for an initial capital decrease at
transition by allowing a phased-in adoption which the Company will not elect.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes". The amendments simplify the
accounting for income taxes by removing certain exceptions to general principles
in Topic 740 and also clarify and amend existing guidance. This update will be
effective for the Company January 1, 2021 with early

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adoption permitted. The Company does not expect ASU No. 2019-12 to have a
material impact on the Company's Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-
Internal-Use Software (Subtopic 350-40): Customer's Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service
Contract (a consensus of the FASB Emerging Issues Task Force)". This new
guidance aligns the requirements for capitalizing implementation costs incurred
in a hosting arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use
software. Specifically, where a cloud computing arrangement includes a license
to internal-use software, the software license is accounted for by the customer
in accordance with Subtopic 350-40, "Intangibles- Goodwill and
Other-Internal-Use Software". The Company adopted ASU 2018-15 on January 1,
2020. The amendments in this update will be applied prospectively to all
implementation costs incurred after the date of adoption. The Company does not
expect ASU No. 2018-15 to have a material impact on the Company's Consolidated
Financial Statements.
In August 2018, the FASB issued ASU 2018-14, "Compensation-Retirement
Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure
Framework-Changes to the Disclosure Requirements for Defined Benefit Plans". The
amendments in this update modify the disclosure requirements for employers that
sponsor defined benefit pension or other postretirement plans by removing
disclosures that no longer are considered cost beneficial, clarifying the
specific requirements of disclosures, and adding disclosure requirements
identified as relevant. This update will be effective for the Company January 1,
2021 with early adoption permitted. The Company does not expect ASU 2018-14 to
have a material impact on the Company's Consolidated Financial Statements. This
update will be applied on a retrospective basis. The Company will evaluate the
effect of ASU 2018-14 on disclosures with regard to employee benefit plans but
does not expect a material impact on the Company's Consolidated Financial
Statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic
820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement". The amendments remove the requirement to disclose the amount of,
and reasons for, transfers between Level 1 and Level 2 of the fair value
hierarchy, the policy for timing of such transfers and the valuation processes
for Level 3 fair value measurements. The update modifies the disclosure
requirements for investments in certain entities that calculate net asset value
and clarify the purpose of the measurement uncertainty disclosure. The update
adds disclosure requirements about the changes in unrealized gains and losses
included in other comprehensive income for recurring Level 3 fair value
measurements and the range and weighted average of significant unobservable
inputs used to develop Level 3 fair value measurements. The Company adopted this
update on January 1, 2020. Changes will be applied retrospectively to all
periods presented upon the effective date with the exception of the following,
which will be applied prospectively: disclosures relating to changes in
unrealized gains and losses, the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value measurements, and the
disclosures for uncertainty measurement. The adoption of ASU 2018-13 will not
have a material impact on the Company's Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment". This ASU simplifies
subsequent measurement of goodwill by eliminating Step 2 of the impairment test
while retaining the option to perform the qualitative assessment for a reporting
unit to determine whether the quantitative impairment test is necessary. The ASU
also eliminates the requirements for any reporting unit with a zero or negative
carrying amount to perform a qualitative assessment and, if it fails that
qualitative test, to perform Step 2 of the goodwill impairment test. Therefore,
the same impairment assessment applies to all reporting units. The Company
adopted this update on January 1, 2020. The update will be applied
prospectively. The Company does not expect ASU No. 2017-04 to have a material
impact on the Company's Consolidated Financial Statements.

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