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

INVESTORS BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware		22-3493930
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
101 JFK Parkway, Short Hills, New Jersey		07078
(Address of Principal Executive Offices)		Zip Code

(973) 924-5100
(Registrant’s telephone number)

Securities Registered Pursuant to Section 12(b) of the Act:		None
Securities Registered Pursuant to Section 12(g) of the Act:		Common Stock, par value $.01 per share
		(Title of Class)

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ].

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES       NO   X  .

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES       NO   X  .

     As of December 31, 2004, there were issued and outstanding 50 shares of the Registrant’s Common Stock, all of which were held by Investors Bancorp, MHC, the Registrant’s mutual holding company. The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, on such date, was $0.

      As of November 1, 2005, there were issued and outstanding 116,275,688 shares of the Registrant’s Common Stock, including 63,099,781 shares held by Investors Bancorp, MHC, the Registrant’s mutual holding company.

DOCUMENTS INCORPORATED BY REFERENCE

     None.

     This special financial report is being filed pursuant to Rule 15d-2 of the Securities Exchange Act of 1934, as amended, and contains only certified financial statements as required by Rule 15d-2. This special financial report is filed under cover of the facing sheet of the form appropriate for annual reports of the Registrant as required by Rule 15d-2.

 

 

TABLE OF CONTENTS

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

Report of Independent Registered Public Accounting Firm

The Board of Directors
Investors Bancorp, Inc.
Short Hills, New Jersey:

We have audited the accompanying consolidated balance sheets of Investors Bancorp, Inc. and subsidiary (the Bancorp) as of June 30, 2005 and 2004, and the related consolidated statements of operations, stockholder’s equity, and cash flows for each of the years in the three-year period ended June 30, 2005. These consolidated financial statements are the responsibility of the Bancorp’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Investors Bancorp, Inc. and subsidiary as of June 30, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2005 in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Short Hills, New Jersey
September 20, 2005

INVESTORS BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

June 30, 2005 and 2004

		2005				2004
		(In thousands)
Assets
Cash and cash equivalents		$	81,329				37,653
Securities available-for-sale, at estimated fair value (notes 4 and 10)			673,951				1,421,073
Securities 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				2,522,811
Loans receivable, net (note 5)			1,993,904				1,105,881
Loans held-for-sale			3,412				1,428
Stock in the Federal Home Loan Bank (note 10)			60,688				81,990
Accrued interest and dividends receivable (note 6)			18,263				22,661
Other real estate owned, net			—				154
Office properties and equipment, net (note 8)			29,544				26,948
Net deferred tax asset (note 11)			13,128				18,788
Premium on deposit acquisition			—				1,102
Bank owned life insurance contract (note 2)			76,229				75,543
Other assets			1,423				2,108
		$	4,992,753				5,318,140
Liabilities and Stockholder’s Equity
Liabilities:
Deposits (note 9)		$	3,240,420				3,266,935
Borrowed funds (note 10)			1,313,769				1,604,798
Advance payments by borrowers for taxes and insurance			10,817				7,087
Other liabilities			19,920				37,657
Total liabilities			4,584,926				4,916,477
Stockholder’s equity (notes 15 and 17):
Common stock, par value $0.10. Authorized 3,000 shares; outstanding 50 shares			—				—
Additional paid-in capital			25				25
Retained earnings			411,219				414,361
Accumulated 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				401,663
Commitments and contingencies (notes 7 and 13)
		$	4,992,753				5,318,140

See accompanying notes to consolidated financial statements.

INVESTORS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Operations

Years ended June 30, 2005, 2004 and 2003

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

See accompanying notes to consolidated financial statements.

INVESTORS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Stockholder’s Equity

Years ended June 30, 2005, 2004 and 2003

														Accumulated other
														comprehensive loss
						Additional								Minimum				Unrealized				Total
		Common				paid-in				Retained				pension				losses on				stockholder’s
		stock				capital				earnings				liability				securities				equity
		(In thousands)
Balance at June 30, 2002		$	—				25				366,254				(441	)			(617	)			365,221
Comprehensive income:
Net income			—				—				28,270				—				—				28,270
Change 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																							27,316
Balance at June 30, 2003			—				25				394,524				(850	)			(1,162	)			392,537
Comprehensive income:
Net income			—				—				19,837				—				—				19,837
Change in minimum pension liability, net of tax expense of $64			—				—				—				95				—				95
Unrealized 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				1,920
Total comprehensive income																							9,126
Balance at June 30, 2004			—				25				414,361				(755	)			(11,968	)			401,663
Comprehensive 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				3,212
Reclassification adjustment for losses included in net income, net of tax of $3,656			—				—				—				—				6,440				6,440
Total comprehensive income																							6,164
Balance at June 30, 2005		$	—				25				411,219				(1,101	)			(2,316	)			407,827

See accompanying notes to consolidated financial statements.

INVESTORS BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

Years ended June 30, 2005, 2004 and 2003

		2005				2004				2003
		(In thousands)
Cash flows from operating activities:
Net (loss) income		$	(3,142	)			19,837				28,270
Adjustments 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				34,098
Amortization of premium on deposit acquisition			1,102				1,946				1,946
Provision for loan losses			600				600				600
Depreciation and amortization of office properties and equipment			2,807				2,304				2,516
Loss (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				76,482
Gain on sales of mortgage loans, net			(406	)			(814	)			(1,087	)
Proceeds from sales of other real estate owned			315				135				1,668
Net (gain) loss on sales of other real estate owned			(38	)			(25	)			4
Death benefits on bank owned life insurance contract			(2,800	)			—				(6,210	)
(Increase) decrease in bank owned life insurance contract			(1,177	)			(1,002	)			2,325
Decrease in accrued interest and dividends receivable			4,398				2,394				1,883
Deferred 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				23,235
Net cash provided by operating activities			41,033				58,251				51,505
Cash flows from investing activities:
Net (increase) decrease in loans receivable			(888,746	)			(328,185	)			212,280
Purchases 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				40,316
Purchases 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				3,143,228
Proceeds from paydowns/maturities on mortgage-backed securities available-for-sale			242,890				267,196				74,340
Proceeds 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				25,001
Purchases 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				—				6,806
Net 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				338,406
Net decrease in funds borrowed under short-term repurchase agreements			—				(140	)			(182,379	)
Proceeds from funds borrowed under other repurchase agreements			605,000				115,000				356,000
Repayments 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	)			110,457
Net increase (decrease) in cash and cash equivalents			43,676				(144,192	)			106,162
Cash and cash equivalents at beginning of year			37,653				181,845				75,683
Cash and cash equivalents at end of year		$	81,329				37,653				181,845
Supplemental cash flow information:
Noncash investing activities:
Real estate acquired through foreclosure		$	123				154				1,580
Cash paid during the year for:
Interest			127,307				127,423				159,630
Income taxes			16,388				12,993				20,947

See accompanying notes to consolidated financial statements.

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years ended June 30, 2005, 2004 and 2003

(1)		Summary of Significant Accounting Policies
		The 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 Presentation
			The 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)		Business
			The 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 Equivalents
			Cash equivalents consist of cash on hand, due from banks and interest-bearing deposits in other financial institutions.
	(d)		Securities
			Securities include securities held-to-maturity and securities available-for-sale. Management determines the appropriate classification of securities at the time of purchase.
			If management has the positive intent 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)

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years ended June 30, 2005, 2004 and 2003

			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, Net
			Loans receivable, other than loans held-for-sale, are stated at unpaid principal balance, adjusted by unamortized premiums and unearned discounts, net deferred origination fees and costs, 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)

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years ended June 30, 2005, 2004 and 2003

			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, Net
			Land is carried at cost. Office buildings, leasehold improvements and furniture, fixtures and equipment are carried at cost, less accumulated depreciation and amortization. Office buildings and furniture, fixtures and equipment are depreciated using an accelerated basis over the estimated useful lives of the respective assets. Leasehold improvements are amortized using the straight-line method over the terms of the respective leases or the lives of the assets, whichever is shorter.
	(g)		Other Real Estate Owned
			Other 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 Contract
			The 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 Asset
			Deposit 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 Stock
			The 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 Funds
			The 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)

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years ended June 30, 2005, 2004 and 2003

			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 Taxes
			The 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 Benefits
			The 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 Contract
		In 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)

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years ended June 30, 2005, 2004 and 2003

		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)

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years ended June 30, 2005, 2004 and 2003

		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-Maturity
		The amortized cost, gross unrealized gains and losses and estimated fair value of securities held-to-maturity are as follows:

		June 30, 2005
						Gross				Gross
		Amortized				unrealized				unrealized				Estimated
		cost				gains				losses				fair value
		(In thousands)
Debt securities:
Government-sponsored enterprises		$	120,633				47				1,034				119,646
Municipal bonds			18,220				567				75				18,712
Other debt securities			8,000				—				15				7,985
			146,853				614				1,124				146,343
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation			1,072,121				2,366				8,615				1,065,872
Federal National Mortgage Association			612,556				3,347				4,102				611,801
Government National Mortgage Association			16,465				480				13				16,932
Federal housing authorities			3,336				439				—				3,775
Non-agency securities			189,551				217				1,552				188,216
			1,894,029				6,849				14,282				1,886,596
Total securities held-to-maturity		$	2,040,882				7,463				15,406				2,032,939

		F-12		(Continued)

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years ended June 30, 2005, 2004 and 2003

		June 30, 2004
						Gross				Gross
		Amortized				unrealized				unrealized				Estimated
		cost				gains				losses				fair value
		(In thousands)
Debt securities:
Government-sponsored enterprises		$	130,986				15				4,363				126,638
Municipal bonds			18,326				596				116				18,806
Total debt securities			149,312				611				4,479				145,444
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation			1,339,589				7,158				20,004				1,326,743
Federal National Mortgage Association			694,302				7,620				8,699				693,223
Government National Mortgage Association			73,769				1,851				—				75,620
Federal housing authorities			1,525				—				—				1,525
Non-agency securities			264,314				661				3,012				261,963
Total mortgage-backed securities			2,373,499				17,290				31,715				2,359,074
Total 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)

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years ended June 30, 2005, 2004 and 2003

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, 2005
		Amortized				Estimated
		cost				fair value
		(In thousands)
Due in one year or less		$	—				—
Due after one year through five years			15,000				14,686
Due after five years through ten years			111,636				111,300
Due after ten years			20,217				20,357
Total		$	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, 2005
		Less than 12 months								12 months or more								Total
		Estimated				Unrealized				Estimated				Unrealized				Estimated				Unrealized
		fair value				losses				fair value				losses				fair value				losses
		(In thousands)
Debt securities:
Government-sponsored enterprises		$	—				—				89,086				1,034				89,086				1,034
Municipal bonds			1,708				32				3,611				43				5,319				75
Other debt securities			5,985				15				—				—				5,985				15
			7,693				47				92,697				1,077				100,390				1,124
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation			154,611				1,175				577,331				7,440				731,942				8,615
Federal National Mortgage Association			126,539				588				246,417				3,514				372,956				4,102
Government National Mortgage Association			4,489				13				—				—				4,489				13
Non-agency securities			29,633				209				114,786				1,343				144,419				1,552
			315,272				1,985				938,534				12,297				1,253,806				14,282
Total		$	322,965				2,032				1,031,231				13,374				1,354,196				15,406

		F-14		(Continued)

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years ended June 30, 2005, 2004 and 2003

		June 30, 2004
		Less than 12 months								12 months or more								Total
		Estimated				Unrealized				Estimated				Unrealized				Estimated				Unrealized
		fair 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				4,363
Municipal bonds			—				—				3,583				116				3,583				116
			62,875				1,157				65,497				3,322				128,372				4,479
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation			777,567				17,183				100,092				2,821				877,659				20,004
Federal National Mortgage Association			370,599				7,851				21,818				848				392,417				8,699
Non-agency securities			118,811				1,670				81,876				1,342				200,687				3,012
			1,266,977				26,704				203,786				5,011				1,470,763				31,715
Total		$	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)

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years ended June 30, 2005, 2004 and 2003

(4)		Securities Available-for-Sale
		The amortized cost, gross unrealized gains and losses and estimated fair value of securities available-for-sale are as follows:

		June 30, 2005
						Gross				Gross
		Amortized				unrealized				unrealized				Estimated
		cost				gains				losses				fair value
		(In thousands)
Equity securities		$	35,000				—				175				34,825
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation			156,162				136				1,192				155,106
Federal National Mortgage Association			262,644				763				1,071				262,336
Non-agency securities			223,861				221				2,398				221,684
			642,667				1,120				4,661				639,126
Total securities available-for-sale		$	677,667				1,120				4,836				673,951

		June 30, 2004
						Gross				Gross
		Amortized				unrealized				unrealized				Estimated
		cost				gains				losses				fair value
		(In thousands)
Equity securities		$	56,875				56				—				56,931
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation			422,859				—				5,957				416,902
Federal National Mortgage Association			699,542				1,131				10,987				689,686
Non-agency securities			261,129				163				3,738				257,554
			1,383,530				1,294				20,682				1,364,142
Total 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)

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years ended June 30, 2005, 2004 and 2003

		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, 2005
		Less than 12 months								12 months or more								Total
		Estimated				Unrealized				Estimated				Unrealized				Estimated				Unrealized
		fair value				losses				fair value				losses				fair value				losses
		(In thousands)
Equity securities		$	34,825				175				—				—				34,825				175
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation			—				—				134,014				1,192				134,014				1,192
Federal National Mortgage Association			57,283				300				92,842				771				150,125				1,071
Non-agency securities			27,825				229				134,557				2,169				162,382				2,398
			85,108				529				361,413				4,132				446,521				4,661
Total		$	119,933				704				361,413				4,132				481,346				4,836

		F-17		(Continued)

INVESTORS BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years ended June 30, 2005, 2004 and 2003

		June 30, 2004
		Less than 12 months								12 months or more								Total
		Estimated				Unrealized				Estimated				Unrealized				Estimated				Unrealized
		fair value				losses				fair value				losses				fair value				losses
		(In thousands)
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation		$	416,902				5,957				—				—				416,902				5,957
Federal National Mortgage Association			561,930				9,419				60,776				1,568				622,706				10,987
Non-agency securities			225,391				3,135				19,325				603				244,716				3,738
Total		$	1,204,223				18,511				80,101				2,171				1,284,324				20,682