Forward Looking Statements
Certain statements contained herein are not based on historical facts and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "estimate," "anticipate," "continue," or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the economic environment, particularly in the market areas in which Investors Bancorp, Inc. (the Company) operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations or interpretations of regulations affecting financial institutions, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.
The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake and specifically declines any obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Executive Summary
Investors Bancorp's fundamental business strategy is to be a well capitalized, full service, community bank and to provide high quality customer service and competitively priced products and services to individuals and businesses in the communities we serve.
Our results of operations depend primarily on net interest income, which is directly impacted by the market interest rate environment. Net interest income is the difference between the interest income we earn on our interest-earning assets, primarily mortgage loans and investment securities, and the interest we pay on our interest-bearing liabilities, primarily time deposits, interest-bearing transaction accounts and borrowed funds. Net interest income is affected by the shape of the market yield curve, the timing of the placement and re-pricing of interest-earning assets and interest-bearing liabilities on our balance sheet, and the prepayment rate on our mortgage-related assets. The Company's results of operations are also significantly affected by general economic conditions.
The financial services industry continues to be plagued by highly volatile and adverse economic conditions. The significant contributors to the disruptions include widespread subprime mortgage lending, illiquidity in the capital and credit markets, the continued decline of property values in real estate markets, and recent bank failures.

During this time we have benefited from the rate reductions enacted by the Federal Reserve beginning in September 2007 and continuing through the early part of 2008. The cost of interest-bearing liabilities decreased while we maintained the yield on our interest-earning assets. This resulted in a $16.5 million increase in our net interest income to $38.7 million for the three months ended September 30, 2008 from $22.3 million for the three months ended September 30, 2007.
While the interest rate environment is important to our net interest income, so is the composition of our balance sheet. The recent turmoil in the financial markets has created uncertainty and volatility for many financial institutions. This created an opportunity for us to add more loans and increase the size of our balance sheet. Total loans have increased to $5.31 billion at September 30, 2008 from $4.66 billion at June 30, 2008, an increase of 13.8%. The majority of the growth came from residential mortgage loans which grew 11.7%, or $469.4 million to $4.48 billion. In order to diversify our loan portfolio we have continued our expansion into commercial real estate lending. During the three months ended September 30, 2008 commercial real estate, construction and multi-family loans increased $176.1 million or 36.3%. We believe this may provide us with an opportunity to increase net interest income and improve our interest rate risk position. As we add more loans to our balance sheet we remain focused on maintaining our historically strict underwriting standards. We have never originated or purchased, and our portfolio does not include, any sub-prime loans, negative amortization loans or option ARM loans.
During the three months ended September 30, 2008, we recorded a $5.0 million provision for loan losses. This reflected the growth in our loan portfolio, particularly residential and commercial real estate, an additional $1.0 million specific reserve on a previously disclosed $11.0 million impaired loan, the increased inherent credit risk in our overall portfolio, particularly the credit risk associated with commercial real estate lending; the increase in non-performing loans; and the continued adverse economic environment. While our nonperforming loans have increased, we believe they remain at a manageable level. At September 30, 2008, nonperforming loans were $42.1 million, or 0.79% of total loans, compared to $19.4 million, or 0.42% of total loans at June 30, 2008. The majority of this increase is from a previously disclosed $19.4 million multifamily loan which was deemed impaired during the three months ended September 30, 2008. The loan was 30 days delinquent at June 30, 2008. A contract for the sale of the property is pending and management believes that the probability of loss on this loan is low, we will continue to closely monitor the loan. Additionally, a $1.9 million construction loan that was previously downgraded was placed on non-accrual status during the three months ended September 30, 2008.
While we were able to take advantage of opportunities to increase our loan portfolio, we are not immune to some of the negative consequences of the current illiquid capital markets. Our securities portfolio includes pooled trust preferred securities, principally issued by banks and to a lesser extent insurance companies. These securities have been negatively impacted by an increase in payment deferrals by issuers (primarily banks) and the absence of an orderly and liquid market, resulting in a steady decline in the fair value of these securities. Although all of the securities continue to perform in accordance with their contractual terms, we recorded a $3.9 million pre-tax, non-cash, other-than-temporary impairment charge on one pooled trust preferred security as a result of possible declines in future cash flows due to the weakness of certain financial institutions within that security. We will continue to closely monitor all of these securities and will continue to evaluate them for possible other-than-temporary impairment, which could result in a future non-cash charge to earnings in upcoming quarters.

Total deposits increased by $31.7 million to $4.00 billion at September 30, 2008. We continue to focus on increasing core deposits and de-emphasizing certificates of deposit, however, this task has proven difficult given the extreme competition for deposits from other banks and financial intermediaries. As a result of strong loan growth that exceeded the available cash flows from the investment, loan and deposit portfolios, borrowed funds increased $567.0 million, or 36.3%, to $2.13 billion at September 30, 2008 from $1.56 billion at June 30, 2008.
Most recently the U.S. government, in an attempt to respond to the financial crises affecting the financial services industry, enacted the Emergency Economic Stabilization Act of 2008 ("EESA") on October 3, 2008. Under the ESSA, the U.S. Treasury Department ("Treasury") has the authority, among other things, to purchase mortgages, mortgage backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.
Additionally, on October 3, 2008, the Troubled Asset Relief Program ("TARP") was signed into law. TARP gives the Treasury authority to deploy up to $750 billion into the financial system with an objective of improving liquidity in capital markets. On October 24, 2008, Treasury announced plans to direct $250 billion of this authority into preferred stock investments in banks. The Company is evaluating the details of TARP and will announce its decision regarding use of the program once the review is complete.
At this time, it is difficult to determine the full impact of the various programs recently announced by the U.S. Government to support the banking industry. Given our strong capital position, we believe we are well positioned to deal with this economic uncertainty and take advantages of opportunities to enhance our franchise.
Comparison of Financial Condition at September 30, 2008 and June 30, 2008 Total Assets. Total assets increased by $617.9 million, or 9.6%, to $7.04 billion at September 30, 2008 from $6.42 billion at June 30, 2008. This increase was largely the result of the growth in our loan portfolio partially offset by the decrease in our securities portfolio. The cash flow from our securities portfolio is being used to help fund our loan growth, consistent with our strategic plan.
Net Loans. Net loans, including loans held for sale, increased by $652.2 million, or 13.9%, to $5.33 billion at September 30, 2008 from $4.68 billion at June 30, 2008. As many financial institutions have curtailed their lending operations, we have taken advantage of this opportunity to increase our loan portfolio without compromising our underwriting standards. The loans we originate and purchase are on properties in New Jersey and states in close proximity to New Jersey. We do not originate or purchase, and our loan portfolio does not include, any sub-prime loans or option ARMs. We originate residential mortgage loans directly and through our mortgage subsidiary, ISB Mortgage Co. During the three months ended September 30, 2008 we originated $147.4 million in residential mortgage loans. In addition, we purchase mortgage loans from correspondent entities including other banks and mortgage bankers. Our agreements with these correspondent entities require them to originate loans that adhere to our underwriting standards. During the

three months ended September 30, 2008, we purchased loans totaling $289.5 million from these entities. We also purchase pools of mortgage loans in the secondary market on a "bulk purchase" basis from several well-established financial institutions. During the three months ended September 30, 2008, we took advantage of several opportunities to purchase $174.3 million of residential mortgage loans that met our underwriting criteria on a "bulk purchase" basis.
For the three months ended September 30, 2008, we originated $78.6 million in multi-family and commercial real estate loans and $30.6 million in construction loans. We also purchased $99.6 million of multi-family loans in the secondary market on a "bulk purchase" basis. This activity is consistent with our strategy to diversify our loan portfolio by adding more multi-family, commercial real estate and construction loans.
The Company also originates interest-only one-to four-family mortgage loans in which the borrower makes only interest payments for the first five, seven or ten years of the mortgage loan term. This feature will result in future increases in the borrower's loan repayment when the contractually required repayments increase due to the required amortization of the principal amount. These payment increases could affect the borrower's ability to repay the loan. The amount of interest-only one-to four-family mortgage loans at September 30, 2008 was $514.8 million compared to $450.0 million at June 30, 2008. The ability of borrowers to repay their obligations are dependent upon various factors including the borrowers' income and net worth, cash flows generated by the underlying collateral, value of the underlying collateral and priority of the Company's lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the Company's control. The Company is, therefore, subject to risk of loss.
The Company maintains stricter underwriting criteria for these interest-only loans than it does for its amortizing loans. The Company believes these criteria adequately minimize the potential exposure to such risks and that adequate provisions for loan losses are provided for all known and inherent risks. The allowance for loan losses increased by $5.0 million to $18.6 million at September 30, 2008 from $13.6 million at June 30, 2008. The increase in the allowance was primarily attributable to the higher current year loan loss provision which reflects the overall growth in the loan portfolio, particularly residential and commercial real estate loans; an additional $1.0 million specific reserve recorded on a previously disclosed $11.0 million impaired loan; the increased inherent credit risk in our overall portfolio, particularly the credit risk associated with commercial real estate lending; the increase in non-performing loans; and the continued adverse economic environment. Total non-performing loans, defined as non-accruing loans, increased by $22.8 million to $42.1 million at September 30, 2008 from $19.4 million at June 30, 2008. This increase was primarily the result of a previously disclosed $19.4 million multifamily loan which was deemed impaired during the three months ended September 30, 2008. The loan was 30 days delinquent at June 30, 2008. A contract for the sale of the property is pending. While management believes that the probability of loss on this loan is low, we will continue to closely monitor the loan. Additionally, a $1.9 million construction loan that was previously downgraded was placed on non-accrual status during the three months ended September 30, 2008.
The ratio of non-performing loans to total loans was 0.79% at September 30, 2008 compared to 0.42% at June 30, 2008. The allowance for loan losses as a percentage of non-performing loans

was 44.05% at September 30, 2008 compared with 70.03% at June 30, 2008. At September 30, 2008 our allowance for loan losses as a percentage of total loans was 0.35% compared with 0.29% at June 30, 2008. Future increases in the allowance for loan losses may be necessary based on the growth of the loan portfolio, the change in composition of the loan portfolio, possible future increases in non-performing loans and charge-offs, and the possible continuation of the current adverse economic environment. Although we use the best information available, the level of allowance for loan losses remains an estimate that is subject to significant judgment and short-term change. See "Critical Accounting Policies."
Securities. Securities, in the aggregate, decreased by $68.1 million, or 4.7%, to $1.39 billion at September 30, 2008, from $1.46 billion at June 30, 2008. The decrease is primarily the result of cash flows from our securities portfolio being used to help fund our loan growth. This is consistent with our strategic plan to change our mix of assets by reducing the size of our securities portfolio and increasing the size of our loan portfolio. Additionally, the Company wrote-down a pooled bank trust preferred collateralized debt obligation ("CDO") through a $3.9 million pre-tax OTTI non-cash charge. The security had an amortized cost of $9.0 million and was classified as held to maturity. Although the security was performing in accordance with contractual terms as of September 30, 2008, the impairment occurred as a result of possible declines in future cash flows due to the weakness of certain financial institutions within the security.
At September 30, 2008, securities include pooled trust preferred securities (TruPS), principally issued by banks, with an amortized cost of $173.9 million and a fair value of $105.5 million. These securities have been classified in the held to maturity portfolio since their purchase and are performing in accordance with contractual terms. The Company has the ability and intent to hold these securities until maturity. However, given the challenging environment for most banks in the U.S., there has been an increase in payment deferrals by issuers and a steady decline in the fair value of these securities.
The Fitch Ratings agency, which had previously placed a number of our TruPS on Rating Watch Negative status, has yet to conclude on whether or not these securities will be downgraded as they believe it is premature to resolve the ratings of TruPS currently on Rating Watch Negative status, until such time as greater clarity exists with respect to the likelihood of deferral for those entities currently performing, the likelihood of default for those entities currently in deferral and the recovery rate prospects for those entities currently in default. However, Moody's downgraded 13 of our TruPS during this quarter. We believe it is possible that the various programs recently announced by the US Government to support the banking industry may prove successful and have a favorable impact on these securities. We will continue to closely monitor the performance of the securities we own as well as the events surrounding this segment of the market. The Company will continue to evaluate them for OTTI, which could result in future non-cash charges to earnings.
The securities portfolio also includes AAA rated private label mortgage backed securities with an amortized cost of $197.6 million and a fair value of $185.4 million. These securities were originated in the period 2002-2004 and are performing in accordance with contractual terms. The

decrease in fair value for these securities is attributed to changes in market interest rates. Our securities portfolio does not have any FNMA or Freddie Mac common or preferred stock.
As part of the merger with Summit Federal in June 2008, we acquired a $6.0 million mutual fund investment in AMF Ultra Short Mortgage Fund ("AMF"), which was deemed other-than- temporarily impaired ("OTTI") and was written down to fair value through pre-tax charges totaling $456,000 and $651,000 during the quarter ended September 30, 2008 and the year ended June 30, 2008, respectively. Management decided to liquidate this investment upon completion of the merger and had received $500,000 in cash liquidations through September 30, 2008, which represented the maximum allowable cash redemption by the asset manager for that time period. With the continued deterioration in the net asset value of AMF, in October 2008 management exercised a redemption-in-kind option available to shareholders. The redemption-in-kind allowed the Company to redeem its remaining shares in AMF for its pro-rata share of the underlying securities and cash. The securities are primarily in agency and private label mortgage-backed securities. The Company received $3.9 million in securities (which will be classified as available for sale) and $581,000 in cash.
Stock in the Federal Home Loan Bank, Bank Owned Life Insurance and Other Assets. The amount of stock we own in the Federal Home Loan Bank (FHLB) increased by $25.5 million from $60.9 million at June 30, 2008 to $86.5 million at September 30, 2008 as a result of an increase in our level of borrowings at September 30, 2008. There was also an increase in accrued interest receivable of $4.0 million resulting from an increase in the average balance of our interest-earning assets. Additionally, bank owned life insurance increased by $1.0 million from $96.2 million at June 30, 2008 to $97.2 million at September 30, 2008.
Deposits. Deposits increased by $31.7 million, or 0.8%, to $4.00 billion at September 30, 2008 from $3.97 billion at June 30, 2008. Money market account deposits, checking account deposits and certificates of deposits increased by $37.6 million, $15.9 million and $3.3 million, respectively. These increases were offset by a $25.1 million decrease in savings account deposits. Borrowed Funds. Borrowed funds increased $567.0 million, or 36.3%, to $2.13 billion at September 30, 2008 from $1.56 billion at June 30, 2008. We utilized wholesale borrowings to fund a portion of our loan growth because of the lower rates available in the wholesale markets.
Stockholders' Equity. Stockholders' equity increased $7.9 million to $836.5 million at September 30, 2008 from $828.5 million at June 30, 2008 primarily due to net income of $5.5 million for the three months ended September 30, 2008. Other factors impacting the increase in stockholders' equity were compensation costs associated with stock options and restricted stock and the allocation of ESOP shares.
Average Balance Sheets for the Three Months ended September 30, 2008 and 2007 The following table presents certain information regarding Investors Bancorp, Inc.'s financial condition and net interest income for the three months ended September 30, 2008 and 2007. The table presents the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the periods indicated. Interest income includes fees that we consider adjustments to yields.

                                                                                 For the three months ended
                                                     September 30, 2008                                              September 30, 2007
                                     Average                                                         Average
                                   Outstanding             Interest              Average           Outstanding             Interest              Average
                                     Balance              Earned/Paid          Yield/Rate            Balance              Earned/Paid          Yield/Rate
                                                                                   (Dollars in thousands)

Interest-earning assets:
Interest-bearing deposits          $     18,321          $          32                0.70 %       $     26,244          $         281                4.28 %
Securities
available-for-sale(1)                   202,533                  2,314                4.57 %            257,309                  2,960                4.60 %
Securities held-to-maturity           1,230,798                 13,817                4.49 %          1,555,332                 18,811                4.84 %
Net loans                             4,940,058                 70,480                5.71 %          3,752,468                 53,472                5.70 %
Stock in FHLB                            70,374                    805                4.58 %             39,629                    596                6.02 %

Total interest-earning
assets                                6,462,084                 87,448                5.41 %          5,630,982                 76,120                5.41 %

Non-interest earning assets             187,218                                                         182,724

Total assets                       $  6,649,302                                                    $  5,813,706


Interest-bearing
Liabilities:
Savings                            $    401,532                  1,872                1.86 %       $    352,048                  1,884                2.14 %
Interest-bearing checking               362,575                  1,373                1.51 %            369,363                  2,461                2.67 %
Money market accounts                   231,650                  1,219                2.10 %            187,534                  1,239                2.64 %
Certificates of deposit               2,912,856                 26,545                3.65 %          2,840,211                 34,169                4.81 %
Borrowed funds                        1,804,823                 17,699                3.92 %          1,118,723                 14,103                5.04 %

Total interest-bearing
liabilities                           5,713,436                 48,708                3.41 %          4,867,879                 53,856                4.43 %

Non-interest bearing
liabilities                             110,969                                                         103,217

Total liabilities                     5,824,405                                                       4,971,096

Stockholders' equity                    824,897                                                         842,610

Total liabilities and
stockholders' equity               $  6,649,302                                                    $  5,813,706


Net interest income                                      $      38,740                                                   $      22,264


Net interest rate spread(2)                                                           2.00 %                                                          0.98 %


Net interest earning
assets(3)                          $    748,648                                                    $    763,103


Net interest margin(4)                                                                2.40 %                                                          1.58 %


Ratio of interest-earning
assets to total
interest-bearing liabilities               1.13 X                                                          1.16 X

(1) Securities available-for-sale are stated at amortized cost, adjusted for unamortized purchased premiums and discounts.

(2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

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

Comparison of Operating Results for the Three Months Ended September 30, 2008 and 2007
Net Income. Net income was $5.5 million for the three months ended September 30, 2008 compared to net income of $2.4 million for the three months ended September 30, 2007. This increase can be attributed to an increase in net interest income as the volume of interest earning asset increased and the cost of funds decreased. Net income was negatively impacted by a $3.9 million pre-tax, ($2.3 million, or $0.02 per diluted share, after-tax), non-cash . . .