General
The
Holding Company is a Delaware corporation and parent company of the Bank,
a
federally-chartered stock savings bank. The Bank maintains its headquarters
in
the Williamsburg section of Brooklyn, New York and operates twenty-one full
service retail banking offices located in the New York City boroughs of
Brooklyn, Queens, and the Bronx, and in Nassau County, New York. The Bank’s
principal business has been, and continues to be, gathering deposits from
customers within its market area, and investing them primarily in multifamily
residential, commercial real estate, one- to four-family residential,
construction and consumer loans, mortgage-backed securities ("MBS"), obligations
of the U.S. government and government sponsored entities, and corporate debt
and
equity securities.
Executive
Summary
The
Holding Company’s primary business is the operation of the Bank. The Company’s
consolidated results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on
interest-earning assets, such as loans and securities, and the interest expense
paid on interest-bearing liabilities, such as deposits and borrowings. The
Bank
additionally generates non-interest income such as service charges and other
fees, as well as income associated with Bank Owned Life Insurance. Non-interest
expense consists primarily of employee compensation and benefits, federal
deposit insurance premiums, data processing costs, occupancy and equipment
expenses, marketing
costs
and
other operating expenses. The Company’s consolidated results of operations are
also significantly affected by general economic and competitive conditions
(particularly fluctuations in market interest rates), government policies,
changes in accounting standards and actions of regulatory agencies.
The
Bank’s primary strategy is generally to increase its household and deposit
market shares in the communities that it serves. During the previous several
operating quarters, however, growth has been restricted as a result of the
interest rate environment, which management has deemed unfavorable for
significant balance sheet growth. The Bank also seeks to increase its product
and service utilization for each individual depositor. The Bank’s primary
strategy additionally includes the origination of, and investment in, mortgage
loans, with an emphasis on multifamily residential and commercial real estate
loans. For the past several quarters, the Bank has increased its portfolios
of
loans secured by commercial real estate and mixed-use properties (typically
comprised of ground level commercial units and residential apartments on
the
upper floors).
The
Company believes that multifamily residential and commercial real estate
loans
provide advantages as investment assets. Initially, they offer a higher yield
than investment securities of comparable maturities or terms to repricing.
In
addition, origination and processing costs for the Bank’s multifamily
residential and commercial real estate loans are lower per thousand dollars
of
originations than comparable one-to four-family loan costs. Further, the
Bank’s
market area has generally provided a stable flow of new and refinanced
multifamily residential and commercial real estate loan originations. In
order
to address the credit risk associated with multifamily residential and
commercial real estate lending, the Bank has developed underwriting standards
that it believes are reliable in order to maintain consistent credit quality
for
its loans.
The
Bank
also strives to provide a stable source of liquidity and earnings through
the
purchase of investment grade securities; seeks to maintain the asset quality
of
its loans and other investments; and uses appropriate portfolio and
asset/liability management techniques in an effort to manage the effects
of
interest rate volatility on its profitability and capital.
Net
interest income, and the related net interest spread and net interest margin,
declined during the three months ended March 31, 2007 versus the comparable
period of 2006. These declines were attributable to the continuation of the
flattened market yield curve as interest rates on short-term investments
and
borrowings continued to increase at a faster rate than those on medium- and
long-term investments and borrowings. This environment resulted in a greater
increase in the average cost of interest bearing liabilities than the increase
in yield on interest earning assets during the comparative period.
Selected
Financial Highlights and Other Data
(Dollars
in Thousands Except Per Share Amounts)
|
For
the Three Months Ended
March 31,
|
|
2007
|
|
2006
|
Performance
and Other Selected Ratios:
|
|
|
|
Return
on Average Assets
|
0.72%
|
|
1.08%
|
Return
on Average Stockholders' Equity
|
8.12
|
|
11.55
|
Stockholders'
Equity to Total Assets
|
8.64
|
|
9.32
|
Tangible
Equity to Total Tangible Assets
|
7.24
|
|
7.79
|
Loans
to Deposits at End of Period
|
126.12
|
|
136.23
|
Loans
to Earning Assets at End of Period
|
87.58
|
|
89.46
|
Net
Interest Spread
|
1.86
|
|
2.35
|
Net
Interest Margin
|
2.33
|
|
2.76
|
Average
Interest Earning Assets to Average Interest Bearing
Liabilities
|
111.95
|
|
112.75
|
Non-Interest
Expense to Average Assets
|
1.40
|
|
1.34
|
Efficiency
Ratio
|
55.87
|
|
45.98
|
Effective
Tax Rate
|
35.85
|
|
35.78
|
Dividend
Payout Ratio
|
82.35
|
|
58.33
|
Average
Tangible Equity
|
$237,363
|
|
238,972
|
Per
Share Data:
|
|
|
|
Reported
EPS (Diluted)
|
$0.17
|
|
$0.24
|
Cash
Dividends Paid Per Share
|
0.14
|
|
0.14
|
Stated
Book Value
|
7.91
|
|
7.92
|
Tangible
Book Value
|
6.54
|
|
6.52
|
Asset
Quality Summary:
|
|
|
|
Net
Charge-offs (Recoveries)
|
$(2)
|
|
$11
|
Non-performing
Loans
|
2,878
|
|
365
|
Non-performing
Loans/Total Loans
|
0.11%
|
|
0.01%
|
Non-performing
Assets/Total Assets
|
0.09
|
|
0.01
|
Allowance
for Loan Loss/Total Loans
|
0.57
|
|
0.59
|
Allowance
for Loan Loss/Non-performing Loans
|
540.58
|
|
4,309.04
|
Regulatory
Capital Ratios (Bank Only):
|
|
|
|
Tangible
Capital
|
8.81%
|
|
9.04%
|
Leverage
Capital
|
8.81
|
|
9.04
|
Total
Risk-based Capital
|
12.45
|
|
12.90
|
Earnings
to Fixed Charges Ratios (1)
|
|
|
|
Including
Interest on Deposits
|
1.33x
|
|
1.62x
|
Excluding
Interest on Deposits
|
1.99
|
|
2.36
|
|
For
the Three Months Ended
March 31,
|
|
2007
|
|
2006
|
(Dollars
in Thousands Except Per Share Amounts)
|
Non-GAAP
Disclosures - Core Earnings Reconciliation and Ratios
(2)
|
|
|
|
Net
income
|
$5,817
|
|
$8,408
|
Net
pre-tax gain on sale of other assets
|
-
|
|
(478)
|
Net
pre-tax income on borrowings restructuring
|
-
|
|
(43)
|
Tax
effect of adjustments
|
-
|
|
190
|
After
tax effect of adjustments to core earnings
|
-
|
|
(331)
|
Core
Earnings
|
$5,817
|
|
$8,077
|
|
|
|
|
Core
Return on Average Assets
|
0.72%
|
|
1.04%
|
Core
Return on Average Stockholders' Equity
|
8.12
|
|
11.09
|
Core
EPS (Diluted)
|
$0.17
|
|
$0.23
|
Dividend
payout ratio (based upon core earnings)
|
82.35%
|
|
60.87%
|
(1)
Interest on unrecognized tax benefits totaling $512 and $183, respectively,
is
included in the calculation of fixed charges for the three months ended March
31, 2007 and 2006.
(2)
Core
earnings and related data are "Non-GAAP Disclosures." These disclosures provide
information which management considers useful to the readers of this report
since they present a measure of the results of the Company's ongoing operations
(exclusive of significant non-recurring items such as gains or losses on
sales
of investments, MBS or investment properties and income or expense associated
with borrowing restructurings) during the period.
Critical
Accounting Policies
Various
elements of the Company’s accounting policies are inherently subject to
estimation techniques, valuation assumptions and other subjective assessments.
The Company’s policies with respect to the methodologies it uses to determine
the allowance for loan losses, the valuation of mortgage servicing rights
("MSR"), asset impairments (including the valuation of goodwill and other
intangible assets, realization of deferred tax assets and other than temporary
declines in the valuation of securities), and loan income recognition are
its
most critical accounting policies because they are important to the presentation
of the Company’s financial condition and results of operations, involve a
significant degree of complexity and require management to make difficult
and
subjective judgments which often necessitate assumptions or estimates about
highly uncertain matters. The use of different judgments, assumptions and
estimates could result in material variations in the Company's results of
operations or financial condition.
The
following are descriptions of the Company's critical accounting policies
and
explanations of the methods and assumptions underlying their application.
These
policies and their application are reviewed periodically with the Audit
Committees of the Holding Company and Bank.
Allowance
for Loan Losses. Accounting
principles generally accepted in the United States ("GAAP")
requires the Bank to maintain an appropriate allowance for loan losses.
Management uses available information to estimate losses on loans and believes
that the Bank maintains its allowance for loan losses at appropriate levels.
Adjustments may be necessary, however, if future economic, market or other
conditions differ from the current operating environment.
Although
the Bank believes it utilizes the most reliable information available, the
level
of the allowance for loan losses remains an estimate subject to significant
judgment. These evaluations are inherently subjective because, although based
upon objective data, it is management's interpretation of the data that
determines the amount of the appropriate allowance. The Company, therefore,
periodically reviews the actual performance and charge-offs of its portfolio
and
compares them to the previously determined allowance coverage percentages.
In so
doing, the Company evaluates the impact that the variables discussed below
may
have on the portfolio to determine whether or not changes should be made
to the
assumptions and analyses.
The
Bank's loan loss reserve methodology consists of several components, including
a
review of the two elements of its loan portfolio: problem loans [i.e.,
classified loans, non-performing loans and impaired loans under Statement
of
Financial Accounting Standards No. 114, "Accounting By Creditors for Impairment
of a Loan," as amended by SFAS 118, "Accounting by Creditors for Impairment
of a
Loan - Income Recognition and Disclosures an amendment of FASB Statement
No.
114" ("Amended SFAS 114")] and performing loans.
Performing
Loans
At
March
31, 2007, the majority of the allowance for loan losses was allocated to
performing loans, which represented the overwhelming majority of the Bank's
loan
portfolio. Performing loans are reviewed at least quarterly based upon the
premise that there are losses inherent within the loan portfolio that have
not
been identified as of the review date. The Bank thus calculates an allowance
for
loan losses related to its performing loans by deriving an expected loan
loss
percentage and applying it to its performing loans. In deriving the expected
loan loss percentage, the Bank generally considers, among others, the following
criteria: the Bank's historical loss experience; the age and payment history
of
the loans (commonly referred to as their "seasoned quality"); the type of
loan
(i.e.,
one- to
four-family, multifamily residential, commercial real estate, cooperative
apartment, construction or consumer); the underwriting history of the loan
(i.e.,
whether it was underwritten by the Bank or a predecessor institution acquired
by
the Bank and, therefore, originally subjected to different underwriting
criteria); both the current condition and recent history of the overall local
real estate market (in order to determine the accuracy of utilizing recent
historical charge-off data to derive the expected loan loss percentages);
the
level of, and trend in, non-performing loans; the level and composition of
new
loan activity; and the existence of geographic loan concentrations (as the
overwhelming majority of the Bank's loans are secured by real estate located
in
the New York City metropolitan area) or specific industry conditions within
the
portfolio segments. Since these criteria affect the expected loan loss
percentages that are applied to performing loans, changes in any of them
may
affect the amount of the allowance and the provision for loan losses. The
Bank
applied the process of determining the allowance for loan losses consistently
throughout the three month periods ended March 31, 2007 and 2006.
Office
of
Thrift Supervision
("OTS")
regulations and Bank policy require that loans possessing certain weaknesses
be
classified as Substandard, Doubtful or Loss assets. Assets that do not expose
the Bank to risk sufficient to justify classification in one of these
categories, however, which possess potential weaknesses that deserve
management's attention, are designated Special Mention. Loans classified
as
Special Mention, Substandard or Doubtful are reviewed individually on a
quarterly basis by the Bank's Loan Loss Reserve Committee to determine the
level
of possible loss, if any, that should be provided for within the Bank's
allowance for loan losses.
The
Bank's policy is to charge-off immediately all balances classified as ''Loss''
and record a reduction of the allowance for loan losses for the full amount
of
the outstanding loan balance. The Bank applied this process consistently
throughout the three month periods ended March 31, 2007 and 2006.
Under
the
guidance established by Amended SFAS 114, loans determined to be impaired
(generally, non-performing one- to four-family loans in excess of $417,000
and
non-performing and troubled-debt restructured multifamily residential and
commercial real estate loans) are evaluated at least quarterly in order to
establish impairment, i.e.,
whether
the estimated fair value of the underlying collateral determined based upon
an
independent appraisal is sufficient to satisfy the existing debt. For each
loan
that the Bank determines to be impaired, impairment is measured by the amount
that the carrying balance of the loan, including all accrued interest, exceeds
the estimated fair value of the collateral. A specific reserve is established
on
all impaired loans to the extent of impairment and comprises a portion of
the
allowance for loan losses.
Valuation
of MSR. The
estimated origination and servicing costs of mortgage loans sold with servicing
rights retained by the Bank are allocated between the loans and the servicing
rights based on their estimated fair values at the time of the loan sale.
MSR
are carried at the lower of cost or fair value and are amortized in proportion
to, and over the period of, net servicing income. The estimated fair value
of
MSR is determined by calculating the present value of estimated future net
servicing cash flows, using estimated prepayment, default, servicing cost
and
discount rate assumptions. All estimates and assumptions utilized in the
valuation of MSR are derived based upon actual historical results for the
Bank,
and in the absence of such historical data for the Bank, from historical
results
for the Bank's peers.
The
fair
value of MSR is sensitive to changes in assumptions. Fluctuations in prepayment
speed assumptions have the most significant impact on the estimated fair
value
of MSR. In the event that loan prepayment activities exceed the assumed amount
due to increased loan refinancing, the fair value of MSR would likely decline.
In the event that loan prepayment activities fall below the assumed amount
due
to a decline in loan refinancing, the fair value of MSR would likely increase.
Any measurement of the value of MSR is limited by the existing conditions
and
assumptions utilized at a particular point in time, and would not necessarily
be
appropriate if applied at a different point in time.
Assumptions
utilized in measuring the fair value of capitalized MSR for the purpose of
evaluating impairment additionally include the stratification based on
predominant risk characteristics of the underlying loans. Increases in the
risk
characteristics of the underlying loans from the assumed amounts would result
in
a decline in the fair value of the MSR. A
valuation
allowance is established in the event the recorded value of an individual
stratum exceeds its fair value for the full amount of the
difference.
Asset
Impairment Adjustments. Certain
assets are carried in the Company's consolidated statements of financial
condition at fair value or at the lower of cost or fair value. Management
periodically performs analyses to test for impairment of these assets. Two
significant impairment analyses relate to the value of goodwill and other
than
temporary declines in the value of the Company's securities. In the event
that
an impairment of goodwill or an other than temporary decline in the value
of the
Company's securities is determined to exist, it is recognized as a charge
to
earnings.
Goodwill
is accounted for in accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). SFAS 142 eliminates amortization of goodwill and instead
requires performance of an annual impairment test at the reporting unit level.
As of March 31, 2007, the Company had goodwill totaling $55.6 million.
The
Company identified a single reporting unit for purposes of its goodwill
impairment testing. The impairment test is therefore performed on a consolidated
basis and compares the Holding Company's market capitalization (reporting
unit
fair value) to its outstanding equity (reporting unit carrying value). The
Holding Company utilizes its closing stock price as reported on the Nasdaq
National Market on the date of the impairment test in order to compute market
capitalization. The Company has designated the last day of its fiscal year
as
the annual date for impairment testing. The Company performed its annual
impairment test as of December 31, 2006 and concluded that no potential
impairment of goodwill existed since the fair value of the Company's reporting
unit exceeded its carrying value. No events occurred, nor circumstances changed,
subsequent to December 31, 2006 that would reduce the fair value of the
Company's reporting unit below its carrying value. Such events or changes
in
circumstances would require an immediate impairment test to be performed
in
accordance with SFAS 142. Differences in the identification of reporting
units
or the use of valuation techniques can result in materially different
evaluations of impairment.
Available-for-sale
debt and equity securities that have readily determinable fair values are
carried at fair value. All of the Company's available for sale securities
have
readily determinable fair values, and such fair values are based on published
or
securities dealers' market values.
Debt
securities are classified as held-to-maturity, and carried at amortized cost,
only if the Company has a positive intent and ability to hold them to maturity.
Unrealized holding gains or losses on debt securities classified as
held-to-maturity are disclosed, but are not recognized in the Company's
consolidated statement of financial condition or results of
operations.
Debt
securities that are not classified as held-to-maturity, along with all equity
securities, are classified as either securities available-for-sale or trading
securities. Neither the Holding Company nor the Bank owned any securities
classified as trading securities during the three months ended
March 31, 2007, nor do they presently anticipate establishing a
trading portfolio.
The
Company conducts a periodic review and evaluation of its securities portfolio,
taking into account the severity and duration of each unrealized loss as
well as
management's intent and ability to hold the security until the unrealized
loss
is substantially eliminated, in order to determine if a decline in market
value
of any security below its carrying value is either temporary or other than
temporary. Unrealized holding gains or losses on debt and equity securities
available-for-sale that are deemed temporary are excluded from net income
and
reported net of income taxes as other comprehensive income or loss. Unrealized
losses that are deemed other than temporary are recognized immediately as
a
reduction of the carrying amount of the security and a charge is recorded
in the
Company's consolidated statement of operations. For the three months ended
March
31, 2007 and 2006, there were no other than temporary impairments in the
securities portfolio.
Loan
Income Recognition.
Interest income on loans is recorded using the level yield method. Loan
origination fees and certain direct loan origination costs are deferred and
amortized as a yield adjustment over the contractual loan terms.
Accrual
of interest is discontinued when its receipt is in doubt, which typically
occurs
when a loan becomes 90 days past due as to principal or interest. Any interest
accrued to income in the year when interest accruals are discontinued is
reversed. Loans are returned to accrual status once the doubt concerning
collectibility has been removed and the borrower has demonstrated performance
in
accordance with the loan terms and conditions for a minimum of twelve months.
Payments on nonaccrual loans are generally applied to principal.
The
Bank's primary sources of funding for its lending and investment activities
include deposits, loan and MBS payments, investment security maturities and
redemptions, advances from the Federal Home Loan Bank of New York ("FHLBNY"),
and borrowings in the form of securities sold under agreement to repurchase
("REPOs") entered into with various financial institutions, including the
FHLBNY. The Bank also sells selected multifamily residential and mixed use
loans
to the Federal National Mortgage Association ("FNMA'), and long-term, one-
to
four-family residential real estate loans to either FNMA or the State of
New
York Mortgage Agency. The Company may additionally issue debt under appropriate
circumstances. Although maturities and scheduled amortization of loans and
MBS
are predictable sources of funds, deposits flows and prepayments of mortgage
loans and MBS are influenced by interest rates, economic conditions and
competition.
The
Bank
gathers deposits in direct competition with commercial banks, savings banks,
Internet banks and brokerage firms, many among the largest in the nation.
It
must additionally compete for deposit monies against the stock and bond markets,
especially during periods of strong performance in those arenas. The Bank's
deposit flows are affected primarily by the pricing and marketing of its
deposit
products compared to its competitors, as well as the market performance of
depositor investment alternatives such as the U.S. bond or equity markets.
To
the extent that the Bank is responsive to general market increases or declines
in interest rates, its deposit flows should not be materially impacted. However,
favorable performance of the equity or bond markets could adversely impact
the
Bank’s deposit flows.
Deposits increased
$160.5 million during the three months ended March 31, 2007, compared to
an
increase of $32.0 million during the three months ended March 31, 2006. During
the three months ended March 31, 2007, the Company experienced increases
of
$102.5 million in money markets and $52.1 million in certificates of deposit
("CDs"), respectively, due to successful promotional campaigns. During the
three
months ended March 31, 2006, the Company experienced an increase of $34.4
million in CDs, due primarily to successful promotional campaigns.
During
the three months ended March 31, 2007, principal repayments totaled $71.4
million on real estate loans and $8.0 million on MBS. During the three months
ended March 31, 2006, principal repayments totaled $63.0 million on real
estate
loans and $10.6 million on MBS. The increase in principal repayments on loans
resulted from an increase in the average balance of real estate loans coupled
with higher loan prepayment activity during the three months ended March
31,
2007 compared to the three months ended March 31, 2006. The increase in loan
prepayment activity during the three months ended March 31, 2007 reflected
the
settlement of a few larger loans in connections with the sale of the respective
underlying collateral, and did not reflect a particular market trend. The
decline in the level of principal repayments of MBS during the comparative
period reflected a decrease of $33.8 million in their balance from March
31,
2006 to March 31, 2007, reflecting both regular principal repayments and
no new
MBS purchases from January 1, 2006 through March 31, 2007.
Since
December 2002, the Bank has originated and sold multifamily residential and
mixed use mortgage loans in the secondary market to FNMA, while retaining
servicing and generating fee income while it services the loans. The Bank
underwrites these loans using its customary underwriting standards, funds
the
loans, and sells them to FNMA at agreed upon pricing. Typically, the Bank
seeks
to sell loans with terms to maturity or repricing in excess of seven years
from
the origination date since it does not desire to retain such loans in portfolio
as a result of their heightened interest rate risk. Under the terms of the
sales
program, the Bank retains a portion of the associated credit risk. The aggregate
amount of the retained risk continues to increase as long as the Bank continues
to sell loans to FNMA under the program. The Bank retains this exposure until
the portfolio of loans sold to FNMA is satisfied in its entirety or the Bank
funds claims by FNMA for the maximum loss exposure. During the three months
ended March 31, 2007 and 2006, the Bank sold FNMA $20.2 million and $27.1
million of loans, respectively, pursuant to this program.
Due
in
part to the growth in deposit funding during the three month periods ended
both
March 31, 2007 and 2006, the Company was able to reduce its overall level
of
borrowings in each period. During the three months ended March 31, 2007 and
2006, borrowings declined by $65.0 million and $50.0 million, respectively,
as
the Company utilized deposit inflows and liquidity from its investment and
MBS
portfolios to fund loan growth.
During
the three months ended March 31, 2006, the Company restructured $145.0 million
of its borrowings in order to lower their average cost. Borrowings with a
weighted average cost of 4.46% and a weighted average term to maturity of
one
year were replaced with borrowings having a weighted average cost of 4.17%
and a
final maturity of ten years, callable after year one. Since portions of the
original borrowings were satisfied at a discount, the Company recorded a
non-recurring reduction of $43,200 in interest expense related to the
prepayment.
An
additional source of funds is available to the Bank through use of its borrowing
line at the FHLBNY. At March 31, 2007, the Bank had an additional potential
borrowing capacity of $477.5 million available provided it owned the minimum
required level of FHLBNY common stock (i.e.,
4.5% of
its outstanding FHLBNY borrowings). The Holding Company additionally has
a $15.0
million line of credit agreement with a reputable financial institution in
the
event that it requires further liquidity.
The Bank is subject to minimum regulatory capital requirements imposed by
the
OTS, which, as a general matter, are based on the amount and composition
of an
institution's assets. At March 31, 2007, the Bank was in compliance with
all
applicable regulatory capital requirements and was considered "well-capitalized"
for all regulatory purposes.
The
Bank
uses its liquidity and capital resources primarily to fund the origination
of
real estate loans and/or the purchase of mortgage-backed and other securities.
During the three months ended March 31, 2007 and 2006, real estate loan
originations totaled $123.3 million and $130.1 million, respectively. There
were
no purchases of investment securities or MBS during the three months ended
March
31, 2007 and 2006, as the Company elected to retain excess funds in federal
funds sold and other short-term investments while short-term rates equaled
or
exceeded medium and long-term rates.
During
the three months ended March 31, 2007, the Holding Company repurchased 425,458
shares of its common stock into treasury. All shares repurchased were recorded
at the acquisition cost, which totaled $5.6 million during the period. As
of
March 31, 2007, up to 1,261,152
shares
remained available for purchase under authorized share purchase programs.
Based
upon the $13.23 per share closing price of its common stock as of March 30,
2007, the Holding Company would utilize $16.7 million in order to purchase
all
of the remaining authorized shares. For the Holding Company to complete these
share purchases, it would likely require dividend distributions from the
Bank.
Contractual
Obligations
The
Bank
is obligated for rental payments under leases on certain of its branches
and
equipment and for minimum monthly payments under its current data systems
contract. As discussed in Note 9 of the condensed consolidated financial
statements, the Company had a reserve recorded related to unrecognized income
tax benefits totaling $2.4 million at March 31, 2007. Due to the uncertainty
of
the amounts to be ultimately paid as well as the timing of such payments,
all
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
("FIN
48") liabilities that have not been paid have been excluded from the tabular
disclosure of contractual obligations.
The
Bank
generally has outstanding at any time significant borrowings in the form
of
FHLBNY advances and/or REPOs. The Holding Company has an outstanding $25.0
million non-callable subordinated note payable due to mature in 2010, and
$72.2
million of trust preferred borrowings from third parties due to mature in
April
2034, which are callable at any time after April 2009. The obligation related
to
these amounts were disclosed in the Company's Annual Report on Form 10-K
for the
year ended December 31, 2006, and did not change materially during the three
months ended March 31, 2007.
Off-Balance
Sheet Arrangements
The
Bank
implemented a program in December 2002 to originate and sell multifamily
residential and mixed use mortgage loans in the secondary market to FNMA
while
retaining servicing. The Bank retains a recourse obligation on all loans
sold
under this program, which will remain in effect until either the entire
portfolio of loans sold to FNMA is satisfied or the Bank funds claims by
FNMA
for the full balance of the recourse obligation.
In
addition, as part of its loan origination business, the Bank has outstanding
commitments to extend credit to third parties, which are subject to strict
credit control assessments. Since many of these loan commitments expire prior
to
funding, in whole or in part, the contract amounts are not estimates of future
cash flows. The following chart represents off balance sheet commitments
for
which the Company is obligated as of March 31, 2007:
|
Less
than One Year
|
One
Year to Three Years
|
Over
Three Years
to
Five Years
|
Over
Five Years
|
|
Total
at March
31, 2007
|
|
(Dollars
in thousands)
|
Credit
Commitments:
|
|
|
|
|
|
|
Available
lines of credit
|
$69,914
|
$-
|
$-
|
$-
|
|
$69,914
|
Other
loan commitments
|
60,160
|
-
|
-
|
-
|
|
60,160
|
Other
Commitments:
|
|
|
|
|
|
|
Recourse
obligation on loans sold to FNMA
|
18,891
|
-
|
-
|
-
|
|
18,891
|
Total
Commitments
|
$148,965
|
$-
|
$-
|
$-
|
|
$148,965
|
Non-performing
loans (i.e.,
delinquent loans for which interest accruals have ceased in accordance with
the
Bank's policy discussed below) totaled $2.9 million and $3.6 million at March
31, 2007 and December 31, 2006, respectively. The decrease resulted primarily
from the removal of 3 loans totaling $728,000 from nonaccrual status during
the
period.
Pursuant
to Bank policy, accrual of interest is discontinued when its receipt is in
doubt, which typically occurs when a loan becomes 90 days past due as to
principal or interest. Any interest accrued to income in the year when interest
accruals are discontinued is reversed. Loans are returned to accrual status
once
the doubt concerning collectibility has been removed and the borrower has
demonstrated performance in accordance with the loan terms and conditions
for a
minimum of twelve months. Payments on nonaccrual loans are generally applied
to
principal.
The
Bank
had real estate and consumer loans totaling $122,000 delinquent 60-89 days
at
March 31, 2007, compared to a total of $258,000 at December 31, 2006. The
decline resulted primarily from a $192,000 decrease in delinquent real estate
and home equity loans during the period. The 60-89 day delinquency levels
fluctuate monthly, and are generally considered a less accurate indicator
of
credit quality trends than non-performing loans.
GAAP
requires the Bank to account for certain loan modifications or restructurings
as
''troubled-debt restructurings.'' In general, the modification or restructuring
of a loan constitutes a troubled-debt restructuring if the Bank, for economic
or
legal reasons related to the borrower's financial difficulties, grants a
concession to the borrower that it would not otherwise consider. Current
OTS
regulations require that troubled-debt restructurings remain classified as
such
until the loan is either repaid or returns to its original terms. The Bank
had
no loans classified as troubled-debt restructurings at March 31, 2007 or
December 31, 2006.
The
recorded investment in loans deemed impaired pursuant to Amended SFAS 114
was
$2.8 million, consisting of four loans, at March 31, 2007, compared to $3.5
million, consisting of six loans, at December 31, 2006. The decline resulted
from the removal of two loans totaling $668,000 from impaired status during
the
three months ended March 31, 2007. The average total balance of impaired
loans
was approximately $3.2 million and $192,000 during the three months ended
March
31, 2007 and 2006, respectively. The increase in the average balance of impaired
loans during the comparative period resulted primarily from the addition
of six
impaired loans totaling $3.5 million during the period. There were $285,000
and
$351,000 of reserves allocated within the allowance for loan losses for impaired
loans at March 31, 2007 and December 31, 2006, respectively. At March 31,
2007,
non-performing loans exceeded impaired loans by $32,000, due to $32,000 of
one-
to four-family and consumer loans, which, while on non-performing status,
were
not deemed impaired since they each had individual outstanding balances less
than $417,000.
Other
Real Estate Owned (“OREO”).
Property acquired by the Bank as a result of foreclosure on a mortgage loan
or a
deed in lieu of foreclosure is classified as OREO and recorded at the lower
of
the recorded investment in the related loan or the fair value of the property
on
the date of acquisition, with any resulting write down charged to the allowance
for loan losses. The Bank obtains a current appraisal on OREO property as
soon
as practicable after it takes possession of the realty and generally reappraises
its value at least annually thereafter. There were no OREO properties as
of
March 31, 2007 and December 31, 2006.
The
following table sets forth information regarding non-performing loans,
non-performing assets, impaired loans and troubled-debt restructurings at
the
dates indicated:
|
At
March 31, 2007
|
At
December 31, 2006
|
|
(Dollars
in thousands)
|
Non-Performing
Loans
|
|
|
One-
to four-family
|
$-
|
$60
|
Multifamily
residential
|
987
|
1,655
|
Commercial
|
1,859
|
1,859
|
Cooperative
apartment
|
26
|
26
|
Other
|
6
|
6
|
Total
non-performing loans
|
2,878
|
3,606
|
OREO
|
-
|
-
|
Total
non-performing assets
|
2,878
|
3,606
|
Troubled-debt
restructurings
|
-
|
-
|
Total
non-performing assets and
troubled-debt
restructurings
|
$2,878
|
$3,606
|
|
|
|
Impaired
loans
|
$2,846
|
$3,514
|
Ratios:
|
|
|
Total
non-performing loans to total loans
|
0.11%
|
0.13%
|
Total
non-performing loans and troubled-debt restructurings to total
loans
|
0.11
|
0.13
|
Total
non-performing assets to total assets
|
0.09
|
0.11
|
Total
non-performing assets and troubled-debt restructurings to total
assets
|
0.09
|
0.11
|
|
|
|
Allowance
for Loan Losses
Assets.
Assets
totaled $3.30 billion at March 31, 2007, an increase of $126.2 million from
total assets of $3.17 billion at December 31, 2006.
Federal
funds sold and other short-term assets increased $104.4 million during the
comparative period as cash flows from deposits, maturing investment securities
and principal repayments on MBS were reinvested in short-term securities
and
federal funds sold, since the flattened yield curve provided benefits to
retaining the funds in short-term investments. Real estate loans increased
$31.0
million during the three months ended March 31, 2007 due primarily to
originations of $123.3 million during the period (as interest rates offered
on
new loans continued to stimulate origination activity), that were partially
offset by amortization of $71.4 million and sales to FNMA of $20.2 million.
Partially
offsetting the increases in real estate loans and federal funds sold and
other
short-term assets were declines in MBS available-for-sale and FHLBNY capital
stock of $6.9 million and $2.9 million, respectively, during the three months
ended March 31, 2007. The decline in MBS available-for-sale resulted from
principal repayments of $8.0 million that were partially offset by an increase
of $1.1 million in their market value. The decrease in FHLBNY capital stock
reflected the redemption of $2.9 million due to a reduction in the Bank's
borrowings from the FHLBNY. (See "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations
-
Liquidity and Capital Resources").
Liabilities.
During
the three months ended March 31, 2007, total liabilities increased $131.6
million, reflecting an increase of $160.5 million in deposits and $33.6 million
in escrow and other deposits during the period (See "Item
2. Management's Discussion and Analysis of Financial Condition and Results
of
Operations - Liquidity and Capital Resources" for a discussion of deposit
activity). The increase in escrow and other deposits during the three months
ended March 31, 2007, resulted from the Bank's accumulation of escrow balances
during the period that it did not hold in the previous quarter to be used
for
semi-annual real estate tax payments that will be made on behalf of borrowers
during the three months ending June 30, 2007. Partially offsetting these
increases was a decline in FHLBNY advances of $65.0 million. (See "Item 2.
Management's Discussion and Analysis of Financial Condition and
Results
of Operations - Liquidity and Capital Resources" for a discussion of borrowing
activity).
Stockholders'
Equity.
Stockholders' equity decreased $5.5 million during the three months ended
March
31, 2007, due to treasury stock repurchases of $5.6 million, cash dividends
on
the Holding Company's common stock of $4.9 million and a reduction to equity
of
$1.7 million related to an additional reserve that the Company recorded upon
adoption of FIN 48.
Partially
offsetting these items were increases to equity resulting from the following:
(i) net income of $5.8 million, (ii) $575,000 related to a decline in the
after-tax unrealized loss on the Company's investment securities and MBS
classified as available for sale, and (iii) $325,000 related to amortization
of
the Employee Stock Ownership Plan of Dime Community Bancshares, Inc. and
Certain
Affiliates ("ESOP") and restricted stock awards issued under other stock
benefit
plans. The ESOP and restricted stock awards are initially recorded as reductions
in stockholders' equity ("Contra Equity Balances"). As compensation expense
is
recognized on the ESOP and restricted stock awards, the Contra Equity Balances
are reduced in a corresponding amount, resulting in an increase to their
respective equity balances. This increase to equity offsets the decline in
the
Company's retained earnings related to the periodic recorded ESOP and restricted
stock award expenses. The decline in the after-tax unrealized loss on the
investment securities and MBS available for sale reflected their reduction
in
remaining term to maturity during the three months ended March 31, 2007.
Comparison
of Operating Results for the Three Months Ended March 31, 2007 and
2006
General.
Net
income was $5.8 million during the three months ended March 31, 2007, a decrease
of $2.6 million from net income of $8.4 million during the three months ended
March 31, 2006. During the comparative period, net interest income declined
$2.6
million, non-interest income decreased $670,000 due primarily to the change
in
the net gains or losses on the disposal of assets, and non-interest expense
increased $800,000, resulting in a reduction in pre-tax net income of $4.0
million. Income tax expense decreased $1.4 million during the comparative
period
primarily as a result of the decrease in pre-tax net income.
Net
Interest Income. The
discussion of net interest income for the three months ended March 31, 2007
and
2006 presented below should be read in conjunction with the following tables,
which set forth certain information related to the consolidated statements
of
operations for those periods, and which also present the average yield on
assets
and average cost of liabilities for the periods indicated. The yields and
costs
were derived by dividing income or expense by the average balance of their
related assets or liabilities during the periods represented. Average balances
were derived from average daily balances. The yields include fees that are
considered adjustments to yields.
Analysis
of Net Interest Income (Unaudited)
|
Three
Months Ended March 31,
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Average
|
|
|
Average
|
|
Average
|
|
Yield/
|
Average
|
|
Yield/
|
|
Balance
|
Interest
|
Cost
|
Balance
|
Interest
|
Cost
|
(Dollars
In
Thousands)
|
Assets:
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
Real
estate loans
|
$2,706,863
|
$40,250
|
5.95%
|
$2,627,262
|
$37,839
|
5.76%
|
Other
loans
|
1,895
|
45
|
9.50
|
2,074
|
49
|
9.45
|
Mortgage-backed
securities
|
154,655
|
1,512
|
3.91
|
192,672
|
1,845
|
3.83
|
Investment
securities
|
30,062
|
442
|
5.88
|
38,329
|
482
|
5.03
|
Other
short-term investments
|
175,683
|
2,469
|
5.62
|
106,240
|
1,156
|
4.35
|
Total
interest-earning assets
|
3,069,158
|
$44,718
|
5.83%
|
2,966,577
|
$41,371
|
5.58%
|
Non-interest
earning assets
|
145,164
|
|
|
152,240
|
|
|
Total
assets
|
$3,214,322
|
|
|
$3,118,817
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
NOW
and Super Now accounts
|
$36,080
|
$120
|
1.35%
|
$37,239
|
$91
|
0.99%
|
Money
Market accounts
|
567,020
|
5,123
|
3.66
|
455,676
|
2,079
|
1.85
|
Savings
accounts
|
295,950
|
425
|
0.58
|
330,646
|
455
|
0.56
|
Certificates
of deposit
|
1,089,761
|
12,493
|
4.65
|
981,346
|
8,871
|
3.67
|
Borrowed
Funds
|
752,622
|
8,671
|
4.67
|
826,298
|
9,434
|
4.63
|
Total
interest-bearing liabilities
|
2,741,433
|
$26,832
|
3.97%
|
2,631,205
|
$20,930
|
3.23%
|
Checking
accounts
|
94,680
|
|
|
95,352
|
|
|
Other
non-interest-bearing liabilities
|
91,798
|
|
|
101,033
|
|
|
Total
liabilities
|
2,927,911
|
|
|
2,827,590
|
|
|
Stockholders'
equity
|
286,411
|
|
|
291,227
|
|
|
Total
liabilities and stockholders' equity
|
$3,214,322
|
|
|
$3,118,817
|
|
|
Net
interest income
|
|
$17,886
|
|
|
$20,441
|
|
Net
interest spread
|
|
|
1.86%
|
|
|
2.35%
|
Net
interest-earning assets
|
$327,725
|
|
|
$335,372
|
|
|
Net
interest margin
|
|
|
2.33%
|
|
|
2.76%
|
Ratio
of interest-earning assets to interest-bearing liabilities
|
|
|
111.95%
|
|
|
112.75%
|
Rate/Volume
Analysis (Unaudited)
|
Three
Months Ended March 31, 2007 Compared
to Three Months
Ended
March 31, 2006 Increase/
(Decrease) Due
to:
|
|
Volume |
Rate
|
Total
|
|
(Dollars
In thousands)
|
Interest-earning
assets:
|
|
|
|
Real
Estate Loans
|
$1,154
|
$1,257
|
$2,411
|
Other
loans
|
(3)
|
(1)
|
(4)
|
Mortgage-backed
securities
|
(368)
|
35
|
(333)
|
Investment
securities
|
(113)
|
73
|
(40)
|
Other
short-term investments
|
866
|
447
|
1,313
|
Total
|
1,536
|
1,811
|
3,347
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
NOW
and Super Now accounts
|
$(4)
|
$33
|
$29
|
Money
market accounts
|
742
|
2,302
|
3,044
|
Savings
accounts
|
(48)
|
18
|
(30)
|
Certificates
of deposit
|
1,100
|
2,522
|
3,622
|
Borrowed
funds
|
(853)
|
90
|
(763)
|
Total
|
937
|
4,965
|
5,902
|
Net
change in net interest income
|
$599
|
$(3,154)
|
$(2,555)
|
Net
interest income for the three months ended March 31, 2007 decreased $2.6
million
to $17.9 million, from $20.4 million during the three months ended March
31,
2006. The decrease was attributable to an increase of $5.9 million in interest
expense that was partially offset by an increase of $3.3 million in interest
income. The net interest spread decreased 49 basis points, from 2.35% for
the
three months ended March 31, 2006 to 1.86% for the three months ended March
31,
2007, and the net interest margin decreased 43 basis points, from 2.76% to
2.33%
during the same period.
The
tightening of monetary policy by the Federal Open Market Committee from the
second half of 2004 through June 30, 2006, in combination with various market
factors suppressing increases in both general long-term interest rates and
interest rates offered on real estate loans within the Bank's lending market,
resulted in a narrowing spread between short and long-term interest rates,
which
negatively impacted net interest income during the three-month period ended
March 31, 2007.
The
decrease in both the net interest spread and net interest margin reflected
an
increase of 74 basis points in the average cost of interest bearing liabilities.
The increase resulted primarily from increases in the average cost of money
market deposits and CDs of 181 basis points and 98 basis points, respectively,
during the comparative period, reflecting increases in short-term interest
rates
during the first six months of 2006. (See "Interest Expense"
below).
Partially
offsetting the increase in the average cost of interest bearing liabilities
was
an increase of 25 basis points in the average yield on interest earning assets
during the three months ended March 31, 2007 compared to the three months
ended
March 31, 2006. This increase resulted primarily from an increase in the
average
balance of real estate loans (the Bank's highest yielding interest earning
asset) as a percentage of total interest earning assets, which was coupled
with
an increase in the average yields on real estate loans and other short term
investments of 19 basis points and 127 basis points, respectively. The increase
in the composition of real estate loans as a percentage of interest earning
assets resulted from both loan origination activity during the period April
2006
through March 2007 coupled with a reduction in the level of investment
securities and MBS during the same period, as cash flows from maturing
investment securities and MBS were utilized to fund both loan originations
and
ongoing operations of the Company. See "Interest Income"
below for a discussion of the increase in the yield on real estate loans
and
short-term investments.
Interest
Income.
Interest
income was $44.7 million during the three months ended March 31, 2007, an
increase of $3.3 million from $41.4 million during the three months ended
March
31, 2006. This resulted from increases of $2.4 million and $1.3 million in
interest income on real estate loans and other short-term investments,
respectively, that were partially offset by decreases in interest income
on MBS
and investment securities of $333,000 and $40,000, respectively, during the
period.
The
increase in interest income on real estate loans resulted from both growth
in
their average balance of $79.6 million during the three months ended March
31,
2007 compared to the three months ended March 31, 2006, and an increase of
19
basis points in their average yield during the same period. The growth in
the
average balance of real estate loans reflected originations of $556.4 between
April 2006 and March 2007, which were partially offset by principal repayments
and loan sales during the period. The increase in average yield on real estate
loans reflected both increases in medium- and long-term interest rates during
the first six months of 2006, which positively impacted the average loan
origination rate during the
period
April 2006 through March 2007, coupled with an increase of $466,000 in
prepayment fee income during the three months ended March 31, 2007 compared
to
the three months ended March 31, 2006. The increase in loan prepayment and
amortization activity during the three months ended March 31, 2007 reflected
the
settlement of a few larger loans in connection with the sale of the respective
underlying collateral, and did not reflect a particular market trend.
The
increase in interest income on other short-term investments resulted from
growth
in their average balance of $69.4 million during the three months ended March
31, 2007 compared to the three months ended March 31, 2006 coupled with an
increase of 127 basis points in their average yield during the same period.
The
increase in average balance of other short-term investments reflected the
reinvestment of cash flows from deposits, maturing investment securities
and
principal repayments on MBS in short-term securities and federal funds sold,
since the flattened yield curve provided benefits to retaining the funds
in
short-term investments. The increase in average yield on other short-term
investments reflected ongoing increases in short-term interest rates during
the
first six months of 2006.
The
decline in interest income on MBS during the three months ended March 31,
2007
compared to the three months ended March 31, 2006 resulted from a decreased
average balance of $38.0 million (resulting
primarily from principal repayments on MBS of $36.8 million during the period
April 2006 through March 2007), that
was
partially offset by an increase of 8 basis points in average yield during
the
three months ended March 31, 2007 compared to the three months ended March
31,
2006 (resulting from increases in short and medium-term interest rates during
the first six months of 2006). The decline in interest income on investment
securities reflected a decrease in their average balances of $8.3 million
during
the three months ended March 31, 2007 compared to the three months ended
March
31, 2006, as cash flows from maturing investment securities were either utilized
to fund loan originations or retained in other short-term
investments.
Interest
Expense.
Interest
expense increased $5.9 million, to $26.8 million, during the three months
ended
March 31, 2007, from $20.9 million during the three months ended March 31,
2006.
The growth resulted primarily from increased interest expense of $3.6 million
related to CDs and $3.0 million related to money markets, that was partially
offset by a decline of $763,000 in interest expense on borrowings.
The
increase in interest expense on CDs resulted from an increase in their average
cost of 98 basis points during the three months ended March 31, 2007 compared
to
the three months ended March 31, 2006. The increase in average cost resulted
from increases in short-term interest rates during the first six months of
2006,
as a significant majority of the Bank's CDs have re-priced since March 31,
2006.
In addition, the average balance of CDs increased $108.4 million during the
period, reflecting successful gathering of new CDs from promotional activities.
(See "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources").
Interest
expense on money markets increased $3.0 million during the three months ended
March 31, 2007 compared to the three months ended March 31, 2006 due to an
increase of 181 basis points in their average cost during the period, along
with
an increase of $111.3 million in their average balance during the same period.
During the three months ended March 31, 2007, the Bank increased the rates
offered on both promotional and non-promotional money market accounts, which
led
to the increase in average cost during the period. In addition, the Bank
grew
its balance of money markets during the period July 2006 through March 2007
through successful promotional activities.
Interest
expense on borrowed funds declined $763,000 during the three months ended
March
31, 2007 compared to the three months ended March 31, 2006, due to a decline
of
$73.7 million in average balance during the period. The average cost of borrowed
funds increased 4 basis points during the three months ended March 31, 2007
compared to the three months ended March 31, 2006, due to the replacement
of
maturing low cost short-term borrowings at higher rates while short-term
interest rates rose during the first six months of 2006.
Provision
for Loan Losses.
The
provision for loan losses was $60,000 during the three months ended both
March
31, 2007 and March 31, 2006, as the Bank provided for additional inherent
losses
in the portfolio.
Non-Interest
Income. Non-interest
income, excluding gains or losses on the sale of assets, approximated $2.3
million during both the three months ended March 31, 2007 and 2006.
The
Company sold loans to FNMA totaling $20.2 million and $27.1 million during
the
three months ended March 31, 2007 and 2006, respectively. The gains recorded
on
these sales were $244,000 and $399,000 during the three months ended March
31,
2007 and 2006, respectively. All of the loans sold during both of these periods
were designated for sale upon origination. The loans sold during the three
months ended March 31, 2007 and 2006 had weighted average terms to the earlier
of maturity or next repricing of 10.9 years and 16.5 years,
respectively.
The Company additionally recorded a non-recurring gain of $478,000 during
the
three months ended March 31, 2006 on the sale of a property obtained in its
1999
acquisition of Financial Bancorp, Inc.,
Non-Interest
Expense.
Non-interest expense was $11.2 million during the three months ended March
31,
2007, an increase of $800,000 from the three months ended March 31, 2006.
Salaries
and employee benefits increased $634,000 as a result of regular increases
to
existing employee compensation levels.
Occupancy
and equipment expense increased $83,000 during the three months ended March
31,
2007 compared to the March 31, 2006 quarter due to both general increases
in
utility costs and real estate taxes as well as the addition of the Valley
Stream
branch, which was only open for one month during the quarter ended March
31,
2006.
Data
processing expense increased $81,000 as a result of increased loan and deposit
account activity during the three months ended March 31, 2007 compared to
the
three months ended March 31, 2006. Other expenses increased $61,000 due
primarily to increased advertising costs of $96,000 resulting from increased
promotional activities.
Non-interest
expense to average assets was 1.40% in the March 2007 quarter, compared to
1.34%
for the quarter ended March 31, 2006. The increase reflected the growth in
non-interest expense during the comparative period.
Income
Tax Expense.
Income
tax expense decreased $1.4 million during the quarter ended March 31, 2007
compared to the quarter ended March 31, 2006, due primarily to a decline
of $4.0
million in pre-tax net income during the period.
Other
Information
Loan
Portfolio Composition
The
following table presents a breakdown of the Company's loan portfolio at March
31, 2007 and December 31, 2006 by loan type:
|
At March 31, 2007
|
|
At December 31, 2006
|
|
Balance
|
|
%
of Total
|
|
Balance
|
|
%
of Total
|
|
(Dollars
in thousands)
|
One-to
Four family and cooperative apartment
|
$149,517
|
|
5.5%
|
|
$153,847
|
|
5.7%
|
Multifamily
residential
|
1,210,547
|
|
44.3
|
|
1,201,760
|
|
44.5
|
Commercial
real estate
|
428,104
|
|
15.7
|
|
400,097
|
|
14.8
|
Mixed
use (classified as multifamily residential)
|
651,322
|
|
23.8
|
|
653,346
|
|
24.2
|
Mixed
use (classified as commercial real estate)
|
263,695
|
|
9.7
|
|
266,830
|
|
9.9
|
Construction
and land acquisition
|
26,839
|
|
1.0
|
|
23,340
|
|
0.9
|
Unearned
Discounts and net deferred loan fees
|
1,208
|
|
-
|
|
1,048
|
|
-
|
Total
real estate loans
|
2,731,232
|
|
100.0%
|
|
2,700,268
|
|
100.0%
|
Consumer
loans
|
2,058
|
|
|
|
2,205
|
|
|
Allowance
for loan losses
|
(15,558)
|
|
|
|
(15,514)
|
|
|
Total
loans, net
|
$2,717,732
|
|
|
|
$2,686,959
|
|
|
Investment
Portfolio Summary Information
The
following table presents summary information related to the Company's
consolidated investment securities and MBS portfolios at March 31, 2007 and
December 31, 2006:
|
|
|
|
|
(Dollars in thousands)
|
Balance
at end of period
|
$
176,285
|
|
$
184,220
|
Average
interest rate
|
4.48%
|
|
4.49%
|
Average
duration (in years)
|
2.2
|
|
2.3
|
Outlook
for the Remainder of 2007
At
present, the overall yield on the Company's interest-earning assets is rising.
The average yield on interest earning assets, excluding the effects of
prepayment fee income and fourth quarter 2006 equity returns, rose on a linked
quarter basis, from 5.61% to 5.65%.
The
average cost of deposits rose from 3.35% during the December 31, 2006 quarter
to
3.54% during the March 2007 quarter. This trend is likely to diminish during
the
second quarter of 2007, as inflows from promotional activity are expected
to
decline from the first quarter level, and a large portion of the promotional
deposits added during the first quarter are expected to reprice below their
current promotional cost.
Prepayment
and amortization rates, which approximated 11% during 2006, are expected
to
remain in the 10% to 12% range during 2007. At March 31, 2007, the real estate
loan commitment pipeline approximated $109.9 million, with a weighted average
interest rate of 6.3%, including $21.3 million of loan commitments intended
for
sale to FNMA.
Operating
expenses are expected to approximate $10.7 million in the second quarter
of
2007. Share repurchases, which were somewhat accelerated in the first quarter,
are likely to recede to the 2006 quarterly levels. The Company is positioned,
however, to be opportunistic in the purchase of its own shares should conditions
warrant.
Quantitative
and qualitative disclosures about market risk were presented at December
31,
2006 in Item 7A of the Company's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 16, 2007. The following is an
update
of the discussion provided therein.
General.
Virtually all of the Company's market risk continues to reside at the Bank
level. The Bank's largest component of market risk remains interest rate
risk.
The Company is not subject to foreign currency exchange or commodity price
risk.
At March 31, 2007, the Company owned no trading assets, nor did it conduct
transactions involving derivative instruments requiring bifurcation in order
to
hedge interest rate or market risk.
Assets,
Deposit Liabilities and Wholesale Funds.
There
was no material change in the composition of assets, deposit liabilities
or
wholesale funds from December 31, 2006 to March 31, 2007.
Interest
Sensitivity Gap.
There
was no material change in the computed one-year interest sensitivity gap
from
December 31, 2006 to March 31, 2007.
Interest
Rate Risk Exposure (Net Portfolio Value) Compliance.
At
March 31, 2007, the Bank continued to monitor the impact of interest rate
volatility upon net interest income and net portfolio value ("NPV") in the
same
manner as at December 31, 2006. There were no changes in the Board-approved
limits of acceptable variance in the effect of interest rate fluctuations
upon
net interest income and NPV at March 31, 2007 compared to December 31, 2006.
The
analysis that follows presents the estimated NPV resulting from market interest
rates prevailing at a given quarter-end ("Pre-Shock Scenario"), and under
four
other interest rate scenarios (each a "Rate Shock Scenario") represented
by
immediate, permanent, parallel shifts in the term structure of interest rates
from the actual term structure observed at March 31, 2007 and December 31,
2006.
The analysis additionally presents a measurement of the percentage by which
each
of the Rate Shock Scenario NPVs change from the Pre-Shock Scenario NPV at
March
31, 2007 and December 31, 2006. Interest rate sensitivity is measured by
the
changes in the various NPV ratios ("NPV Ratios") from the Pre-Shock Scenario
to
the Rate
Shock
Scenarios. An increase in the NPV Ratio is considered favorable, while a
decline
is considered unfavorable.
|
At
March 31, 2007
|
|
|
|
Net
Portfolio Value
|
|
Portfolio
Value of Assets
|
Portfolio
Value ofAssets
At
December 31, 2006
|
|
Dollar
Amount
|
Dollar
Change
|
Percentage
Change
|
|
NPV
Ratio
|
Sensitivity
Change
|
NPV
Ratio
|
Sensitivity
Change
|
Change
in Interest Rate
|
(Dollars
in Thousands)
|
|
|
|
|
|
|
+
200 Basis Points
|
$289,497
|
$(90,590)
|
-23.83%
|
|
9.10%
|
(245)
|
10.01%
|
(220)
|
+
100 Basis Points
|
336,607
|
-43,480
|
-11.44
|
|
10.41
|
(114)
|
11.22
|
(99)
|
Pre-Shock
Scenario
|
380,087
|
-
|
-
|
|
11.55
|
-
|
12.21
|
-
|
-
100 Basis Points
|
407,641
|
27,554
|
7.25
|
|
12.20
|
65
|
12.67
|
46
|
-
200 Basis Points
|
415,119
|
35,032
|
9.22
|
|
12.29
|
74
|
12.47
|
26
|
The
NPVs
presented above incorporate asset and liability values, some of which
(e.g.,
mortgage loans and time deposits) were derived from the Bank’s valuation model,
and others of which (e.g.,
MBS and
structured borrowings) were provided by reputable independent sources. The
Bank's valuation model for assets and liabilities incorporates, at each level
of
interest rate change, estimates of cash flows from non-contractual sources
such
as unscheduled principal payments on loans and passbook deposit balance decay.
The Bank's estimates for loan prepayment levels are influenced by the recent
history of prepayment activity in its loan portfolio as well as the
interest-rate composition of the existing portfolio, especially vis-à-vis the
current interest rate environment. In addition, the Bank considers the amount
of
prepayment fee protection inherent in the loan portfolio when estimating
future
prepayment cash flows. Regarding passbook deposit flows, the Bank tracks
and
analyzes the decay rate of its passbook deposits over time and over various
interest rate scenarios and then estimates its passbook decay rate for use
in
the valuation model. Regardless of the care and precision with which the
estimates are derived, however, actual cash flows for loans, as well as
passbooks, could differ significantly from the Bank's estimates resulting
in
significantly different NPV calculations.
The
Bank
also generates a series of spot discount rates that are integral to the
valuation of the projected monthly cash flows of its assets and liabilities.
The
Bank's valuation model employs discount rates that are representative of
prevailing market rates of interest, with appropriate adjustments suited
to the
heterogeneous characteristics of the Bank’s various asset and liability
portfolios.
The
Pre-Shock Scenario NPV declined from $386.2 million at December 31, 2006
to
$380.1 million at March 31, 2007. The NPV Ratio at March 31, 2007 was 11.55%
in
the Pre-Shock Scenario, a decrease from the NPV Ratio of 12.21% in that Scenario
at December 31, 2006. The decrease in the Pre-Shock NPV was due primarily
to a
reduction in the valuation of multifamily loans reflecting some assumption
modifications as the loans moved closer to their repricing date.
The
Bank’s +200 basis point Rate Shock Scenario NPV decreased from $306.5 million
at
December 31, 2006 to $289.1 million at March 31, 2007. This decrease resulted
primarily from the aforementioned decline in the value of multifamily loans
.
The
NPV
Ratio was 9.10% in the +200 basis point Rate Shock Scenario at March 31,
2007,
an decrease from the NPV Ratio of 10.01% in the +200 basis point Rate Shock
Scenario at December 31, 2006. The decrease in the Bank’s +200 basis point Rate
Shock Scenario NPV Ratio at March 31, 2007 compared to December 31, 2006
reflected the aforementioned decrease in the +200 basis point Rate Shock
Scenario NPV during the period.
At
March
31, 2007, the sensitivity change in the +200 basis point Rate Shock Scenario
was
245 basis points, compared to a sensitivity change of 220 basis points in
the
+200 basis point Rate Shock Scenario at December 31, 2006. The increase in
sensitivity was primarily due to the aforementioned decrease in the value
of
multifamily loans.
Management
of the Company, with the participation of its Chief Executive Officer and
Chief
Financial Officer, conducted an evaluation, as of March 31, 2007, of the
effectiveness of the Company's disclosure controls and procedures, as defined
in
Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act. Based upon this
evaluation, the Chief Executive Officer and Chief Financial Officer each
found
that the Company's disclosure controls and procedures were effective to ensure
that information required to be disclosed by the Company in the reports that
it
files or submits under the Exchange Act is recorded, processed, summarized
and
reported within the time periods specified in the Security and Exchange
Commission’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act, is accumulated and communicated to the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
Changes
in Internal Control Over Financial Reporting
There
was
no change in the Company's internal control over financial reporting that
occurred during the Company's last quarter that has materially affected,
or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Not
applicable.
In
the
ordinary course of business, the Company is routinely named as a defendant
in or
party to various pending or threatened legal actions or proceedings. Certain
of
these matters may seek substantial monetary damages. In the opinion of
management, the Company is involved in no actions or proceedings that will
have
a material adverse impact on its financial condition and results of
operations.
There
have been no material changes in the Company’s risk factors from those
previously disclosed in Part I, Item 1A of the Company’s Form 10-K for the year
ended December 31, 2006.
(c)
During the three months ended March 31, 2007, the Holding Company purchased
425,458 shares of its common stock into treasury. A summary of the shares
repurchased by month is as follows:
Period
|
Total
Number
of
Shares Purchased
|
|
Average
Price
Paid Per Share
|
|
Total
Number of Shares Purchased as Part of Publicly Announced
Programs
|
|
Maximum
Number of Shares that May Yet be Purchased Under the
Programs
|
January
2007
|
95,500
|
|
$13.70
|
|
95,500
|
|
1,591,110
|
February
2007
|
65,500
|
|
13.04
|
|
65,500
|
|
1,525,610
|
March
2007
|
264,458
|
|
12.87
|
|
264,458
|
|
1,261,152
|
All
repurchases in the above table were made under the Company's Eleventh Stock
Repurchase Program, which was approved by the Holding Company's Board of
Directors and publicly announced on December 15, 2005. The Eleventh Stock
Repurchase Program allows for the repurchase of up to 1,847,977 shares of
the
Holding Company's common stock, and has no expiration date. No existing
repurchase plans expired during the three months ended March 31, 2007, nor
did
the Company terminate any repurchase programs prior to expiration during
the
quarter.
None.
None.
None.
Exhibit
Number
3(i)
|
|
Amended
and Restated Certificate of Incorporation of Dime Community Bancshares,
Inc. (1)
|
3(ii)
|
|
Amended
and Restated Bylaws of Dime Community Bancshares, Inc.
(12)
|
4.1
|
|
Amended
and Restated Certificate of Incorporation of Dime Community Bancshares,
Inc. [See Exhibit 3(i) hereto]
|
4.2
|
|
Amended
and Restated Bylaws of Dime Community Bancshares, Inc. [See Exhibit
3(ii)
hereto]
|
4.3
|
|
Draft
Stock Certificate of Dime Community Bancshares, Inc.
(2)
|
4.4
|
|
Certificate
of Designations, Preferences and Rights of Series A Junior Participating
Preferred Stock (3)
|
4.5
|
|
Rights
Agreement, dated as of April 9, 1998, between Dime Community Bancorp,
Inc.
and ChaseMellon Shareholder
Services,
L.L.C., as Rights Agent (3)
|
4.6
|
|
Form
of Rights Certificate (3)
|
4.7
|
|
Second
Amended and Restated Declaration of Trust, dated as of July 29,
2004, by
and among Wilmington Trust
Company,
as Delaware Trustee, Wilmington Trust Company as Institutional
Trustee,
Dime Community Bancshares,
Inc.,
as Sponsor, the Administrators of Dime Community Capital Trust
I and the
holders from time to time of undivided
beneficial
interests in the assets of Dime Community Capital Trust I
(8)
|
4.8
|
|
Indenture,
dated as of March 19, 2004, between Dime Community Bancshares,
Inc. and
Wilmington Trust Company, as trustee
(8)
|
4.9
|
|
Series
B Guarantee Agreement, dated as of July 29, 2004, executed and
delivered
by Dime Community Bancshares, Inc.,
as Guarantor and Wilmington Trust
Company, as Guarantee Trustee, for the benefit of the holders from
time to
time
of the Series B Capital Securities of Dime Community Capital Trust
I
(8)
|
10.1
|
|
Amended
and Restated Employment Agreement between The Dime Savings Bank
of
Williamsburgh and Vincent F. Palagiano
(4)
|
10.2
|
|
Amended
and Restated Employment Agreement between The Dime Savings Bank
of
Williamsburgh and Michael P. Devine
(4)
|
10.3
|
|
Amended
and Restated Employment Agreement between The Dime Savings Bank
of
Williamsburgh and Kenneth
J. Mahon (4)
|
10.4
|
|
Employment
Agreement between Dime Community Bancorp, Inc. and Vincent F. Palagiano
(9)
|
10.5
|
|
Employment
Agreement between Dime Community Bancorp, Inc. and Michael P. Devine
(9)
|
10.6
|
|
Employment
Agreement between Dime Community Bancorp, Inc. and Kenneth J. Mahon
(9)
|
10.7
|
|
Form
of Employee Retention Agreement by and among The Dime Savings Bank
of
Williamsburgh, Dime Community Bancorp,
Inc. and certain officers (4)
|
10.8
|
|
The
Benefit Maintenance Plan of Dime Community Bancorp, Inc.
(5)
|
10.9
|
|
Severance
Pay Plan of The Dime Savings Bank of Williamsburgh (4)
|
10.10
|
|
Retirement
Plan for Board Members of Dime Community Bancorp, Inc.
(5)
|
10.11
|
|
Dime
Community Bancorp, Inc. 1996 Stock Option Plan for Outside Directors,
Officers and Employees, as amended by
amendments number 1 and 2 (5)
|
10.12
|
|
Recognition
and Retention Plan for Outside Directors, Officers and Employees
of Dime
Community Bancorp, Inc., as amended
by amendments number 1 and 2 (5)
|
10.13
|
|
Form
of stock option agreement for Outside Directors under Dime Community
Bancshares, Inc. 1996 and 2001 Stock
Option Plans for Outside Directors, Officers and Employees and
the 2004
Stock Incentive Plan. (5)
|
10.14
|
|
Form
of stock option agreement for officers and employees under Dime
Community
Bancshares, Inc. 1996 and 2001 Stock
Option Plans for Outside Directors, Officers and Employees and
the 2004
Stock Incentive Plan (5)
|
10.15
|
|
Form
of award notice for outside directors under the Recognition and
Retention
Plan for Outside Directors, Officers and
Employees of Dime Community
Bancorp,
Inc. (5)
|
10.16
|
|
Form
of award notice for officers and employees under the Recognition
and
Retention Plan for Outside Directors, Officers
and Employees of Dime Community Bancorp, Inc. (5)
|
10.17
|
|
Financial
Federal Savings Bank Incentive Savings Plan in RSI Retirement Trust
(6)
|
10.18
|
|
Financial
Federal Savings Bank Employee Stock Ownership Plan (6)
|
10.19
|
|
Option
Conversion Certificates between Dime Community Bancshares, Inc.
and each
of Messrs. Russo, Segrete, Calamari,
Latawiec, O'Gorman, and Ms. Swaya pursuant to Section 1.6(b) of
the
Agreement and Plan of Merger, dated
as of July 18, 1998 by and between Dime Community Bancshares, Inc.
and
Financial
Bancorp,
Inc. (6)
|
10.20
|
|
Dime
Community Bancshares, Inc. 2001 Stock Option Plan for Outside Directors,
Officers and Employees (7)
|
10.21
|
|
Dime
Community Bancshares, Inc. 2004 Stock Incentive Plan for Outside
Directors, Officers and Employees (10)
|
10.22
|
|
Waiver
executed by Vincent F. Palagiano (12)
|
10.23
|
|
Waiver
executed by Michael P. Devine (12)
|
10.24
|
|
Waiver
executed by Kenneth J. Mahon (12)
|
10.25
|
|
Form
of restricted stock award notice for officers and employees under
the 2004
Stock Incentive Plan (11)
|
10.26
|
|
Employee
Retention Agreement between The Dime Savings Bank of Williamsburgh
and
Christopher D. Maher (13)
|
|
|
Table
continued on next page
|
31(i).1
|
|
Certification
of Chief Executive Officer Pursuant to 17 CFR
240.13a-14(a)
|
31(i).2
|
|
Certification
of Chief Financial Officer Pursuant to 17 CFR
240.13a-14(a)
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350
|
32.2
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350
|
(1) Incorporated
by reference to the registrant's Transition Report on Form 10-K for the
transition period ended December 31, 2002 filed on March 28, 2003.
(2) Incorporated
by reference to the registrant's Annual Report on Form 10-K for the fiscal
year
ended June 30, 1998 filed on September 28, 1998.
(3) Incorporated
by reference to the registrant's Current Report on Form 8-K dated April 9,
1998
and filed on April 16, 1998.
(4) Incorporated
by reference to Exhibits to the registrant's Annual Report on Form 10-K for
the
fiscal year ended June 30, 1997 filed on September 26, 1997.
(5) Incorporated
by reference to the registrant's Annual Report on Form 10-K for the fiscal
year
ended June 30, 1997 filed on September 26, 1997, and the Current Reports
on Form
8-K filed on March 22, 2004 and March 29, 2005.
(6) Incorporated
by reference to the registrant's Annual Report on Form 10-K for the fiscal
year
ended June 30, 2000 filed on September 28, 2000.
(7) Incorporated
by reference to the registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003 filed on November 14, 2003.
(8) Incorporated
by reference to Exhibits to the registrant’s Registration Statement No.
333-117743 on Form S-4 filed on July 29, 2004.
(9) Incorporated
by reference to the registrant's Annual Report on Form 10-K for the fiscal
year
ended December 31, 2003 filed on March 15, 2004.
(10) Incorporated
by reference to the registrant's Annual Report on Form 10-K for the fiscal
year
ended December 31, 2004 filed on March 16, 2005.
(11) Incorporated
by reference to the registrant's Current Report on Form 8-K filed on March
22,
2005.
(12) Incorporated
by reference to the registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2005 filed on May 10, 2005.
(13) Incorporated
by reference to the registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2006 filed on November 9, 2006.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Dime
Community Bancshares, Inc.
|
Dated:
May 10, 2007
|
|
By:
/s/ VINCENT F. PALAGIANO
|
|
|
Vincent
F. Palagiano
|
|
|
Chairman
of the Board and Chief Executive
Officer
|
Dated:
May 10, 2007
|
|
By:
/s/ KENNETH J. MAHON
|
|
|
Kenneth
J. Mahon
|
|
|
Executive
Vice President and Chief Financial Officer (Principal Accounting
Officer)
|