UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[x] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended June 30, 2007
OR
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the
transition period
from to
Commission
file number 0-27782
Dime
Community Bancshares, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
(State
or other jurisdiction of incorporation or organization)
|
|
11-3297463
(I.R.S.
employer identification number)
|
209
Havemeyer Street, Brooklyn, NY
(Address
of principal executive offices)
|
|
11211
(Zip
Code)
|
(718)
782-6200
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all the reports required
to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES
X NO
___
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.
LARGE
ACCELERATED
FILER
ACCELERATED FILER
X NON-ACCELERATED
FILER ___
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES NO X
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Classes
of Common Stock
|
|
Number
of Shares Outstanding at August 8, 2007
|
$.01
Par Value
|
|
34,663,490
|
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
Page
|
Item
1.
|
|
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
7-14
|
Item
2.
|
|
15-33
|
Item
3.
|
|
33-34
|
Item
4.
|
|
34-35
|
|
|
|
|
PART
II - OTHER INFORMATION
|
|
Item
1.
|
|
35
|
Item
1A.
|
|
35
|
Item
2.
|
|
35
|
Item
3.
|
|
35
|
Item
4.
|
|
36
|
Item
5.
|
|
36
|
Item
6.
|
|
37-38
|
|
|
39
|
This
Quarterly Report on Form 10-Q contains a number of forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended
and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). These statements may be identified by use of words such as
"anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"outlook," "plan," "potential," "predict," "project," "should," "will," "would"
and similar terms and phrases, including references to assumptions.
Forward-looking
statements are based upon various assumptions and analyses made by Dime
Community Bancshares, Inc. (the "Holding Company," and together with its
direct
and indirect subsidiaries, the "Company") in light of management's experience
and its perception of historical trends, current conditions and expected
future
developments, as well as other factors it believes are appropriate under
the
circumstances. These statements are not guarantees of future performance
and are
subject to risks, uncertainties and other factors (many of which are beyond
the
Company's control) that could cause actual results to differ materially from
future results expressed or implied by such forward-looking statements. These
factors include, without limitation, the following:
·
|
the
timing and occurrence or non-occurrence of events may be subject
to
circumstances beyond the Company’s
control;
|
·
|
there
may be increases in competitive pressure among financial institutions
or
from non-financial institutions;
|
·
|
changes
in the interest rate environment may reduce interest
margins;
|
·
|
changes
in deposit flows, loan demand or real estate values may adversely
affect
the business of The Dime Savings Bank of Williamsburgh (the
"Bank");
|
·
|
changes
in accounting principles, policies or guidelines may cause the
Company’s
financial condition to be perceived
differently;
|
·
|
changes
in corporate and/or individual income tax laws may adversely affect
the
Company's financial condition or results of
operations;
|
·
|
general
economic conditions, either nationally or locally in some or all
areas in
which the Bank conducts business, or conditions in the securities
markets
or banking industry, may be less favorable than the Company currently
anticipates;
|
·
|
legislation
or regulatory changes may adversely affect the Company’s
business;
|
·
|
technological
changes may be more difficult or expensive than the
Company anticipates;
|
·
|
success
or consummation of new business initiatives may be more difficult
or
expensive than the Company anticipates;
or
|
·
|
litigation
or other matters before regulatory agencies, whether currently
existing or
commencing in the future, may delay the occurrence or non-occurrence
of
events longer than the Company
anticipates.
|
The
Company has no obligation to update forward-looking statements to reflect
events
or circumstances after the date of this document.
UNAUDITED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars
in thousands except share amounts)
|
June
30,
2007
|
December
31, 2006
|
ASSETS:
|
|
|
Cash
and due from banks
|
$52,605
|
$26,264
|
Federal
funds sold and short-term investments ($11,408 encumbered at June
30,
2007)
|
94,649
|
78,752
|
Encumbered
investment securities held-to-maturity (estimated fair value of
$160 and
$235 at June 30, 2007 and December 31, 2006, respectively)
|
160
|
235
|
Unencumbered
Investment securities available-for-sale, at fair value
|
25,573
|
29,548
|
Mortgage-backed
securities available-for-sale, at fair value:
|
|
|
Encumbered
|
135,611
|
147,765
|
Unencumbered
|
1750
|
6,672
|
|
137,361
|
154,437
|
Loans:
|
|
|
Real
estate, net
|
2,757,628
|
2,700,268
|
Other
loans
|
2,620
|
2,205
|
Less
allowance for loan losses
|
(15,405)
|
(15,514)
|
Total
loans, net
|
2,744,843
|
2,686,959
|
Loans
held for sale
|
250
|
1,200
|
Premises
and fixed assets, net
|
23,471
|
22,886
|
Federal
Home Loan Bank of New York capital stock
|
26,429
|
31,295
|
Goodwill
|
55,638
|
55,638
|
Other
assets
|
89,393
|
86,163
|
Total
Assets
|
$3,250,372
|
$3,173,377
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
Liabilities:
|
|
|
Due
to depositors:
|
|
|
Interest
bearing deposits
|
$2,099,003
|
$1,913,317
|
Non-interest
bearing deposits
|
96,733
|
95,215
|
Total
deposits
|
2,195,736
|
2,008,532
|
Escrow
and other deposits
|
56,653
|
46,373
|
Securities
sold under agreements to repurchase
|
120,160
|
120,235
|
Federal
Home Loan Bank of New York advances
|
461,500
|
571,500
|
Subordinated
notes payable
|
25,000
|
25,000
|
Trust
Preferred securities payable
|
72,165
|
72,165
|
Other
liabilities
|
43,961
|
38,941
|
Total
Liabilities
|
2,975,175
|
2,882,746
|
Commitments
and Contingencies
|
|
|
Stockholders'
Equity:
|
|
|
Preferred
stock ($0.01 par, 9,000,000 shares authorized, none issued or outstanding
at June 30, 2007 and December 31, 2006)
|
-
|
-
|
Common
stock ($0.01 par, 125,000,000 shares authorized, 50,897,016 shares
and
50,862,867 shares issued at June 30, 2007 and December 31, 2006,
respectively, and 35,257,519 shares and 36,456,354 shares outstanding
at
June 30, 2007 and December 31, 2006, respectively)
|
509
|
509
|
Additional
paid-in capital
|
207,355
|
206,601
|
Retained
earnings
|
285,458
|
285,420
|
Accumulated
other comprehensive loss, net of deferred taxes
|
(7,054)
|
(7,100)
|
Unallocated
common stock of Employee Stock Ownership Plan ("ESOP")
|
(4,280)
|
(4,395)
|
Unearned
and unallocated common stock of Recognition and Retention Plan
("RRP") and
Restricted Stock Awards
|
(3,458)
|
(3,452)
|
Common
stock held by Benefit Maintenance Plan ("BMP")
|
(7,941)
|
(7,941)
|
Treasury
stock, at cost (15,639,497 shares and 14,406,513 shares at June
30, 2007
and December 31, 2006, respectively)
|
(195,392)
|
(179,011)
|
Total
Stockholders' Equity
|
275,197
|
290,631
|
Total
Liabilities And Stockholders' Equity
|
$3,250,372
|
$3,173,377
|
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars
in thousands except per share amounts)
|
Three
Months Ended June
30,
|
|
Six
Months Ended June
30,
|
|
2007
|
2006
|
|
2007
|
2006
|
Interest
income:
|
|
|
|
|
|
Loans
secured by real estate
|
$40,697
|
$39,844
|
|
$80,947
|
$77,683
|
Other
loans
|
42
|
45
|
|
87
|
94
|
Mortgage-backed
securities
|
1,435
|
1,753
|
|
2,947
|
3,598
|
Investment
securities
|
377
|
469
|
|
819
|
951
|
Federal
funds sold and short-term investments
|
2,793
|
1,522
|
|
5,262
|
2,678
|
Total
interest income
|
45,344
|
43,633
|
|
90,062
|
85,004
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
Deposits
and escrow
|
19,576
|
13,554
|
|
37,737
|
25,050
|
Borrowed
funds
|
8,099
|
9,228
|
|
16,770
|
18,662
|
Total
interest expense
|
27,675
|
22,782
|
|
54,507
|
43,712
|
Net
interest income
|
17,669
|
20,851
|
|
35,555
|
41,292
|
Provision
for loan losses
|
60
|
60
|
|
120
|
120
|
Net
interest income after provision for loan losses
|
17,609
|
20,791
|
|
35,435
|
41,172
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
Service
charges and other fees
|
1,282
|
1,457
|
|
2,637
|
2,954
|
Net
gain on sales of loans
|
223
|
253
|
|
467
|
652
|
Net
gain on sales and redemptions of securities
|
-
|
1,064
|
|
-
|
1,542
|
Income
from bank owned life insurance
|
491
|
466
|
|
976
|
930
|
Other
|
391
|
453
|
|
797
|
775
|
Total
non-interest income
|
2,387
|
3,693
|
|
4,877
|
6,853
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
Salaries
and employee benefits
|
5,472
|
5,227
|
|
11,389
|
10,510
|
Stock
benefit plan amortization expense
|
726
|
577
|
|
1,259
|
1,162
|
Occupancy
and equipment
|
1,512
|
1,379
|
|
3,007
|
2,791
|
Federal
deposit insurance premiums
|
63
|
63
|
|
125
|
132
|
Data
processing costs
|
853
|
831
|
|
1,678
|
1,574
|
Other
|
2,573
|
2,451
|
|
4,989
|
4,807
|
Total
non-interest expense
|
11,199
|
10,528
|
|
22,447
|
20,976
|
|
|
|
|
|
|
Income
before income taxes
|
8,797
|
13,956
|
|
17,865
|
27,049
|
Income
tax expense
|
3,152
|
4,896
|
|
6,403
|
9,581
|
Net
income
|
$5,645
|
$9,060
|
|
$11,462
|
$17,468
|
|
|
|
|
|
|
Earnings
per Share:
|
|
|
|
|
|
Basic
|
$0.17
|
$0.26
|
|
$0.33
|
$0.50
|
Diluted
|
$0.17
|
$0.26
|
|
$0.33
|
$0.50
|
UNAUDITED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND
COMPREHENSIVE INCOME
(Dollars
in thousands)
|
Six
Months Ended June 30,
|
|
2007
|
2006
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
|
Common
Stock (Par Value $0.01):
|
|
|
Balance
at beginning of period
|
$509
|
$506
|
Shares
issued in exercise of options
|
-
|
2
|
Balance
at end of period
|
509
|
508
|
Additional
Paid-in Capital:
|
|
|
Balance
at beginning of period
|
206,601
|
204,083
|
Stock
options exercised
|
15
|
623
|
Tax
benefit (expense) of benefit plans
|
154
|
(244)
|
Release
from treasury stock for restricted stock award shares
|
15
|
107
|
Amortization
of excess fair value over cost – ESOP stock
|
570
|
444
|
Balance
at end of period
|
207,355
|
205,013
|
Retained
Earnings:
|
|
|
Balance
at beginning of period
|
285,420
|
274,579
|
Net
income for the period
|
11,462
|
17,468
|
Cash
dividends declared and paid
|
(9,720)
|
(9,915)
|
Cumulative
effect adjustment for the adoption of FASB Interpretation
No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN
48")
|
(1,704)
|
-
|
Balance
at end of period
|
285,458
|
282,132
|
Accumulated
Other Comprehensive Loss:
|
|
|
Balance
at beginning of period
|
(7,100)
|
(3,328)
|
Change
in other comprehensive (loss) income during the period, net of
deferred
taxes
|
46
|
(1,692)
|
Balance
at end of period
|
(7,054)
|
(5,020)
|
ESOP:
|
|
|
Balance
at beginning of period
|
(4,395)
|
(4,627)
|
Amortization
of earned portion of ESOP stock
|
115
|
116
|
Balance
at end of period
|
(4,280)
|
(4,511)
|
RRP
and Restricted Stock Awards:
|
|
|
Balance
at beginning of period
|
(3,452)
|
(2,979)
|
Release
from treasury stock for restricted stock award shares and RRP shares
acquired
|
(165)
|
(770)
|
Amortization
of earned portion of RRP and restricted stock awards
|
159
|
166
|
Balance
at end of period
|
(3,458)
|
(3,583)
|
Treasury
Stock:
|
|
|
Balance
at beginning of period
|
(179,011)
|
(168,579)
|
Release
from treasury stock for restricted stock award shares
|
150
|
592
|
Purchase
of treasury shares, at cost
|
(16,531)
|
(5,522)
|
Balance
at end of period
|
(195,392)
|
(173,509)
|
Common
Stock Held by BMP
|
|
|
Balance
at beginning and end of period
|
(7,941)
|
(7,941)
|
Total
Stockholders Equity
|
$275,197
|
$293,089
|
|
For
the Three Months
Ended
June 30,
|
|
For
the Six Months
Ended
June 30,
|
|
2007
|
2006
|
|
2007
|
2006
|
Net
Income
|
$5,645
|
$9,060
|
|
$11,462
|
$17,468
|
Reclassification
adjustment for securities sold, net of (expense) benefit of $(489)
during
both the three months and six months ended June 30, 2006
|
-
|
(575)
|
|
-
|
(575)
|
Net
unrealized securities (losses) gains arising during the period,
net of
(taxes) benefit of $451 and $356 during the three months ended
June 30,
2007 and 2006, respectively, and $(39) and $952 during the six
months
ended June 30, 2007 and 2006, respectively
|
(529)
|
(418)
|
|
46
|
(1,117)
|
Comprehensive
Income
|
$5,116
|
$8,067
|
|
$11,508
|
$15,776
|
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars
In thousands)
|
Six
Months Ended
June
30,
|
|
|
2007
|
2006
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Net
Income
|
$11,462
|
$17,468
|
Adjustments
to reconcile net income to net cash provided by (used in)
operating activities:
|
|
|
Net
gain on the sale of investment securities and other assets
|
-
|
(1,542)
|
Net
gain on sale of loans held for sale
|
(467)
|
(652)
|
Net
depreciation and amortization
|
810
|
831
|
ESOP
compensation expense
|
104
|
561
|
Stock
plan compensation (excluding ESOP)
|
740
|
165
|
Provision
for loan losses
|
120
|
120
|
Increase
in cash surrender value of Bank Owned Life Insurance
|
(976)
|
(930)
|
Deferred
income tax credit
|
(399)
|
(220)
|
Excess
tax benefits of stock plans
|
(153)
|
(71)
|
Changes
in assets and liabilities:
|
|
|
Origination
of loans held for sale
|
(35,611)
|
(46,501)
|
Proceeds
from sale of loans held for sale
|
37,028
|
48,053
|
(Decrease)
Increase in other assets
|
(1,741)
|
1,721
|
Increase
in other liabilities
|
3,316
|
1,853
|
Net
cash provided by operating activities
|
14,233
|
20,856
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
Net
increase in federal funds sold and other short term
investments
|
(15,897)
|
(3,019)
|
Proceeds
from maturities of investment securities held to maturity
|
75
|
75
|
Proceeds
from maturities of investment securities
available-for-sale
|
1,000
|
14,575
|
Proceeds
from sales and calls of investment securities
available-for-sale
|
4,493
|
3,032
|
Purchases
of investment securities available-for-sale
|
(1,215)
|
(4,029)
|
Principal
collected on mortgage backed securities available-for-sale
|
16,824
|
20,873
|
Net
increase in loans
|
(58,004)
|
(49,119)
|
Proceeds
from the sale of investment property
|
-
|
908
|
Purchases
of fixed assets, net
|
(1,360)
|
(1,998)
|
Redemption
(Purchase) of Federal Home Loan Bank of New York capital
stock
|
4,866
|
(2,503)
|
Net
cash used in investing activities
|
(49,218)
|
(21,205)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
Net
increase in due to depositors
|
187,204
|
15,726
|
Net
increase (decrease) in escrow and other deposits
|
10,280
|
(1,183)
|
Decrease
in securities sold under agreements to repurchase
|
(75)
|
(85,075)
|
(Decrease)
Increase in FHLBNY advances
|
(110,000)
|
65,000
|
Cash
dividends paid
|
(9,720)
|
(9,915)
|
Exercise
of stock options
|
15
|
381
|
Excess
tax benefit (expense) on stock plans
|
153
|
(71)
|
Purchase
of treasury stock
|
(16,531)
|
(5,522)
|
Net
cash provided by (used in) financing activities
|
61,326
|
(20,659)
|
INCREASE
(DECREASE) IN CASH AND DUE FROM BANKS
|
26,341
|
(21,008)
|
CASH
AND DUE FROM BANKS, BEGINNING OF PERIOD
|
26,264
|
40,199
|
CASH
AND DUE FROM BANKS, END OF PERIOD
|
$52,605
|
$19,191
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
Cash
paid for income taxes
|
$5,704
|
$7,812
|
Cash
paid for interest
|
54,799
|
44,127
|
(Decrease)
Increase in accumulated other comprehensive loss
|
46
|
(1,692)
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE
OF OPERATIONS
Dime
Community Bancshares, Inc. (The
"Holding Company," and together with its direct and indirect subsidiaries,
the
"Company") is a Delaware corporation and parent company of The Dime Savings
Bank
of Williamsburgh (the "Bank"), a federally-chartered stock savings
bank. The Holding Company's direct subsidiaries are the Bank, Dime
Community Capital Trust 1 and 842 Manhattan Avenue Corp. The Bank's
direct subsidiaries are Havemeyer Equities Corp. ("HEC"), Boulevard Funding
Corp., Havemeyer Investments, Inc., DSBW Residential Preferred Funding Corp.
and
Dime Reinvestment Corp. HEC has one direct subsidiary, DSBW Preferred
Funding Corporation.
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, as well as
mortgage-backed securities (“MBS”), obligations of the U.S. Government and
Government Sponsored Entities, and corporate debt and equity
securities.
2. SUMMARY
OF ACCOUNTING POLICIES
In
the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain
all
adjustments (consisting only of normal recurring adjustments) necessary for
a
fair presentation of the Company's financial condition as of June 30, 2007,
the
results of operations and statements of comprehensive income for the three-month
and six-month periods ended June 30, 2007 and 2006, and changes in stockholders'
equity and cash flows for the six month periods ended June 30, 2007 and
2006. The results of operations for the three-month and six-month
periods ended June 30, 2007 are not necessarily indicative of the results
of
operations for the remainder of the year ending December 31,
2007. Certain information and note disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") have been omitted pursuant
to
the rules and regulations of the Securities and Exchange Commission
("SEC").
Preparation
of the consolidated
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Areas in the accompanying financial statements where estimates are made include
the allowance for loan losses, the valuation of mortgage servicing rights
("MSR"), asset impairment adjustments, the valuation of debt and equity
securities, loan income recognition, and the realization of deferred tax
assets.
These
unaudited condensed consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements as of and for the year ended December 31, 2006 and notes
thereto.
3. TREASURY
STOCK
During
the six months ended June 30,
2007, the Holding Company repurchased 1,244,984 shares of its common stock
into
treasury. All shares repurchased were recorded at the acquisition
cost, which totaled $16.5 million during the period.
On
May 1,
2007, 12,000 shares of the Company's common stock were released from treasury
in
order to fulfill benefit obligations under the 2004 Stock Incentive
Plan. The closing price of the Company's common stock on that date
was $13.74. The shares were released utilizing the average historical
cost method.
On
June
21, 2007, the Holding Company announced its Twelfth Stock Repurchase Program,
which authorizes the purchase, at the discretion of management, of up to
1,787,665 shares of its common stock.
4. ACCOUNTING
FOR GOODWILL
The
Company has designated the last day of its fiscal year as its date for annual
impairment testing. The Company performed an impairment test as of
December 31, 2006 and concluded that no impairment of goodwill
existed. No events have 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 the
immediate performance of an impairment test in accordance with Statement
of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets."
5. EARNINGS
PER SHARE ("EPS")
EPS
is calculated and reported in
accordance with SFAS No. 128, "Earnings Per Share.'' SFAS No. 128
requires disclosure of basic EPS and diluted EPS for entities with complex
capital structures on the face of the income statement, along with a
reconciliation of the numerators and denominators of basic and diluted
EPS.
Basic
EPS is computed by dividing net
income by the weighted-average number of common shares outstanding during
the
period (weighted-average common shares are adjusted to exclude unvested RRP
shares and unallocated ESOP shares). Diluted EPS is computed using
the same method as basic EPS, however, the computation reflects the potential
dilution that would occur if unvested RRP shares or restricted stock awards
became vested and stock options were exercised and converted into common
stock.
The
following is a reconciliation of
the numerator and denominator of basic EPS and diluted EPS for the periods
presented:
|
|
Three
Months Ended June
30,
|
|
|
Six Months
Ended June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars
in Thousands)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income per the Consolidated Statements of Operations
|
|
$ |
5,645
|
|
|
$ |
9,060
|
|
|
$ |
11,462
|
|
|
$ |
17,468
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares outstanding utilized in the calculation of basic
EPS
|
|
|
34,974,871
|
|
|
|
34,959,297
|
|
|
|
34,222,639
|
|
|
|
35,015,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
shares of RRP or Restricted Stock Awards
|
|
|
66,156
|
|
|
|
78,184
|
|
|
|
67,034
|
|
|
|
78,244
|
|
Common
stock equivalents resulting from the dilutive effect of "in-the-money"
stock options
|
|
|
108,758
|
|
|
|
244,879
|
|
|
|
111,216
|
|
|
|
290,988
|
|
Anti-dilutive
effect of tax benefits associated with "in-the-money" stock
options
|
|
|
(25,898 |
) |
|
|
(79,548 |
) |
|
|
(27,369 |
) |
|
|
(96,846 |
) |
Weighted
average number of shares outstanding utilized in the calculation
of
diluted EPS
|
|
|
34,123,887
|
|
|
|
35,202,812
|
|
|
|
34,373,520
|
|
|
|
35,287,490
|
|
Common
stock equivalents resulting from the dilutive effect of "in-the-money" stock
options are calculated based upon the excess of the average market value
of the
Company's common stock over the exercise price of outstanding
options.
There
were 2,056,740 weighted-average stock options for both the three-month and
six-month periods ended June 30, 2007 that were not considered in the
calculation of diluted EPS since their exercise prices exceeded the average
market price during the period. There were 1,078,238 weighted-average
stock options for both the three-month and six-month periods ended June 30,
2006
that were not considered in the calculation of diluted EPS since their exercise
prices exceeded the average market price during the period.
6. ACCOUNTING
FOR STOCK BASED COMPENSATION
During
both the three-month and
six-month periods ended June 30, 2007, the Holding Company and Bank maintained
the Dime Community Bancshares, Inc. 1996 Stock Option Plan for Outside
Directors, Officers and Employees, the Dime Community Bancshares, Inc. 2001
Stock Option Plan for Outside Directors, Officers and Employees and the 2004
Stock Incentive Plan, (collectively the "Stock Plans"), as well as the RRP,
which are discussed more fully in Note 15 to the Company's consolidated audited
financial statements for the year ended December 31, 2006, and which are
subject
to the accounting requirements of SFAS No. 123 (revised 2004), "Share-Based
Payment," ("SFAS 123R"). SFAS 123R requires that share based payments
be accounted for using a fair value based method and the recording of
compensation expense in lieu of optional pro forma disclosure. The
Company adopted SFAS 123R on January 1, 2006.
During
the three-month and six-month
periods ended June 30, 2007, the 1996 Stock Option Plan for Outside Directors,
Officers and Employees was deemed inactive.
Stock
Option Awards
Expense
related to stock option grants
was $165,000 during both the three-month and six-month periods ended June
30,
2007. There was no expense recorded related to stock options during
the three-month and six-month periods ended June 30, 2006.
Combined
activity related to stock
options granted under the Stock Plans during the periods presented was as
follows:
|
At
or for the Three Months
Ended
June 30,
|
|
At
or for the Six Months
Ended
June 30,
|
|
2007
|
2006
|
|
2007
|
2006
|
|
(Dollars
in Thousands, Except Per Share Amounts)
|
Options
outstanding – beginning of period
|
2,205,594
|
2,349,833
|
|
2,250,747
|
2,503,103
|
Options
granted
|
996,500
|
-
|
|
996,500
|
-
|
Weighted
average exercise price of grants
|
$13.74
|
-
|
|
$13.74
|
-
|
Options
exercised
|
2,125
|
38,500
|
|
47,278
|
191,770
|
Weighted
average exercise price of exercised options
|
$12.10
|
$4.52
|
|
$4.17
|
$4.61
|
Options
forfeited
|
18,561
|
5,625
|
|
18,561
|
5,625
|
Weighted
average exercise price of forfeited options
|
$19.49
|
$19.90
|
|
$19.49
|
$19.90
|
Options
outstanding - end of period
|
3,181,408
|
2,305,708
|
|
3,181,408
|
2,305,708
|
Weighted
average exercise price of outstanding options - end of
period
|
$14.63
|
$14.62
|
|
$14.63
|
$14.62
|
Remaining
options available for grant
|
112,826
|
1,127,278
|
|
112,826
|
1,127,278
|
Exercisable
options at end of period
|
2,184,908
|
2,305,708
|
|
2,184,908
|
2,305,708
|
Weighted
average exercise price of exercisable options - end of
period
|
$15.04
|
$14.62
|
|
$15.04
|
$14.62
|
Cash
received for option exercise cost
|
$26
|
$174
|
|
$123
|
$801
|
Income
tax benefit recognized
|
52
|
-
|
|
52
|
-
|
Remaining
unrecognized compensation expense
|
$3,011
|
$-
|
|
$3,011
|
$-
|
Weighted
average remaining years for which compensation expense is to be
recognized
|
3.6
|
-
|
|
3.6
|
-
|
The
range
of exercise prices and weighted-average remaining contractual lives of both
options outstanding and options exercisable as of June 30, 2007 was as
follows:
|
Outstanding
Options as of June 30, 2007
|
|
Range
of Exercise Prices
|
Amount
|
Weighted
Average
Exercise
Price
|
Weighted
Average Contractual Years Remaining
|
Exercisable
Options
as of
June
30, 2007
|
$4.51
- $5.00
|
14,087
|
4.56
|
2.6
|
14,087
|
$10.50
- $11.00
|
500,646
|
10.91
|
4.4
|
500,646
|
$13.00-$13.50
|
609,935
|
13.16
|
5.6
|
609,935
|
$13.50-$14.00
|
996,500
|
13.74
|
9.8
|
-
|
$15.00-$15.50
|
318,492
|
15.10
|
7.9
|
318,492
|
$16.00-$16.50
|
76,320
|
16.45
|
7.6
|
76,320
|
$19.50-$20.00
|
665,428
|
19.90
|
6.6
|
665,428
|
Total
|
3,181,408
|
$14.63
|
7.2
|
2,184,908
|
The
weighted average contractual years remaining for exercisable options was
6.0
years at June 30, 2007. There were no grants of stock options under
the Stock Plans during the three-month or six-month periods ended June 30,
2006. The weighted average fair value per option at the date of grant
for stock options granted during the three-month and six-month periods ended
June 30, 2007 was estimated as follows:
|
Three
and Six Months Ended June 30, 2007
|
Total
options granted
|
996,500
|
Estimated
fair value on date of grant
|
$3.06
|
Pricing
methodology utilized
|
Black-
Scholes
|
Expected
life (in years)
|
6.2
|
Interest
rate
|
4.56%
|
Volatility
|
28.39
|
Dividend
yield
|
4.08
|
Other
Stock Awards
RRP
- On May 17, 2002, 67,500 RRP shares were granted to certain officers of
the
Bank. These shares vested as follows: 20% on November 25,
2002, and 20% each on April 25, 2003, 2004, 2005 and 2006. The fair
value of the Holding Company's common stock on May 17, 2002 was
$16.19. The Company accounts for compensation expense under the RRP
in accordance with SFAS 123R. During the six months ended June 30,
2007, the Company determined that the shares held by the RRP were no longer
eligible for grant, and is currently undergoing liquidation of all of the
assets
of the RRP.
The
following is a summary of activity related to the RRP awards during the
three-month and six-month periods ended June 30, 2007 and 2006:
|
At
or for the Three Months Ended June 30,
|
|
At
or for the Six Months Ended June 30,
|
|
2007
|
2006
|
|
2007
|
2006
|
|
(Dollars
in Thousands)
|
Shares
acquired
|
-
|
5,023
|
|
-
|
5,023
|
Shares
vested
|
-
|
13,500
|
|
-
|
13,500
|
Shares
allocated
|
-
|
-
|
|
-
|
-
|
Unallocated
shares - end of period
|
303,137
|
303,137
|
|
303,137
|
303,137
|
Unvested
allocated shares – end of period
|
-
|
-
|
|
-
|
-
|
Compensation
recorded to expense
|
-
|
$18
|
|
-
|
$45
|
Income
tax benefit recognized
|
-
|
-
|
|
-
|
29
|
Restricted
Stock Awards – On March 17, 2005, a grant of 31,804 restricted stock awards
was made to certain officers of the Bank under the 2004 Stock Incentive
Plan. One-half of these awards vested to the respective recipients on
May 1, 2006 and 2007, respectively. The remaining one-half of these
awards vest in equal annual installments on May 1, 2008 and 2009,
respectively. The fair value of the Holding Company's common stock on
March 17, 2005 was $15.44. On January 3, 2006, a grant of 30,000
restricted stock awards was made to certain officers of the Bank under the
2004
Stock Incentive Plan. One-fifth of the awards vested to the
respective recipients on February 1, 2007. The remaining four-fifths
of the awards vest to the respective recipients in equal installments (as
adjusted for rounding) on February 1, 2008, 2009, 2010 and 2011,
respectively. The fair value of the Holding Company's common stock on
January 3, 2006 was $14.61 (the opening price on the grant date). On
March 16, 2006, a grant of 18,000 restricted stock awards was made to certain
officers of the Bank under the 2004 Stock Incentive Plan. One-fifth
of the awards vested to the respective recipients on May 1, 2007. The
remaining four-fifths of the awards vest to the respective recipients in
equal
installments (as adjusted for rounding) on May 1, 2008, 2009, 2010 and 2011,
respectively. The fair value of the Holding Company's common stock on
March 16, 2006 was $14.48. On May 1, 2007, a grant of 12,000
restricted stock awards was made to outside directors of the Bank under the
2004
Stock Incentive Plan. The awards fully vest to the respective
recipients on May 1, 2008. The fair value of the Holding Company's
common stock on May 1, 2007 was $13.74.
Compensation
expense related to restricted stock awards was accounted for in accordance
with
SFAS 123R during the three-month and six-month periods ended June 30, 2007
and
2006. The following is a summary of activity related to the
restricted stock awards granted under the 2004 Stock Incentive Plan during
the
three-month and six-month periods ended June 30, 2007 and 2006:
|
At
or for the Three Months Ended June 30,
|
|
At
or for the Six Months Ended June 30,
|
|
2007
|
2006
|
|
2007
|
2006
|
|
(Dollars
in Thousands)
|
Unvested
allocated shares – beginning of period
|
65,855
|
79,804
|
|
71,855
|
31,804
|
Shares
granted
|
12,000
|
-
|
|
12,000
|
48,000
|
Shares
vested
|
11,551
|
7,949
|
|
17,551
|
7,949
|
Unvested
allocated shares – end of period
|
66,304
|
71,855
|
|
66,304
|
71,855
|
Unallocated
shares - end of period
|
-
|
-
|
|
-
|
-
|
Compensation
recorded to expense
|
$93
|
$66
|
|
$159
|
$120
|
Income
tax benefit recognized
|
101
|
-
|
|
101
|
-
|
7. INVESTMENT
AND MORTGAGE-BACKED SECURITIES
The
following table summarizes the
gross unrealized losses and fair value of investment securities and MBS
available-for-sale as of June 30, 2007, aggregated by investment category
and
the length of time the securities were in a continuous unrealized loss
position:
|
Less
than 12
Months
Consecutive
Unrealized
Losses
|
12
Months or More of
Consecutive
Unrealized
Losses
|
Total
|
|
|
(Dollars
in thousands)
|
|
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Equity
securities
|
$4,421
|
$231
|
$4
|
$1
|
$4,425
|
$232
|
FNMA
pass-through certificates
|
-
|
-
|
8,443
|
395
|
8,443
|
395
|
Collateralized
Mortgage Obligations
|
-
|
-
|
127,445
|
5,388
|
127,445
|
5,388
|
|
$4,421
|
$231
|
$135,892
|
$5,784
|
$140,313
|
$6,015
|
Management
believes that all unrealized losses were temporary at June 30,
2007. In making this determination, management considered the
underlying nature, severity and duration of the loss as well as its intent
with
regard to these securities. At June 30, 2007, all of the FNMA pass through
certificates and collateralized mortgage obligations that possess unrealized
losses for 12 or more consecutive months hadthe highest possible credit
quality
rating. Since inception, all unrealized losses on these securities
have resulted solely from interest rate fluctuations.
The
aggregate
amount of held-to-maturity investment securities and MBS carried at historical
cost was $160,000 as of June 30, 2007. No individual held-to-maturity
security that was carried at historical cost possessed an unrealized loss
as of
June 30, 2007.
8. RETIREMENT
AND POSTRETIREMENT PLANS
The
Holding Company or the Bank maintain the Retirement Plan of The Dime Savings
Bank of Williamsburgh (the "Employee Retirement Plan"), the Retirement Plan
for
Board Members of Dime Community Bancshares, Inc. (the "Outside Director
Retirement Plan"), the BMP and the Postretirement Welfare Plan of The Dime
Savings Bank of Williamsburgh ("Postretirement Plan"). Net expenses
associated with the Employee and Outside Director Retirement Plans, the BMP
and
the Postretirement Plan were comprised of the following
components:
|
Three
Months Ended June 30, 2007
|
|
Three
Months Ended June 30, 2006
|
|
BMP,
Employee
and Outside Director
Retirement
Plans
|
Postretirement
Plan
|
|
BMP,
Employee
and Outside Director
Retirement
Plans
|
Postretirement
Plan
|
|
(Dollars
in thousands)
|
Service
cost
|
$-
|
$21
|
|
$-
|
$16
|
Interest
cost
|
339
|
61
|
|
327
|
57
|
Expected
return on assets
|
(450)
|
-
|
|
(438)
|
-
|
Unrecognized
past service liability
|
-
|
(7)
|
|
-
|
(7)
|
Amortization
of unrealized loss
|
118
|
7
|
|
155
|
10
|
Net
expense
|
$7
|
$82
|
|
$44
|
$76
|
|
Six
Months Ended June 30, 2007
|
|
Six
Months Ended June 30, 2006
|
|
BMP,
Employee
and Outside Director
Retirement
Plans
|
Postretirement
Plan
|
|
BMP,
Employee
and Outside Director
Retirement
Plans
|
Postretirement
Plan
|
|
(Dollars
in thousands)
|
Service
cost
|
$-
|
$42
|
|
$-
|
$46
|
Interest
cost
|
678
|
122
|
|
654
|
114
|
Expected
return on assets
|
(900)
|
-
|
|
(876)
|
-
|
Unrecognized
past service liability
|
-
|
(14)
|
|
-
|
(14)
|
Amortization
of unrealized loss
|
236
|
14
|
|
310
|
20
|
Net
expense
|
$14
|
$164
|
|
$88
|
$166
|
The
Company previously disclosed in its
consolidated financial statements for the year ended December 31, 2006 that
it
expects to make contributions or benefit payments totaling $186,000 to the
BMP,
$131,000 to the Outside Director Retirement Plan, and $159,000 to the
Postretirement Plan, and no contributions to the Employee Retirement Plan,
during the year ending December 31, 2007. The Company made benefit
payments of $64,200 to the Outside Director Retirement Plan during the
six-months ended June 30, 2007, and expects to make an additional $64,200
of
contributions or benefit payments during the remainder of 2007. The
Company made contributions totaling $75,000 to the Postretirement Plan during
the six-months ended June 30, 2007, and expects to make an additional estimated
$84,000 of contributions or benefit payments during the remainder of
2007. The Company made no contributions or benefit payments to the
BMP during the six months ended June 30, 2007, and does not expect to make
any
benefit payments or contributions to the BMP during the remainder of 2007,
since
anticipated retirements that formed the basis for the expected benefit payments
in 2007 are not expected to occur.
The
Company adopted FIN 48 on January
1, 2007. FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in financial statements prepared in accordance with SFAS
109,
"Accounting for Income Taxes." FIN 48 prescribes a recognition threshold
and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. Pursuant
to FIN 48, a tax position adopted is subjected to two levels of
evaluation. Initially, a determination is made as to whether it is
more likely than not that a tax position will be sustained upon examination,
including resolution of any related appeals or litigation processes, based
on
the technical merits of the position. In conducting this evaluation, management
should presume that the position will be examined by the appropriate taxing
authority possessing full knowledge of all relevant information. The second
level of evaluation is the measurement of a tax position that satisfies the
more-likely-than-not recognition threshold. This measurement is
performed in order to determine the amount of benefit to recognize in the
financial statements. The tax position is measured at the largest amount
of
benefit that is greater than 50 percent likely of being realized upon ultimate
settlement. FIN 48 further requires tabular disclosure of material
activity related to unrecognized tax benefits that do not satisfy the
recognition provisions established under FIN 48. The adoption of FIN
48 on January 1, 2007 resulted in an increase of $1.7 million in the liability
for unrecognized tax benefits, which was accounted for as a reduction of
the
Company's consolidated January 1, 2007 balance of retained
earnings.
The
following table reconciles the
Company's gross unrecognized tax benefits from January 1, 2007 through June
30,
2007:
|
|
(Dollars
in Thousands)
|
Gross
unrecognized tax benefits at January 1, 2007
|
|
$2,804
|
Lapse
of statute of limitations
|
|
(184)
|
Gross
increases – current period tax positions
|
|
125
|
Gross
decreases – tax positions in prior periods
|
|
(51)
|
Gross
unrecognized tax benefits at June 30, 2007
|
|
$2,694
|
If
realized, the net unrecognized tax
benefits as of June 30, 2007 would have reduced the Company's consolidated
income tax expense by $2.2 million, of which $1.8 million would favorably
impact
the Company's consolidated effective tax rate.
Taxes
and
penalties associated with unrecognized tax benefits approximated $542,000
and
$775,000 at January 1, 2007 and June 30, 2007, respectively. The
Company, consistent with its existing policy, recognizes both interest and
penalties on unrecognized tax benefits as part of income tax
expense.
All
entities for which unrecognized tax
benefits existed as of June 30, 2007 possess a June 30th tax
year-end. As a result, as of June 30, 2007, the tax years ended June
30, 2004 through June 30, 2007 remained subject to examination by all tax
jurisdictions. As of June 30, 2007, no audits were in process by a
tax jurisdiction that, if completed during the following twelve months, would
be
expected to result in a material change to the Company's unrecognized tax
benefits. Additionally, as of June 30, 2007, no event occurred that
is likely to result in a significant increase or decrease in the unrecognized
tax benefits through December 31, 2007.
10. RECENT
ACCOUNTING PRONOUNCEMENTS
The
Company adopted FIN 48 on January 1, 2007. See Footnote 9 for a discussion of FIN 48.
In
February 2007, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 159, "The Fair
Value Option for Financial Assets and Financial Liabilities" ("SFAS
159"). SFAS 159 permits companies to choose to measure many financial
instruments and certain other items at fair value. SFAS 159 seeks to
improve the overall quality of financial reporting by providing companies
the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex
hedge
accounting provisions. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. Management is evaluating the
impact that SFAS 159 will have upon the Company's financial condition and
results of operations.
In
September 2006, the FASB issued SFAS
No. 157, "Fair Value Measurements" ("SFAS 157"), which defined fair value,
established a framework for measuring fair value under GAAP, and expanded
disclosures about fair value measurements. Other current accounting
pronouncements that require or permit fair value measurements will require
application of SFAS 157. SFAS 157 does not require any new fair value
measurements, however, changes the definition of, and methods used to measure,
fair value. SFAS 157 emphasizes fair value as a market-based, not
entity-specific, measurement. Under SFAS 157, a fair value measurement should
be
determined based on the assumptions that market participants would use in
pricing the asset or liability. SFAS 157 further establishes a fair
value hierarchy that distinguishes between (i) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs), and (ii) the reporting entity’s own
assumptions about market participant assumptions developed based on the best
information available in the circumstances. SFAS 157 also expands disclosures
about the use of fair value to measure assets and liabilities in interim
and
annual periods subsequent to initial recognition. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007,
and interim periods within those fiscal years. Management is
evaluating the impact that SFAS 157 will have upon the Company's financial
condition and results of operations.
In
March
2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial
Assets" ("SFAS 156"). The Statement amends SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
with respect to accounting for separately recognized MSR. SFAS 156
requires all separately recognized MSR to be initially measured at fair value,
if practicable. SFAS 156 permits an entity to choose either of the
following subsequent measurement methods for each class of separately recognized
servicing assets and liabilities: (i) amortizing servicing assets or
liabilities in proportion to and over the period of estimated net servicing
income or net servicing loss; or (ii) reporting servicing assets or liabilities
at fair value at each reporting date and reporting changes in fair value
in
earnings in the period in which the changes occur. In the event that
the first method is selected, SFAS 156 requires an assessment of servicing
assets or liabilities for impairment or increased obligation based on fair
value
at each reporting date. SFAS 156 further requires additional
disclosures for all separately recognized MSR. SFAS 156 is effective
as of commencement of the first fiscal year that begins after September 15,
2006. Adoption of SFAS 156 did not have a material impact on the
Company’s consolidated financial condition or results of
operations.
In
February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments" ("SFAS 155"). SFAS 155 amends both SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," and
SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Among other matters, SFAS 155 resolves issues
addressed in SFAS 133 Implementation Issue No. D1, "Application of Statement
133
to Beneficial Interests in Securitized Financial Assets." SFAS 155 permits
fair
value re-measurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation, clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of SFAS No. 133, establishes a requirement to evaluate interests
in
securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation, clarifies that concentrations of credit
risk
in the form of subordination are not embedded derivatives, and amends SFAS
140
to eliminate the prohibition on a qualifying special purpose entity against
holding a derivative financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. SFAS 155 is
effective for all financial instruments acquired, issued, or subject to a
re-measurement event occurring during fiscal years commencing after September
15, 2006. Adoption of SFAS 155 did not have a material impact
on the Company’s consolidated financial condition or results of
operations.
In
September 2006, the Emerging Issues
Task Force reached a consensus on Issue 06-5, "Accounting for Purchases of
Life
Insurance-Determining the Amount That Could Be Realized in Accordance with
FASB
Technical Bulletin No. 85-4" ("EITF No. 06-5"). EITF No. 06-5 requires that
a
life insurance policyholder consider any additional amounts included in the
contractual terms of the purchased life insurance policy in determining the
amount that could be realized under the insurance contract on a policy by
policy
basis. EITF No. 06-5 is effective for fiscal years beginning after December
15,
2006 and requires that recognition of the effects of adoption should be by
a
change in accounting principle through either (i) a cumulative-effect adjustment
to retained earnings as of the beginning of the year of adoption, or (ii)
retrospective application to all prior periods. Adoption of EITF No.
06-5 did not have a material impact on the Company’s consolidated financial
condition or results of operations.
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. 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 the majority of 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-month and six-month periods ended June 30, 2007
versus
the comparable periods 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 periods.
Selected
Financial Highlights and Other Data
(Dollars
in Thousands Except Per Share Amounts)
|
For
the Three Months
|
For
the Six Months
|
|
Ended
June 30,
|
Ended
June 30,
|
|
2007
|
|
2006
|
2007
|
|
2006
|
Performance
and Other Selected Ratios:
|
|
|
|
|
|
|
Return
on Average Assets
|
0.69%
|
|
1.16%
|
0.71%
|
|
1.12%
|
Return
on Average Stockholders' Equity
|
8.06
|
|
12.37
|
8.09
|
|
11.96
|
Stockholders'
Equity to Total Assets
|
8.47
|
|
9.38
|
8.47
|
|
9.38
|
Tangible
Equity to Total Tangible Assets
|
7.06
|
|
7.87
|
7.06
|
|
7.87
|
Loans
to Deposits at End of Period
|
125.02
|
|
137.81
|
125.02
|
|
137.81
|
Loans
to Earning Assets at End of Period
|
90.16
|
|
89.74
|
90.16
|
|
89.74
|
Net
Interest Spread
|
1.81
|
|
2.36
|
1.83
|
|
2.36
|
Net
Interest Margin
|
2.27
|
|
2.79
|
2.30
|
|
2.77
|
Average
Interest Earning Assets to Average Interest Bearing
Liabilities
|
112.58
|
|
113.86
|
112.27
|
|
113.30
|
Non-Interest
Expense to Average Assets
|
1.37
|
|
1.34
|
1.39
|
|
1.34
|
Efficiency
Ratio
|
56.47
|
|
45.33
|
56.17
|
|
45.65
|
Effective
Tax Rate
|
35.83
|
|
35.08
|
35.84
|
|
35.42
|
Dividend
Payout Ratio
|
82.35
|
|
53.85
|
84.85
|
|
56.00
|
Average
Tangible Equity
|
$231,127
|
|
$241,554
|
$234,265
|
|
$240,182
|
Per
Share Data:
|
|
|
|
|
|
|
Reported
EPS (Diluted)
|
$0.17
|
|
$0.26
|
$0.33
|
|
$0.50
|
Cash
Dividends Paid Per Share
|
0.14
|
|
0.14
|
0.28
|
|
0.28
|
Stated
Book Value
|
7.81
|
|
7.97
|
7.81
|
|
7.97
|
Tangible
Book Value
|
6.42
|
|
6.58
|
6.42
|
|
6.58
|
Asset
Quality Summary:
|
|
|
|
|
|
|
Net
Charge-offs (Recoveries)
|
$(1)
|
|
$8
|
$(3)
|
|
$19
|
Non-performing
Loans
|
2,937
|
|
2,885
|
2,937
|
|
2,885
|
Non-performing
Loans/Total Loans
|
0.11%
|
|
0.11%
|
0.11%
|
|
0.11%
|
Non-performing
Assets/Total Assets
|
0.09
|
|
0.09
|
0.09
|
|
0.09
|
Allowance
for Loan Loss/Total Loans
|
0.56
|
|
0.60
|
0.56
|
|
0.60
|
Allowance
for Loan Loss/Non-performing Loans
|
524.51
|
|
555.74
|
524.51
|
|
555.74
|
Regulatory
Capital Ratios (Bank Only):
|
|
|
|
|
|
|
Tangible
Capital
|
9.13%
|
|
9.39%
|
9.13%
|
|
9.39%
|
Leverage
Capital
|
9.13
|
|
9.39
|
9.13
|
|
9.39
|
Total
Risk-based Capital
|
12.83
|
|
13.38
|
12.83
|
|
13.38
|
Earnings
to Fixed Charges Ratios (1)
|
|
|
|
|
|
|
Including
Interest on Deposits
|
1.31x
|
|
1.61x
|
1.32x
|
|
1.62x
|
Excluding
Interest on Deposits
|
2.02
|
|
2.48
|
2.03
|
|
2.44
|
|
For
the Three Months Ended June 30,
|
For
the Six Months Ended
June 30,
|
|
2007
|
|
2006
|
2007
|
|
2006
|
|
(Dollars
in thousands, except per share amounts)
|
Non-GAAP
Disclosures - Core Earnings Reconciliation and Ratios
(2)
|
|
|
|
|
|
Net
income
|
$5,645
|
|
$9,060
|
$11,462
|
|
$17,468
|
Net
pre-tax gain on sale of securities
|
-
|
|
(1,064)
|
-
|
|
(1,542)
|
Pre-tax
income from borrowings restructuring
|
-
|
|
-
|
-
|
|
(43)
|
Tax
effect of adjustments
|
|
|
378
|
|
|
568
|
After
tax effect of adjustments to core earnings
|
-
|
|
(686)
|
-
|
|
(1,017)
|
Core
Earnings
|
$5,645
|
|
$8,374
|
$11,462
|
|
$16,451
|
|
|
|
|
|
|
|
Core
Return on Average Assets
|
0.69%
|
|
1.07%
|
0.71%
|
|
1.05%
|
Core
Return on Average Stockholders' Equity
|
8.06
|
|
11.44
|
8.09
|
|
11.27
|
Core
EPS (Diluted)
|
$0.17
|
|
$0.24
|
$0.33
|
|
$0.47
|
Dividend
payout ratio (based upon core earnings)
|
82.35%
|
|
58.33%
|
84.85%
|
|
59.57%
|
(1)
Interest on unrecognized tax benefits totaling $542,000 for both the three-month
and six months periods ended June 30, 2007 and $184,000 for both the three-month
and six-month periods ended June 30, 2006, respectively, is included in the
calculation of fixed charges for each of the three-month and six-month periods
ended June 30, 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") require 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
June 30, 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 and six-month
periods ended June 30, 2007 and 2006.
Problem
Loans
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 and six-month periods ended June 30, 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 June 30, 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. The Company owned no securities classified as trading
securities during the three-month and six-month periods ended June
30, 2007, nor does it 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. All unrealized holding gains on debt and equity securities
available-for-sale are excluded from net income and reported net of income
taxes
as other comprehensive income or loss. All 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. All unrealized losses that are deemed other than temporary are
recognized immediately as a reduction of the carrying amount of the security,
with a charge recorded in the Company's consolidated statement of
operations. For the three-month and six-month periods ended June 30,
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.
Recognition
of Deferred Tax
Assets. Management reviews
all deferred tax assets periodically. Upon such review, in the event
that it is more likely than not that the deferred tax asset will not be fully
realized, a valuation allowance is recognized against the deferred tax asset
in
the full amount that is deemed more likely than not to be realized.
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
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
$187.2 million during the six months ended June 30, 2007, compared to an
increase of $15.7 million during the six months ended June 30,
2006. During the six months ended June 30, 2007, the Company
experienced increases of $163.9 million in money markets and $21.5 million
in
certificates of deposit ("CDs"), respectively, due to successful promotional
campaigns. During the six months ended June 30, 2006, the Company
experienced an increase of $53.1 million in CDs, due primarily to successful
promotional campaigns, that was partially offset by declines of $14.2 million
in
savings accounts and $19.6 million in money market accounts during the period,
as customers continued to migrate towards CDs as they gained greater acceptance
of market rates offered on time deposit accounts.
During
the six months ended June 30,
2007, principal repayments totaled $141.5 million on real estate loans and
$16.8
million on MBS. During the six months ended June 30, 2006, principal
repayments totaled $169.6 million on real estate loans and $20.9 million
on
MBS. The decrease in principal repayments on real estate loans
resulted from a reduction in borrower refinance activities due to (i) an
absence
of significant changes in medium and long-term interest rates from June 30,
2006
to June 30, 2007, and (ii) the historically high refinancing activity from
January 1, 2002 through December 31, 2005 (that made the great majority of
the
Bank's loan portfolio unlikely to seek refinancing under the interest rates
present from January 1, 2007 through June 30, 2007). The decline in the level
of
principal repayments of MBS during the comparative period reflected a decrease
of $32.9 million in their balance from June 30, 2006 to June 30, 2007,
reflecting both regular principal repayments and no new MBS purchases from
January 1, 2006 through June 30, 2007. The Company does not believe
that its future levels of principal repayments will be materially impacted
by
problems currently being experienced in the residential mortgage market.
See "Asset Quality" for a further discussion of the Bank's
asset quality.
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 six months ended June 30, 2007 and 2006, the
Bank sold FNMA $37.0 million and $48.1 million of loans,
respectively, pursuant to this program.
Due
in
part to the growth in deposit funding during the six-month periods ended
both
June 30, 2007 and 2006, the Company was able to reduce its overall level
of
borrowings in each period. During the six months ended June 30, 2007
and 2006, borrowings declined by $110.0 million and $20.1 million, respectively,
as the Company utilized deposit inflows and liquidity from its investment
and
MBS portfolios to fund loan growth.
During
the six months ended June 30, 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 June 30, 2007, the Bank had an additional
potential borrowing capacity of $525.7 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 June 30, 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 six
months ended June 30, 2007 and 2006, real estate loan originations totaled
$234.3 million and $264.9 million, respectively. Purchases of
investment securities totaled $1.2 million during the six months ended June
30,
2007. There were no purchases of investment securities and MBS during
the six months ended June 30, 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 six months ended June 30,
2007, the Holding Company repurchased 1,244,984 shares of its common stock
into
treasury. All shares repurchased were recorded at the acquisition
cost, which totaled $16.5 million during the period. As of June 30,
2007, up to 2,229,291 shares remained available for purchase under authorized
share purchase programs. Based upon the $13.19 per share closing
price of its common stock as of June 29, 2007, the Holding Company would
utilize
$29.4 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 $2.2 million at June 30, 2007. Based
upon the uncertainties associated with these tax benefits, the Company is
not
able to reasonably estimate the future period or periods in which these benefits
will ultimately be settled.
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 June 30, 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 was obligated as of June 30,
2007:
|
Less
than One Year
|
One
Year to Three Years
|
Over
Three Years
to
Five Years
|
Over
Five Years
|
|
Total
|
|
(Dollars
in thousands)
|
Credit
Commitments:
|
|
|
|
|
|
|
Available
lines of credit
|
$75,917
|
$-
|
$-
|
$-
|
|
$75,917
|
Other
loan commitments
|
76,546
|
-
|
-
|
-
|
|
76,546
|
Other
Commitments:
|
|
|
|
|
|
|
Recourse
obligation on loans sold to FNMA
|
19,339
|
-
|
-
|
-
|
|
19,339
|
Total
Commitments
|
$171,802
|
$-
|
$-
|
$-
|
|
$171,802
|
At
both June 30, 2007 and December 31,
2006, the Company had no real estate loans or collateral underlying MBS that
would be considered subprime loans, which are defined as mortgage loans advanced
to borrowers who do not qualify for market interest rates because of problems
with their credit history. The Company does not originate subprime
loans. The Company's lending standards are discussed in Item 1 of its
Form 10-K for the year ended December 31, 2006. All MBS owned by the
Company as of June 30, 2007 possessed the highest possible investment credit
rating.
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 June
30,
2007 and December 31, 2006, respectively. The decrease resulted
primarily from the removal of 3 loans totaling $728,000 from nonaccrual status
during the comparative period. No additional nonaccrual loans were
added during the six months ended June 30, 2007.
The
Bank had real estate and consumer
loans totaling $682,000 delinquent 60-89 days at June 30, 2007, compared
to a
total of $258,000 at December 31, 2006. The increase resulted
primarily from growth of $477,000 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 June 30,
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 June 30, 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 six months ended June 30, 2007. The average total balance
of impaired loans was approximately $3.1 million and $1.1 million during
the six
months ended June 30, 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 April 1, 2006 through December 31, 2006, which had greater impact
upon the tabulation of average impaired loans during the six months ended
June
30, 2007 compared to the six months ended June 30, 2006. There were
$285,000 and $351,000 of reserves allocated within the allowance for loan
losses
for impaired loans at June 30, 2007 and December 31, 2006,
respectively. At June 30, 2007, non-performing loans exceeded
impaired loans by $91,000, due to $91,000 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 June 30, 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
June 30, 2007
|
|
|
At
December 31, 2006
|
|
|
|
(Dollars
in thousands)
|
|
Non-Performing
Loans
|
|
|
|
|
|
|
One-
to four-family
|
|
$ |
59
|
|
|
$ |
60
|
|
Multifamily
residential
|
|
|
987
|
|
|
|
1,655
|
|
Commercial
|
|
|
1,859
|
|
|
|
1,859
|
|
Cooperative
apartment
|
|
|
26
|
|
|
|
26
|
|
Other
|
|
|
6
|
|
|
|
6
|
|
Total
non-performing loans
|
|
|
2,937
|
|
|
|
3,606
|
|
OREO
|
|
|
-
|
|
|
|
-
|
|
Total
non-performing assets
|
|
|
2,937
|
|
|
|
3,606
|
|
Troubled-debt
restructurings
|
|
|
-
|
|
|
|
-
|
|
Total
non-performing assets and troubled-debt restructurings
|
|
$ |
2,937
|
|
|
$ |
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
|
|
The
allowance for loan losses was $15.4 million at June 30, 2007 compared to
$15.5
million at December 31, 2006. During the six months ended June 30,
2007, the Bank recorded a provision of $120,000 to the allowance for loan
losses
to provide for additional inherent losses in the portfolio. During
the same period, the Bank also recorded net recoveries of approximately $3,000,
virtually all of which related to consumer loans, and reclassified $231,000
of
its existing allowance for loan losses to other liabilities in order to
separately account for reserves related to loan origination
commitments. (See "Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations – Critical Accounting Policies – Allowance for Loan
Losses" for a further discussion).
Comparison
of Financial Condition at June 30, 2007 and December 31,
2006
Assets. Assets
totaled $3.25 billion at June 30, 2007, an increase of $77.0 million from
total
assets of $3.17 billion at December 31, 2006.
Real
estate loans increased $57.4
million during the six months ended June 30, 2007 due primarily to originations
of $234.3 million during the period (as interest rates offered on new loans
continued to stimulate origination activity), that were partially offset
by
amortization of $141.5 million and sales to FNMA of $37.0 million.
Cash
and due from banks, and federal
funds sold and other short-term investments increased by $26.3 million and
$15.9
million, respectively, during the six months ended June 30, 2007 as cash
flows
from deposits, maturing investment securities and principal repayments on
MBS
were either invested in short-term securities and federal funds sold (as
the
flattened yield curve provided benefits to retaining the funds in short-term
investments) or were temporarily retained in cash and due from banks at June
30,
2007.
Partially
offsetting the increases in
real estate loans, cash and due from banks, and federal funds sold and other
short-term investments were declines in MBS available-for-sale and FHLBNY
capital stock of $17.1 million and $4.9 million, respectively, during the
six
months ended June 30, 2007. The decline in MBS available-for-sale
resulted primarily from principal repayments of $16.8 million. The decrease
in
FHLBNY capital stock reflected the redemption of $4.9 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").
Stockholders'
Equity. Stockholders' equity decreased $15.4 million during the
six months ended June 30, 2007, due to treasury stock repurchases of $16.5
million, cash dividends on the Holding Company's common stock of $9.7 million
and a reduction to equity of $1.7 million related to an additional reserve
that
the Company recorded upon adoption of FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes."
Partially
offsetting these items were
increases to equity resulting from the following: (i) net income of
$11.4 million, and (ii) $844,000 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.
Comparison
of Operating Results for the Three Months Ended June 30, 2007 and
2006
General. Net
income
was $5.6 million during the three months ended June 30, 2007, a decrease
of $3.4
million from net income of $9.1 million during the three months ended June
30,
2006. During the comparative period, net interest income declined
$3.2 million, non-interest income decreased $1.3 million, due primarily to
a
change in the net gains or losses on the disposal of assets, and non-interest
expense increased $671,000, resulting in a reduction in pre-tax net income
of
$5.2 million. Income tax expense decreased $1.7 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 June 30, 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 June 30,
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
Average
|
|
Yield/
|
Average
|
|
Yield/
|
|
|
|
Balance
|
Interest
|
Cost
|
Balance
|
Interest
|
Cost
|
|
|
(Dollars
In Thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
Real
estate loans
|
$2,750,429
|
$40,697
|
5.92%
|
$2,656,658
|
$39,844
|
6.00%
|
|
|
Other
loans
|
1,771
|
42
|
9.49
|
1,898
|
45
|
9.48
|
|
|
Mortgage-backed
securities
|
146,181
|
1,435
|
3.93
|
182,101
|
1,753
|
3.85
|
|
|
Investment
securities
|
25,534
|
377
|
5.91
|
31,023
|
469
|
6.05
|
|
|
Federal
funds sold and short-term investments
|
193,663
|
2,793
|
5.77
|
121,092
|
1,522
|
5.03
|
|
|
Total
interest-earning assets
|
3,117,578
|
$45,344
|
5.82%
|
2,992,772
|
$43,633
|
5.84%
|
|
|
Non-interest
earning assets
|
150,158
|
|
|
142,043
|
|
|
|
|
Total
assets
|
$3,267,736
|
|
|
$3,134,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
NOW
and Super Now accounts
|
$42,705
|
$186
|
1.75%
|
$36,778
|
$91
|
0.99%
|
|
|
Money
Market accounts
|
636,893
|
6,103
|
3.84
|
452,288
|
2,578
|
2.29
|
|
|
Savings
accounts
|
293,759
|
449
|
0.61
|
325,403
|
476
|
0.59
|
|
|
Certificates
of deposit
|
1,097,137
|
12,838
|
4.69
|
1,030,354
|
10,409
|
4.05
|
|
|
Borrowed
Funds
|
698,765
|
8,099
|
4.65
|
783,544
|
9,228
|
4.72
|
|
|
Total
interest-bearing liabilities
|
2,769,259
|
27,675
|
4.01%
|
2,628,367
|
$22,782
|
3.48%
|
|
|
Checking
accounts
|
96,413
|
|
|
97,731
|
|
|
|
|
Other
non-interest-bearing liabilities
|
121,782
|
|
|
115,835
|
|
|
|
|
Total
liabilities
|
2,987,454
|
|
|
2,841,933
|
|
|
|
|
Stockholders'
equity
|
280,282
|
|
|
292,882
|
|
|
|
|
Total
liabilities and stockholders' equity
|
$3,267,736
|
|
|
$3,134,815
|
|
|
|
|
Net
interest income
|
|
$17,669
|
|
|
$20,851
|
|
|
|
Net
interest spread
|
|
|
1.81%
|
|
|
2.36%
|
|
|
Net
interest-earning assets
|
$348,319
|
|
|
$364,405
|
|
|
|
|
Net
interest margin
|
|
|
2.27%
|
|
|
2.79%
|
|
|
Ratio
of interest-earning assets to interest-bearing liabilities
|
|
|
112.58%
|
|
|
113.86%
|
|
|
Rate/Volume
Analysis (Unaudited)
|
|
Three
Months Ended June 30, 2007
|
|
|
|
Compared
to Three Months Ended June 30, 2006
|
|
|
|
Increase/
(Decrease) Due to:
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
(Dollars
In thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
Real
Estate Loans
|
|
$ |
1,395
|
|
|
$ |
(542 |
) |
|
$ |
853
|
|
Other
loans
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
Mortgage-backed
securities
|
|
|
(350 |
) |
|
|
32
|
|
|
|
(318 |
) |
Investment
securities
|
|
|
(82 |
) |
|
|
(10 |
) |
|
|
(92 |
) |
Federal
funds sold and short-term investments
|
|
|
979
|
|
|
|
292
|
|
|
|
1,271
|
|
Total
|
|
|
1,940
|
|
|
|
(229 |
) |
|
|
1,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
and Super Now accounts
|
|
$ |
20
|
|
|
$ |
75
|
|
|
$ |
95
|
|
Money
market accounts
|
|
|
1,415
|
|
|
|
2,110
|
|
|
|
3,525
|
|
Savings
accounts
|
|
|
(45 |
) |
|
|
18
|
|
|
|
(27 |
) |
Certificates
of deposit
|
|
|
730
|
|
|
|
1,699
|
|
|
|
2,429
|
|
Borrowed
funds
|
|
|
(995 |
) |
|
|
(134 |
) |
|
|
(1,129 |
) |
Total
|
|
|
1,125
|
|
|
|
3,768
|
|
|
|
4,893
|
|
Net
change in net interest income
|
|
$ |
815
|
|
|
$ |
(3,997 |
) |
|
$ |
(3,182 |
) |
Net
interest income for the three
months ended June 30, 2007 decreased $3.2 million to $17.7 million, from
$20.9
million during the three months ended June 30, 2006. The decrease was
attributable to an increase of $4.9 million in interest expense that was
partially offset by an increase of $1.7 million in interest
income. The net interest spread decreased 55 basis points, from 2.36%
for the three months ended June 30, 2006 to 1.81% for the three months ended
June 30, 2007, and the net interest margin decreased 52 basis points, from
2.79%
to 2.27% 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 June 30, 2007.
The
decreases in both the net interest
spread and net interest margin reflected an increase of 53 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
155 basis points and 64 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).
Interest
Income. Interest income was $45.3 million during the three
months ended June 30, 2007, an increase of $1.7 million from $43.6 million
during the three months ended June 30, 2006. This resulted from
increases of $853,000 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 $318,000
and
$92,000, respectively, during the period.
The
increase in interest income on real
estate loans resulted from growth in their average balance of $93.8 million
during the three months ended June 30, 2007 compared to the three months
ended
June 30, 2006, which reflected originations of $532.6 million between July
2006
and June 2007, which were partially offset by principal repayments of $300.4
million and loan sales of $134.6 million during the period. Partially
offsetting the increase in interest income on real estate loans was a decline
of
8 basis points in their average yield during the three months ended June
30,
2007 compared to the three months ended June 30, 2006. This decline
resulted from a reduction of $1.1 million in prepayment fee income during
the
comparative period as increases in short and medium term interest rates during
the first six months of 2006 led to a decline in prepayment activity during
the
three months ended June 30, 2007.
The
increase in interest income on
other short-term investments resulted from growth in their average balance
of
$72.6 million during the three months ended June 30, 2007 compared to the
three
months ended June 30, 2006 coupled with an increase of 74 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 increases in short-term interest rates during the first
six months of 2006 that
fully
benefited yields during the three months ended June 30, 2007, however, only
partially benefited yields during the three months ended June 30,
2006.
The
decline in interest income on MBS
during the three months ended June 30, 2007 compared to the three months
ended
June 30, 2006 resulted from a decreased average balance of $35.9 million
(resulting primarily from principal repayments on MBS of $35.4 million during
the period July 2006 through June 2007), that was partially offset by an
increase of 8 basis points in average yield during the three months ended
June
30, 2007 compared to the three months ended June 30, 2006 (resulting from
increases in short and medium-term interest rates during the first six months
of
2006 which fully benefited yields earned during the three months ended June
30,
2007, while only partially benefiting yields during the three months ended
June
30, 2006). The decline in interest income on investment securities
reflected a decrease in their average balance of $5.5 million during the
three
months ended June 30, 2007 compared to the three months ended June 30, 2006,
as
cash flows from maturing investment securities were invested in short-term
investments and federal funds sold.
Interest
Expense. Interest expense increased $4.9 million, to $27.7
million, during the three months ended June 30, 2007, from $22.8 million
during
the three months ended June 30, 2006. The growth resulted primarily
from increased interest expense of $2.4 million related to CDs and $3.5 million
related to money markets, that was partially offset by a decline of $1.1
million
in interest expense on borrowings.
The
increase in interest expense on CDs
resulted from an increase in their average cost of 64 basis points during
the
three months ended June 30, 2007 compared to the three months ended June
30,
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 June 30, 2006. In
addition, the average balance of CDs increased $66.8 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").
The
increase in interest expense on
money markets was due to increases of 155 basis points in their average cost
and
$184.6 million in their average balance during the comparative
period. During the three months ended June 30, 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 June 2007 through successful promotional
activities.
The
decrease in interest expense on
borrowed funds during the three months ended June 30, 2007 compared to the
three
months ended June 30, 2006 was due to a decline of $84.8 million in average
balance during the period as the Company allowed borrowings to mature without
being replaced during the first six months of 2007 while deposit balances
were
increasing. The average cost of borrowed funds decreased 7 basis
points during the three months ended June 30, 2007 compared to the three
months
ended June 30, 2006, due to the beneficial effects of borrowing restructurings
that occurred during 2006 (See "Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources").
Provision
for Loan
Losses. The provision for loan losses was $60,000 during the
three months ended both June 30, 2007 and June 30, 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, declined from $2.4 million during the three
months
ended June 30, 2006 to $2.2 million during the three months ended June 30,
2007. This decline resulted from reductions in both retail banking
and loan servicing fee income during the period.
The
Company sold loans to FNMA totaling
$16.8 million and $21.0 million during the three months ended June 30, 2007
and
2006, respectively. The gains recorded on these sales were $223,000
and $253,000 during the three months ended June 30, 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 June 30, 2007 and 2006 had weighted average
terms
to the earlier of maturity or next repricing of 11.2 years and 13.6 years,
respectively. The Company additionally recorded a pre-tax gain of
$1.1 million during the three months ended June 30, 2006 on the sale of mutual
fund investments associated with its Benefit Maintenance Plan.
Non-Interest
Expense. Non-interest expense was $11.2 million during the three
months ended June 30, 2007, an increase of $671,000 from the three months
ended
June 30, 2006.
Salaries
and employee benefits
increased $245,000 as a result of regular increases to existing employee
compensation levels. Stock benefit plan amortization expense
increased $149,000 primarily as a result of stock awards granted on May 1,
2007
to outside directors and certain officers of the Company.
Occupancy
and equipment expense
increased $133,000 during the three months ended June 30, 2007 compared to
the
June 30, 2006 quarter due to both general increases in utility costs and
real
estate taxes as well as the expansion of administrative office space during
2007.
Data
processing expense increased
$22,000 as a result of increased loan and deposit account activity during
the
three months ended June 30, 2007 compared to the three months ended June
30,
2006. Other expenses increased $122,000 due primarily to both
increased advertising costs resulting from increased promotional activities
and
increased expenses associated with the audit of the Company's financial
statements.
Non-interest
expense to average assets
was 1.37% in the June 2007 quarter, compared to 1.34% for the quarter ended
June
30, 2006. The increase reflected the growth in non-interest expense
during the comparative period.
Income
Tax Expense. Income tax expense decreased $1.7 million during
the quarter ended June 30, 2007 compared to the quarter ended June 30, 2006,
due
primarily to a decline of $5.2 million in pre-tax net income during the
period.
Comparison
of Operating Results for the Six Months Ended June 30, 2007 and
2006
General. Net
income
was $11.5 million during the six months ended June 30, 2007, a decrease of
$6.0
million from net income of $17.5 million during the six months ended June
30,
2006. During the comparative period, net interest income declined
$5.7 million, non-interest income decreased $2.0 million due primarily to
a
change in the net gains or losses on the disposal of assets, and non-interest
expense increased $1.5 million, resulting in a reduction in pre-tax net income
of $9.2 million. Income tax expense decreased $3.2 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 six months
ended June 30, 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)
|
Six
Months Ended June 30,
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
Average
|
|
Yield/
|
Average
|
|
Yield/
|
|
|
|
Balance
|
Interest
|
Cost
|
Balance
|
Interest
|
Cost
|
|
|
(Dollars
In Thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
Real
estate loans
|
$2,728,646
|
$80,947
|
5.93%
|
$2,641,960
|
$77,683
|
5.88%
|
|
|
Other
loans
|
1,833
|
87
|
9.49
|
1,986
|
94
|
9.47
|
|
|
Mortgage-backed
securities
|
150,418
|
2,947
|
3.92
|
187,386
|
3,598
|
3.84
|
|
|
Investment
securities
|
27,798
|
819
|
5.89
|
34,676
|
951
|
5.49
|
|
|
Federal
funds sold and short-term investments
|
184,673
|
5,262
|
5.70
|
113,667
|
2,678
|
4.71
|
|
|
Total
interest-earning assets
|
3,093,368
|
$90,062
|
5.82%
|
2,979,675
|
$85,004
|
5.71%
|
|
|
Non-interest
earning assets
|
147,661
|
|
|
147,141
|
|
|
|
|
Total
assets
|
$3,241,029
|
|
|
$3,126,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
NOW
and Super Now accounts
|
$39,393
|
$306
|
1.57%
|
$37,009
|
$183
|
1.00%
|
|
|
Money
Market accounts
|
601,956
|
11,227
|
3.76
|
453,982
|
4,657
|
2.07
|
|
|
Savings
accounts
|
294,854
|
873
|
0.60
|
328,024
|
931
|
0.57
|
|
|
Certificates
of deposit
|
1,093,449
|
25,331
|
4.67
|
1,005,850
|
19,279
|
3.87
|
|
|
Borrowed
Funds
|
725,694
|
16,770
|
4.66
|
804,921
|
18,662
|
4.68
|
|
|
Total
interest-bearing liabilities
|
2,755,346
|
$54,507
|
3.99%
|
2,629,786
|
$43,712
|
3.35%
|
|
|
Checking
accounts
|
95,547
|
|
|
96,542
|
|
|
|
|
Other
non-interest-bearing liabilities
|
106,789
|
|
|
108,434
|
|
|
|
|
Total
liabilities
|
2,957,682
|
|
|
2,834,762
|
|
|
|
|
Stockholders'
equity
|
283,347
|
|
|
292,054
|
|
|
|
|
Total
liabilities and stockholders' equity
|
$3,241,029
|
|
|
$3,126,816
|
|
|
|
|
Net
interest income
|
|
$35,555
|
|
|
$41,292
|
|
|
|
Net
interest spread
|
|
|
1.83%
|
|
|
2.36%
|
|
|
Net
interest-earning assets
|
$338,022
|
|
|
$349,889
|
|
|
|
|
Net
interest margin
|
|
|
2.30%
|
|
|
2.77%
|
|
|
Ratio
of interest-earning assets to interest-bearing liabilities
|
|
|
112.27%
|
|
|
113.30%
|
|
|
Rate/Volume
Analysis (Unaudited)
|
|
Six
Months Ended June 30, 2007 Compared to
Six
Months Ended June 30, 2006
Increase/
(Decrease) Due to:
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
(Dollars
In thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
Real
Estate Loans
|
|
$ |
2,576
|
|
|
$ |
688
|
|
|
$ |
3,264
|
|
Other
loans
|
|
|
(6 |
) |
|
|
(1 |
) |
|
|
(7 |
) |
Mortgage-backed
securities
|
|
|
(718 |
) |
|
|
67
|
|
|
|
(651 |
) |
Investment
securities
|
|
|
(195 |
) |
|
|
63
|
|
|
|
(132 |
) |
Federal
funds sold and short-term investments
|
|
|
1,847
|
|
|
|
737
|
|
|
|
2,584
|
|
Total
|
|
$ |
3,504
|
|
|
$ |
1,554
|
|
|
$ |
5,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
and Super Now accounts
|
|
$ |
15
|
|
|
$ |
108
|
|
|
$ |
123
|
|
Money
market accounts
|
|
|
2,142
|
|
|
|
4,428
|
|
|
|
6,570
|
|
Savings
accounts
|
|
|
(101 |
) |
|
|
43
|
|
|
|
(58 |
) |
Certificates
of deposit
|
|
|
1,871
|
|
|
|
4,181
|
|
|
|
6,052
|
|
Borrowed
funds
|
|
|
(1,824 |
) |
|
|
(68 |
) |
|
|
(1,892 |
) |
Total
|
|
|
2,103
|
|
|
|
8,692
|
|
|
|
10,795
|
|
Net
change in net interest income
|
|
$ |
1,401
|
|
|
$ |
(7,138 |
) |
|
$ |
(5,737 |
) |
Net
interest income for the six months
ended June 30, 2007 decreased $5.7 million to $35.6 million, from $41.3 million
during the six months ended June 30, 2006. The decrease was
attributable to an increase of $10.8 million in interest expense that was
partially offset by an increase of $5.1 million in interest
income. The net interest spread decreased 53 basis points, from 2.36%
for the six months ended June 30, 2006 to 1.83% for the six months ended
June
30, 2007, and the net interest margin decreased 47 basis points, from 2.77%
to
2.30% 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 six-month period ended June 30, 2007.
The
decreases in both the net interest
spread and net interest margin reflected an increase of 64 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
169 basis points and 80 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 11 basis
points in the average yield on interest earning assets during the six months
ended June 30, 2007 compared to the six months ended June 30,
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 increases in the average yields on real estate loans and other
short term investments of 5 basis points and 99 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 June 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 invested in short-term
investments and federal funds sold. 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 $90.1 million during the six
months ended June 30, 2007, an increase of $5.1 million from $85.0 million
during the six months ended June 30, 2006. This resulted from
increases of $3.3 million and $2.6 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 $651,000
and
$132,000, respectively, during the period.
The
increase in interest income on real
estate loans resulted from both growth in their average balance of $86.7
million
during the six months ended June 30, 2007 compared to the six months ended
June
30, 2006, and an increase of 5 basis points in their average yield during
the
same period. The growth in the average balance of real estate loans
reflected originations of $532.6 million between July 2006 and June 2007,
which
were partially offset by principal repayments and loan sales during the
period. The increase in
average
yield on real estate loans reflected 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 July 2006 through June
2007.
The
increase in interest income on
other short-term investments resulted from growth in their average balance
of
$71.0 million during the six months ended June 30, 2007 compared to the six
months ended June 30, 2006 coupled with an increase of 99 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 increases in short-term interest rates during the first
six months of 2006 that fully benefited yields during the six months ended
June
30, 2007, however, only partially benefited yields during the six months
ended
June 30, 2006.
The
decline in interest income on MBS
during the six months ended June 30, 2007 compared to the six months ended
June
30, 2006 resulted from a decreased average balance of $37.0 million (resulting
primarily from principal repayments on MBS of $35.4 million during the period
July 2006 through June 2007), that was partially offset by an increase of
8
basis points in average yield during the six months ended June 30, 2007 compared
to the six months ended June 30, 2006 (resulting from increases in short
and
medium-term interest rates during the first six months of 2006 which fully
benefited yields earned during the six months ended June 30, 2007, while
only
partially benefiting yields during the six months ended June 30,
2006). The decline in interest income on investment securities
reflected a decrease in their average balance of $6.9 million during the
six
months ended June 30, 2007 compared to the six months ended June 30, 2006,
as
cash flows from maturing investment securities were invested in short-term
investments and federal funds sold.
Interest
Expense. Interest expense increased $10.8 million, to $54.5
million, during the six months ended June 30, 2007, from $43.7 million during
the six months ended June 30, 2006. The growth resulted primarily
from increased interest expense of $6.1 million related to CDs and $6.6 million
related to money markets, which was partially offset by a decline of $1.9
million in interest expense on borrowings.
The
increase in interest expense on CDs
resulted from an increase in their average cost of 80 basis points during
the
six months ended June 30, 2007 compared to the six months ended June 30,
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 re-priced at these higher rates between June 30,
2006
and June 30, 2007. In addition, the average balance of CDs increased
$87.6 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").
The
increase in interest expense on
money markets was due to an increase of 169 basis points in their average
cost
and $148.0 million in their average balance during the comparative
period. During the six months ended June 30, 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 June 2007 through successful promotional activities.
The
decrease in interest expense on
borrowed funds during the six months ended June 30, 2007 compared to the
six
months ended June 30, 2006 was due to a decline of $79.2 million in average
balance during the period as the Company allowed borrowings to mature without
being replaced during the first six months of 2007 while deposit balances
were
increasing. The average cost of borrowed funds decreased 4 basis
points during the six months ended June 30, 2007 compared to the six months
ended June 30, 2006, due to the beneficial effects of borrowing restructurings
that occurred during 2006 (See "Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources").
Provision
for Loan
Losses. The provision for loan losses was $120,000 during the
six months ended both June 30, 2007 and June 30, 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, declined from $4.7 million during the six months ended June
30,
2006 to $4.4 million during the six months ended June 30, 2007. This
decline resulted from reductions in both retail banking and loan servicing
fee
income during the period.
The
Company sold loans to FNMA totaling
$37.0 million and $48.1 million during the six months ended June 30, 2007
and
2006, respectively. The gains recorded on these sales were $467,000
and $652,000 during the six months ended June 30, 2007 and 2006,
respectively. The majority of the loans sold during both of these
periods were designated for sale upon origination. The loans sold had
weighted average terms to the earlier of maturity or next repricing of 11.2
years and 15.3 years, respectively during the six months ended June 30, 2007
and
2006. During the six months ended June 30, 2006, the Company additionally
recorded non-recurring pre-
tax
gains
of $478,000 on the sale of a property obtained in its 1999 acquisition of
Financial Bancorp, Inc. and $1.1 million on the sale of mutual fund investments
associated with its Benefit Maintenance Plan.
Non-Interest
Expense. Non-interest expense was $22.4 million during the six
months ended June 30, 2007, an increase of $1.4 million from the six months
ended June 30, 2006.
Salaries
and employee benefits
increased $879,000 as a result of regular increases to existing employee
compensation levels. Stock benefit plan amortization expense
increased $97,000 as a result of stock awards granted on May 1, 2007 to outside
directors and certain officers of the Company.
Occupancy
and equipment expense
increased $216,000 during the six months ended June 30, 2007 compared to
the
comparable period of 2006 due to both general increases in utility costs
and
real estate taxes, as well as both the addition of the Valley Stream branch,
which was only open for four of the six months ended June 30, 2006, and the
expansion of administrative office space during 2007.
Data
processing expense increased
$104,000 as a result of increased loan and deposit account activity during
the
six months ended June 30, 2007 compared to the six months ended June 30,
2006. Other expenses increased $182,000 due primarily to increased
advertising costs of $150,000 resulting from increased promotional activities
and increased expenses associated with the audit of the Company's financial
statements.
Non-interest
expense to average assets
was 1.39% for the six months June 30 2007, compared to 1.34% for the six
months
ended June 30, 2006. The increase reflected the growth in
non-interest expense during the comparative period.
Income
Tax
Expense. Income tax expense decreased $3.2 million during the
six months ended June 30, 2007 compared to the six months ended June 30,
2006,
due primarily to a decline of $9.2 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 June 30, 2007 and December 31,
2006
by loan type:
|
|
At
June 30, 2007
|
|
|
At
December 31, 2006
|
|
|
|
Balance
|
|
|
%
of Total
|
|
|
Balance
|
|
|
%
of Total
|
|
|
|
(Dollars
in thousands)
|
|
One-to
Four family and cooperative apartment
|
|
$ |
149,467
|
|
|
|
5.4 |
% |
|
$ |
153,847
|
|
|
|
5.7 |
% |
Multifamily
residential
|
|
|
1,219,382
|
|
|
|
44.2
|
|
|
|
1,201,760
|
|
|
|
44.5
|
|
Commercial
real estate
|
|
|
428,957
|
|
|
|
15.6
|
|
|
|
400,097
|
|
|
|
14.8
|
|
Mixed
use (classified as multifamily residential)
|
|
|
649,879
|
|
|
|
23.6
|
|
|
|
653,346
|
|
|
|
24.2
|
|
Mixed
use (classified as commercial real estate)
|
|
|
274,393
|
|
|
|
10.0
|
|
|
|
266,830
|
|
|
|
9.9
|
|
Construction
and land acquisition
|
|
|
34,284
|
|
|
|
1.2
|
|
|
|
23,340
|
|
|
|
0.9
|
|
Unearned
Discounts and net deferred loan fees
|
|
|
1,266
|
|
|
|
-
|
|
|
|
1,048
|
|
|
|
-
|
|
Total
real estate loans
|
|
|
2,757,628
|
|
|
|
100.0 |
% |
|
|
2,700,268
|
|
|
|
100.0 |
% |
Consumer
loans
|
|
|
2,620
|
|
|
|
|
|
|
|
2,205
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(15,405 |
) |
|
|
|
|
|
|
(15,514 |
) |
|
|
|
|
Total
loans, net
|
|
$ |
2,744,843
|
|
|
|
|
|
|
$ |
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 June 30, 2007 and December 31, 2006:
|
|
At
June 30, 2007
|
|
|
At
December 31, 2006
|
|
|
|
(Dollars
in thousands)
|
|
Balance
at end of period
|
|
$ |
163,094
|
|
|
$ |
184,220
|
|
Average
interest rate
|
|
|
4.34 |
% |
|
|
4.49 |
% |
Average
duration (in years)
|
|
|
2.3
|
|
|
|
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 and late fee income, rose on a linked quarter basis,
from
5.65% to 5.69%. This trend appears likely to continue, as over $433
million in portfolio mortgage loans with a "below current market" weighted
average coupon of 5.42% contractually reprice or mature between July 1, 2007
and
December 31, 2008. During the year ending December 31, 2009, an
additional $805 million in mortgage loans with a weighted average coupon
of
5.40% are scheduled to reprice. These loan repricings and maturities
provide a potentially significant boost to overall portfolio
yields.
The
average cost of deposits rose slightly from 3.54% during the March 31, 2007
quarter to 3.62% during the June 2007 quarter. This trend is likely
to diminish during the remainder of 2007, as inflows from promotional activity
are expected to decline from the first six months of 2007, and a large portion
of the promotional deposits added during the first six months of 2007 are
expected to reprice below their current promotional cost.
Prepayment
and amortization rates, which approximated 10.4% during the first six months
of
2007, are expected to remain in the 10% to 12% range during the remainder
of
2007. At June 30, 2007, the real estate loan commitment
pipeline approximated $127.6 million, including $20.5 million of loan
commitments intended for sale to FNMA. The portfolio loan pipeline
had a weighted average interest rate of 6.35%.
Operating
expenses are expected to approximate $11.6 million in the third quarter of
2007. The Company is positioned to be opportunistic in the purchase
of its own shares should conditions warrant.
Item
3.
Quantitative and Qualitative Disclosures About Market Risk
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 June 30, 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 June 30, 2007.
Interest
Sensitivity Gap. There was no material change in the computed
one-year interest sensitivity gap from December 31, 2006 to June 30,
2007.
Interest
Rate Risk Exposure (Net Portfolio Value) Compliance. At June 30,
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 June 30, 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 June 30, 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 June 30, 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.
|
Net
Portfolio Value
|
|
Portfolio
Value of Assets
|
|
At
June 30, 2007
|
|
At
December 31, 2006
|
|
At
June 30, 2007
|
At
December 31, 2006
|
|
Dollar
Amount
|
Dollar
Change
|
Percentage
Change
|
|
Dollar
Amount
|
|
NPV
Ratio
|
Sensitivity
Change
|
NPV
Ratio
|
Sensitivity
Change
|
|
(Dollars
in Thousands)
|
|
|
|
|
|
Change
in Interest Rate
|
|
|
|
|
|
|
|
|
|
|
+
200 Basis Points
|
$257,990
|
$(97,751)
|
-27.48%
|
|
$306,488
|
|
8.29%
|
(276)
|
10.01%
|
(220)
|
+
100 Basis Points
|
304,121
|
(51,620)
|
-14.51
|
|
349,577
|
|
9.61
|
(144)
|
11.22
|
(99)
|
Pre-Shock
Scenario
|
355,741
|
-
|
-
|
|
386,202
|
|
11.05
|
-
|
12.21
|
-
|
-
100 Basis Points
|
387,437
|
31,696
|
8.91
|
|
405,945
|
|
11.85
|
80
|
12.67
|
46
|
-
200 Basis Points
|
410,740
|
54,999
|
15.46
|
|
402,937
|
|
12.39
|
134
|
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 both 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 it believes are 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
$355.7 million at June 30, 2007. The NPV Ratio at June 30, 2007 was
11.05% 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 increases in medium and long-term interest rates at June 30, 2007
compared to December 31, 2006.
The
Bank’s +200 basis point Rate Shock Scenario NPV decreased from $306.5 million
at
December 31, 2006 to $258.0 million at June 30, 2007. This decrease
resulted primarily from the aforementioned decline in the value of multifamily
loans.
The
NPV
Ratio was 8.29% in the +200 basis point Rate Shock Scenario at June 30, 2007,
a
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 June 30, 2007 compared to December
31,
2006 reflected the aforementioned decrease in the +200 basis point Rate Shock
Scenario NPV during the period.
At
June
30, 2007, the sensitivity change in the +200 basis point Rate Shock Scenario
was
276 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 due to: (i) the aforementioned decrease in the
value
of multifamily loans, and (ii) a reduction in the valuation of borrowings
in the
+200 basis point Rate Shock Scenario as a result of the increased likelihood
of
borrowings being called and replaced at higher interest rates compared to
the
Pre-Shock Scenario.
Management
of the Company, with the
participation of its Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness as of June 30, 2007, 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 concluded that the Company's
disclosure controls and procedures were effective as of June 30, 2007 in
ensuring 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.
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 fiscal quarter that has materially affected, or is reasonably likely
to
materially affect, the Company's internal control over financial
reporting.
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 June 30, 2007, the Holding Company purchased 819,526
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
|
April
2007
|
102,509
|
|
$13.04
|
|
102,509
|
|
1,158,643
|
May
2007
|
221,227
|
|
13.44
|
|
221,227
|
|
937,416
|
June
2007
|
495,790
|
|
13.43
|
|
495,790
|
|
2,229,291
|
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 programs expired during the three
months ended June 30, 2007, nor did the Company terminate any repurchase
programs prior to expiration during the quarter. On June 21, 2007,
the Company announced its Twelfth Stock Repurchase Program, which authorizes
the
purchase, at the discretion of management, of up to 1,787,665 shares of its
common stock.
None.
(a)
|
The
Company's 2007 Annual Meeting of Shareholders was held on May
17, 2007
(the "Annual Meeting").
|
|
|
(b)
|
The
following directors were elected at the Annual Meeting: Vincent
F. Palagiano, Patrick E. Curtin, Donald E. Walsh and Omer S.J.
Williams
|
|
|
|
The
following are the directors whose terms of office as director
continued
after the Annual Meeting:
|
|
Michael
P. Devine, Kenneth J. Mahon, Anthony Bergamo, George L. Clark,
Jr., Steven
D. Cohn, Fred P. Fehrenbach, John J. Flynn and Joseph J.
Perry.
|
|
|
(c)
|
The
following is a summary of the matters voted upon at the Annual
Meeting and
the votes obtained:
|
Description
|
Votes
For
|
Votes
Against
|
Abstentions
|
Votes
Withheld
|
Broker
Non-Votes
|
|
|
|
|
|
|
1)
Election of the following individuals as Director for a term
to expire at
the 2010 Annual Meeting of Shareholders:
|
|
|
|
|
|
Vincent
F. Palagiano
|
32,190,045
|
-0-
|
-0-
|
1,104,690
|
-0-
|
Patrick
E. Curtin
|
31,575,459
|
-0-
|
-0-
|
1,719,276
|
-0-
|
Donald
E. Walsh
|
32,740,035
|
-0-
|
-0-
|
554,700
|
-0-
|
Omer
S.J. Williams
|
32,080,705
|
-0-
|
-0-
|
1,214,030
|
-0-
|
|
|
|
|
|
|
2)
Ratification of the appointment of Deloitte & Touche LLP to act as
independent auditors for the Company for the year ending December
31,
2007
|
33,060,423
|
208,060
|
26,252
|
-0-
|
-0-
|
None.
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.
|
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 Rule
.13a-14(a)/15d-14(a)
|
31(i).2
|
|
Certification
of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a)
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. 1350
|
32.2
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C.
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:
August 9, 2007
|
By:
/s/ VINCENT F. PALAGIANO
|
|
Vincent
F. Palagiano
|
|
Chairman
of the Board and Chief Executive
Officer
|
Dated:
August 9, 2007
|
By:
/s/ KENNETH J. MAHON
|
|
Kenneth
J. Mahon
|
|
Executive
Vice President and Chief Financial Officer (Principal Accounting
Officer)
|