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 March 31, 2008
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, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act.
LARGE
ACCELERATED FILER ___
|
ACCELERATED
FILER X
|
NON
-ACCELERATED FILER ___
|
SMALLER
REPORTING COMPANY ___
|
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 May 8 ,
2008
|
$.01
Par Value
|
|
33,962,371
|
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
Page
|
Item
1.
|
Condensed
Financial Statements (Unaudited)
|
|
|
Consolidated
Statements of Financial Condition at March 31, 2008 and December 31,
2007
|
3
|
|
Consolidated
Statements of Operations for the Three-Month Periods Ended March 31, 2008
and 2007
|
4
|
|
Consolidated
Statements of Changes in Stockholders' Equity and Comprehensive Income for
the Three Months Ended March 31, 2008
and 2007
|
5
|
|
Consolidated
Statements of Cash Flows for the Three Months Ended March 31, 2008 and
2007
|
6
|
|
Notes
to Consolidated Financial Statements
|
7-16
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
16-28
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
28-29
|
Item
4.
|
Controls
and Procedures
|
30
|
|
|
|
|
PART
II - OTHER INFORMATION
|
|
Item
1.
|
Legal
Proceedings
|
30
|
Item
1A.
|
Risk
Factors
|
30
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
30
|
Item
3.
|
Defaults
Upon Senior Securities
|
30
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
30
|
Item
5.
|
Other
Information
|
31
|
Item
6.
|
Exhibits
|
31-32
|
|
Signatures
|
33
|
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.
Item
1. Condensed Financial Statements (Unaudited)
DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
(Dollars
in thousands except share amounts)
|
March
31,
2008
(Unaudited)
|
December
31, 2007
|
ASSETS:
|
|
|
Cash
and due from banks
|
$123,412
|
$101,708
|
Federal
funds sold and other short-term investments
|
91,502
|
128,014
|
Encumbered
investment securities held-to-maturity (estimated fair value of
$80
at both March 31, 2008 and December 31, 2007)
|
80
|
80
|
Investment
securities available-for-sale, at fair value (fully
unencumbered)
|
35,142
|
34,095
|
Mortgage-backed
securities available-for-sale, at fair value:
|
|
|
Encumbered
|
236,281
|
160,821
|
Unencumbered
|
18,888
|
1,943
|
Total
mortgage backed securities available-for-sale
|
255,169
|
162,764
|
Loans:
|
|
|
Real
estate, net
|
2,930,532
|
2,873,966
|
Other
loans
|
2,019
|
2,169
|
Less
allowance for loan losses
|
(15,665)
|
(15,387)
|
Total
loans, net
|
2,916,886
|
2,860,748
|
Loans
held for sale
|
1,547
|
890
|
Premises
and fixed assets, net
|
24,830
|
23,878
|
Federal
Home Loan Bank of New York ("FHLBNY") capital stock
|
39,479
|
39,029
|
Other
real estate owned
|
895
|
-
|
Goodwill
|
55,638
|
55,638
|
Other
assets
|
95,721
|
94,331
|
Total
Assets
|
$3,640,301
|
$3,501,175
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
Liabilities:
|
|
|
Due
to depositors:
|
|
|
Interest
bearing deposits
|
$2,106,126
|
$2,091,600
|
Non-interest
bearing deposits
|
87,510
|
88,398
|
Total
deposits
|
2,193,636
|
2,179,998
|
Escrow
and other deposits
|
84,273
|
52,209
|
Securities
sold under agreements to repurchase
|
230,080
|
155,080
|
FHLBNY
advances
|
716,500
|
706,500
|
Subordinated
notes payable
|
25,000
|
25,000
|
Trust
Preferred securities payable
|
72,165
|
72,165
|
Other
liabilities
|
48,636
|
41,371
|
Total
Liabilities
|
3,370,290
|
3,232,323
|
Commitments
and Contingencies
|
|
|
Stockholders'
Equity:
|
|
|
Preferred
stock ($0.01 par, 9,000,000 shares authorized, none issued or outstanding
at March
31, 2008 and December 31, 2007)
|
-
|
-
|
Common
stock ($0.01 par, 125,000,000 shares authorized,
50,920,141 shares and 50,906,278 shares
issued at March 31, 2008 and
December 31, 2007, respectively, and 33,872,765 shares and 33,909,902
shares outstanding at March 31, 2008 and
December 31, 2007, respectively)
|
509
|
509
|
Additional
paid-in capital
|
209,036
|
208,369
|
Retained
earnings
|
289,500
|
288,112
|
Accumulated
other comprehensive loss, net of deferred taxes
|
(4,685)
|
(4,278)
|
Unallocated
common stock of Employee Stock Ownership Plan ("ESOP")
|
(4,106)
|
(4,164)
|
Unearned
restricted stock awards
|
(527)
|
(634)
|
Common
stock held by Benefit Maintenance Plan ("BMP")
|
(7,941)
|
(7,941)
|
Treasury
stock, at cost (17,047,376 shares and 16,996,376 shares at March
31, 2008 and December 31, 2007, respectively)
|
(211,775)
|
(211,121)
|
Total
Stockholders' Equity
|
270,011
|
268,852
|
Total
Liabilities And Stockholders' Equity
|
$3,640,301
|
$3,501,175
|
See notes
to condensed consolidated financial statements.
DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars
in thousands except per share amounts)
|
Three
Months Ended March 31,
|
|
2008
|
2007
|
Interest
income:
|
|
|
Loans
secured by real estate
|
$43,066
|
$40,250
|
Other
loans
|
44
|
45
|
Mortgage-backed
securities
|
2,216
|
1,512
|
Investment
securities
|
708
|
442
|
Federal
funds sold and other short-term investments
|
2,196
|
2,469
|
Total
interest income
|
48,230
|
44,718
|
|
|
|
Interest
expense:
|
|
|
Deposits
and escrow
|
17,968
|
18,161
|
Borrowed
funds
|
11,031
|
8,671
|
Total
interest expense
|
28,999
|
26,832
|
Net
interest income
|
19,231
|
17,886
|
Provision
for loan losses
|
60
|
60
|
Net
interest income after provision for loan losses
|
19,171
|
17,826
|
|
|
|
Non-interest
income:
|
|
|
Service
charges and other fees
|
1,248
|
1,355
|
Net
gain on sales of loans
|
87
|
244
|
Income
from bank owned life insurance
|
492
|
485
|
Other
|
340
|
406
|
Total
non-interest income
|
2,167
|
2,490
|
|
|
|
Non-interest
expense:
|
|
|
Salaries
and employee benefits
|
6,401
|
5,917
|
Stock
benefit plan amortization expense
|
833
|
533
|
Occupancy
and equipment
|
1,570
|
1,495
|
Federal
deposit insurance premiums
|
65
|
62
|
Data
processing costs
|
778
|
825
|
Other
|
2,633
|
2,416
|
Total
non-interest expense
|
12,280
|
11,248
|
|
|
|
Income
before income taxes
|
9,058
|
9,068
|
Income
tax expense
|
3,101
|
3,251
|
Net
income
|
$5,957
|
$5,817
|
|
|
|
Earnings
per Share:
|
|
|
Basic
|
$0.18
|
$0.17
|
Diluted
|
$0.18
|
$0.17
|
See notes
to condensed consolidated financial statements.
DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND
COMPREHENSIVE INCOME
(Dollars
in thousands)
|
Three
Months Ended March 31,
|
|
2008
|
2007
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
|
Common
Stock (Par Value $0.01):
|
|
|
Balance
at beginning of period
|
$509
|
$509
|
Balance
at end of period
|
509
|
509
|
Additional
Paid-in Capital:
|
|
|
Balance
at beginning of period
|
208,369
|
206,601
|
Stock
options exercised
|
180
|
(11)
|
Tax
benefit of stock plans
|
16
|
-
|
Amortization
of excess fair value over cost – ESOP stock and stock options
expense
|
471
|
202
|
Balance
at end of period
|
209,036
|
206,792
|
Retained
Earnings:
|
|
|
Balance
at beginning of period
|
288,112
|
285,420
|
Net
income for the period
|
5,957
|
5,817
|
Cash
dividends declared and paid
|
(4,546)
|
(4,890)
|
Cumulative
effect adjustment for the adoption of the transition requirements of
Statement of Financial
Accounting Standards ("SFAS")
No. 158, "Employers' Accounting for Defined Benefit Pension
and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106, and
132(R)" ("SFAS 158")
|
(23)
|
-
|
Cumulative
effect adjustment for the adoption of Financial Accounting Standards Board
("FASB") Interpretation
No. 48,
"Accounting for Uncertainty in Income Taxes"
|
-
|
(1,704)
|
Balance
at end of period
|
289,500
|
284,643
|
Accumulated
Other Comprehensive Income:
|
|
|
Balance
at beginning of period
|
(4,278)
|
(7,100)
|
Cumulative
effect adjustment for the adoption of the transition requirements of SFAS
158
|
(64)
|
-
|
Change
in other comprehensive (loss) income during the period, net of deferred
taxes
|
(343)
|
575
|
Balance
at end of period
|
(4,685)
|
(6,525)
|
ESOP:
|
|
|
Balance
at beginning of period
|
(4,164)
|
(4,395)
|
Amortization
of earned portion of ESOP stock
|
58
|
57
|
Balance
at end of period
|
(4,106)
|
(4,338)
|
Unearned
restricted stock awards and unallocated common stock of Recognition
and Retention Plan ("RRP"):
|
|
|
Balance
at beginning of period
|
(634)
|
(3,452)
|
Amortization
of earned portion of RRP stock
|
107
|
66
|
Balance
at end of period
|
(527)
|
(3,386)
|
Treasury
Stock:
|
|
|
Balance
at beginning of period
|
(211,121)
|
(179,011)
|
Purchase
of treasury shares, at cost
|
(654)
|
(5,565)
|
Balance
at end of period
|
(211,775)
|
(184,576)
|
Common
Stock Held by BMP
|
|
|
Balance
at beginning and end of period
|
(7,941)
|
(7,941)
|
|
|
|
Total
Stockholders' Equity
|
270,011
|
285,178
|
STATEMENTS
OF COMPREHENSIVE INCOME
|
|
|
Net
Income
|
$5,957
|
$5,817
|
Net
unrealized securities (losses) gains arising during the period, net of
(benefit)
taxes of $(292) and $490 during the three months
ended March
31, 2008 and 2007, respectively
|
(343)
|
575
|
Comprehensive
Income
|
$5,614
|
$6,392
|
See notes
to condensed consolidated financial statements.
DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars
In thousands)
|
Three
Months Ended March 31,
|
|
2008
|
2007
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Net
Income
|
$5,957
|
$5,817
|
Adjustments
to reconcile net income to net cash provided by (used in)
operating activities:
|
|
|
Net
gain on sale of loans held for sale
|
(87)
|
(244)
|
Net
depreciation and amortization (accretion)
|
189
|
406
|
ESOP
compensation expense
|
290
|
259
|
Stock
plan compensation (excluding ESOP)
|
346
|
66
|
Provision
for loan losses
|
60
|
60
|
Increase
in cash surrender value of Bank Owned Life Insurance
|
(492)
|
(485)
|
Deferred
income tax credit
|
(222)
|
(178)
|
Excess
tax benefits of stock plans
|
(16)
|
-
|
Changes
in assets and liabilities:
|
|
|
Origination
of loans held for sale
|
(7,574)
|
(20,195)
|
Proceeds
from sale of loans held for sale
|
7,004
|
19,505
|
Increase
in other assets
|
(234)
|
(793)
|
Increase
in other liabilities
|
7,106
|
814
|
Net
cash provided by operating activities
|
12,327
|
5,032
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
Net
decrease (increase) in federal funds sold and other short term
investments
|
36,512
|
(104,376)
|
Proceeds
from maturities of investment securities
available-for-sale
|
1,000
|
1,000
|
Proceeds
from calls of investment securities available-for-sale
|
508
|
-
|
Purchases
of investment securities available-for-sale
|
(4,428)
|
-
|
Principal
collected on mortgage backed securities available-for-sale
|
9,845
|
7,967
|
Purchases
of mortgage backed securities available-for-sale
|
(100,854)
|
-
|
Net
increase in loans
|
(57,093)
|
(30,833)
|
Purchases
of fixed assets, net
|
(1,361)
|
(461)
|
(Purchase)
Redemption of FHLBNY capital stock
|
(450)
|
2,925
|
Net
cash used in investing activities
|
(116,321)
|
(123,778)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
Net
increase in due to depositors
|
13,638
|
160,458
|
Net
increase in escrow and other deposits
|
32,064
|
33,644
|
Increase
in securities sold under agreements to repurchase
|
75,000
|
-
|
Increase
(Decrease) in FHLBNY advances
|
10,000
|
(65,000)
|
Cash
dividends paid
|
(4,546)
|
(4,890)
|
Exercise
of stock options
|
180
|
(11)
|
Excess
tax benefits of stock plans
|
16
|
-
|
Purchase
of treasury stock
|
(654)
|
(5,565)
|
Net
cash provided by financing activities
|
125,698
|
118,636
|
INCREASE
(DECREASE) IN CASH AND DUE FROM BANKS
|
21,704
|
(110)
|
CASH
AND DUE FROM BANKS, BEGINNING OF PERIOD
|
101,708
|
26,264
|
CASH
AND DUE FROM BANKS, END OF PERIOD
|
$123,412
|
$26,154
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
Cash
paid for income taxes
|
$3,439
|
$3,206
|
Cash
paid for interest
|
28,259
|
26,337
|
Loans
transferred to other real estate owned
|
895
|
-
|
Increase
in accumulated other comprehensive loss
|
343
|
575
|
See notes
to condensed consolidated financial statements.
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 Boulevard Funding Corp., Havemeyer Investments, Inc.,
DSBW Preferred Funding Corporation, DSBW Residential Preferred Funding Corp. and
Dime Reinvestment Corp.
The Bank
maintains its headquarters in the Williamsburg section of Brooklyn, New York and
operates twenty-two 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 land acquisition, and consumer loans,
as well as mortgage-backed securities (“MBS”), obligations of the U.S.
Government and Government Sponsored Entities ("GSEs"), 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 March 31, 2008, and
the results of operations and statements of comprehensive income, changes in
stockholders' equity and cash flows for the three month periods ended March 31,
2008 and 2007. The results of operations for the three-month period
ended March 31, 2008 is not necessarily indicative of the results of operations
for the remainder of the year ending December 31, 2008. 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.
The
preparation of the condensed consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated 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
consolidated financial statements where estimates are significant include the
allowance for loans losses, valuation of mortgage servicing rights, asset
impairment adjustments related to the valuation of goodwill and other than
temporary impairments of securities, loan income recognition, the valuation of
financial instruments, recognition of deferred tax assets and unrecognized tax
benefits and the accounting for defined benefit plans sponsored by the
Company.
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, 2007 and notes
thereto.
3. RECENT
ACCOUNTING PRONOUNCEMENTS
In March
2008, the FASB issued SFAS 161, "Disclosures about Derivative Instruments and
Hedging Activities—an amendment of FASB Statement No. 133" ("SFAS
161"). SFAS 161 changes the disclosure requirements for
derivative instruments and hedging activities by requiring enhanced disclosures
about (i) the manner in which and reason that an entity uses derivative
instruments, with particular emphasis upon underlying risk, (ii) the manner in
which derivative instruments and related hedged items are accounted for under
SFAS 133 and its related interpretations, and (iii) (in tabular form) the manner
in which derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. SFAS 161
further requires enhanced disclosures of credit-risk-related contingent features
of derivative instruments. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. This Statement encourages, but does
not require, comparative disclosures for earlier periods at initial
adoption. Adoption of SFAS 161 is not expected to have a material
impact upon the Company's consolidated financial condition or results of
operations.
In
February 2008, the FASB issued Staff Position FAS 140-3, "Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions" ("FSP
140-3"). FSP 140-3 provides guidance on accounting for a transfer of
a financial asset and repurchase financing. FSP 140-3 presumes that an initial
transfer of a financial asset and a repurchase financing
are
considered part of the same arrangement (linked transaction) under SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities"("SFAS 140"), however, if certain criteria are satisfied, the
initial transfer and repurchase financing shall not be evaluated as a linked
transaction and shall be evaluated separately under SFAS 140. Under FSP 140-3, a
transferor and transferee shall not separately account for a transfer of a
financial asset and a related repurchase financing unless; (i) the two
transactions have a valid and distinct business or economic purpose for being
entered into separately; and (ii) the repurchase financing does not result in
the initial transferor regaining control over the financial
asset. FSP 140-3 is effective for financial statements issued for
fiscal years beginning after November 15, 2008, and interim periods within those
fiscal years. The
Company is currently evaluating the potential impact, if any, of the adoption of
FSP 140-3 on its consolidated financial statements.
In December 2007, the FASB issued
SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"), which
replaces FASB Statement No. 141. SFAS 141R establishes principles and
requirements governing the manner in which an acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, liabilities assumed, any non-controlling interest in the acquiree, and
goodwill acquired. SFAS 141R also establishes disclosure requirements intended
to enable users to evaluate the nature and financial effects of the business
combination. SFAS 141R is effective for business combinations for which the
acquisition date occurs during a fiscal year beginning after December 15,
2008. The Company is currently evaluating the potential impact, if
any, of the adoption of FAS 141R on its consolidated financial
statements.
In December 2007, the FASB issued
SFAS No. 160, "Noncontrolling Interests in Consolidated Financial
Statement—amendments of ARB No. 51." ("SFAS 160"). SFAS 160 requires
that, for purposes of accounting and reporting, minority interests be
re-characterized as non-controlling interests and classified as a component of
equity. SFAS 160 also requires financial reporting disclosures that
clearly identify and distinguish between the interests of the parent and the
non-controlling owners. SFAS 160 applies to all entities that prepare
consolidated financial statements other than not-for-profit organizations,
however, will affect only those entities that have an outstanding
non-controlling interest in one or more subsidiaries or that deconsolidate a
subsidiary. SFAS 160 is effective for fiscal years beginning after
December 15, 2008. Adoption of SFAS 160 is not expected to have a
material impact upon the Company's consolidated financial condition or results
of operations.
In
November 2007, the U.S. Securities and Exchange Commission issued Staff
Accounting Bulletin No. 109, "Written Loan Commitments Recorded at Fair Value
Through Earnings." ("SAB 109"). SAB 109 provides guidance on
accounting for loan commitments recorded at fair value under GAAP. SAB 109
supersedes SAB No. 105, "Application of Accounting Principles to Loan
Commitments." SAB 109 requires that the expected net future cash
flows related to the associated servicing of a loan be included in the
measurement of all written loan commitments that are accounted for at fair
value. The provisions of SAB 109 are applicable on a prospective basis to
written loan commitments recorded at fair value that are issued or modified in
fiscal quarters beginning after December 15, 2007. The Company
adopted SAB 109 on January 1, 2008. Adoption of SAB 109 did not have
a material impact on the Company's consolidated financial condition or results
of operations.
In
February 2007, the 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 requiring the application of
complex hedge accounting provisions. The Company adopted SFAS 159 on
January 1, 2008. The adoption of SFAS 159 did not have a material
impact on the Company’s consolidated financial condition or results of
operations, as the Company did not elect to apply the fair value method of
accounting to any of its assets or liabilities.
In
September 2006, the Emerging Issues Task Force reached a consensus on Issue
06-4, "Accounting for Deferred Compensation and Postretirement Benefit Aspects
of Endorsement Split-Dollar Life Insurance Arrangements" ("EITF 06-4"). Under
EITF 06-4, an employer should recognize a liability for future benefits
associated with an endorsement split-dollar life insurance arrangement based on
the substantive agreement with the employee. If the substance of
these benefits is deemed comparable to benefits of a postretirement benefit
plan, the liability associated with the endorsement split-dollar life insurance
arrangement should be measured in accordance with SFAS No. 106, ''Employers'
Accounting for Postretirement Benefits Other Than Pensions'' ("SFAS 106"). If
the endorsement split-dollar life insurance arrangement is, in substance, an
individual deferred compensation contract, then the liability should be measured
in accordance with Accounting Principles Board Opinion No. 12, "Omnibus
Opinion-1967" ("APB 12").
Under
EITF 06-4, if the employer has agreed to maintain life insurance during the
employee's retirement, the cost of the insurance policy during the
postretirement period should be accrued in accordance with either SFAS 106 or
APB 12. Similarly, if the employer has agreed to provide the employee with a
death benefit, the employer should accrue, over the service period, a liability
for the actuarial present value of the future death benefit as of the employee's
expected retirement date, in accordance with either SFAS 106 or APB
12. The Company adopted EITF 06-4 on January 1, 2008. The
adoption of EITF 06-4 did not have a material impact on the Company’s
consolidated financial condition or results of operations.
In
September 2006, the FASB issued 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
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. The Company adopted SFAS 157 on January 1,
2008. Disclosures required as a result of the adoption of SFAS 157
are included in Note 7.
In February 2008, the FASB issued Staff Position FAS 157-2, "Effective Date of
FASB Statement No. 157, Fair Value Measurements" ("FSP 157-2"). FSP
157-2 delays the effective date of SFAS 157 for all nonrecurring fair value
measurements of non-financial assets and non-financial liabilities until fiscal
years beginning after November 15, 2008.
4. TREASURY
STOCK
During the three months ended March 31,
2008, the Holding Company repurchased 51,000 shares of its common stock into
treasury. All shares repurchased were recorded at the acquisition
cost, which totaled $654,000 during the period.
5. 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, 2007 and concluded that no impairment of goodwill
existed. No events have occurred nor circumstances changed subsequent
to December 31, 2007 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 SFAS No. 142, "Goodwill and Other Intangible
Assets."
6. EARNINGS
PER SHARE ("EPS")
EPS is calculated and reported in
accordance with SFAS No. 128, "Earnings Per Share.'' For entities
like the Company with complex capital structures, SFAS No. 128 requires
disclosure of basic EPS and diluted EPS 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 outstanding in-the-money stock options were exercised and
converted into common stock.
The following is a reconciliation of
the numerators and denominators of basic EPS and diluted EPS for the periods
presented:
|
Three
Months Ended March
31,
|
|
2008
|
|
2007
|
|
(Dollars
in Thousands)
|
Numerator:
|
|
|
|
Net
Income per the Consolidated Statements of Operations
|
$5,957
|
|
$5,817
|
Denominator:
|
|
|
|
Weighted-average
number of shares outstanding utilized in the calculation of basic
EPS
|
32,464,132
|
|
34,473,159
|
|
|
|
|
Unvested
RRP and Restricted Stock Award shares
|
62,348
|
|
67,922
|
Common
stock equivalents resulting from the dilutive effect of "in-the-money"
outstanding stock options
|
214,180
|
|
113,650
|
Anti-dilutive
effect of tax benefits associated with "in-the-money" outstanding stock
options
|
(57,499)
|
|
(28,826)
|
Weighted
average number of shares outstanding utilized in the calculation of
diluted EPS
|
32,683,161
|
|
34,625,905
|
Common
stock equivalents resulting from the dilutive effect of "in-the-money"
outstanding 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 in-the-money stock
options during the period.
There
were 1,067,575 and 1,077,676 weighted-average stock options outstanding for the
three-month periods ended March 31, 2008 and 2007, respectively, that were not
considered in the calculation of diluted EPS since their exercise prices
exceeded the average market price during the period.
7. ACCOUNTING
FOR STOCK BASED COMPENSATION
During the three-month periods ended
March 31, 2008 and 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"), which are discussed more fully in Note
15 to the Company's consolidated audited financial statements for the year ended
December 31, 2007, and which are subject to the accounting requirements of SFAS
No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123R"). In
addition, the Bank maintained the RRP prior to its liquidation on September 14,
2007, which was also subject to the accounting requirements of 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.
Stock
Option Awards
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
March 31,
|
|
2008
|
2007
|
|
(Dollars
in Thousands, Except per Share Amounts)
|
Options
outstanding – beginning of period
|
3,165,997
|
2,250,747
|
Options
granted
|
34,425
|
-
|
Weighted
average exercise price of grants
|
$14.92
|
-
|
Options
exercised
|
13,863
|
45,153
|
Weighted
average exercise price of exercised options
|
$13.07
|
$3.80
|
Options
forfeited
|
-
|
-
|
Weighted
average exercise price of forfeited options
|
$-
|
$-
|
Options
outstanding – end of period
|
3,186,559
|
2,205,594
|
Weighted
average exercise price of outstanding options – end of
period
|
$14.64
|
$15.07
|
Remaining
options available for grant
|
84,550
|
1,102,765
|
Exercisable
options at end of period
|
2,155,634
|
2,205,594
|
Weighted
average exercise price of exercisable options – end of
period
|
$15.05
|
$15.07
|
Cash
received for option exercise cost
|
$180
|
$97
|
Income
tax benefit recognized
|
(16)
|
-
|
Compensation
expense recognized
|
238
|
-
|
Remaining
unrecognized compensation expense
|
2,249
|
-
|
Weighted
average remaining years for which compensation expense is to be
recognized
|
3.1
|
-
|
The range
of exercise prices and weighted-average remaining contractual lives of both
options outstanding and options exercisable as of March 31, 2008 was as
follows:
|
Outstanding
Options as of March 31, 2008
|
|
Range
of Exercise Prices
|
Amount
|
Weighted
Average
Exercise
Price
|
Weighted
Average Contractual Years Remaining
|
Exercisable
Options
as of
March
31, 2008
|
$4.51
- $5.00
|
14,087
|
4.56
|
1.8
|
14,087
|
$10.50
- $11.00
|
499,801
|
10.91
|
3.6
|
499,801
|
$13.00-$13.50
|
585,142
|
13.16
|
4.8
|
585,142
|
$13.50-$14.00
|
996,500
|
13.74
|
9.1
|
-
|
$14.50-$15.00
|
34,425
|
14.92
|
10.1
|
-
|
$15.00-$15.50
|
318,492
|
15.10
|
7.2
|
318,492
|
$16.00-$16.50
|
76,320
|
16.45
|
6.8
|
76,320
|
$19.50-$20.00
|
661,792
|
19.90
|
5.8
|
661,792
|
Total
|
3,186,559
|
$14.64
|
6.5
|
2,155,634
|
The
weighted average exercise price and contractual years remaining for exercisable
options was $15.05 and 5.3 years, respectively, at March 31,
2008. There were no grants of stock options under the Stock Plans
during the three months ended March 31, 2007. The weighted average
fair value per option at the date of grant for stock options granted during the
three-months ended March 31, 2008 was estimated as follows:
|
Three
Months Ended March 31, 2008
|
Total
options granted
|
34,425
|
Estimated
fair value on date of grant
|
$3.20
|
Pricing
methodology utilized
|
Black-
Scholes
|
Expected
life (in years)
|
6.25
|
Interest
rate
|
2.77%
|
Volatility
|
30.00
|
Dividend
yield
|
3.75
|
Other
Stock Awards
RRP – As of March 31, 2007,
there were 303,137 unallocated shares of the Company's common stock held by the
RRP. During 2007, the Company determined that the shares held by the
RRP were no longer eligible for grant. On September 14, 2007, all of
the assets of the RRP were liquidated, and the 303,137 unallocated shares of
common stock previously held by the RRP were retired into
treasury. There was no activity related to the RRP during the three
months ended March 31, 2007.
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. Three-fourths of these awards vested to the respective
recipients in equal annual installments on May 1, 2006, 2007 and 2008,
respectively. The remaining one-fourth of these awards vests on May
1, 2009. 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. Two-fifths of the awards vested to the
respective recipients in equal installments on February 1, 2007 and 2008,
respectively. The remaining three-fifths of the awards vest to the
respective recipients in equal installments on February 1, 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. Two-fifths
of the awards vested to the respective recipients in equal installments on May
1, 2007 and 2008, respectively. The remaining three-fifths of the
awards vest to the respective recipients in equal installments on May 1, 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 vested 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.
The
following is a summary of activity related to the restricted stock awards
granted under the 2004 Stock Incentive Plan during the three-month periods ended
March 31, 2008 and 2007:
|
|
At
or for the Three Months Ended March 31,
|
|
2008
|
2007
|
|
(Dollars
in Thousands)
|
Unvested
allocated shares – beginning of period
|
66,304
|
71,855
|
Shares
granted
|
-
|
-
|
Shares
vested
|
6,000
|
6,000
|
Unvested
allocated shares – end of period
|
60,304
|
65,855
|
Unallocated
shares - end of period
|
-
|
-
|
Compensation
recorded to expense
|
$107
|
$66
|
Income
tax benefit recognized
|
(2)
|
-
|
8. 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 March 31, 2008, aggregated by investment category and
the length of time the securities were in a continuous unrealized loss
position:
|
Less
than 12 Consecutive
Months
of
Unrealized Losses
|
12
or MoreConsecutive
Months
of
Unrealized Losses
|
Total
|
|
|
(Dollars
in thousands)
|
|
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Municipal
securities
|
$911
|
$12
|
$-
|
$-
|
$911
|
$12
|
Corporate
obligations
|
18,007
|
2,105
|
-
|
-
|
18,007
|
2,105
|
Equity
securities
|
1,822
|
235
|
3,003
|
731
|
4,825
|
966
|
FHLMC
pass-through certificates
|
65,209
|
483
|
-
|
-
|
80,027
|
528
|
FNMA
pass-through certificates
|
14,818
|
45
|
7,450
|
55
|
7,450
|
55
|
GNMA
pass-through certificates
|
172
|
-
|
-
|
-
|
172
|
-
|
Collateralized
Mortgage Obligations
|
4,719
|
60
|
92,504
|
503
|
97,223
|
563
|
Total
|
$105,658
|
$2,940
|
$102,957
|
$1,289
|
$208,615
|
$4,229
|
At March 31, 2008, all of the
FHLMC, FNMA and GNMA pass-through certificates and collateralized mortgage
obligations that possessed unrealized losses for 12 or more consecutive months
had the highest possible credit quality rating. Since inception, all
unrealized losses on the FHLMC, FNMA and GNMA pass-through and collateralized
mortgage obligation securities shown in the above table have resulted solely
from interest rate fluctuations. Management believes that all
unrealized losses were temporary at March 31, 2008. 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.
Management has no current intention to dispose of these
investments.
The
aggregate amount of held-to-maturity investment securities and MBS carried at
historical cost was $80,000 as of March 31, 2008. No individual
held-to-maturity security that was carried at historical cost possessed an
unrealized loss as of March 31, 2008.
9. FAIR
VALUE OF FINANCIAL INSTRUMENTS
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
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.
The fair
value hierarchy established under SFAS 157 establishes three valuation levels,
summarized as follows:
Level 1 Inputs - Quoted
prices (unadjusted) in active markets for identical assets or liabilities that
the reporting entity has the ability to access at the measurement
date.
Level 2 Inputs - Significant
other observable inputs such as any of the following; (1) quoted prices for
similar assets or liabilities in active markets, (2) quoted prices for identical
or similar assets or liabilities in markets that are not active, (3) inputs
other than quoted prices that are observable for the asset or liability (e.g., interest rates and
yield curves observable at commonly quoted intervals, volatilities, prepayment
speeds, loss severities, credit risks, and default rates), or (4) inputs that
are derived principally from or corroborated by observable market data by
correlation or other means (market-corroborated inputs).
Level 3 Inputs - Unobservable
inputs for the asset or liability. Unobservable inputs reflect the reporting
entity's own assumptions about the assumptions that market participants would
use in pricing the asset or liability (including assumptions about
risk).
Unobservable
inputs shall be used to measure fair value to the extent that observable inputs
are not available, thereby allowing for situations in which there is little, if
any, market activity for the asset or liability at the measurement
date.
The
following table presents the assets that are reported on the condensed
consolidated statements of financial condition at fair value as of March 31,
2008 by level within the fair value hierarchy. As required by SFAS
157, financial assets are classified in their entirety based on the lowest level
of input that is significant to the fair value measurement.
Assets
Measured at Fair Value on a Recurring Basis
|
|
|
|
|
Fair
Value Measurements Using
|
Description
|
|
Total
at March 31, 2008
|
|
Level
1
|
|
Level
2
|
Level
3
|
|
|
(Dollars
in Thousands)
|
Investment
securities available for sale(1) |
|
$35,142
|
|
$6,979
|
|
$28,163
|
$-
|
MBS
available for
sale (1)
|
|
255,169 |
|
- |
|
255,169 |
- |
(1)
|
The
value of the Company’s available for sale investment securities
and MBS are reported at fair value, and are valued utilizing prices
obtained from independent parties. The valuations obtained are based upon
market data, and often utilize evaluated pricing models that vary by asset
and incorporate available trade, bid and other market information. For
securities that do not trade on a daily basis, pricing applications apply
available information such as benchmarking and matrix pricing. The market
inputs normally sought in the evaluation of securities include benchmark
yields, reported trades, broker/dealer quotes (only obtained from market
makers or broker/dealers recognized as market participants), issuer
spreads, two-sided markets, benchmark securities, bid, offers and
reference data. For certain securities, additional inputs may be used or
some market inputs may not be applicable. Inputs are prioritized
differently on any given day based on market
conditions.
|
The
Company's available for sale investment securities and MBS at March 31, 2008
were categorized as follows:
Investment
Category
|
|
Percentage
of Total
|
|
Valuation
Level
Under
SFAS 157
|
Pass
Through MBS or collateralized mortgage obligations ("CMOs") issued by
GSEs
|
|
82.6%
|
|
Two
|
Pass
Through MBS or CMOs issued by entities other than GSEs
|
|
5.3
|
|
Two
|
Pooled
Trust Preferred Securities
|
|
6.2
|
|
Two
|
Mutual
Funds and Corporate Equities
|
|
2.4
|
|
One
|
Municipal
securities
|
|
3.5
|
|
Two
|
The pass
through MBS and CMOs (issued either by GSEs or entities other than GSEs), which
comprised approximately 88% of the Company's total available for sale investment
securities and MBS at March 31, 2008, all possessed the highest possible credit
rating published by multiple established credit rating agencies as of March 31,
2008. Obtaining a market value as of March 31, 2008 for these
securities utilizing significant observable inputs as defined under SFAS 157 was
not difficult due to their demand even in a financial marketplace challenged
with reduced liquidity levels such as existed at March 31, 2008. For the pooled
trust preferred and municipal securities, which in aggregate were less than 1%
of the Company's consolidated assets at March 31, 2008, obtaining a market value
utilizing significant observable inputs as defined under SFAS 157 was slightly
more difficult due to the lack of regular trading activity as of March 31,
2008.
Assets
Measured at Fair Value on a Non-Recurring Basis
|
|
|
|
|
Fair
Value Measurements Using
|
|
Description
|
|
Total
At March
31, 2008
|
|
Level
1
|
Level
2
|
Level 3
|
Total
Loss Recognized (Dollars in Thousands)
|
|
|
|
|
(Dollars
in Thousands)
|
|
Loans
held for sale (1)
|
|
$72
|
|
$-
|
$72
|
$-
|
$2
|
(1)
|
Loans
held for sale were recorded at the lower of cost or market, and the market
value was based on the contractual price to be
received.
|
Loans
which satisfy certain criteria are evaluated individually for impairment. A
loan is considered impaired when, based upon current information and events, it
is probable that the Bank will be unable to collect all amounts due,
including principal and interest, according to the contractual terms of the loan
agreement. The Bank's impaired loans at March 31, 2008 were generally collateral
dependent and, as such, were carried at the lower of the outstanding principal
balance or the estimated fair value of the collateral less estimated selling
costs. Fair value is estimated through current appraisals, where practical, or a
drive-by inspection and a comparison of the property securing the loan with
similar properties in the area by either a licensed appraiser or real estate
broker and adjusted as necessary by management to reflect current market
conditions. As such, the fair value of impaired loans would be classified
as Level 3. At March 31, 2008, no impaired loans are carried at fair
value. Losses of $144,000 recognized on impaired loans during the
three months ended March 31, 2008, were charged against the allowance for loans
losses. The loans on which these losses were recognized were transferred
to other real estate owned during the period.
The provisions of FAS
157 related to disclosures surrounding non-financial assets and non-financial
liabilities such as goodwill and other real estate owned have not been applied
since the Company elected the deferral rules of FSP 157-2 (discussed in Note 3
to the condensed consolidated financial statements).
10. 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 these plans were comprised of the following
components:
|
Three
Months Ended March
31, 2008
|
|
Three
Months Ended March
31, 2007
|
|
BMP,
Employee
and Outside Director
Retirement
Plans
|
Postretirement
Plan
|
|
BMP,
Employee
and Outside Director
Retirement
Plans
|
Postretirement
Plan
|
|
(Dollars
in thousands)
|
Service
cost
|
$-
|
$21
|
|
$-
|
$21
|
Interest
cost
|
358
|
65
|
|
339
|
61
|
Expected
return on assets
|
(485)
|
-
|
|
(450)
|
-
|
Unrecognized
past service liability
|
-
|
(7)
|
|
-
|
(7)
|
Amortization
of unrealized loss
|
67
|
4
|
|
118
|
7
|
Net
periodic (credit) cost
|
$(60)
|
$83
|
|
$7
|
$82
|
The Company disclosed in its
consolidated financial statements for the year ended December 31, 2007 that it
expected to make contributions or benefit payments totaling $191,000 to the BMP,
$131,000 to the Outside Director Retirement Plan, and $168,000 to the
Postretirement Plan, and no contributions to the Employee Retirement Plan,
during the year ending December 31, 2008. The Company made benefit
payments of $32,100 to the Outside Director Retirement Plan during the
three-months ended March 31, 2008, and expects to make an additional $96,300 of
contributions or benefit payments during the remainder of 2008. The
Company made contributions totaling $20,000 to the Postretirement Plan during
the three months ended March 31, 2008, and expects to make the additional
estimated $148,000 of contributions or benefit payments during the remainder of
2008. The Company made no contributions or benefit payments to the
BMP during the three months ended March 31, 2008, and made an unexpected and
non-recurring contribution of $80,000 in April 2008 related to two participants
of the BMP. The Company does not expect to
make any
other benefit payments or contributions to the BMP during the remainder of 2008,
since anticipated retirements that formed the basis for the expected benefit
payments in 2008 are presently not expected to occur.
As
disclosed in Note 1 of the audited consolidated financial statements included in
the Holding Company's Annual Report on Form 10-K for the year ended December 31,
2007, the Company adopted SFAS 158 effective December 31,
2006. Effective for fiscal years ending after December 15, 2008, SFAS
158 requires an employer sponsoring a single employer defined benefit plan to
measure defined benefit plan assets and obligations as of the date of the
employer’s fiscal year-end statement of financial position (with limited
exceptions). In compliance with this requirement, effective December
31, 2008, the Company will change the measurement date for its defined benefit
plans from October 1st to
December 31st. On
January 1, 2008, the Company recorded reductions of $23,000 to retained earnings
and $64,000 to accumulated other comprehensive income related to this
transition.
Item
2. Management's
Discussion and Analysis of Financial Condition and 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-two full service retail banking offices located in the New York City
("NYC") 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 land acquisition, 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, securities and other short-term
investments, 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.
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.
During
the years ended December 31, 2005, 2006 and 2007, the Company operated in an
environment challenging to earnings growth, marked by a flattened market yield
curve, as interest rates on short-term investments and borrowings increased at a
faster rate than those on medium- and long-term investments and
borrowings. This environment resulted in an increase in the average
cost of interest bearing liabilities greater than the increase in yield on
interest earning assets during the period. Late in 2007 and during
the three months ended March 31, 2008, pricing discipline that developed on new
mortgage loans as a result of difficulties in the national real estate market,
coupled with monetary policy actions of the Federal Open Market Committee
resulting in lower
short-term
rates, led to a steepening in the market yield curve beyond levels seen in 2005,
2006 and 2007. This steepening positively impacted the Company's net
interest margin and earnings during the three months ended March 31,
2008.
The
Company has historically maintained conservative lending standards and avoided
the speculative forms of lending, such as sub-prime mortgages, that have
experienced the severe difficulties over the past twelve months. It
thus experienced no adverse impact to its earnings during the three months ended
March 31, 2008 from problems in the national real estate market. A
continued decline in the value of real estate or further decline in overall
economic conditions in the Bank's primary market will likely adversely impact
the Company's future financial performance.
Selected
Financial Highlights and Other Data
(Dollars
in Thousands Except Per Share Amounts)
|
For
the Three Months Ended
March 31,
|
|
2008
|
|
2007
|
Performance
and Other Selected Ratios:
|
|
|
|
Return
on Average Assets
|
0.68%
|
|
0.72%
|
Return
on Average Stockholders' Equity
|
8.87
|
|
8.12
|
Stockholders'
Equity to Total Assets
|
7.42
|
|
8.64
|
Tangible
Equity to Total Tangible Assets
|
6.09
|
|
7.24
|
Loans
to Deposits at End of Period
|
133.76
|
|
126.12
|
Loans
to Earning Assets at End of Period
|
87.44
|
|
87.58
|
Net
Interest Spread
|
2.01
|
|
1.86
|
Net
Interest Margin
|
2.32
|
|
2.33
|
Average
Interest Earning Assets to Average Interest Bearing
Liabilities
|
108.50
|
|
111.95
|
Non-Interest
Expense to Average Assets
|
1.40
|
|
1.40
|
Efficiency
Ratio
|
57.62
|
|
55.87
|
Effective
Tax Rate
|
34.23
|
|
35.85
|
Dividend
Payout Ratio
|
77.78
|
|
82.35
|
|
|
|
|
Average
Tangible Equity
|
$216,623
|
|
$237,363
|
Per
Share Data:
|
|
|
|
Reported
EPS (Diluted)
|
$0.18
|
|
$0.17
|
Cash
Dividends Paid Per Share
|
0.14
|
|
0.14
|
Stated
Book Value
|
7.97
|
|
7.91
|
Tangible
Book Value
|
6.46
|
|
6.54
|
Asset
Quality Summary:
|
|
|
|
Net
Charge-offs (recoveries)
|
$144
|
|
$(2)
|
Non-performing
Loans
|
3,090
|
|
2,878
|
Non-performing
Loans/Total Loans
|
0.11%
|
|
0.11%
|
Non-performing
Assets
|
$3,985
|
|
$2,878
|
Non-performing
Assets/Total Assets
|
0.11%
|
|
0.09%
|
Allowance
for Loan Loss/Total Loans
|
0.53
|
|
0.57
|
Allowance
for Loan Loss/Non-performing Loans
|
506.96
|
|
540.58
|
Regulatory
Capital Ratios (Bank Only):
|
|
|
|
Tangible
Capital
|
7.77%
|
|
8.81%
|
Leverage
Capital
|
7.77
|
|
8.81
|
Total
Risk-based Capital
|
11.78
|
|
12.45
|
Earnings
to Fixed Charges Ratios (1)
|
|
|
|
Including
Interest on Deposits
|
1.31x
|
|
1.33x
|
Excluding
Interest on Deposits
|
1.78
|
|
1.99
|
(1) Interest on
unrecognized tax benefits totaling $554,000 and $512,000 is included in the
calculation of fixed charges for the three-month periods ended March 31, 2008
and 2007, respectively.
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 than
temporary declines in the valuation of securities), the recognition of deferred
tax assets and unrecognized tax positions, the recognition of loan income, the
fair value of financial instruments, and accounting for defined benefit plans
are its most critical accounting policies because they are important to the
presentation of the Company’s consolidated 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 or estimates could result in material variations in the Company's
consolidated 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. GAAP requires the Bank to maintain an appropriate
allowance for loan losses. Management uses available information to
estimate losses on loans and believes that the Bank maintains its allowance for
loan losses at appropriate levels. Adjustments may be necessary,
however, if future economic, market or other conditions differ from the current
operating environment.
Although
the Bank believes it utilizes the most reliable information available, the level
of the allowance for loan losses remains an estimate subject to significant
judgment. These evaluations are inherently subjective because,
although based upon objective data, it is management's interpretation of the
data that determines the amount of the appropriate allowance. The
Company, therefore, periodically reviews the actual performance and charge-offs
of its portfolio and compares them to the previously determined allowance
coverage percentages. In doing so, 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 SFAS 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. The Bank applied the process of determining the allowance for
loan losses consistently throughout the three months ended March 31, 2008 and
2007.
Performing
Loans
At March
31, 2008, 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 and land acquisition 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 NYC 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 amounts of the allowance
and the provision for loan losses.
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 months ended March 31, 2008 and
2007.
Under the
guidance established by Amended SFAS 114, loans determined to be impaired (i.e., loans where it is
probable that all contractual amounts due will not be collected in accordance
with the terms of the loan; 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.
Non-performing
one- to four-family loans of $417,000 or less are not deemed
impaired. They are classified as Substandard, Doubtful or Loss, and
reviewed and reserved for in the manner discussed above for loans of such
classification.
Valuation of MSR. The cost of
mortgage loans sold with servicing rights retained by the Bank is 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, anticipated net
servicing income determined in accordance with GAAP. SFAS No. 156,
"Accounting for Servicing of Financial Assets," requires all separately
recognized MSR to be initially measured at fair value, if
practicable. 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, or, in the
absence of such data, 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 (generally 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 (generally 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 MSR for the purpose of evaluating
impairment additionally include the stratification based on predominant risk
characteristics of the underlying loans. Increases in the risk characteristics
of the underlying loans from the assumed amounts would result in a decline in
the fair value of the MSR. A valuation allowance is established in
the event the recorded value of an individual stratum exceeds its fair value for
the full amount of the difference.
Asset Impairment
Adjustments. Certain assets are carried in the Company's
consolidated statements of financial condition at fair value or at the lower of
cost or fair value. Management periodically performs analyses to test
for impairment of these assets. Two significant impairment analyses
relate to the value of goodwill and other than temporary declines in the value
of the Company's securities. In the event that an impairment of
goodwill or an other than temporary decline in the value of the Company's
securities is determined to exist, it is recognized as a charge to
earnings.
Goodwill
is accounted for in accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). SFAS 142 eliminates amortization of goodwill
and instead requires performance of an annual impairment test at the reporting
unit level. As of March 31, 2008, 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 Company utilizes the closing price of the Holding
Company's common stock 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, 2007 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, 2007 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.
Fair Value of Financial
Instruments. 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 at March
31, 2008 had readily determinable fair values, which were based on published or
securities dealers' market values.
As
discussed in Note 7 to the Company's condensed consolidated financial
statements, the Company adopted SFAS 157, "Fair Value Measurements" ("SFAS
157"), effective January 1, 2008. The pass through MBS and
collateralized mortgage obligations (issued either by government sponsored
entities or entities other than government sponsored entities), which comprised
approximately 88% of the Company's total available for sale investment
securities and MBS at March 31, 2008, all possessed the highest possible credit
rating published by multiple established credit rating agencies as of March 31,
2008. Obtaining a market value as of March 31, 2008 for these
securities utilizing significant observable inputs as defined under SFAS 157 was
not difficult due to their demand even in a financial marketplace challenged
with reduced liquidity levels such as existed at March 31, 2008. For the pooled
trust preferred and municipal securities, which in aggregate were less than 1%
of the Company's consolidated assets at March 31, 2008, obtaining a market value
utilizing significant observable inputs as defined under SFAS 157 was slightly
more difficult due to the lack of regular trading activity as of March 31,
2008. For these securities, the Company obtained market values from
at least two credible market sources, and verified that these values were
prepared utilizing significant observable inputs as defined under SFAS
157. In accordance with established policies and procedures, the
Company never utilized the highest value obtained as its recorded fair value for
securities that were valued with significant observable inputs.
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 statements 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 months ended March 31, 2008.
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 losses on debt and equity securities
available-for-sale that are deemed temporary are excluded from net income and
reported net of income taxes as other comprehensive income or
loss. 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 statements of
operations. For the three months ended March 31, 2008 and 2007, there
were no other than temporary impairments in the securities
portfolio. Unrealized holding losses on securities totaled $1.6
million and $2.5 million at March 31, 2008 and 2007, respectively.
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 will not be realized.
Uncertain Tax Positions – The
Company performs two levels of evaluation for all uncertain tax positions.
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 is required to 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 condensed consolidated
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. In making its evaluation, management reviews applicable
tax rulings and other advice provided by reputable tax
professionals.
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 yield adjustments over the
contractual loan terms.
Accrual
of interest is discontinued on loans identified as impaired (See Item 2. –
Management's Discussion and Analysis of Financial Condition and Results of
Operations – Critical Accounting Policies – Allowance for Loan Losses – Problem
Loans for a definition of impaired) and past due 90 days. 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 consecutive months. Payments on nonaccrual loans are generally
applied to principal.
Accounting for Defined Benefit
Plans –The Company maintains various defined benefit plans, including the
Postretirement Welfare Plan of The Dime Savings Bank of Williamsburgh, providing
additional postretirement benefits to employees that are recorded in accordance
with SFAS 106, ''Employers' Accounting for Postretirement Benefits Other Than
Pensions,'' ("SFAS 106"). SFAS 106 requires accrual of postretirement
benefits (such as health care benefits) during the years an employee provides
services. As a result of amendments to the respective plans in
previous years, none of the remaining defined benefit plans maintained by the
Company provided benefits for services performed during the three months ended
March 31, 2008 and 2007.
In
accordance with SFAS 158, "Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106,
and 132(R)," the Company recognizes the funded status of all of its defined
benefit plan in its consolidated statements of financial condition, measured as
the difference between plan assets at fair value (with limited exceptions) and
the benefit obligation. The Company utilizes the services of
certified actuaries employed at an independent benefits plan administration
entity in order to measure the funded status of its defined benefit plans in
accordance with various applicable accounting standards.
Liquidity
and Capital Resources
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 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 Fannie Mae ("FNMA"), and
long-term, one- to four-family residential real estate loans to either FNMA or
other private sector secondary market purchasers. The Company may
additionally issue debt under appropriate circumstances. Although
maturities and scheduled amortization of loans and investments are predictable
sources of funds, deposits flows and prepayments on 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 and brokerage firms, many among
the largest in the nation. It must additionally compete for deposit
monies against the stock and bond markets, especially during periods of strong
performance in those arenas. The Bank's deposit flows are affected
primarily by the pricing and marketing of its deposit products compared to its
competitors, as well as the market performance of depositor investment
alternatives such as the U.S. bond or equity markets. To the extent
that the Bank is responsive to general market increases or declines in interest
rates, its deposit flows should not be materially impacted, however, favorable
performance of the equity or bond markets could adversely impact the Bank’s
deposit flows.
Deposits increased $13.6 million
during the three months ended March 31, 2008, and $160.5 million during the
three months ended March 31, 2007. During the majority of 2007,
management elected to seek deposit growth as its primary source of funding and,
as a result of successful promotional campaigns, added $102.5 million in money
market accounts and $52.1 million in certificates of deposit ("CDs"), during the
three months ended March 31, 2007. The growth in deposit balances
during the three months ended March 31, 2008 resulted primarily from continued
success of the interest bearing "Prime Dime" checking account launched during
the second half of 2007, that contributed to an increase of $16.8 million in
total interest bearing checking accounts during the
period. Otherwise, the remaining deposit balances remained relatively
unchanged as a percentage of the aggregate balance during the three months ended
March 31, 2008, with growth of approximately $44 million in money market
accounts offset by a reduction of approximately $42 million in CDs, as the Bank
elected to utilize borrowings to fund asset growth.
During the three months ended March
31, 2008, principal repayments totaled $99.6 million on real estate loans and
$9.8 million on MBS. During the three months ended March 31, 2007,
principal repayments totaled $71.4 million on real estate loans and $8.0 million
on MBS. The increase in principal repayments on loans related to an
increase in borrower refinance activities, as loans originated in 2003 and 2004
approached their contractual interest rate reset date. The increase
in principal paydowns on MBS resulted from the purchase of $100.8 million of MBS
during the quarter ended March 31, 2008, that increased their average balance by
$38.1 million over the three months ended March 31, 2007. The Company
does not presently believe that its future levels of principal repayments will
be materially impacted by problems currently being experienced in the
residential mortgage market.
See "Item
2 – Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset Quality" for a further discussion of the Bank's asset
quality.
Since December 2002, the Bank has
originated and sold multifamily residential 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 the
heightened interest rate risk they possess. Under the terms of the
sales program, the Bank retains a portion of the associated credit
risk. Once established, such amount continues to increase as long as
the Bank continues to sell loans to FNMA under the program. The Bank retains
this exposure until the portfolio of loans sold to FNMA is satisfied in its
entirety or the Bank funds claims by FNMA for the maximum loss
exposure. During the three months ended March 31, 2008 and 2007, the
Bank sold FNMA $6.7 million and $20.2 million of loans, respectively, pursuant
to this program.
During the three months ended March
31, 2008, the Company increased its REPO borrowings by $75.0 million and FHLBNY
advances by $10.0 million, respectively. These borrowings were added
in order to fund purchases of investment securities and MBS during the
period. As of March 31, 2008, the average yield on the securities
purchased exceeded the average contractual cost of the borrowings by
1.56%. The cash flows generated from the securities are expected to
be reinvested in real estate loans, offering an anticipated higher average
yield. The estimated average duration of the purchased securities was
3.1 years at March 31, 2008. Embedded within the added REPO
borrowings and FHLBNY advances, the majority of which are non-callable for at
least three years, were interest rate caps that provide a significant benefit to
their average cost in the event of an increase in short-term interest
rates.
During
the three months ended March 31, 2007, borrowings declined by $65.0 million, as
the Company reduced its borrowings due to the growth in deposit funding
experienced during the period.
In the event that the Bank should
require funds beyond its ability to generate them internally, an additional
source of funds is available through use of its borrowing line at the
FHLBNY. At March 31, 2008, the Bank had an additional potential
borrowing capacity of $366.3 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 possesses a
$15.0 million line of credit agreement with a reputable financial institution in
the event of further required liquidity.
The Bank is subject to minimum
regulatory capital requirements imposed by the OTS, which, as a general matter,
are based on the amount and composition of an institution's assets. At March 31,
2008, the Bank was in compliance with all applicable regulatory capital
requirements and was considered "well-capitalized" for all regulatory
purposes.
The Company generally utilizes its
liquidity and capital resources primarily to fund the origination of real estate
loans, the purchase of mortgage-backed and other securities, and the repurchase
of Holding Company common stock into treasury. During the three
months ended March 31, 2008 and 2007, real estate loan originations totaled
$163.2 million and $123.3 million, respectively. Purchases of
investment securities (excluding short-term investments and federal funds sold)
and MBS totaled $105.3 million during the three months ended March 31,
2008. There were no purchases of investment securities or MBS during
the three months ended March 31, 2007. The increase in real estate
loan originations resulted from increased borrower refinance activity, as real
estate loans originated during 2003 and 2004 approached their contractual
interest rate repricing date. The increase in investment security and
MBS purchases resulted from a decision to add these assets in order to achieve
additional net interest income from the positive spread between the average
yield on the securities and the average cost of the REPOs and FHLBNY advances
utilized to fund the purchases. The Company did not purchase
investment securities or MBS that were funded by FHLBNY advances or REPOs during
2005, 2006 or the three months ended March 31, 2007, since the spread between
the yield on the securities and the cost of the borrowings was significantly
lower.
During the three months ended March 31,
2008, the Holding Company repurchased 51,000 shares of its common stock into
treasury. All shares repurchased were recorded at the acquisition
cost, which totaled $654,000 during the period. As of March 31, 2008, up to
1,124,549 shares remained available for purchase under authorized share purchase
programs. Based upon the $17.48 per share closing price of its common
stock as of March 31, 2008, the Holding Company would utilize $19.7 million in
order to purchase all of the remaining authorized shares. For the
Holding Company to complete these share purchases, it would likely require
dividend distributions from the Bank.
Contractual
Obligations
The Bank is obligated for rental
payments under leases on certain of its branches and equipment and for minimum
monthly payments under its current data systems contract. The
Bank generally has outstanding at any time significant
borrowings
in the form of FHLBNY advances and/or REPOs, and 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. None of these contractual obligations have changed materially
since December 31, 2007. The Company additionally had a reserve
recorded related to unrecognized income tax benefits totaling $1.8 million at
March 31, 2008. The facts and circumstances surrounding this
obligation have not changed materially since December 31, 2007.
Off-Balance
Sheet Arrangements
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. 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.
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 March 31,
2008:
|
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
|
$62,530
|
$-
|
$-
|
$-
|
|
$62,530
|
Other
loan commitments (1)
|
79,762
|
-
|
-
|
-
|
|
79,762
|
Other
Commitments:
|
|
|
|
|
|
|
Recourse
obligation on loans sold to FNMA (1)
|
21,189
|
-
|
-
|
-
|
|
21,189
|
Total
Commitments
|
$163,481
|
$-
|
$-
|
$-
|
|
$163,481
|
(1) In
accordance with SFAS 5, "Accounting for Contingencies," as of March 31, 2008,
reserves related to other loan commitments and the recourse obligation on loans
sold to FNMA were $854,000 and $2.5 million, respectively, and were recorded in
other liabilities in the Company's condensed consolidated statements of
financial condition.
Asset
Quality
At both
March 31, 2008 and December 31, 2007, the Company had neither real estate loans
nor collateral underlying MBS that would be considered subprime loans, i.e., mortgage loans advanced
to borrowers who do not qualify for market interest rates because of problems
with their income or credit history. The Company's lending standards
are discussed in Item 1 of its Form 10-K for the year ended December 31,
2007. All MBS owned by the Company as of March 31, 2008 possessed the
highest possible investment credit rating.
Within
the Bank's portfolio, non-performing loans totaled $3.1 million and $2.9 million
at March 31, 2008 and December 31, 2007, respectively. During the
three months ended March 31, 2008, three loans totaling $1.4 million were added
to non-performing status. Partially offsetting this increase were two
loans totaling $987,000 that were transferred to other real estate owned
("OREO") and one loan totaling $208,000 that was satisfied during the
period. In addition, at March 31, 2008, the Bank was servicing
non-performing loans totaling $5.0 million for FNMA, all of which related to one
common borrower, that entered non-performing status during the three months
ended March 31, 2008. These loans are subject to a recourse provision
that exceeds their aggregate outstanding balance. At March 31, 2008,
a reserve of $2.5 million existed related to the total recourse
provision.
The Bank
had real estate and consumer loans totaling $2.6 million delinquent 60-89 days
at March 31, 2008, compared to a total of $1.9 million at December 31,
2007. The increase resulted primarily from the addition of $894,000
in delinquent one-to four-family and multifamily residential loans during the
period. The 60-89 day delinquency levels fluctuate monthly, and are
generally considered a less accurate indicator of credit quality trends than
non-performing loans.
GAAP
requires the Bank to account for certain loan modifications or restructurings as
''troubled-debt restructurings.'' In general, the modification or restructuring
of a loan constitutes a troubled-debt restructuring if the Bank, for economic or
legal reasons related to the borrower's financial difficulties, grants a
concession to the borrower that it would not otherwise
consider. Current OTS regulations require that troubled-debt
restructurings remain classified as such until the loan is either repaid or
returns to its original terms. The Bank had no loans classified as
troubled-debt restructurings at March 31, 2008 or December 31,
2007.
The recorded investment in loans deemed
impaired pursuant to Amended SFAS 114 was $2.7 million, consisting of four
loans, at March 31, 2008, compared to $2.8 million, consisting of six loans, at
December 31, 2007. The decline resulted from the transfer of two
impaired loans totaling $1.0 million from loans to OREO, and the satisfaction of
one impaired loan totaling $208,000 during the three months ended March 31,
2008, that were partially offset by the addition of one impaired loan totaling
$1.0 million during the same period. The average balance of impaired
loans was approximately $2.7 million and $3.2 million during the three months
ended March 31, 2008 and 2007, respectively. While the additions and
reductions to impaired loans were close in magnitude during the relevant periods
for which the average balances are derived, the timing of the reductions had
greater impact upon the calculation of average balance during the quarter ended
March 31, 2008 compared to the quarter ended March 31, 2007. There
were $309,000 and $351,000 of reserves allocated within the allowance for loan
losses for impaired loans at March 31, 2008 and December 31, 2007,
respectively. At March 31, 2008, non-performing loans exceeded
impaired loans by $434,000, due to 434,000 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. See
"Item 2 – Management's Discussion and Analysis of Financial Condition and
Results of Operations – Critical Accounting Policies – Allowance for Loan Losses
- Problem Loans" for a discussion of impairment and reserves.
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 an appraisal on OREO property as soon as
practicable after it takes possession of the realty and generally reappraises
its value at least annually thereafter. The recorded balance of OREO
was $895,000 at March 31, 2008, consisting of two properties. There
were no OREO properties as of December 31, 2007. During the three
months ended March 31, 2008, the Bank transferred two loans with an aggregate
outstanding principal balance of $987,000 to OREO, recognizing a charge-off of
$92,000 in principal balance. In addition, a charge-off of $52,000
was recognized upon transfer related to outstanding advances and interest in
connections with these loans.
The
following table provides information regarding non-performing loans,
non-performing assets, impaired loans and troubled-debt restructurings at the
dates indicated:
|
At
March 31, 2008
|
At
December 31, 2007
|
|
(Dollars
in thousands)
|
Non-Performing
Loans
|
|
|
One-
to four-family
|
$397
|
$11
|
Multifamily
residential
|
1,039
|
2,236
|
Commercial
real estate
|
1,617
|
577
|
Cooperative
apartment unit
|
26
|
27
|
Other
|
11
|
5
|
Total
non-performing loans
|
3,090
|
2,856
|
OREO
|
895
|
-
|
Total
non-performing assets
|
3,985
|
2,856
|
Troubled-debt
restructurings
|
-
|
-
|
Total
non-performing assets and troubled-debt restructurings
|
$3,985
|
$2,856
|
|
|
|
Impaired
loans
|
$2,656
|
$2,814
|
Troubled-debt
restructurings included in Impaired loans
|
-
|
-
|
Ratios:
|
|
|
Total
non-performing loans to total loans
|
0.11%
|
0.10%
|
Total
non-performing loans and troubled-debt restructurings to total
loans
|
0.11
|
0.10
|
Total
non-performing assets to total assets
|
0.11
|
0.08
|
Total
non-performing assets and troubled-debt restructurings to total
assets
|
0.11
|
0.08
|
Allowance
for Loan Losses
The
allowance for loan losses was $15.7 million at March 31, 2008 compared to $15.4
million at December 31, 2007. During the three months ended March 31,
2008, the Bank recorded a provision of $60,000 to the allowance for loan losses
to provide for additional inherent losses in the portfolio. During
the same period, the Bank also recorded net charge-offs of approximately
$144,000,
all of which related to two loans transferred to OREO, and reclassified $362,000
of its reserves related to loan origination commitments back to its allowance
for loan losses due to a reduction in commitments on new loans during the three
months ended March 31, 2008. (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).
Through
March 31, 2008, the metropolitan NYC multifamily and commercial real estate
markets remained relatively stable despite the difficulties experienced
nationally in the real estate market. Management's quarterly
evaluation of the loan loss reserves takes into account not only performance of
the current loan portfolio, but also general credit conditions and volume of new
business, in determining the timing and amount of any future loan loss
provisions.
Comparison
of Financial Condition at March 31, 2008 and December 31, 2007
Assets. Assets
totaled $3.64 billion at March 31, 2008, an increase of $139.1 million from
total assets of $3.50 billion at December 31, 2007.
Real
estate loans increased $56.6 million during the three months ended March 31,
2008, due primarily to originations of $163.2 million during the period (as
refinance activity associated with loans originated in 2003 and 2004 increased
during the three months ended March 31, 2008), that were partially offset by
amortization of $99.6 million and sales of $7.0 million.
MBS
available-for-sale increased $92.4 million during the three months ended March
31, 2008, as purchases of $100.9 million and an increase in fair value of $1.5
million were partially offset by paydowns of $9.8 million.
Cash and
due from banks increased $21.7 million as a result of growth in deposits and
escrow and other deposit balances during the period, a portion of which was
retained in cash and due from banks at March 31, 2008.
Partially
offsetting these asset increases was a decline of $36.5 million in federal funds
sold and other short-term investments, as these funds were utilized to fund real
estate loan originations.
Liabilities. During
the three months ended March 31, 2008, total liabilities increased $138.0
million, reflecting increases of $75.0 million in REPOs, $10.0 million in FHLBNY
advances, $32.1 million in escrow and other deposits and $13.6 million in retail
branch and Internet banking deposits during the period. The increase
in escrow and other deposits during the three months ended March 31, 2008
resulted from the accumulation of 2008 tax and insurance escrow balances during
the period not held by the Bank at December 31, 2007. (See "Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" for a discussion of
increases in REPOs, FHLBNY advances and deposits during the
period).
Stockholders'
Equity. Stockholders' equity increased $1.2 million during the
three months ended March 31, 2008, due primarily to net income of $6.0 million,
amortization of stock benefit plans of $636,000 and $180,000 of proceeds
received for shares issued related to stock option exercises, all of which were
partially offset by dividend payments of $4.5 million, treasury stock
repurchases of $654,000, and an increase of $407,000 in the accumulated other
comprehensive loss component of stockholders' equity. The majority of
the increase in other comprehensive loss related to a decline in the market
value of available for sale investment securities and MBS.
Comparison
of Operating Results for the Three Months Ended March 31, 2008 and
2007
General. Net
income was $6.0 million during the three months ended March 31, 2008, an
increase of $140,000 from net income of $5.8 million during the three months
ended March 31, 2007. During the comparative period, net interest
income increased $1.3 million, non-interest income declined 323,000 and
non-interest expense increased $1.0 million, resulting in a net decline in
pre-tax net income of $10,000. Income tax expense decreased $150,000
during the comparative period, primarily as a result of adjustments to tax
returns for the tax year ended June 30, 2007 that were completed during the
three months ended March 31, 2008.
Net Interest
Income. The discussion of net interest income for the three
months ended March 31, 2008 and 2007 presented below should be read in
conjunction with the following tables, which set forth certain information
related to the condensed 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 average yields and costs
were derived by dividing income or expense by the average balance of their
related assets or liabilities during the periods represented. Average balances
were derived from average daily balances. The yields include fees that are
considered adjustments to yields.
Analysis
of Net Interest Income (Unaudited)
|
Three
Months Ended March 31,
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Balance
|
Interest
|
Yield/Cost
|
Balance
|
Interest
|
|
|
Assets:
|
(Dollars
In Thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
Real
estate loans
|
2,894,264
|
$43,066
|
5.95%
|
$2,706,863
|
$40,250
|
5.95%
|
|
Other
loans
|
1,817
|
44
|
9.69
|
1,895
|
45
|
9.50
|
|
Mortgage-backed
securities
|
192,772
|
2,216
|
4.60
|
154,655
|
1,512
|
3.91
|
|
Investment
securities
|
35,655
|
708
|
7.94
|
30,062
|
442
|
5.88
|
|
Federal
funds sold and other short-term investments
|
195,616
|
2,196
|
4.49
|
175,683
|
2,469
|
5.62
|
|
Total
interest-earning assets
|
3,320,124
|
$48,230
|
5.81%
|
3,069,158
|
$44,718
|
5.83%
|
|
Non-interest
earning assets
|
192,600
|
|
|
145,164
|
|
|
|
Total
assets
|
3,512,724
|
|
|
$3,214,322
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
Interest
bearing checking accounts
|
63,834
|
$410
|
2.58%
|
$36,080
|
$120
|
1.35%
|
|
Money
Market accounts
|
670,662
|
5,956
|
3.56
|
567,020
|
5,123
|
3.66
|
|
Savings
accounts
|
271,839
|
367
|
0.54
|
295,950
|
425
|
0.58
|
|
Certificates
of deposit
|
1,057,803
|
11,235
|
4.26
|
1,089,761
|
12,493
|
4.65
|
|
Borrowed
Funds
|
995,888
|
11,031
|
4.44
|
752,622
|
8,671
|
4.67
|
|
Total
interest-bearing liabilities
|
3,060,026
|
$28,999
|
3.80%
|
2,741,433
|
$26,832
|
3.97%
|
|
Non-interest
bearing checking accounts
|
88,893
|
|
|
94,680
|
|
|
|
Other
non-interest-bearing liabilities
|
95,293
|
|
|
91,798
|
|
|
|
Total
liabilities
|
3,244,212
|
|
|
2,927,911
|
|
|
|
Stockholders'
equity
|
268,512
|
|
|
286,411
|
|
|
|
Total
liabilities and stockholders' equity
|
3,512,724
|
|
|
$3,214,322
|
|
|
|
Net
interest income
|
|
$19,231
|
|
|
$17,886
|
|
|
Net
interest spread
|
|
|
2.01%
|
|
|
1.86%
|
|
Net
interest-earning assets
|
$260,098
|
|
|
$327,725
|
|
|
|
Net
interest margin
|
|
|
2.32%
|
|
|
2.33%
|
|
Ratio
of interest-earning assets to interest-bearing liabilities
|
|
|
108.50%
|
|
|
111.95%
|
|
Rate/Volume
Analysis (Unaudited)
|
Three
Months Ended March 31, 2008 Compared to
|
|
Three
Months Ended March 31, 2007 Increase/
(Decrease) Due to:
|
|
Volume
|
Rate
|
Total
|
|
(Dollars
In thousands)
|
Interest-earning
assets:
|
|
|
|
Real
Estate Loans
|
$2,801
|
$15
|
$2,816
|
Other
loans
|
(1)
|
-
|
(1)
|
Mortgage-backed
securities
|
405
|
299
|
704
|
Investment
securities
|
97
|
169
|
266
|
Federal
funds sold and other short-term investments
|
252
|
(525)
|
(273)
|
Total
|
$3,554
|
($42)
|
$3,512
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
Interest
bearing checking accounts
|
$136
|
$154
|
$290
|
Money
market accounts
|
$961
|
($128)
|
$833
|
Savings
accounts
|
(32)
|
(26)
|
(58)
|
Certificates
of deposit
|
(284)
|
(974)
|
(1,258)
|
Borrowed
funds
|
2,813
|
(453)
|
2,360
|
Total
|
$3,594
|
($1,427)
|
$2,167
|
Net
change in net interest income
|
($40)
|
$1,385
|
$1,345
|
During the three months ended March 31,
2008, monetary policies implemented by the Federal Open Market Committee
("FOMC") resulted in a 200 basis point reduction of the overnight federal funds
rate from 4.25% to 2.25%. This reduction far exceeded the decline in
medium- and long-term interest rates offered throughout the financial markets,
thus creating a steeper market interest rate yield curve during the
period. This trend favorably impacted the Company's net interest
income and net interest margin during the three months ended March 31,
2008. The slight decline in the net interest margin from 2.33% during
the three months ended March 31, 2007 to 2.32% during the three months ended
March 31, 2008 resulted solely from a decline of $271,000 in prepayment and late
charge income during the comparative period, as prepayment fee income declined
on real estate loans that approached their contractual repricing
dates.
Interest
Income. Interest income was $48.2 million during the three
months ended March 31, 2008, an increase of $3.5 million from $44.7 million
during the three months ended March 31, 2007. This resulted primarily
from increases in interest income of $2.8 million and $704,000 on real estate
loans and MBS, respectively.
The
increase in interest income on real estate loans resulted from growth in their
average balance of $187.4 million during the three months ended March 31, 2008
compared to the three months ended March 31, 2007, reflecting originations of
$614.4 million between April 2007 and March 2008, which were partially offset by
principal repayments of $352.7 million and loan sales of $64.4 million during
the same period.
The
increase in interest income on MBS resulted from an increase of $38.1 million in
their average balance coupled with an increase of 69 basis points in their
average yield during the three months ended March 31, 2008 compared to the three
months ended March 31, 2007. The increase in average balance resulted
from $138.8 million of MBS purchases during the period April 2007 through March
2008, that were partially offset by $35.2 million in principal repayments during
the same period. The increase in average yield on MBS reflected the
steeper yield curve during the three months ended March 31, 2008, as increases
in yields on these securities that resulted from tightening of monetary policy
by the FOMC during 2006 and 2007 were not adversely impacted by the reduction in
short-term interest rates that resulted from the monetary policy of the FOMC
during the three months ended March 31, 2008.
Interest
Expense. Interest expense increased $2.2 million, to $29.0
million, during the three months ended March 31, 2008, from $26.8 million during
the three months ended March 31, 2007. The growth resulted primarily
from increased interest expense of $2.4 million related to borrowed funds and
$833,000 related to money market accounts, that was partially offset by a
decline of $1.3 million in interest expense on CDs.
The
increase in interest expense on money market accounts was due to an increase of
$103.6 million in average balance during the three months ended March 31, 2008
compared to the three months ended March 31, 2007. The Bank grew its
balance of money markets during the period April 2007 to September 2007 through
successful promotional activities. In addition, during the three
months ended March 31, 2008, the Bank's offering rates on money market accounts
lagged the decline in short-term interest rates in the financial
markets. As a result, the Bank retained a large portion of its money
market balances during this period, contributing to their increased average
balance during the period compared to the three months ended March 31,
2007.
The
increase in interest expense on borrowed funds resulted from $243.3 million
growth in their average balance during the three months ended March 31, 2008
compared to the three months ended March 31, 2007, as the Company added $319.8
million of REPOs and FHLBNY advances from March 31, 2007 to March 31, 2008 in
order to fund operational requirements and help maintain pricing discipline on
deposits.
The
decline in interest expense on CDs resulted from both decreases of $32.0 million
in their average balance and 39 basis points in their average cost during the
three months ended March 31, 2008 compared to the three months ended March 31,
2007. The decline in average cost during the period reflected lower
offering rates during the three months ended March 31, 2008, as pricing of CDs
is influenced by short-term market interest rates, which declined by 200 basis
points during the three months ended March 31, 2008. Although this
resulted in the Bank lowering rates on its CDs during the three months ended
March 31, 2008, it did not lower them in the same magnitude as the decline in
short-term interest rates in the financial marketplace. The decline
in average balance of CDs reflected deposit pricing strategies implemented by
the Bank during the three months ended March 2008 aimed at growing money market
and interest bearing checking accounts, and de-emphasizing growth in
CDs.
Provision for Loan
Losses. The provision for loan losses was $60,000 during the
three months ended both March 31, 2008 and March 31, 2007, 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, decreased $166,000, from $2.2
million during the three months ended March 31, 2007 to $2.1 million during the
three months ended March 31, 2008. This decrease resulted primarily
from a reduction in fees associated with loan applications, as applications for
new loans were lower during the three months ended March 31, 2008 than the three
months ended March 31, 2007.
The
Company sold loans to the FNMA totaling $7.0 million and $20.2 million during
the three months ended March 31, 2008 and 2007, respectively. The
gains recorded on these sales were $87,000 and $244,000 during the three months
ended March 31, 2008 and 2007, respectively. All of the loans sold
during both of these periods were designated for sale upon
origination.
Non-Interest
Expense. Non-interest expense was $12.3 million during the
three months ended March 31, 2008, an increase of $1.0 million from the three
months ended March 31, 2007.
Salaries
and employee benefits increased $484,000 during the comparative period as a
result of regular increases to existing employee compensation levels, a portion
of which related to a management position added in the Bank's lending department
and new management positions added for the two retail branches scheduled to open
in 2008. Stock benefit plan amortization expense increased $300,000,
primarily as a result of stock option and restricted stock awards granted on May
1, 2007 to outside directors and certain officers of the Company, for which no
expense was recognized during the three months ended March 31,
2007.
Other
non-interest expenses increased $217,000 primarily as a result of additional
legal fees related to various consultation matters.
Non-interest
expense was 1.40% of average assets during the three months ended both March 31,
2008 and 2007.
Income Tax
Expense. Income tax expense decreased $150,000 during the
quarter ended March 31, 2008 compared to the quarter ended March 31, 2007, due
primarily to a reduction in income tax expense of $279,000 associated with
adjustments related to completion of the June 30, 2007 tax returns.
Outlook
for the Remainder of 2008
Please
refer to the section entitled "Outlook" in Exhibit 99 to the Current Report on
Form 8-K furnished to the SEC on April 22, 2008 for a discussion of the
Company's outlook for financial reporting periods subsequent to March 31,
2008.
Item
3.
Quantitative and Qualitative Disclosures About Market Risk
Quantitative
and qualitative disclosures about market risk were presented at December 31,
2007 in Item 7A of the Company's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 18, 2008. The following
is an update of the discussion provided therein.
General. Virtually
all of the Company's market risk continues to reside at the Bank
level. The Bank's largest component of market risk remains interest
rate risk. The Company is not subject to foreign currency exchange or
commodity price risk. At March 31, 2008, 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,
2007 to March 31, 2008.
Interest Sensitivity
Gap. There was no material change in the computed one-year
interest sensitivity gap from December 31, 2007 to March 31, 2008.
Interest Rate Risk Exposure (Net
Portfolio Value) Compliance. At March 31, 2008, 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,
2007. There were no changes in the Board-approved limits of
acceptable variance in the effect of interest rate fluctuations upon net
interest income and NPV at March 31, 2008 compared to December 31,
2007.
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 interest rates from those observed at
March 31, 2008 and December 31, 2007. The analysis additionally
presents a measurement of the interest rate sensitivity at March 31, 2008 and
December 31, 2007. Interest rate sensitivity is measured by the
basis
point changes in the various NPV ratios ("NPV Ratios") from the Pre-Shock
Scenario to the Rate Shock Scenarios. An increase in the NPV Ratio is
considered favorable, while a decline is considered unfavorable.
|
At
March 31, 2008
|
|
|
|
|
Net
Portfolio Value
|
|
|
|
|
At
December 31, 2007
|
|
|
Dollar
Amount
|
Dollar
Change
|
Percentage
Change
|
|
NPV
Ratio
|
Basis
Point Change in NPV Ratio
|
|
NPV
Dollar
Amount
|
NPV
Ratio
|
Basis
Point Change in NPV Ratio
|
Board
Approved NPV Ratio Limit
|
Rate
Shock Scenario
|
|
|
|
|
|
|
|
|
|
|
|
+
200 Basis Points
|
$275,541
|
(70,817)
|
-20.45%
|
|
7.80%
|
(167)
|
|
$263,704
|
7.79%
|
(211)
|
6.0%
|
+
100 Basis Points
|
316,337
|
(30,021)
|
-8.67
|
|
8.79
|
(68)
|
|
310,161
|
9.00
|
(90)
|
7.0
|
Pre-Shock
Scenario
|
346,358
|
-
|
-
|
|
9.47
|
-
|
|
346,924
|
9.90
|
-
|
8.0
|
-
100 Basis Points
|
356,219
|
9,861
|
2.85
|
|
9.62
|
15
|
|
364,169
|
10.25
|
35
|
8.0
|
-
200 Basis Points
|
348,686
|
2,328
|
0.67
|
|
9.32
|
(15)
|
|
363,913
|
10.14
|
24
|
8.0
|
The NPVs
presented above incorporate some asset and liability values derived from the
Bank’s valuation model, such as those for mortgage loans and time deposits, and
some asset and liability values that are provided by reputable independent
sources, such as values for the Bank's MBS and collateralized mortgage
obligation portfolios, as well as its putable borrowings. The Bank's
valuation model makes various estimates regarding cash flows from principal
repayments on loans and passbook deposit balance decay rates at each level of
interest rate change. The Bank's estimates for loan repayment 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 fee protection inherent in the loan
portfolio when estimating future repayment cash flows. Regarding
passbook deposit decay rates, the Bank tracks and analyzes the decay rate of its
passbook deposits over time and over various interest rate scenarios and then
makes estimates of its passbook deposit decay rate for use in the valuation
model. No matter the care and precision with which the estimates are
derived, actual cash flows for passbooks, as well as loans, 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 $346.9 million at December 31, 2007 to
$346.4 million at March 31, 2008. The NPV Ratio at March 31, 2008 was
9.47% in the Pre-Shock Scenario, a decrease from the NPV Ratio of 9.90% in that
Scenario at December 31, 2007. The decrease in the Pre-Shock Scenario
NPV was due primarily to an increase in the valuation of borrowings (which
negatively impact NPV) that resulted from both increased volume and from
declines in short and medium-term term interest rates at March 31, 2008 compared
to December 31, 2007. This was partially offset by an increase in the
valuation of real estate loans during the same period, resulting primarily from
the advance of the loans to their contractual interest rate repricing dates
(thus favorably impacting their valuation).
The
Bank’s +200 basis point Rate Shock Scenario NPV increased from $263.7 million at
December 31, 2007 to $275.5 million at March 31, 2008. The increase
resulted primarily from a more favorable valuation of borrowings in the +200
basis point Rate Shock Scenario NPV compared to the Pre-Shock Scenario NPV at
March 31, 2008 compared to December 31, 2008. This favorable
valuation resulted from an increase in the average contractual term to next
interest rate repricing on the Bank's borrowings as a result of borrowings added
during the three months ended March 31, 2008, as well as interest rate caps
purchased with a portion of the borrowings added during the period that provide
protection in the event that interest rates rise.
The NPV
Ratio was 7.80% in the +200 basis point Rate Shock Scenario at March 31, 2008,
an increase from the NPV Ratio of 7.79% in the +200 basis point Rate Shock
Scenario at December 31, 2007. The increase reflected the
aforementioned increase in the +200 basis point Rate Shock Scenario NPV during
the comparative period.
At March
31, 2008, the "sensitivity change" (i.e the basis point change in
the NPV Ratio calculated under the various Rate Shock Scenarios compared to the
Pre-Shock Scenario) in the +200 basis point Rate Shock Scenario NPV Ratio was
167 basis points, compared to a sensitivity change of 211 basis points in the
+200 basis point Rate Shock Scenario NPV Ratio at December 31,
2007. The reduction in sensitivity was due primarily to the
aforementioned favorable valuation of borrowings in the +200 basis point Rate
Shock Scenario NPV compared to the Pre-Shock Scenario NPV at March 31, 2008
compared to December 31, 2008.
Item
4. Controls and Procedures
Management
of the Company, with the participation of its Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness as of March 31,
2008, of the Company's disclosure controls and procedures, as defined in Rules
13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended
(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 March 31, 2008 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.
PART
II – OTHER INFORMATION
Item
1. Legal
Proceedings
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.
Item
1A. Risk Factors
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, 2007.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
(c)
|
During
the three months ended March 31, 2008, the Holding Company purchased
51,000 shares of its common stock into treasury. A
summary of the shares repurchased by month is as
follows:
|
Period
|
Total
Number
of
Shares Purchased
|
|
Average
Price
Paid Per Share
|
|
Total
Number of Shares Purchased as Part of Publicly Announced
Programs
|
|
Maximum
Number of Shares that May Yet be Purchased Under the
Programs
|
January
2008
|
51,000
|
|
$12.82
|
|
51,000
|
|
1,124,549
|
February
2008
|
-
|
|
-
|
|
-
|
|
1,124,549
|
March
2008
|
-
|
|
-
|
|
-
|
|
1,124,549
|
All
repurchases in the above table were made under either the Company's Twelfth
Stock Repurchase Program, which was approved by the Holding Company's Board of
Directors and publicly announced on June 21, 2007. No existing
repurchase programs expired during the three months ended March 31, 2008, nor
did the Company terminate any repurchase programs prior to expiration during the
quarter.
Item
3. Defaults
Upon Senior Securities
None.
Item
4. Submission
of Matters to a Vote of Security Holders
None.
Item
5. Other
Information
None.
Item
6. Exhibits
Exhibit
Number
3(i)
|
|
Amended
and Restated Certificate of Incorporation of Dime Community Bancshares,
Inc. (1)
|
3(ii)
|
|
Amended
and Restated Bylaws of Dime Community Bancshares, Inc.
(2)
|
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. (3)
|
4.4
|
|
Certificate
of Designations, Preferences and Rights of Series A Junior Participating
Preferred Stock (4)
|
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 (4)
|
4.6
|
|
Form
of Rights Certificate (4)
|
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
(9)
|
4.8
|
|
Indenture,
dated as of March 19, 2004, between Dime Community Bancshares, Inc. and
Wilmington Trust Company, as trustee
(9)
|
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
(9)
|
10.1
|
|
Amended
and Restated Employment Agreement between The Dime Savings Bank of
Williamsburgh and Vincent F. Palagiano
(5)
|
10.2
|
|
Amended
and Restated Employment Agreement between The Dime Savings Bank of
Williamsburgh and Michael P. Devine
(5)
|
10.3
|
|
Amended
and Restated Employment Agreement between The Dime Savings Bank of
Williamsburgh and Kenneth
J. Mahon (5)
|
10.4
|
|
Employment
Agreement between Dime Community Bancorp, Inc. and Vincent F. Palagiano
(10)
|
10.5
|
|
Employment
Agreement between Dime Community Bancorp, Inc. and Michael P.
Devine (10)
|
10.6
|
|
Employment
Agreement between Dime Community Bancorp, Inc. and Kenneth J. Mahon
(10)
|
10.7
|
|
Form
of Employee Retention Agreement by and among The Dime Savings Bank of
Williamsburgh, Dime Community Bancorp,
Inc. and certain officers (5)
|
10.8
|
|
The
Benefit Maintenance Plan of Dime Community Bancorp, Inc.
(6)
|
10.9
|
|
Severance
Pay Plan of The Dime Savings Bank of Williamsburgh (5)
|
10.10
|
|
Retirement
Plan for Board Members of Dime Community Bancorp, Inc.
(6)
|
10.11
|
|
Dime
Community Bancorp, Inc. 1996 Stock Option Plan for Outside Directors,
Officers and Employees, as amended by
amendments number 1 and 2 (6)
|
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 (6)
|
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. (6)
|
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 (6)
|
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.
(6)
|
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. (6)
|
10.17
|
|
Financial
Federal Savings Bank Incentive Savings Plan in RSI Retirement Trust
(7)
|
10.18
|
|
Financial
Federal Savings Bank Employee Stock Ownership Plan (7)
|
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. (7)
|
10.20
|
|
Dime
Community Bancshares, Inc. 2001 Stock Option Plan for Outside Directors,
Officers and Employees (8)
|
10.21
|
|
Dime
Community Bancshares, Inc. 2004 Stock Incentive Plan for Outside
Directors, Officers and Employees (11)
|
10.22
|
|
Waiver
executed by Vincent F. Palagiano (13)
|
10.23
|
|
Waiver
executed by Michael P. Devine (13)
|
10.24
|
|
Waiver
executed by Kenneth J. Mahon (13)
|
10.25
|
|
Form
of restricted stock award notice for officers and employees under the 2004
Stock Incentive Plan (12)
|
10.26
|
|
Employee
Retention Agreement between The Dime Savings Bank of Williamsburgh , Dime
Community Bancshares, Inc. and Christopher D. Maher
(14)
|
10.27
|
|
Form
of restricted stock award notice for outside directors under the 2004
Stock Incentive Plan (12)
|
10.28
|
|
Employee
Retention Agreement between The Dime Savings Bank of Williamsburgh, Dime
Community Bancshares, Inc. and Daniel Harris
|
21
|
|
Subsidiaries
of the Registrant
|
31(i).1
|
|
Certification
of Chief Executive Officer Pursuant to Rule
.13a-14(a)/15d-14(a)
|
31(i).2
|
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Certification
of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a)
|
32.1
|
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Certification
of Chief Executive Officer Pursuant to 18 U.S.C. 1350
|
32.2
|
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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 Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007 filed on August 9, 2007.
|
(3)
|
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.
|
(4)
|
Incorporated
by reference to the registrant's Current Report on Form 8-K dated April 9,
1998 and filed on April 16, 1998.
|
(5)
|
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.
|
(6)
|
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.
|
(7)
|
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.
|
(8)
|
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.
|
(9)
|
Incorporated
by reference to Exhibits to the registrant’s Registration Statement No.
333-117743 on Form S-4 filed on July 29, 2004.
|
(10)
|
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.
|
(11)
|
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.
|
(12)
|
Incorporated
by reference to the registrant's Current Report on Form 8-K filed on March
22, 2005.
|
(13)
|
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.
|
(14)
|
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.
|
SIGNATURES
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.
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Dated:
May 12, 2008
|
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By: /s/ VINCENT F.
PALAGIANO
|
|
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Vincent
F. Palagiano
|
|
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Chairman
of the Board and Chief Executive
Officer
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Dated:
May 12, 2008
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By: /s/ KENNETH J.
MAHON
|
|
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Kenneth
J. Mahon
|
|
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First
Executive Vice President and Chief Financial Officer (Principal Accounting
Officer)
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