form10ka.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
(Amendment
No. 1)
[ X ]
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the Year Ended December 31, 2008
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
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)
|
Registrant’s
telephone number, including area code: (718) 782-6200
Securities
Registered Pursuant to Section 12(b) of the Act:
None
Securities
Registered Pursuant to Section 12(g) of the Act:
Common
Stock, par value $.01 per share
(Title of
Class)
Preferred
Stock Purchase Rights
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasonal issuer, as defined in
Rule 405 of the Securities Act.YES
NO X
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Act.YES
NO X
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding twelve months (or
for such shorter period that the registrant was required to file reports), and
(2) has been subject to such filing requirements for the past 90 days.YES X NO
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of
this chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company (as defined 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
Act): ___
Yes X No
EXPLANATORY NOTE
This
Form 10-K/A (Amendment No. 1) is being filed to reflect the following
changes to the Company's 10-K for the period ended December 31, 2008, which
was filed on March 16, 2009.
1) An
inadvertent reference to SFAS 14 in the second full paragraph on page
F-85 has been amended to correctly reference SFAS 140.
2) The
following inadvertent clerical omissions to the filing document have been
corrected:
The
second paragraph on page F-98 has been deleted and replaced with the following
text and table:
At
December 31, 2008 and 2007, the Bank had bad debt reserves for New York State
and New York City income tax purposes for which no provision for income tax was
required to be recorded. These bad debt reserves could be subject to recapture
into taxable income under certain circumstances. The Bank’s previously
accumulated bad debt deductions were similarly subject to potential recapture
for federal income tax purposes at December 31, 2008. These recapture
liabilities could be triggered by certain actions, including a distribution of
these bad debt benefits to the Holding Company or the failure of the Bank to
qualify as a bank for federal or New York State and New York City tax
purposes. A summary of these balances is as
follows:
|
|
At
December 31, 2008
|
|
At
December 31, 2007
|
Federal
|
|
$15,158
|
|
$15,158
|
New
York State
|
|
66,023
|
|
60,920
|
New
York City
|
|
69,833
|
|
64,334
|
Any
changes in pagination associated with this change have been reflected in the
attached Form 10-K.
Except as stated herein, this Form
10-K/A does not reflect events occurring after the filing of the Form 10K on
March 16, 2009, and no attempt has been made in the Annual Report on Form 10-K/A
to modify or update other disclosures in the 2008 Form 10-K.
SIGNATURE
Pursuant
to the requirements of the Section 13 or 15(d) 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.
By:
|
/s/
VINCENT F. PALAGIANO
|
|
Vincent
F. Palagiano
|
|
Chairman
of the Board and Chief Executive Officer
|
Date:
|
March
17, 2009
|
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[ X ]
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the Year Ended December 31, 2008
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
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)
|
Registrant’s
telephone number, including area code: (718) 782-6200
Securities
Registered Pursuant to Section 12(b) of the Act:
None
Securities
Registered Pursuant to Section 12(g) of the Act:
Common
Stock, par value $.01 per share
(Title of
Class)
Preferred
Stock Purchase Rights
(Title of
Class)
Indicate by check mark if the
registrant is a well-known seasonal issuer, as defined in Rule 405 of the
Securities Act.YES
NO X
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Act.YES
NO X
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding twelve months (or
for such shorter period that the registrant was required to file reports), and
(2) has been subject to such filing requirements for the past 90 days.YES X NO
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of
this chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company (as defined 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
Act): ___
Yes X No
The aggregate market value of the
voting stock held by non-affiliates of the registrant as of June 30, 2008 was
approximately $447.0
million based upon the $16.51 closing price on the NASDAQ National Market for a
share of the registrant’s common stock on June 30, 2008.
As
of March 13, 2009, there were 34,179,900 shares of the registrant’s common
stock, $0.01 par value, outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the definitive Proxy Statement to be distributed on behalf of the Board of
Directors of Registrant in connection with the Annual Meeting of Shareholders to
be held on May 21, 2009 and any adjournment thereof, and are incorporated by
reference in Part III.
TABLE
OF CONTENTS
|
|
Page
|
PART
I
|
|
Item
1. Business
|
|
General
|
F-3
|
Market Area and
Competition
|
F-4
|
Lending
Activities
|
F-5
|
Asset Quality
|
F-11
|
Allowance for Loan
Losses
|
F-15
|
Investment
Activities
|
F-17
|
Sources of
Funds
|
F-22
|
Subsidiary
Activities
|
F-24
|
Personnel
|
F-25
|
Federal, State and Local
Taxation
|
F-25
|
Federal Taxation
|
F-25
|
State and Local
Taxation
|
F-26
|
Regulation
|
F-26
|
General
|
F-26
|
Regulation of Federal Savings
Associations
|
F-27
|
Regulation of Holding
Company
|
F-36
|
Federal Securities
Laws
|
F-36
|
Item
1A. Risk Factors
|
F-36
|
Item
1B. Unresolved Staff Comments
|
F-39
|
Item
2. Properties
|
F-39
|
Item
3. Legal Proceedings
|
F-39
|
Item
4. Submission of Matters to a Vote of Security Holders
|
F-39
|
PART
II
|
|
Item
5. Market for the Registrant's Common Equity, Related Stockholder Matters
and
Issuer Purchases of Equity
Securities
|
F-40
|
Item
6. Selected Financial Data
|
F-42
|
Item
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
|
F-43
|
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
|
F-62
|
Item
8. Financial Statements and Supplementary Data
|
F-67
|
Item
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
F-67
|
Item
9A. Controls and Procedures
|
F-67
|
Item
9B. Other Information
|
F-67
|
PART
III
|
|
Item
10. Directors, Executive Officers and Corporate Governance
|
F-68
|
Item
11. Executive Compensation
|
F-69
|
Item
12. Security Ownership of Certain Beneficial Owners and
Management
|
|
and Related Stockholder
Matters
|
F-69
|
Item
13. Certain Relationships and Related Transactions, and Director
Independence
|
F-70
|
Item
14. Principal Accounting Fees and Services
|
F-70
|
PART
IV
|
|
Item
15. Exhibits, Financial Statement Schedules
|
F-70
|
Signatures
|
F-70
|
This Annual Report on Form 10-K
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," "seek," "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 the Company (as defined
subsequently herein) 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 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 conditions or results to differ materially from those
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 business or financial
condition;
|
·
|
general
economic conditions, either nationally or locally in some or all areas in
which the Company conducts business, or conditions in the securities
markets or the 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 any forward-looking statements to reflect events or circumstances after
the date of this document.
PART
I
Item
1. Business
General
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 Bank, a
federally-chartered stock savings bank. The Bank maintains its
headquarters in the Williamsburg section of the borough of Brooklyn, New York
and operates twenty-three 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 mortgage loans,
commercial real estate loans, one- to four-family residential mortgage loans,
construction and land acquisition loans, consumer loans, mortgage-backed
securities (“MBS”), obligations of the U.S. Government and Government Sponsored
Entities ("GSEs"), and corporate debt and equity securities. The Bank’s revenues
are derived principally from interest on its loan and securities portfolios and
other short-term investments. The Bank’s primary sources of funds are deposits;
loan amortization, prepayments and maturities; MBS amortization, prepayments and
maturities; investment securities maturities and sales; advances from the
Federal Home Loan Bank of New York (“FHLBNY”); securities sold under agreement
to repurchase (“REPOS”); and the sale of real estate loans to the secondary
market.
The primary business of the Holding
Company is the operation of its wholly-owned subsidiary, the Bank. The Holding
Company is a unitary savings and loan holding company, which, under existing
law, is generally not restricted as to the types of business activities in which
it may engage, provided that the Bank remains a qualified thrift lender
(“QTL”). Pursuant to regulations of its primary regulator, the Office
of Thrift Supervision (“OTS”), the Bank qualifies as a QTL if its ratio of
qualified thrift investments to portfolio assets (“QTL Ratio”) was 65% or more,
on a monthly average basis, in nine of the previous twelve months. At
December 31, 2008, the Bank’s QTL Ratio was 69.2%, and the
Bank maintained more than 65% of its portfolio assets in qualified thrift
investments throughout the year ended December 31, 2008.
The Holding Company neither owns nor
leases any property but instead uses the premises and equipment of the
Bank. The Holding Company does not employ any persons other than
certain officers of the Bank, who receive no additional compensation as officers
of the Holding Company. The Holding Company utilizes the support
staff of the Bank from time to time, as required. Additional
employees may be hired as deemed appropriate by Holding Company
management.
The Company’s website address is
www.dime.com.
The Company makes available free of charge through its website, by clicking the
Investor Relations tab and selecting "SEC Filings," its Annual and Transition
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, and amendments to these reports as soon as reasonably practicable after
such material is electronically filed with or furnished to the Securities and
Exchange Commission (“SEC”).
Market
Area and Competition
The Bank has historically operated as
a community-oriented financial institution providing financial services and
loans primarily for multifamily housing within its market areas. The
Bank maintains its headquarters in the Williamsburg section of the borough of
Brooklyn, New York, and operates twenty-three full-service retail banking
offices located in the NYC boroughs of Brooklyn, Queens, and the Bronx, and in
Nassau County, New York. The Bank gathers deposits primarily from the
communities and neighborhoods in close proximity to its branches. The
Bank’s primary lending area is the NYC metropolitan area, although its overall
lending area is larger, extending approximately 150 miles in each direction from
its corporate headquarters in Brooklyn. The majority of the Bank’s
mortgage loans are secured by properties located in its primary lending area,
and approximately 75% of these loans were secured by real estate located in the
NYC boroughs of Brooklyn, Queens and Manhattan on December 31,
2008.
The NYC
banking environment is extremely competitive. The Bank’s competition
for loans exists principally from other savings banks, commercial banks,
mortgage banks and insurance companies. The Bank has faced sustained competition
for the origination of multifamily residential and commercial real estate loans,
which together comprised 94% of the Bank’s loan portfolio at December 31,
2008. Management anticipates that the current level of competition
for multifamily residential and commercial real estate loans will continue for
the foreseeable future, which may inhibit the Bank’s ability to maintain its
current level and pricing of such loans.
The Bank
gathers deposits in direct competition with other savings banks, commercial
banks and brokerage firms, many among the largest in the nation. It
must additionally compete for deposit monies with the stock market and mutual
funds, especially during periods of strong performance in the equity
markets. Over the previous decade, consolidation in the financial
services industry, coupled with the emergence of Internet banking, has
dramatically altered the deposit gathering landscape. Facing
increasingly larger and more efficient competitors, the Bank’s strategy to
attract depositors has increasingly utilized targeted marketing and delivery of
technology-enhanced, customer-friendly banking services while controlling
operating expenses.
Banking
competition occurs within an economic and financial marketplace that is largely
beyond the control of any individual financial institution. The
interest rates paid to depositors and charged to borrowers, while affected by
marketplace competition, are generally a function of broader-based macroeconomic
and financial factors, including the level of U.S. Gross Domestic Product, the
supply of, and demand for, loanable funds, and the impact of global trade and
international financial markets. Within this environment, the Federal
Open Market Committee ("FOMC") monetary policy and governance of short-term
rates also significantly influence the interest rates paid and charged by
financial institutions.
The
Bank’s success is additionally impacted by the overall condition of the economy,
particularly in the NYC metropolitan area. As home to several
national companies in the financial and business services industries, and as a
popular destination for domestic and international travelers, the NYC economy is
particularly sensitive to the health of both the national and global
economies. Both the NYC and global economies were greatly challenged
during the year ended December 31, 2008, and remain so
currently. Although the significant proportion of Bank loans secured
by rent-regulated multifamily residential dwellings, as well as management's
measured growth business strategy, have provided the Bank's some insulation from
these economic downturns, sustained recessionary conditions would be expected to
adversely impact the performance of the Bank's assets and deposit customer
relationships.
Lending
Activities
Loan Portfolio
Composition. At December 31, 2008, the Bank’s loan portfolio
totaled $3.29 billion, consisting primarily of mortgage loans
secured by multifamily residential apartment buildings, including buildings
organized under a cooperative form of ownership (“Underlying Cooperatives”);
commercial properties; real estate construction and land acquisition; and one-
to four-family residences and cooperative apartments. Within the loan
portfolio, $2.24 billion, or 68.2%, were classified as multifamily residential
loans; $848.2 million, or 25.8%, were classified as commercial real estate
loans; $130.7 million, or 4.0%, were classified as one- to four-family
residential, including condominium or cooperative apartments; $742,000, or
0.02%, were loans to finance multifamily residential and one- to four-family
residential properties with full or partial credit guarantees provided by either
the Federal Housing Administration (‘’FHA’’) or the Veterans Administration
(‘’VA’’); and $53.0 million, or 1.6%, were loans to finance real estate
construction and land acquisition within the NYC metropolitan
area. Of the total mortgage loan portfolio outstanding on December
31, 2008, $2.77 billion, or 84.3%, were adjustable-rate loans (‘’ARMs’’) and
$514.8 million, or 15.7%, were fixed-rate loans. Of the Bank’s
multifamily residential and commercial real estate loans, over 80% were
ARMs at December 31, 2008, the majority of which were contracted to reprice no
later than 7 years from their origination date and carried a total amortization
period of no longer than 30 years. At December 31, 2008, the Bank’s
loan portfolio additionally included $2.2 million in consumer loans, composed of
passbook loans, consumer installment loans, overdraft loans and mortgagor
advances. As of
December 31, 2008, $2.65 billion, or 80.5% of the loan portfolio, was scheduled
to mature or reprice within five years.
The Bank
does not originate or purchase loans, either whole loans or 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 types
of loans the Bank may originate are subject to federal laws and
regulations (See "Item 1. Business - Regulation –
Regulation of Federal Savings Associations").
At
December 31, 2008, the Bank had $49.9 million of loan commitments that were
accepted by the borrowers. All of these commitments are expected to
close during the year ending December 31, 2009. At December 31, 2007,
the Bank had $102.4 million of loan commitments that were accepted by the
borrower. All of these commitments closed during 2008.
The Bank
was servicing whole loans or loan participations totaling $659.4 million at
December 31, 2008 that it originated and sold to other financial
institutions. The majority of this balance represented whole loans
that were sold to, and are currently serviced for the Federal National Mortgage
Association ("FNMA").
The following table sets forth the
composition of the Bank’s real estate and other loan portfolios (including loans
held for sale) in dollar amounts and percentages at the dates
indicated:
|
At
December 31,
|
|
2008
|
Percent
of Total
|
2007
|
Percent
of Total
|
2006
|
Percent
of Total
|
2005
|
Percent
of Total
|
2004
|
Percent
of Total
|
|
Dollars
in Thousands
|
Real
Estate loans:
|
|
|
|
|
|
|
|
|
|
|
Multifamily
residential
|
$2,241,800
|
68.18%
|
$1,948,765
|
67.78%
|
$1,855,080
|
68.64%
|
$1,872,163
|
71.69%
|
$1,917,447
|
76.63%
|
Commercial
real estate
|
848,208
|
25.80
|
728,129
|
25.32
|
666,927
|
24.68
|
576,561
|
22.08
|
424,060
|
16.95
|
One-
to four-family
|
130,663
|
3.97
|
139,541
|
4.85
|
146,613
|
5.42
|
135,622
|
5.19
|
126,225
|
5.04
|
Cooperative
apartment units
|
11,632
|
0.35
|
6,172
|
0.21
|
7,224
|
0.27
|
10,115
|
0.39
|
11,853
|
0.47
|
FHA/VA
insured
|
742
|
0.02
|
1,029
|
0.04
|
1,236
|
0.05
|
2,694
|
0.10
|
4,209
|
0.17
|
Construction
and land acquisition
|
52,982
|
1.61
|
49,387
|
1.72
|
23,340
|
0.86
|
12,098
|
0.46
|
15,558
|
0.62
|
Total
mortgage loans
|
3,286,027
|
99.93
|
2,873,023
|
99.92
|
2,700,420
|
99.92
|
2,609,253
|
99.91
|
2,499,352
|
99.88
|
Other
loans:
|
|
|
|
|
|
|
|
|
|
|
Student
loans
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
$61
|
-
|
Depositor
loans
|
$1,059
|
0.03
|
$1,122
|
0.04
|
$1,172
|
0.04
|
$1,160
|
0.04
|
1,318
|
0.06
|
Consumer
installment and other
|
1,132
|
0.04
|
1,047
|
0.04
|
1,033
|
0.04
|
1,181
|
0.05
|
1,537
|
0.06
|
Total
other loans
|
2,191
|
0.07
|
2,169
|
0.08
|
2,205
|
0.08
|
2,341
|
0.09
|
2,916
|
0.12
|
Gross
loans
|
3,288,218
|
100.00%
|
2,875,192
|
100.00%
|
2,702,625
|
100.00%
|
2,611,594
|
100.00%
|
2,502,268
|
100.00%
|
Net
unearned costs (fees)
|
3,287
|
|
1,833
|
|
1,048
|
|
501
|
|
(463)
|
|
Allowance
for loan losses
|
(17,454)
|
|
(15,387)
|
|
(15,514)
|
|
(15,785)
|
|
(15,543)
|
|
Loans,
net
|
$3,274,051
|
|
$2,861,638
|
|
$2,688,159
|
|
$2,596,310
|
|
$2,486,262
|
|
Loans
serviced for others:
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family and
cooperative
apartment
|
$19,181
|
|
$21,515
|
|
$24,395
|
|
$26,881
|
|
$29,524
|
|
Multifamily
residential
|
640,200
|
|
541,868
|
|
494,770
|
|
386,781
|
|
295,800
|
|
Total
loans serviced for others
|
$659,381
|
|
$563,383
|
|
$519,165
|
|
$413,662
|
|
$325,324
|
|
Loan Originations, Purchases, Sales
and Servicing. For the year ended December 31, 2008, total
loan originations were $1.09 billion. The Bank originates both ARMs
and fixed-rate loans, depending upon customer demand and market rates of
interest. ARMs were approximately 96% of total loan originations
during the period. The majority of both ARM and fixed-rate
originations were multifamily residential and commercial real estate
loans. Multifamily residential real estate loans are either retained
in the Bank's portfolio or sold in the secondary market to FNMA, and
occasionally to other third-party financial institutions. One- to
four-family adjustable rate and fixed-rate mortgage loans with maturities up to
15 years are generally retained for the Bank’s portfolio. Generally,
the Bank sells its newly originated one- to four-family fixed-rate mortgage
loans with maturities greater than fifteen years in the secondary
market.
From December 2002 through December
31, 2008, the Bank sold multifamily residential loans to FNMA pursuant to a
multifamily seller/servicing agreement entered into in December
2002. The Bank sold $27.5 million, $71.4 million and $144.7 million
of such loans to FNMA during the years ended December 31, 2008, 2007 and 2006,
respectively. The Bank additionally sold one- to four- family loans
totaling $8.2 million and participation interests in multifamily loans totaling
$114.6 million to third party financial institutions during the year ended
December 31, 2008. The Bank sold a $6.1 million participation
interest in one multifamily loan to a third party financial institution during
the year ended December 31, 2007. At December 31, 2008, the Bank had
an executed loan commitment to originate two loans totaling $3.4 million that
were intended for sale to FNMA. The Bank's contract for sale of new
multifamily loans to FNMA expired on December 31, 2008.
The Bank currently has no arrangement
pursuant to which it sells commercial real estate loans to the secondary
market. During the year ended December 31, 2008, sales of fixed-rate
one- to four-family mortgage loans totaled $8.8 million, of which $580,000 were
sold to FNMA. The Bank also has an origination assistance
agreement with an independent lending institution, PHH Mortgage ("PHH") whereby
PHH processes and underwrites fixed-rate one- to four-family loans, the Bank
funds the loans at origination and elects to either portfolio the loan or sell
it to PHH. PHH retains full servicing of all loans, regardless of the
Bank's ownership election. One to four-family loans sold to PHH
totaled $8.2 million during the year ended December 31, 2008.
The Bank generally retains the
servicing rights in connection with loans it sells in the secondary
market. As of December 31, 2008, the Bank was servicing $659.4
million of loans for non-related institutions. The Bank generally
receives a loan servicing fee equal to 0.25% of the outstanding principal
balance on all loans sold to FNMA other than multifamily residential
loans. The loan servicing fees on multifamily residential loans sold
to FNMA vary as they are derived based upon the difference between the actual
origination rate and contractual pass-through rate of the loans sold at the time
of sale. At December 31, 2008, the Bank had recorded mortgage
servicing rights ("MSR") of $2.8 million associated with the sale of one- to
four-family and multifamily residential loans to FNMA and other third party
institutions.
The following table sets forth the
Bank's loan originations (including loans held for sale), sales, purchases and
principal repayments for the periods indicated:
|
For
the Year Ended December 31,
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
|
Dollars
in Thousands
|
Gross
loans:
|
|
|
|
|
|
At
beginning of period
|
$2,875,192
|
$2,702,625
|
$2,611,594
|
$2,502,268
|
$2,194,157
|
Real
estate loans originated:
|
|
|
|
|
|
Multifamily
residential
|
786,918
|
391,882
|
388,102
|
312,026
|
774,832
|
Commercial
real estate
|
226,605
|
124,262
|
133,099
|
203,841
|
187,655
|
One-
to four-family (1)
|
36,962
|
27,425
|
19,070
|
41,143
|
36,363
|
Cooperative
apartment units
|
7,178
|
-
|
210
|
465
|
1,048
|
Equity
lines of credit
|
10,843
|
5,777
|
7,977
|
6,405
|
6,488
|
Construction
and land acquisition
|
18,215
|
25,180
|
14,768
|
10,331
|
6,844
|
Total
mortgage loans originated
|
1,086,721
|
574,526
|
563,226
|
574,211
|
1,013,230
|
Other
loans originated
|
2,640
|
1,772
|
1,688
|
1,859
|
3,166
|
Total
loans originated
|
1,089,361
|
576,298
|
564,914
|
576,070
|
1,016,396
|
Less:
|
|
|
|
|
|
Principal
repayments
|
523,788
|
326,103
|
328,453
|
358,255
|
557,134
|
Loans
sold
|
150,983
|
77,628
|
145,430
|
108,489
|
151,151
|
Loans
transferred to other real estate owned
|
1,564
|
-
|
-
|
-
|
-
|
Gross
loans at end of period
|
$3,288,218
|
2,875,192
|
$2,702,625
|
$2,611,594
|
$2,502,268
|
(1) Includes
Home Equity and Home Improvement Loans.
Loan Maturity and
Repricing. The following table shows the earlier of the
maturity or repricing period of the Bank's loan portfolio (including loans held
for sale) at December 31, 2008. ARMs are shown as due in the period
during which their interest rates are next scheduled to adjust. The table does
not include prepayments or scheduled principal
amortization. Scheduled loan repricing and estimated prepayment and
amortization information is presented on an aggregate basis in "Item
7A. Quantitative and Qualitative Disclosures About Market Risk –
Interest Sensitivity Gap."
|
At
December 31, 2008
|
|
Real
Estate Loans
|
|
|
|
|
Multifamily
Residential
|
Commercial
Real
Estate
|
One-
to Four-
Family
|
Cooperative
Apartment
|
FHA/VA
Insured
|
Construction
and Land Acquisition
|
|
Other
Loans
|
Total
Loans
|
|
(Dollars
In Thousands)
|
Amount
due to Mature or Reprice During the Year Ending:
|
|
|
|
|
|
|
|
December
31, 2009
|
$198,949
|
$43,831
|
$27,005
|
$3,598
|
-
|
$52,982
|
|
$2,191
|
$328,556
|
December
31, 2010
|
348,482
|
96,227
|
13,692
|
26
|
-
|
-
|
|
-
|
458,427
|
December
31, 2011
|
383,698
|
175,141
|
12,562
|
6,554
|
-
|
-
|
|
-
|
577,955
|
December
31, 2012
|
282,437
|
142,525
|
20,952
|
37
|
$176
|
-
|
|
-
|
446,127
|
December
31, 2013
|
633,045
|
184,163
|
18,861
|
247
|
566
|
-
|
|
-
|
836,882
|
Sub-total
|
1,846,611
|
641,887
|
93,072
|
10,462
|
742
|
52,982
|
|
2,191
|
2,647,947
|
December
31, 2014 through December
31, 2018
|
352,650
|
158,589
|
20,765
|
595
|
-
|
-
|
|
-
|
532,599
|
December
31, 2019 and beyond
|
42,539
|
47,732
|
16,543
|
858
|
-
|
-
|
|
-
|
107,672
|
Total
|
$2,241,800
|
$848,208
|
$130,380
|
$11,915
|
$742
|
$52,982
|
|
$2,191
|
$3,288,218
|
The following table sets forth the
outstanding principal balance in each loan category (including loans held for
sale) at December 31, 2008 that is due to mature or reprice after December 31,
2009, and whether such loans have fixed or adjustable interest
rates:
|
Due
after December 31, 2009
|
|
Fixed
|
Adjustable
|
Total
|
|
(Dollars in
Thousands)
|
Mortgage
loans:
|
|
|
|
Multifamily
residential
|
$323,028
|
$1,719,823
|
2,042,851
|
Commercial
real estate
|
129,625
|
674,752
|
804,377
|
One-
to four-family
|
43,573
|
59,802
|
103,375
|
Cooperative
apartment
|
1,813
|
6,504
|
8,317
|
FHA/VA
insured
|
742
|
-
|
742
|
Construction
and land acquisition
|
-
|
-
|
-
|
Other
loans
|
-
|
-
|
-
|
Total
loans
|
$498,781
|
$2,460,881
|
$2,959,662
|
Multifamily Residential Lending and
Commercial Real Estate Lending. The majority of the Bank's lending
activities consist of originating adjustable-rate and fixed-rate multifamily
residential (i.e.,
buildings possessing a minimum of five residential units) and commercial real
estate loans. The properties securing these loans are generally located in the
Bank's primary lending area. At December 31, 2008, $2.24 billion, or 68.2% of
the Bank's gross loan portfolio, were multifamily residential loans. Of the
multifamily residential loans, $2.13 billion, or 95.2%, were secured by
apartment buildings and $107.4 million, or 4.8%, were secured by Underlying
Cooperatives. The Bank also had $848.2 million of commercial real estate loans
in its portfolio at December 31, 2008, representing 25.8% of its total loan
portfolio.
The Bank originated multifamily
residential and commercial real estate loans totaling $1.01 billion during the
year ended December 31, 2008 and $516.1 million during the year ended December
31, 2007. At December 31, 2008, the Bank had commitments accepted by borrowers
to originate $46.8 million of multifamily residential and commercial real estate
loans, compared to $96.3 million outstanding at December 31, 2007.
At December 31, 2008, multifamily
residential and commercial real estate loans originated by the Bank were secured
by three distinct property types: (1) fully residential apartment buildings; (2)
"mixed-use" properties featuring a combination of residential and commercial
units within the same building; and (3) fully commercial buildings. The
underwriting procedures for each of these property types were substantially
similar. Loans secured by fully residential apartment buildings were classified
by the Bank as multifamily residential loans in all instances. Loans secured by
fully commercial real estate were classified as commercial real estate loans in
all instances. Loans secured by mixed-use properties were classified as either
multifamily residential or commercial real estate loans based upon the
percentage of the property's rental income received from its residential
compared to its commercial tenants. If 50% or more of the rental income was
received from residential tenants, the full balance of the loan was classified
as multifamily residential. If less than 50% of the rental income was received
from residential tenants, the full balance of the loan was classified as
commercial real estate. At December 31, 2008, mixed use properties classified as
multifamily residential or commercial real estate loans totaled
$1.08 billion.
Multifamily residential and
commercial real estate loans in the Bank's portfolio generally range in amount
from $250,000 to $4.0 million, and, at December 31, 2008, had an average loan
size of approximately $1.5 million. Multifamily residential loans in this range
are generally secured by buildings that possess between 5 and 100 apartments. As
of December 31, 2008, the Bank had a total of $2.13 billion of multifamily
residential loans in its portfolio secured by buildings with under 100 units,
representing approximately 65% of its real estate loan portfolio.
Multifamily residential loans are
generally viewed as exposing the Bank to a greater risk of loss than one- to
four-family residential loans and typically involve higher individual loan
principal amounts. Repayment of multifamily residential loans is
dependent, in significant part, on cash flow from the collateral property
sufficient to satisfy operating expenses and debt service. Economic events and
government regulations, such as rent control and rent stabilization laws, which
are outside the control of the borrower or the Bank, could impair the future
cash flow of such properties. As a result, rental income might not rise
sufficiently over time to satisfy increases in the loan rate at repricing or in
overhead expenses (e.g., utilities, taxes, and
insurance).
The
underwriting standards for multifamily residential and commercial real estate
loans generally require: (1) a maximum loan-to-value ratio of 80% based upon an
appraisal performed by an independent, state licensed appraiser, and (2)
sufficient cash flow from the underlying property to adequately service the
debt, represented by a minimum debt service ratio of 115%. The average
loan-to-value and debt service ratios were 59% and 150%, respectively, on all
multifamily and commercial real estate loans originated during the year ended
December 31, 2008. The Bank additionally requires all multifamily and commercial
real estate borrowers to represent that they are unaware of any environmental
concerns related to the collateral. The Bank further considers the borrower's
experience in owning or managing similar properties, the value of the collateral
based upon the income approach, and the Bank's lending experience with the
borrower. When originating multifamily residential and commercial
real estate loans, the Bank utilizes rent or lease income and the borrower's
credit history and business experience (See "Item 1. Business - Lending
Activities - Loan Approval Authority and Underwriting" for a discussion of the
Bank's underwriting procedures utilized in originating multifamily residential
and commercial real estate loans).
It is the
Bank's policy to require appropriate insurance protection, including title and
hazard insurance, on all real estate mortgage loans at closing. Borrowers
generally are required to advance funds for certain expenses such as real estate
taxes, hazard insurance and flood insurance.
At
December 31, 2008, the Bank had 447 multifamily residential and commercial real
estate loans in portfolio with principal balances greater than $2.0 million,
totaling $1.84 billion. Within this total were nineteen loans
totaling $271.0 million with outstanding balances greater than $10.0
million. These 447 loans, while underwritten to the same standards as
all other multifamily residential and commercial real estate loans, tend to
expose the Bank to a higher degree of risk due to the potential impact of losses
from any one loan relative to the size of the Bank's capital
position.
The
typical multifamily residential and commercial real estate ARM carries a final
maturity of 10 or 12 years, and an amortization period not exceeding 30 years.
These loans generally have an interest rate that adjusts once after the fifth or
seventh year, indexed to the 5-year FHLBNY advance rate plus a spread typically
approximating 225 basis points, but generally may not adjust below the initial
interest rate of the loan. Prepayment fees are assessed throughout the majority
of the life of the loans. The Bank also offers fixed-rate, self-amortizing,
multifamily residential and commercial real estate loans with maturities of up
to fifteen years.
Commercial
real estate loans are generally viewed as exposing the Bank to a greater risk of
loss than both one- to four-family and multifamily residential mortgage loans.
Because payments on loans secured by commercial real estate are often dependent
upon successful operation or management of the collateral properties, repayment
of such loans are generally subject to a greater extent to prevailing conditions
in the real estate market or the economy. Further, the collateral securing such
loans may depreciate over time, be difficult to appraise, or fluctuate in
value based upon the success of the business. This increased risk is
partially compensated for in the following manners: (i) the Bank requires, in
addition to the security interest in the commercial real estate, a security
interest in the personal property associated with the collateral and standby
assignments of rents and leases from the borrower; and (ii) at December 31,
2008, approximately $360.1 million of the Bank's commercial real estate loans
were secured by mixed used properties that had some portion of residential units
associated with the collateral property.
The Bank's three largest multifamily
residential loans at December 31, 2008 were a $31.4 million loan originated in
September 2008 secured by seventeen mixed use buildings located in Manhattan,
New York, containing, in aggregate, 401 residential units and 11 commercial
units; a $23.5 million loan originated in March 2004 secured by an eight-story,
mixed-use
building
located in Flushing, New York, containing 137 residential units and 4 commercial
units; and a $16.9 million loan originated in December 2004 secured by a mixed
use building located in Manhattan, New York that contains 67 residential units
and twelve commercial units.
The Bank's two largest commercial
real estate loans at December 31, 2008 were a $15.2 million loan originated in
May 2005 secured by a three-story building located in Manhattan, New York
containing 10 retail stores; and a $13.5 million loan originated in February
2007 secured by a professional office building with 12 office rental units
located in White Plains, New York. The Bank also owned two commercial
real estate loans with an outstanding principal balance of $12.5 million each at
December 31, 2008, both of which were originated during 2008 and are located in
Manhattan, New York. One of the loans is secured by an office
building containing twenty-seven office rental units while the other loan is
secured by a mixed use building with fourteen commercial units and nine
apartments.
The Bank's largest aggregate amount
of loans to one borrower was $41.0 million at December 31, 2008, compared to a
regulatory limit of $45.5 million. The individual loans made to the
largest individual borrower were secured by four buildings located in Manhattan,
New York, containing 104 residential units and one commercial unit.
Small Mixed-Use Lending (Small
Investment Property Loans). In 2003, the Bank began
originating small investment property loans. Small investment property
loans are typically sourced through brokers. Generally, small investment
properties include owner and non-owner occupied one- to four-family residential,
multifamily, or mixed-use properties under $1.0 million in value. In
the majority of cases, the appraised value of small investment properties is
based upon a "comparable sales" methodology rather than the income approach
methodology used in underwriting commercial real estate loans. Small
investment property loans are required to be personally guaranteed by the
borrowers. The appraisal methodology chosen can vary depending upon the
attributes of the underlying collateral and/or the availability of comparable
sales data. In cases where the comparable sales method of appraisal is
used, loans can have debt service coverage ratios below 100%. In such
cases, the Bank looks to the borrower’s financial capacity to service the
debt. Small investment property loans typically carry higher rates of
interest in order to compensate the Bank for the assumed increased risk of
default. Because these loans are required to be personally guaranteed, the Bank
relies heavily on both the financial and credit information of borrowers in its’
underwriting. Small commercial real estate loans can be underwritten to a
maximum loan-to-value ratio of 80%. In the minority of cases where the
income approach to appraised value is used, loans can be underwritten to a
minimum debt service ratio of 110%. At December 31, 2008, the Bank held
$80.7 million of loans in portfolio classified as small investment property
loans, or approximately 2.5% of the gross loan portfolio, with a weighted
average FICO score of 711 and a weighted average loan-to-value ratio of
64%.
One- to Four-Family Residential and
Cooperative Apartment Lending. The Bank offers
residential first and second mortgage loans secured primarily by owner-occupied,
one- to four-family residences, including condominium and cooperative
apartments. The majority of one- to four-family residential loans in
the Bank's loan portfolio were obtained through the Bank's acquisitions of
Financial Federal Savings Bank in 1999 and Pioneer Savings Bank, F.S.B. in
1996. The Bank originated $37.0 million of one- to four-family
mortgages during the year ended December 31, 2008, including home equity and
home improvement loans. At December 31, 2008, $130.7 million, or
4.0%, of the Bank's loans consisted of one- to four-family residential and
cooperative apartment loans. The Bank is a participating
seller/servicer with FNMA and generally underwrites its one- to four-family
residential mortgage loans to conform with FNMA standards.
Although the collateral securing
cooperative apartment loans is composed of shares in a cooperative corporation
(i.e., a corporation
whose primary asset is the underlying building) and a proprietary lease in the
borrower's apartment, cooperative apartment loans are treated as one- to
four-family loans. The Bank's portfolio of cooperative apartment
loans was $11.6 million, or 0.4% of total loans, as of December 31,
2008. Originations of cooperative unit loans totaled $7.2 million
during the year ended December 31, 2008.
For all one- to four-family loans
originated by the Bank, upon receipt of a completed loan application from a
prospective borrower: (1) a credit report is reviewed; (2) income, assets,
indebtedness and certain other information are reviewed; (3) if necessary,
additional financial information is required of the borrower; and (4) an
appraisal of the real estate intended to secure the proposed loan is obtained
from an independent appraiser approved by the Board of
Directors. Loans underwritten by PHH additionally utilize these
underwriting criteria (with the exception that the appraisals are completed by a
rotating appraisal group certified by PHH). One to four-family loans
sold to PHH totaled $8.2 million during the year ended December 31,
2008.
The Bank generally sells its newly
originated conforming fixed-rate one- to four-family mortgage loans with
maturities in excess of 15 years. During the year ended December 31,
2008, the Bank sold one- to four-family mortgage loans totaling $8.8 million to
non-affiliates, of which $8.2 were sold to PHH, and $580,000 were sold to FNMA
with servicing retained by
the
Bank. As of December 31, 2008, the Bank's portfolio of one- to
four-family fixed-rate mortgage loans serviced for others totaled $19.2
million.
Home Equity and Home Improvement
Loans. Home equity loans and home improvement loans, the
majority of which are included in one- to four-family loans, are originated to a
maximum of $500,000. At the time of origination, the combined balance
of the first mortgage and home equity or home improvement loan may not exceed
75% of the appraised value of the collateral property at origination of the home
equity or home improvement loan. On home equity and home improvement
loans, the borrower pays an initial interest rate equal to the prime interest
rate at the time of origination. After six months, the interest rate
adjusts and ranges from the prime interest rate to 100 basis points above the
prime interest rate in effect at the time. The interest rate on the
loan can never fall below the rate at origination The combined outstanding
balance of the Bank's home equity and home improvement loans was $31.3 million
at December 31, 2008.
Equity Lines of Credit on
Multifamily Residential and Commercial Real Estate
Loans. Equity credit lines are available on multifamily
residential and commercial real estate loans. These loans are
underwritten in the same manner as first mortgage loans on these properties,
except that the combined loan-to-value ratio of the first mortgage and the
equity line may be as high as 80% and the minimum debt service coverage ratio is
115%. On multifamily residential and commercial real estate equity
lines of credit, the borrower pays an interest rate generally ranging from 100
to 200 basis points above the prime rate, based upon the loan-to-value ratio of
the combined first mortgage and equity line at the time of origination of the
equity line of credit. The outstanding balance of these equity loans
(which are included in the $31.3 million of total outstanding home equity and
home improvement loans discussed in the previous paragraph) was $14.2 million at
December 31, 2008, on outstanding total lines of $43.3 million.
Construction Lending. The
Bank participates in various real estate construction loans. All of
these construction projects are located in the NYC metropolitan area, and in
most instances, involve multifamily residential properties that are underwritten
to support the permanent debt with rental units. Although it has
assumed up to 90% participation on some construction loan commitments, the Bank
generally does not act as primary underwriting agent for any of these
loans. The Bank does, however, carefully review the underwriting of
these construction loans, and regularly inspects the construction progress and
engineering reports prior to advancing funds. During the year ended
December 31, 2008, the Bank funded $18.2 million of construction
loans. At December 31, 2008, the Bank had $13.4 million in unfunded
construction loan commitments.
Land Acquisition
Loans. The Bank, in rare instances, funds the purchase of land
by a borrower for either rehabilitation or development. These loans
require that the loan to value ratio not exceed 70% at origination, and require
a separate construction or permanent loan to be negotiated by the borrower for
any future development activity. Land acquisition loans totaled $7.7
million at December 31, 2008.
Loan Approval Authority and
Underwriting. The Board of Directors of the Bank
establishes lending authorities for individual officers related to the various
types of loan products offered by the Bank. In addition, the Bank
maintains a Loan Operating Committee entrusted with loan approval
authority. The Chief Executive Officer, President, Chief Financial
Officer, Chief Investment Officer and Chief Lending Officer are members of the
Loan Operating Committee. The Loan Operating Committee has authority
to approve portfolio loan originations in amounts up to $3.0 million and loans
originated and sold to PHH in amounts up to $4.0 million (although loans in
excess of $1.5 million are not currently offered by the Bank through the PHH
program). Both the Loan Operating Committee and the Bank's Board of
Directors must approve all portfolio loan originations exceeding $3.0
million. All loans approved by the Loan Operating Committee are
presented to the Bank's Board of Directors for its review.
Regulatory restrictions imposed on
the Bank's lending activities limit the amount of credit that may be extended to
any one borrower to 15% of unimpaired capital and unimpaired surplus. A single
borrower may exceed the initial 15% limit, up to a final limit of 25%, if he or
she secures the full amount of the outstanding loan balance in excess of the
initial 15% limit with collateral in the form of readily marketable securities
that have a reliable and continuously available price quotation. The
Bank's highest individual borrower fell significantly below this limitation at
December 31, 2008. (See "Item 1. Business - Regulation -
Regulation of Federal Savings Associations - Loans to One
Borrower'').
Asset
Quality
General
At both December 31, 2008 and December
31, 2007, the Company had neither whole 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. (See "Item I – Business –
Lending Activities" for a
further
discussion of the Bank's underwriting standards).
Monitoring and Collection of
Delinquent Loans
Management of the Bank reviews
delinquent loans on a monthly basis and reports to its Board of Directors
regarding the status of all non-performing and otherwise delinquent loans in the
Bank's portfolio.
The
Bank's loan servicing policies and procedures require that an automated late
notice be sent to a delinquent borrower as soon as possible after a payment is
ten days late, in the case of a multifamily residential or commercial real
estate loan, or fifteen days late in connection with a one- to four-family or
consumer loan. A second letter is sent to the borrower if payment has
not been received within 30 days of the due date. Thereafter,
periodic letters are mailed and phone calls are placed to the borrower until
payment is received. When contact is made with the borrower at any
time prior to foreclosure, the Bank will attempt to obtain the full payment due
or negotiate a repayment schedule with the borrower to avoid
foreclosure.
Accrual of interest is generally
discontinued on loans that have missed three consecutive monthly payments, at
which time the Bank does not recognize the interest from the third month and
evaluates whether the accrual of interest associated with the first two missed
payments should be reversed. Payments on nonaccrual loans are
generally applied to principal. Management may elect to continue the
accrual of interest when a loan is in the process of collection and the
estimated fair value of the collateral is sufficient to satisfy the outstanding
principal balance (including any outstanding advances related to the loan) and
accrued interest. 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 period of at least six
months.
Generally,
the Bank initiates foreclosure proceedings when a loan enters non-accrual
status. After initiating foreclosure proceedings, the Bank procures
current appraisal information in order to prepare an estimate of the fair value
of the underlying collateral. If a foreclosure action is instituted
and the loan is not brought current, paid in full, or refinanced before the
foreclosure action is completed, the property securing the loan is generally
sold. It is the Bank's general policy to dispose of OREO properties
as quickly and prudently as possible in consideration of market conditions, the
physical condition of the property and any other mitigating
circumstances.
Non-accrual
loans
Within the Bank's portfolio,
non-accrual loans totaled $7.4 million and $2.9 million at December 31, 2008 and
December 31, 2007, respectively. During the year ended December 31,
2008, twelve loans totaling $7.0 million were added to non-accrual
status. Partially offsetting this increase were three loans totaling
$1.6 million that were transferred to other real estate owned ("OREO") and two
non-accrual loans totaling $876,000 that were satisfied during the
period. The difficulties experienced in both the national real estate
and financial services marketplaces combined to adversely impact the
metropolitan NYC area multifamily and commercial real estate markets during
2008.
Impaired
Loans
Statement of Financial Accounting
Standards ("SFAS") 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"), provides guidelines for determining and measuring impairment in
loans. A loan is considered impaired when it is probable that all
contractual amounts due will not be collected in accordance with the terms of
the loan. A loan is not deemed to be impaired, even during a period of delayed
payment by the borrower, if the Bank ultimately expects to collect all amounts
due, including interest accrued at the contractual rate. Generally,
the Bank considers non-accrual and troubled-debt restructured multifamily
residential and commercial real estate loans, along with non-accrual one- to
four-family loans exceeding $625,500, to be impaired. Non-accrual one-to
four-family loans of $625,500 or less, as well as all consumer loans, are
considered homogeneous loan pools and are not required to be evaluated
individually for impairment. Impairment is measured by the amount
that the carrying balance of the loan, including all accrued interest, exceeds
the estimate of the 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. The recorded investment in loans
deemed impaired was approximately $8.9 million, consisting of fifteen loans, at
December 31, 2008, compared to $2.8 million, consisting of six loans, at
December 31, 2007, and $3.5 million, consisting of six loans, at December 31,
2006. During the year ended December 31, 2008, fourteen impaired
loans totaling $8.5 million were added to impaired status, while five loans
totaling $2.4 million were removed from impaired status. Of the $8.5
million added during the year, $2.1 million represented problematic loans that
remained on accrual status at December 31, 2008. The combination of
their problem payment history and concerns over their realizable disposal value
in the event of foreclosure, resulted in their
being
deemed impaired at December 31, 2008, with a specific reserve being allocated to
them within the allowance for loan losses. Of the $2.4 million
removed from impaired status, $1.6 million represented transfers to OREO and
$876,000 represented satisfactions. During the year ended December
31, 2007, three impaired loans totaling $2.0 million were removed from impaired
status while three loans totaling $1.2 million were added to impaired
status. Since much of the activity occurred during the final six
months of 2007, while the period-end balance of impaired loans declined from
December 31, 2006 to December 31, 2007, the average balance was higher during
the year ended December 31, 2007, as $3.5 million of impaired loans added during
the year ended December 31, 2006 had a greater impact on the average balance of
impaired loans during 2007 than 2006. At December 31, 2008 and 2007,
reserves totaling $1.1 million and $348,000, respectively, were allocated within
the allowance for loan losses for impaired loans. At December 31,
2008, impaired loans exceeded non-accrual loans by $1.5 million due to the $2.1
million of impaired loans that remained on accrual status at December 31, 2008,
which were partially offset by $597,000 of one- to four-family and consumer
loans, which, while on non-accrual status, were not deemed impaired since they
had individual outstanding balances of $625,500 or less.
Troubled-Debt
Restructurings
Under accounting principles generally
accepted in the United States of America ("GAAP"), the Bank is required 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 either the loan is repaid or returns to its original terms. The
Bank had no loans classified as troubled-debt restructurings at December 31,
2008 and 2007.
OREO
Property acquired by the Bank as
a result of a foreclosure on a mortgage loan or 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 and any
disposition expenses charged to the valuation allowance for possible losses on
OREO. The Bank obtains a current appraisal on OREO property as soon as
practicable after it takes possession and will generally reassess the value of
OREO at least annually thereafter. At December 31, 2008, the Bank
owned one OREO property with a recorded balance of $300,000. At
December 31, 2007, the Bank owned no OREO properties with a recorded
balance.
The
following table sets forth information regarding non-accrual loans, OREO, and
troubled-debt restructurings at the dates indicated:
|
At
December 31,
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
Non-accrual
loans
|
(Dollars
in Thousands)
|
One-
to four-family
|
$566
|
$11
|
$60
|
$317
|
$475
|
Multifamily
residential
|
776
|
2,236
|
1,655
|
384
|
830
|
Commercial
real estate
|
3,439
|
577
|
1,859
|
|
|
Mixed
Use
|
2,590
|
-
|
-
|
-
|
-
|
Cooperative
apartment
|
26
|
27
|
26
|
229
|
-
|
Other
|
5
|
5
|
6
|
28
|
154
|
Total
non-accrual loans
|
7,402
|
2,856
|
3,606
|
958
|
1,459
|
OREO
|
300
|
-
|
-
|
-
|
-
|
Total
non-performing assets
|
7,702
|
2,856
|
3,606
|
958
|
1,459
|
Troubled-debt
restructurings
|
-
|
-
|
-
|
-
|
-
|
Total
non-performing assets and
troubled-debt
restructurings
|
$7,702
|
$2,856
|
$3,606
|
$958
|
$1,459
|
|
|
|
|
|
|
Impaired
loans
|
$8,900
|
$2,814
|
$3,514
|
$384
|
$830
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
Total
non-accrual loans to total loans
|
0.22%
|
0.10%
|
0.13%
|
0.04%
|
0.06%
|
Total non-accrual loans and troubled-debt restructurings
to total loans
|
0.22
|
0.10
|
0.13
|
0.04
|
0.06
|
Total
non-performing assets to total assets
|
0.19
|
0.08
|
0.11
|
0.03
|
0.04
|
Total
non-performing assets and troubled-debt
restructurings to total assets
|
0.19
|
0.08
|
0.11
|
0.03
|
0.04
|
On
January 30, 2009, the Bank re-acquired four loans with an aggregate carrying
balance of $5.8 million (net of aggregate specific reserves of $3.0 million
recognized on these loans). This $5.8 million carrying balance
is expected to be reflected as non-accrual loans / non-performing assets at
March 31, 2009. (See "Item 1 – Business - Reserve Liability on the
Recourse Exposure on Multifamily Loans Serviced for FNMA") for a further
discussion of this re-acquisition.
Loans Delinquent 60 to 89
Days
The Bank had a total of 10 real estate
and consumer loans, totaling $4.8 million, delinquent 60-89 days (two
consecutive missed payments) at December 31, 2008, compared to 7 such delinquent
loans, totaling $1.9 million, at December 31, 2007. The
majority of the dollar amount of both non-accrual loans and loans delinquent
60-89 days were real estate loans. The growth in the dollar amount
delinquent 60-89 days from December 31, 2007 to December 31, 2008 resulted
primarily from a net increase of $3.1 million of 60 to 89 day delinquent real
estate 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-accrual loans. However, given the
considerable challenges facing the NYC area multifamily and commercial real
estate markets at December 31, 2008, it is reasonable to expect that these
delinquencies will remain above their December 31, 2007 level for the
foreseeable future.
Classified
Assets
OTS regulations and Bank policy
require that loans and other assets possessing certain negative characteristics
be classified as ''Substandard,'' ''Doubtful'' or ''Loss'' assets. An asset is
considered ''Substandard'' if it is inadequately protected by the current net
worth and paying capacity of the obligor or the collateral pledged, if any.
''Substandard'' assets have a well-defined weakness or weaknesses and are
characterized by the distinct possibility that the Bank will sustain ''some
loss'' if deficiencies are not corrected. Assets classified as ''Doubtful'' have
all of the weaknesses inherent in those classified ''Substandard'' with the
added characteristic that the weaknesses present make ''collection or
liquidation in full,'' on the basis of current existing facts, conditions, and
values, ''highly questionable and improbable.'' Assets classified as ''Loss''
are those considered ''uncollectible'' and of such little value that their
continuance as assets without the establishment of a specific loss reserve is
not warranted. Assets which do not expose the Bank to risk sufficient
to warrant classification in one of the aforementioned categories, but possess
potential weaknesses that deserve management's attention, are designated
''Special Mention.''
The Bank's Loan Loss Reserve
Committee, subject to approval of the Bank's Board of Directors, establishes
policies relating to the internal classification of loans. The Bank
believes that its classification policies are consistent with regulatory
requirements. All non-accrual and impaired loans and OREO are considered
classified assets. In addition, the Bank maintains a "watch list," comprised of
loans that, while performing, are characterized by weaknesses requiring special
attention from management and are considered to be potential problem
loans. This list can include loans that have either been classified
as Substandard or Special Mention in previous years but have remained current
for at least 6 months, loans that have experienced irregular payment histories,
or troubled-debt restructurings to the extent that they do fall into either of
the previous groups.
The Loan Loss Reserve Committee
reviews all loans in the Bank's portfolio quarterly, with particular emphasis on
problem loans, in order to determine whether any loans require reclassification
in accordance with applicable regulatory guidelines. The Loan Loss
Reserve Committee reports its conclusions to the Bank's Board of Directors on a
quarterly basis.
At December 31, 2008, the Bank's
watch list was comprised of 11 loans totaling $2.7 million that remained on
accrual status, compared to 7 such loans totaling $1.8 million at December 31,
2007. The increase resulted from the addition of seven loans totaling
$1.9 million to the watch list during 2008, which were partially offset by two
loans totaling $1.1 million that entered non accrual status during the
period.
At both December 31, 2008 and 2007,
the Bank had no loans classified as either Doubtful or Loss. At
December 31, 2008, the Bank had 27 loans totaling $2.7 million designated
Special Mention, compared to 31 loans totaling $1.2 million at December 31,
2007, reflecting the increase in the watch list loan balance during the year
ended December 31, 2008. At December 31, 2008, the Bank had $7.3
million of assets classified as Substandard, compared to $3.7 million at
December 31, 2007.
At December 31, 2008 and 2007, no
Company-held investment securities, MBS or other assets were classified as
Special Mention, Substandard or Doubtful. GAAP rules that require the
immediate recognition of unrealized losses on these assets that are deemed
other-than temporary enerally prevent them from satisfying the criteria of a
classified asset under OTS regulations and Bank policy.
The following table sets forth the
Bank's aggregate carrying value of assets classified as either Substandard or
Special Mention at December 31, 2008:
|
Special Mention
|
|
Substandard
|
|
Number
|
Amount
|
|
Number
|
Amount
|
|
(Dollars
in Thousands)
|
Mortgage
Loans:
|
|
|
|
|
|
Multifamily
residential
|
3
|
$1,550
|
|
2
|
$1,553
|
One-
to four-family
|
1
|
57
|
|
6
|
1,473
|
Cooperative
apartment
|
4
|
153
|
|
1
|
26
|
Commercial
real estate
|
3
|
920
|
|
5
|
3,955
|
Total
Mortgage Loans
|
11
|
2,680
|
|
14
|
$7,007
|
Other
loans
|
16
|
8
|
|
9
|
5
|
OREO
|
-
|
-
|
|
1
|
300
|
Total
|
27
|
$2,688
|
|
24
|
$7,312
|
Problem Loans Serviced for
Other Financial Institutions That are Subject to Recourse
Exposure
The Bank
services a pool of multifamily loans sold to FNMA with an outstanding principal
balance of $519.8 million at December 31, 2008. This pool of loans
was subject to a recourse exposure totaling $21.9 million at December 31,
2008. Within this pool of loans, the Bank had not received a payment
from the borrower in excess of 90 days on loans totaling $23.7 million at
December 31, 2008, and has identified another $3.6 million of other problem
loans. Under the terms of the servicing agreement with FNMA, the Bank
is obligated to fund FNMA all monthly principal and interest payments under the
original terms of the loans until the earlier of the following events: (1) the
loans have been fully satisfied or enter OREO status; or (2) the recourse
exposure is fully exhausted.
Allowance
for Loan Losses
GAAP requires the Bank to maintain an
appropriate allowance for loan losses. The Loan Loss Reserve
Committee is charged with, among other functions, responsibility for monitoring
the appropriateness of the loan loss reserve. The Loan Loss Reserve Committee's
findings, along with recommendations for changes to loan loss reserve
provisions, if any, are reported directly to the Bank's senior management and
Board of Directors. The following table sets forth activity in the
Bank's allowance for loan losses at or for the dates indicated:
|
At
or for the Year Ended December 31,
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
|
(Dollars
in Thousands)
|
Total
loans outstanding at end of period (1)
|
$3,291,505
|
$2,877,025
|
$2,703,673
|
$2,612,095
|
$2,501,805
|
Average
total loans outstanding (1)
|
$3,090,032
|
$2,777,220
|
$2,651,601
|
$2,535,574
|
$2,397,187
|
Allowance
for loan losses:
|
|
|
|
|
|
Balance
at beginning of period
|
$15,387
|
$15,514
|
$15,785
|
$15,543
|
$15,018
|
Provision
for loan losses
|
2,006
|
240
|
240
|
340
|
280
|
Charge-offs
|
|
|
|
|
|
Multifamily
residential
|
(501)
|
-
|
-
|
-
|
-
|
Commercial
real estate
|
(85)
|
-
|
-
|
-
|
-
|
One-
to four-family
|
-
|
-
|
(2)
|
-
|
(3)
|
FHA/VA
insured
|
-
|
-
|
-
|
-
|
-
|
Cooperative
apartment
|
-
|
-
|
-
|
-
|
-
|
Other
|
(26)
|
(28)
|
(48)
|
(76)
|
(155)
|
Total
charge-offs
|
(612)
|
(28)
|
(50)
|
(76)
|
(158)
|
Recoveries
|
29
|
19
|
23
|
31
|
25
|
Reserve
for loan commitments transferred
(to) from other liabilities
|
644
|
(358)
|
(484)
|
(53)
|
378
|
Balance
at end of period
|
$17,454
|
$15,387
|
$15,514
|
$15,785
|
$15,543
|
Allowance
for loan losses to total
loans at end of period
|
0.53%
|
0.53%
|
0.57%
|
0.60%
|
0.62%
|
Allowance
for loan losses to total non-performing
loans at end of period
|
235.80
|
538.76
|
430.23
|
1,647.70
|
1,065.32
|
Allowance
for loan losses to total non-performing loans
and troubled-debt
restructurings at end of period
|
235.80
|
538.76
|
430.23
|
1,647.70
|
1,065.32
|
Ratio
of net charge-offs to average loans outstanding during
the period
|
0.02%
|
-
|
-
|
-
|
-
|
(1)
|
Total
loans represent gross loans, net of deferred loan fees and
discounts.
|
Based upon its evaluation of the
loan portfolio, management believes that the Bank maintained its allowance for
loan losses at a level appropriate to absorb losses inherent within the Bank's
loan portfolio as of the balance sheet dates. Factors considered in
determining the appropriateness of the allowance for loan losses include the
Bank's past loan loss experience, known and inherent risks in the portfolio,
existing adverse situations which may affect a borrower's ability to repay,
estimated value of underlying collateral and current economic conditions in the
Bank's lending area. Although management uses available information to estimate
losses on loans, future additions to, or reductions in, the allowance may be
necessary based on changes in economic conditions beyond management's control.
In addition, various regulatory agencies, as an integral part of their
examination processes, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to, or reductions in,
the allowance based upon judgments different from those of
management.
The allowance for loan losses was
$17.5 million at December 31, 2008 compared to $15.4 million at December 31,
2007. During the year ended December 31, 2008, the Bank recorded a provision of
$2.0 million to the allowance for loan losses. In addition at
December 31, 2008, the Bank re-designated $644,000 of its reserves on loan
origination commitments to its allowance for loan losses due to a decrease in
loan commitments outstanding at December 31, 2008. The Bank also
recorded net charge-offs of $583,000 during the year ended December 31,
2008. The Bank did not make any changes to the major assumptions
underlying the determination of its allowance for loan losses during the year
ended December 31, 2008. Both the provision and the increase in the
allowance for loan losses during the year ended December 31, 2008 primarily
reflected the following items: 1) the significant growth in the Bank's loan
portfolio that occurred during the year ended December 31, 2008; and 2) the
increase in non-accrual and other problem loans from December 31, 2007 to
December 31, 2008, coupled with deteriorating conditions in the Bank's local
real estate marketplace that resulted in a higher level of estimated loan loss
reserves on these non-accrual and other problem loans.
The deterioration in the overall
real estate market in the NYC metropolitan area that occurred late in 2008,
particularly in relation to commercial and office building properties, may
result in higher expected loss allocations being applied on all loans in the
determination of the allowance for loan losses during the year ending December
31, 2009 than were applied at December 31, 2008.
The
following table sets forth the Bank's allowance for loan losses allocated by
loan category and the percent of loans in each category to total loans at the
dates indicated:
|
At
December 31,
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
|
Allocated
Amount
|
Percent
of
Loans
in
Each Category to Total Loans(1)
|
Allocated
Amount
|
Percent
of
Loans
in
Each Category to Total Loans(1)
|
Allocated
Amount
|
Percent
of
Loans
in
Each Category to Total Loans(1)
|
Allocated
Amount
|
Percent
of
Loans
in
Each Category to Total Loans(1)
|
Allocated
Amount
|
Percent
of
Loans
in
Each Category to Total Loans(1)
|
|
(Dollars
in Thousands)
|
Impaired
loans
|
$1,056
|
0.27%
|
$348
|
0.10%
|
$351
|
0.13%
|
$38
|
0.01%
|
$83
|
0.04%
|
Multifamily
residential
|
10,583
|
68.08
|
9,381
|
67.72
|
8,948
|
68.62
|
10,137
|
71.75
|
11,753
|
76.72
|
Commercial
real estate
|
4,695
|
25.65
|
4,449
|
25.31
|
5,208
|
24.61
|
4,759
|
22.10
|
3,161
|
16.98
|
One-to
four- family
|
306
|
3.97
|
347
|
4.86
|
496
|
5.43
|
496
|
5.20
|
436
|
5.05
|
Cooperative
apartment
|
95
|
0.35
|
33
|
0.21
|
45
|
0.27
|
59
|
0.39
|
65
|
0.47
|
Construction
and
land
acquisition
|
680
|
1.61
|
764
|
1.72
|
392
|
0.86
|
196
|
0.46
|
-
|
0.62
|
Other
|
39
|
0.07
|
65
|
0.08
|
74
|
0.08
|
100
|
0.09
|
45
|
0.12
|
Total
|
$17,454
|
100.00%
|
$15,387
|
100.00%
|
$15,514
|
100.00%
|
$15,785
|
100.00%
|
$15,543
|
100.00%
|
(1)
|
Total
loans represent gross loans less FHA and VA guaranteed
loans.
|
Reserve
Liability on the Recourse Exposure on Multifamily Loans Serviced for
FNMA
The Bank
has a recourse exposure associated with multifamily loans that it sold to FNMA
between December 2002 and December 31, 2008, and maintains a related reserve
liability. The reserve liability reflects the estimate of future losses that are
deemed probable to occur on this loan pool at each period end. In
determining the estimate of probable future losses, the Bank utilizes a
methodology similar to the calculation of its allowance for loan
losses. For all performing loans within the FNMA serviced pool, the
reserve recognized is the present value of the estimated future losses
calculated based upon the historical loss experience for comparable multifamily
loans owned by the Bank. For problem loans within the pool, the
estimated future losses are determined in a manner consistent with impaired or
classified loans within the Bank's loan portfolio.
The
following is a summary of the aggregate balance of multifamily loans serviced
for FNMA, the period-end balance of total recourse exposure associated with
these loans, and activity related to the reserve liability:
|
At
or for the Year Ended December 31,
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
|
(Dollars
in Thousands)
|
Outstanding
balance of multifamily loans serviced for FNMA at period
end
|
$519,831
|
$535,793
|
$494,770
|
$386,781
|
$295,800
|
Total
recourse exposure at end of period
|
21,865
|
20,409
|
18,495
|
15,564
|
12,754
|
Reserve
Liability on the Recourse Exposure
|
|
|
|
|
|
Balance
at beginning of period
|
$2,436
|
$2,223
|
$1,771
|
$1,543
|
$761
|
Additions
for loans sold during the period 1
|
101
|
213
|
452
|
228
|
782
|
Provision
for losses on problem loans1
|
3,946
|
-
|
-
|
-
|
-
|
Charge-offs
|
(910)
|
-
|
-
|
-
|
-
|
Balance
at period end
|
$5,573
|
$2,436
|
$2,223
|
$1,771
|
$1,543
|
1 Amount
recognized as a portion of mortgage banking income during the
period.
Absent
extenuating circumstances, the $910,000 of charge-offs recognized in 2008, and
the full reserve liability balance of $5.6 million at December 31, 2008, would
have represented likely future loss claims, and upon ultimate settlement of the
loans, the Bank would have sought to reduce the $21.9 million total recourse
exposure. However, of the $5.6 million reserve liability that existed
at December 31, 2008, $1.4 million related to a loan that the Bank was required
to repurchase under the terms of its seller/servicer agreement with FNMA at the
initial purchase price. This loan also accounted for $146,000 of the
$910,000 in charge-offs recognized during 2008. The re-acquisition of
this loan was completed on January 30, 2009, and the Bank understands that no
losses associated with this loan shall reduce the $21.9 million total recourse
exposure.
In
addition, on January 30, 2009, the Bank re-acquired three other problem loans
from FNMA (all associated with one common borrower), on which aggregate
charge-offs of $701,000 were recognized during the year ended December 31, 2008,
and on which a specific reserve of $1.6 million was included in the $5.6 million
reserve liability at December 31, 2008. Under the terms of the
re-acquisition agreement, upon ultimate resolution of these loans, 50% of their
aggregate losses will reduce the $21.9 million total recourse
exposure. In exchange for this concession, the Bank received the
potential right to reduce the $21.9 total recourse exposure commencing on
January 1, 2015.
Subsequent
to the re-acquisition of these four loans, the reserve liability on the recourse
exposure had a balance approximating $2.6 million.
Reserve
for Loan Commitments
At
December 31, 2008, the Bank maintained a reserve of $572,000 associated with
loan commitments accepted by the borrower at December 31, 2008. This
reserve is determined based upon the historical loss experience of similar loans
owned by the Bank at each period end. Any increases in this reserve
are achieved via a transfer of reserves from the Bank's allowance for loan
losses, with any subsequent resulting shortfall in the allowance for loan losses
satisfied through the quarterly provision for loan losses. Any
decreases in the loan commitment reserve are recognized as a transfer of reserve
balances back to the allowance for loans losses at each period end.
Investment
Activities
Investment Strategies of the Holding
Company. At December 31, 2008, the Holding Company's principal
asset was its $349.7 million investment in the Bank's common
stock. Other Holding Company investments are intended primarily to
provide future liquidity which may be utilized for general business
activities. These may include, but are not limited to: (1) purchases
of the Holding Company's common stock into treasury; (2) repayment of principal
and interest on the Holding Company's $25.0 million subordinated note obligation
and $72.2 million trust preferred securities borrowing; (3) subject to
applicable dividend restriction limitations, the payment of dividends on the
Holding Company's common stock; and/or (4) investments in the equity securities
of other financial institutions and other investments not permitted to the
Bank. The Holding Company's investment policy calls for investments
in relatively short-term, liquid securities similar to those permitted by the
securities investment policy of the Bank. The Holding Company cannot
assure that it will engage in any of these activities in the
future.
Investment Policy of the
Bank. The investment policy of the Bank, which is
adopted by its Board of Directors, is designed to help achieve the Bank's
overall asset/liability management objectives while complying with applicable
OTS regulations. Generally, when selecting investments for the Bank's
portfolio, the policy calls for management to emphasize principal preservation,
liquidity, diversification, short maturities and/or repricing terms, and a
favorable return on investment. The policy permits investments in various types
of liquid
assets,
including obligations of the U.S. Treasury and federal agencies, investment
grade corporate debt, various types of MBS, commercial paper, certificates of
deposit ("CDs") and overnight federal funds sold to financial
institutions. The Bank's Board of Directors periodically approves all
financial institutions to which the Bank sells federal funds.
Investment strategies are implemented
by the Asset and Liability Management Committee ("ALCO"), which is comprised of
the Chief Financial Officer, Chief Investment Officer, Treasurer and other
senior officers. The strategies take into account the overall
composition of the Bank's balance sheet, including loans and deposits, and are
intended to protect and enhance the Bank's earnings and market value, and
effectively manage both interest rate risk and liquidity. The
strategies are reviewed monthly by the ALCO and reported regularly to the Board
of Directors.
The Holding Company or the Bank may,
with respective Board approval, engage in hedging transactions utilizing
derivative instruments. During the years ended December 31, 2008 and
2007, neither the Holding Company nor the Bank held any derivative instruments
or embedded derivative instruments that required bifurcation.
MBS. MBS provide
the portfolio with investments offering desirable repricing, cash flow and
credit quality characteristics. MBS yield less than the loans that underlie the
securities as a result of the cost of payment guarantees and credit enhancements
which reduce credit risk to the investor. Although MBS guaranteed by
federally sponsored agencies carry a reduced credit risk compared to whole
loans, such securities remain subject to the risk that fluctuating interest
rates, along with other factors such as the geographic distribution of the
underlying mortgage loans, may alter the prepayment rate of such loans and thus
affect both the prepayment speed and value of such securities. MBS,
however, are more liquid than individual mortgage loans and may readily be used
to collateralize borrowings. The MBS portfolio also provides the
Holding Company and the Bank with important interest rate risk management
features, as the entire portfolio provides monthly cash flow for re-investment
at current market interest rates. At December 31, 2008 and 2007,
respectively, all MBS owned by the Company possessed the highest possible
investment credit rating.
The Company's consolidated investment
in MBS totaled $301.4 million, or 7.4% of total assets, at
December 31, 2008, the majority of which was owned by the
Bank. The majority of the MBS portfolio was comprised of pass-through
securities guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"),
Government National Mortgage Agency ("GNMA") or FNMA. These
securities approximated 68% of the total MBS portfolio at December 31,
2008. At December 31, 2008, this portion of the portfolio was
comprised of $117.5 million of FHLMC or FNMA securities that are fixed for a
period of five, seven or ten years and then reset annually
thereafter, $88.2 million of seasoned fixed-rate FNMA pass-through
securities with an average estimated duration of less than 3.0 years, $1.0
million of GNMA ARM pass-through securities with a weighted average term to next
rate adjustment of less than one year, and a $1.4 million FNMA 18-year balloon
MBS.
At December 31, 2008, included in the
MBS portfolio were $93.2 million in Collateralized Mortgage Obligations ("CMOs")
and Real Estate Mortgage Investment Conduits ("REMICs") owned by the
Bank. All of the CMOs and REMICs were U.S agency guaranteed
obligations, with the exception of three CMOs that were issued by highly rated
private financial institutions. All of the non-agency guaranteed
obligations were rated in the highest ratings category by at least one
nationally recognized rating agency at the time of purchase. None of
the CMOs and REMICs had stripped principal and interest components and all
occupied priority tranches within their respective issues. As of
December 31, 2008, the aggregate fair value of the agency guaranteed CMOs and
REMICs approximated their cost basis. The three private financial
institution issued CMOs had an aggregate cost basis of $8.4 million and an
aggregate unrealized loss of $539,000 at December 31, 2008.
The MBS portfolio included one
pass-through security issued by a private financial institution with a cost
basis of $4.5 million and a fair value of $4.2 million at December 31,
2008. This security possessed the highest possible credit rating at
December 31, 2008, and continues to perform in accordance with its contractual
terms. The credit rating of this security was downgraded subsequent
to December 31, 2008. Despite this downgrade, the security continues
to perform in accordance with its contractual terms, and is expected to return
all contractual principal and interest.
GAAP requires that investments in
equity securities have readily determinable fair values and investments in debt
securities be classified in one of the following three categories and accounted
for accordingly: trading securities, securities available-for-sale or
securities held-to-maturity. Neither the Holding Company nor the Bank
owned any securities classified as trading securities during the twelve months
ended December 31, 2008, nor do they presently anticipate establishing
a trading portfolio. Unrealized gains and losses on
available-for-sale securities are reported as a separate component of
stockholders' equity referred to as accumulated other comprehensive loss, net of
deferred taxes. At December 31, 2008, the Holding Company and the
Bank owned, on a combined basis, $318.0 million of securities classified as
available-for-sale, which represented 7.8% of total assets. Based upon the size
of the available-for-sale portfolio, future variations in the market value of
the available-for-sale portfolio could result in fluctuations in the Company's
consolidated stockholders' equity.
The Company typically classifies MBS
as available-for-sale, in recognition of the greater prepayment uncertainty
associated with these securities, and carries them at fair market
value. The fair value of MBS available-for-sale was $1.6 million
above their amortized cost at December 31, 2008.
The following table sets forth
activity in the MBS portfolio for the periods indicated:
|
For
the Year Ended December 31,
|
|
2008
|
2007
|
2006
|
|
Dollars
in Thousands
|
Amortized
cost at beginning of period
|
$164,503
|
$160,096
|
$199,931
|
(Sales)
Purchases, net
|
183,849
|
37,992
|
-
|
Principal
repayments
|
(48,155)
|
(33,329)
|
(39,420)
|
Premium
amortization, net
|
(469)
|
(256)
|
(415)
|
Amortized
cost at end of period
|
$299,728
|
$164,503
|
$160,096
|
Corporate Debt
Obligations. Both the Holding Company and the Bank may invest
in investment-grade debt obligations of various corporations. The
Bank's investment policy limits new investments in corporate debt obligations to
companies rated single ''A'' or better by one of the nationally recognized
rating agencies, and limits investments in any one corporate entity to the
lesser of 1% of total assets or 15% of the Bank's stockholders'
equity.
At December 31, 2008, the Company's
investment in corporate debt obligations was comprised solely of eight
securities that were secured by the preferred debt obligations of a pool of U.S.
banks (with a small portion secured by debt obligations of insurance
companies). These pooled trust preferred securities had an aggregate
cost basis of $16.6 million and a recorded balance of $10.9
million. On September 1, 2008, the Bank transferred these eight
securities from its available-for-sale portfolio to its held-to-maturity
portfolio. Based upon the lack of an orderly market for these
securities, management determined that a formal election to hold these
securities to maturity was consistent with its initial investment
decision. On the date of transfer, the unrealized loss of $8.4
million that existed on these securities continued to be recognized as a
component of accumulated other comprehensive loss within the Company's
consolidated stockholders' equity (net of the deferred tax benefit), and was
expected to be amortized over the remaining average life of the securities,
which approximated 25.7 years on a weighted average basis. During the
period September 1, 2008 through December 31, 2008, amortization of this
unrealized loss totaled $134,000, and $2.6 million was reversed related to two
securities (discussed in the following paragraph) for which an other-than
temporary impairment charge was recognized during the period. At
December 31, 2008, the remaining unrealized loss will be amortized during the
remaining contractual life of these securities, which have contractual
maturities ranging from April 3, 2032 through September 22, 2037.
During the year ended December 31,
2008, the Company recorded a pre-tax other-than temporary impairment charge of
$3.2 million related to two of these pooled trust preferred
securities. As of December 31, 2008, these securities were performing
in accordance with their contractual terms and had paid all contractual cash
flows since the Bank’s initial investment. In management’s judgment, however,
the credit quality of the collateral pool underlying the two securities had
deteriorated to the point that full recovery of the Bank’s initial investment
was considered uncertain. Consequently, an other-than temporary impairment
charge was deemed warranted as of December 31, 2008. This pre-tax
other-than temporary impairment charge was reflected in the Company's
consolidated results of operations.
Subsequent to the recognition of the
impairment on the two securities, the total remaining cost basis of the
Company's investment in pooled trust preferred debt obligations of banks or
insurance companies totaled $16.6 million at December 31, 2008. There
was no orderly market for pooled trust preferred securities at December 31,
2008. As a result, the fair value of the eight securities was
estimated utilizing a cash flow valuation methodology, and was determined to be
$7.5 million below the $16.6 million aggregate cost basis. Despite
the significant decline in the market value of these securities, management
believes that the $10.8 million of unrealized losses on the pooled trust
preferred securities at December 31, 2008 were temporary, and that the full
value of these investments will be realized once the market dislocations have
been removed or as the securities continue to satisfy their contractual payments
of principal and interest. In making this determination, management
considered the following:
In addition to satisfying all
contractual payments since inception, each of the securities that possessed an
unrealized loss at December 31, 2008 demonstrated the following beneficial
credit characteristics:
·
|
All
securities have maintained an investment grade rating since inception from
at least one rating agency
|
·
|
Each
security has a diverse pool of underlying
issuers
|
·
|
None
of the securities have exposure to real estate investment trust issued
debt (which has experienced high default
rates)
|
·
|
Each
security features either a mandatory auction or a de-leveraging mechanism
that could result in principal repayments to the Bank prior to the stated
maturity of the security
|
·
|
Each
security is characterized by some level of
over-collateralization
|
Based upon an internal review of the
collateral backing these securities, which accounted for current and prospective
deferrals, each of the securities can reasonably be expected to continue making
contractual payments.
Municipal Agencies. At
December 31, 2008, the Bank had an investment in municipal agency obligations
totaling $10.1 million, all of which were acquired during 2007. At
December 31, 2008, the aggregate market value of these securities exceeded their
amortized cost basis by $202,000, and the securities possessed a weighted
average tax-adjusted yield approximating 5.6%. In February 2009, the
Company sold its entire portfolio of municipal agency obligations, recognizing a
pre-tax net gain of $431,000 on the sale.
Equity
Investments. The Company's consolidated investment in equity
securities totaled $5.4 million at December 31, 2008, comprised of various
equity mutual fund investments. At December 31, 2008, the aggregate
fair value of these mutual fund investments was $2.6 million below their cost
basis. Three of these mutual funds, which totaled $2.1 million of the
$2.6 million aggregate equity investment unrealized loss at December 31, 2008,
were in a continuous unrealized loss position for a period in excess of twelve
months as of December 31, 2008. Two of these three mutual funds
were comprised solely of U.S. equities and carried a high correlation to the
performance of the Standard and Poors 500 Equity Index. The third
mutual fund was comprised of international equities and bears a high correlation
to the performance of the MSCI Equity index. Each of these mutual funds have
regularly demonstrated the ability to recover to their cost basis during periods
in which the correlating equity market indeces performed favorably. Management
performed an historical analysis of the average period for which a declining (or
"bear") market has continued for both the Standard and Poors 500 and MSCI Equity
indeces. Based upon this analysis, management believes that each of
these securities were not other than temporarily impaired at December 31, 2008,
as the correlating indeces to be reasonably expected to recover within
a period permitting the unrealized losses could be deemed temporary
(less than two years based upon historical experience). The Company has the
intent and ability to hold the securities until recovery.
The following table sets forth the
amortized cost and fair value of the total portfolio of investment securities
and MBS at the dates indicated:
|
At
December 31,
|
|
2008
|
2007
|
2006
|
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
MBS:
|
Dollars
in Thousands
|
FHLMC
pass through certificates
|
144,688
|
146,358
|
31,174
|
31,611
|
-
|
-
|
FNMA
pass through certificates
|
55,526
|
56,569
|
12,677
|
12,646
|
9,862
|
9,488
|
GNMA
pass through certificates
|
1,057
|
1,041
|
1,266
|
1,279
|
1,773
|
1,792
|
Private
issuer MBS
|
4,474
|
4,138
|
-
|
-
|
-
|
-
|
Agency
issued CMOs and REMICs
|
85,631
|
85,432
|
107,725
|
105,716
|
133,404
|
128,520
|
Private
issuer CMOs and REMICs
|
8,352
|
7,813
|
11,661
|
11,512
|
15,057
|
14,637
|
Total
MBS
|
299,728
|
301,351
|
164,503
|
162,764
|
160,096
|
154,437
|
Investment
securities:
|
|
|
|
|
|
|
U.S.
Treasury and agency
|
1,035
|
1,036
|
-
|
-
|
-
|
-
|
Municipal
agencies
|
9,931
|
10,133
|
10,031
|
10,108
|
235
|
235
|
Corporate
debt obligations and mutual funds
|
24,618
|
14,515
|
24,750
|
24,067
|
29,503
|
29,548
|
Total
investment securities
|
35,584
|
25,684
|
34,781
|
34,175
|
29,738
|
29,783
|
Net
unrealized loss (1)
|
(798)
|
-
|
(2,345)
|
-
|
(5,614)
|
-
|
Total
securities, net
|
$334,514
|
$327,035
|
$196,939
|
$196,939
|
$184,220
|
$184,220
|
(1)
|
The
net unrealized loss relates to available-for-sale securities in accordance
with SFAS 115, "Accounting for Investments in Debt and Equity Securities."
("SFAS 115"). The net unrealized loss is presented in order to
reconcile the amortized cost of the available-for-sale securities
portfolio to the recorded value reflected in the Company's Consolidated
Statements of Financial Condition.
|
The following table sets forth the
amortized cost and fair value of the total portfolio of investment securities
and MBS, by accounting classification and type of security, at the dates
indicated:
|
At
December 31,
|
|
2008
|
2007
|
2006
|
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
Held-to-Maturity:
|
Dollars
in Thousands
|
Pooled
trust preferred securities
|
$16,561
|
$9,082
|
-
|
-
|
-
|
-
|
Municipal
agency
|
-
|
-
|
80
|
80
|
235
|
235
|
Total
Held-to-Maturity
|
$16,561
|
$9,082
|
$80
|
$80
|
$235
|
$235
|
|
|
|
|
|
|
|
Available-for-Sale:
|
|
|
|
|
|
|
MBS:
|
|
|
|
|
|
|
Agency
issued MBS
|
$201,271
|
$203,968
|
$45,117
|
$45,536
|
$11,635
|
$11,280
|
Private
issuer MBS
|
4,474
|
4,138
|
-
|
-
|
-
|
-
|
Agency
issued CMOs and REMICs
|
85,631
|
85,432
|
107,725
|
105,716
|
133,404
|
128,520
|
Private
issuer CMOs and REMICs
|
8,352
|
7,813
|
11,661
|
11,512
|
15,057
|
14,637
|
Total
MBS available-for-sale
|
299,728
|
301,351
|
164,503
|
162,764
|
160,096
|
154,437
|
Investment
securities
|
19,023
|
16,602
|
34,701
|
34,095
|
29,503
|
29,548
|
Net
unrealized loss (1)
|
(798)
|
-
|
(2,345)
|
-
|
(5,614)
|
-
|
Total
Available-for-Sale
|
$317,953
|
$317,953
|
$196,859
|
$196,859
|
$183,985
|
$183,985
|
Total
securities, net
|
$334,514
|
$327,035
|
$196,939
|
$196,939
|
$184,220
|
$184,220
|
(1)
|
The
net unrealized loss relates to available-for-sale securities in accordance
with SFAS 115. The net unrealized loss is presented in order to reconcile
the amortized cost of the available-for-sale securities portfolio to the
recorded value reflected in the Company's Consolidated Statements of
Condition.
|
The
following table presents the amortized cost, fair value and weighted average
yield of available-for-sale investment securities and MBS (exclusive of equity
investments) at December 31, 2008, categorized by remaining period to
contractual maturity. With respect to MBS, the entire carrying amount of each
security at December 31, 2008 is reflected in the maturity period that includes
the final security payment date and, accordingly, no effect has been given to
periodic repayments or possible prepayments. The investment policies
of both the Holding Company and the Bank call for the purchase of only priority
tranches when investing in MBS. As a result, the weighted average
duration of the Company's MBS approximated 2.7 years as of December 31, 2008
when giving consideration to anticipated repayments or possible prepayments,
which is significantly less than their calculated average maturity in the table
below. Other than obligations of federal agencies and GSEs, neither
the Holding Company nor the Bank had a combined investment in securities issued
by any one entity in excess of the lesser of 1% of total assets or 15% of the
Bank's equity at December 31, 2008.
|
Amortized
Cost
|
Fair
Value
|
Weighted
Average
Tax EquivalentYield
|
|
(Dollars
in Thousands)
|
MBS:
|
|
|
|
Due
within 1 year
|
-
|
-
|
-
|
Due
after 1 year but within 5 years
|
-
|
-
|
-
|
Due
after 5 years but within 10 years
|
$112,448
|
$112,789
|
4.17%
|
Due
after ten years
|
187,280
|
188,562
|
4.90
|
Total
|
299,728
|
301,351
|
4.63
|
|
|
|
|
Municipal
agency:
|
|
|
|
Due
within 1 year
|
-
|
-
|
-
|
Due
after 1 year but within 5 years
|
348
|
361
|
5.72
|
Due
after 5 years but within 10 years
|
9,583
|
9,772
|
5.62
|
Due
after ten years
|
-
|
-
|
-
|
Total
|
9,931
|
10,133
|
5.62
|
|
|
|
|
Agency
obligations:
|
|
|
|
Due
within 1 year
|
-
|
-
|
-
|
Due
after 1 year but within 5 years
|
-
|
-
|
-
|
Due
after 5 years but within 10 years
|
1,035
|
1,036
|
1.75
|
Due
after ten years
|
-
|
-
|
-
|
Total
|
1,035
|
1,036
|
1.75
|
|
|
|
|
Total:
|
|
|
|
Due
within 1 year
|
-
|
-
|
-
|
Due
after 1 year but within 5 years
|
348
|
351
|
5.72
|
Due
after 5 years but within 10 years
|
123,066
|
123,597
|
4.26
|
Due
after ten years
|
187,280
|
188,562
|
4.90
|
Total
|
$310,694
|
$312,520
|
4.65%
|
Sources
of Funds
General. The
Bank's primary sources of funding for its lending and investment activities
include deposits, repayments of loans and MBS, investment security
maturities and redemptions, FHLBNY advances and borrowings in the form of REPOS
entered into with various financial institutions, including the
FHLBNY. From December 2002 through December 31, 2008, the Bank also
sold selected multifamily residential and mixed-use loans (or participations in
such loans) to either FNMA or third party financial institutions, and all
long-term, one- to four-family residential real estate loans directly to FNMA or
PHH. The Company may additionally issue debt under appropriate
circumstances.
Deposits. The
Bank offers a variety of deposit accounts possessing a range of interest rates
and terms. At December 31, 2008, the Bank offered, and presently
offers, savings, money market, interest bearing and non-interest bearing
checking accounts, and CDs. The flow of deposits is influenced significantly by
general economic conditions, changes in prevailing interest rates, and
competition from other financial institutions and investment products.
Traditionally, the Bank has relied upon direct marketing, customer service,
convenience and long-standing relationships with customers to generate
deposits. The communities in which the Bank maintains branch offices
have historically provided nearly all of its deposits. At December 31, 2008, the
Bank had deposit liabilities of $2.26 billion, up $80.1 million from December
31, 2007 (See "Part II - Item 7 – Management's Discussion and Analysis of
Financial Condition and Results of Operations – Liquidity and Capital
Resources"). Within total deposits at December 31, 2008, $410.7
million, or 18.2%, consisted of CDs with a minimum denomination of one-hundred
thousand dollars. Individual Retirement Accounts totaled $131.5
million, or 5.8% of total deposits on that date.
The Bank is authorized to accept
brokered CDs up to an aggregate limit of $120.0 million. At December
31, 2008 and 2007, the Bank had no brokered CDs.
The
following table presents the deposit activity of the Bank for the periods
indicated:
|
Year
Ended December 31,
|
|
2008
|
2007
|
2006
|
|
(Dollars
in Thousands)
|
Deposits
|
$3,158,031
|
$3,098,739
|
$1,826,641
|
Withdrawals
|
3,137,956
|
3,003,034
|
1,789,552
|
Deposits
greater than Withdrawals
|
$20,075
|
$95,705
|
$37,089
|
Interest
credited
|
59,978
|
75,761
|
56,671
|
Total
increase in deposits
|
$80,053
|
$171,466
|
$93,760
|
At December 31, 2008, the Bank had
$410.7 million in CDs with a minimum denomination of one-hundred thousand
dollars as follows:
Maturity
Period
|
Amount
|
Weighted
Average Rate
|
(Dollars
in Thousands)
|
Within
three months
|
$79,692
|
3.37%
|
After
three but within six months
|
96,310
|
3.79
|
After
six but within twelve months
|
181,777
|
3.94
|
After
12 months
|
52,932
|
3.94
|
Total
|
$410,711
|
3.79%
|
The following table sets forth the
distribution of the Bank's deposit accounts and the related weighted average
interest rates at the dates indicated:
|
At
December 31, 2008
|
|
At
December 31, 2007
|
|
At
December 31, 2006
|
|
Amount
|
Percent
of
Total Deposits
|
Weighted
Average Rate
|
|
Amount
|
Percent
of Total Deposits
|
Weighted
Average Rate
|
|
Amount
|
Percent
of Total Deposits
|
Weighted
Average Rate
|
|
(Dollars
in Thousands)
|
Savings
accounts
|
$270,321
|
11.96%
|
0.57%
|
|
$274,067
|
12.57%
|
0.55%
|
|
$298,522
|
14.86%
|
0.59%
|
Certificates
of deposit
|
1,153,166
|
51.02
|
3.69
|
|
1,077,087
|
49.41
|
4.61
|
|
1,064,669
|
53.01
|
4.76
|
Money
market accounts
|
633,167
|
28.02
|
2.63
|
|
678,759
|
31.14
|
4.04
|
|
514,607
|
25.62
|
3.56
|
Interest
bearing checking
accounts
|
112,687
|
4.99
|
2.10
|
|
58,414
|
2.68
|
2.28
|
|
35,519
|
1.77
|
1.08
|
Non-interest
bearing checking
accounts
|
90,710
|
4.01
|
-
|
|
91,671
|
4.20
|
0.15
|
|
95,215
|
4.74
|
-
|
Totals
|
$2,260,051
|
100.00%
|
2.79%
|
|
$2,179,998
|
100.00%
|
3.67%
|
|
$2,008,532
|
100.00%
|
3.54%
|
The following table presents, by
interest rate ranges, the dollar amount of CDs outstanding at the dates
indicated and the period to maturity of the CDs outstanding at December 31,
2008:
|
Period
to Maturity at December 31, 2008
|
Interest
Rate Range
|
One
Year or Less
|
Over
One Year to Three Years
|
Over
Three Years to Five Years
|
Over
Five Years
|
|
Total
at
December
31,
2008
|
Total
at
December
31,
2007
|
Total
at
December
31,
2006
|
(Dollars
in Thousands)
|
2.00%
and below
|
$40,814
|
$112
|
$4
|
-
|
|
$40,930
|
$21,824
|
$69,396
|
2.01%
to 3.00%
|
230,151
|
6,919
|
-
|
-
|
|
237,070
|
21,927
|
77,401
|
3.01%
to 4.00%
|
391,944
|
100,849
|
11,602
|
-
|
|
504,395
|
230,593
|
63,645
|
4.01%
to 5.00%
|
308,016
|
13,417
|
32,819
|
-
|
|
354,252
|
509,360
|
142,657
|
5.01%
and above
|
15,301
|
1,138
|
80
|
-
|
|
16,519
|
293,383
|
711,570
|
Total
|
$986,226
|
$122,435
|
$44,505
|
$-
|
|
$1,153,166
|
$1,077,087
|
$1,064,669
|
Borrowings. The
Bank has been a member and shareholder of the FHLBNY since 1980. One of the
privileges offered to FHLBNY shareholders is the ability to secure advances from
the FHLBNY under various lending programs at competitive interest
rates. The Bank's borrowing line equaled $1.42 billion at December
31, 2008.
The
Bank had FHLBNY advances totaling $1.02 billion and $706.5 million at
December 31, 2008 and 2007, respectively. At December 31, 2008, the
Bank maintained sufficient collateral, as defined by the FHLBNY (principally in
the form of real estate loans), to secure such
advances.
REPOS totaled $230.0 million and $155.1
million, respectively, at December 31, 2008 and 2007. REPOS involve
the delivery of securities to broker-dealers as collateral for borrowing
transactions. The securities remain registered in the name of the Bank, and are
returned upon the maturities of the agreements. Funds to repay the Bank's REPOS
at maturity are provided primarily by cash received from the maturing
securities.
Presented below is information
concerning REPOS and FHLBNY advances for the periods presented:
REPOS:
|
At
or for the Year Ended December 31,
|
|
2008
|
2007
|
2006
|
|
(Dollars
in Thousands)
|
Balance
outstanding at end of period
|
$230,000
|
$155,080
|
$120,235
|
Average
interest cost at end of period
|
4.32%
|
4.53%
|
3.54%
|
Average
balance outstanding during the period
|
$227,764
|
$132,685
|
$134,541
|
Average
interest cost during the period
|
3.80%
|
4.11%
|
1.95%(1)
|
Carrying
value of underlying collateral at end of period
|
$251,744
|
$163,116
|
$126,830
|
Estimated
fair value of underlying collateral
|
$251,744
|
$163,116
|
$126,830
|
Maximum
balance outstanding at month end during period
|
$265,000
|
$155,160
|
$205,455
|
(1)
During the year ended December 31, 2006, the Company prepaid certain REPOS,
resulting in a reduction of $2,176 in interest expense. Excluding
this reduction, the average cost of REPOS would have been 3.56% during the year
ended December 31, 2006.
FHLBNY
Advances:
|
At
or for the Year Ended December 31,
|
|
2008
|
2007
|
2006
|
|
(Dollars
in Thousands)
|
Balance
outstanding at end of period
|
$1,019,675
|
$706,500
|
$571,500
|
Average
interest cost at end of period
|
3.85%
|
4.07%
|
4.37%
|
Weighted
average balance outstanding during the period
|
$877,651
|
$520,972
|
$565,612
|
Average
interest cost during the period
|
4.00%
|
4.30%
|
4.69%(1)
|
Maximum
balance outstanding at month end during period
|
$1,066,675
|
$706,500
|
$596,500
|
(1)
Amounts include the effects of prepayment expenses paid on FHLBNY
advances. Excluding prepayment expenses of $1.4 million, the average
interest cost on FHLBNY advances was 4.45% during the year ended December 31,
2006. The Bank did not prepay any FHLBNY advances during the years
ended December 31, 2008 or 2007.
During the year ended December 31,
2006, the Company engaged in two separate borrowing restructuring
transactions. In the initial transaction, the Company restructured
$145.0 million of its borrowings in order to lower their average
cost. Since portions of the original borrowings were satisfied at a
discount, the Company recorded a non-recurring reduction of $43,200 in interest
expense related to the prepayment.
In
the second transaction, the Company restructured $170.0 million of wholesale
borrowings. Under this restructuring, $120.0 million of REPOS and
$50.0 million in FHLBNY advances were prepaid and replaced. The
prepaid borrowings had a weighted average interest rate of 4.53%, and were
replaced with a combination of REPOS and FHLBNY advances having an initial
weighted average interest rate of 3.79%. The replacement FHLBNY advances have a
4.4% fixed rate of interest, a final maturity of ten years and are callable by
the FHLBNY after an initial period (the "Lockout Period") of one, two or three
years. The replacement REPOS have a ten-year maturity and a Lockout
Period of either one or two years. During the Lockout Period, the
REPOS are variable rate (indexed to 3-month LIBOR), and have embedded interest
rate caps and floors that ensure their reset interest rate will not exceed their
initial interest rate. After the Lockout Period, if not called by the
lender, the REPOS convert to an average fixed rate of 4.90%. The
Company recorded a non-recurring reduction of $764,000 in interest expense
related to the prepayment.
Subsidiary
Activities
In addition to the Bank, the Holding
Company's direct and indirect subsidiaries consist of eight wholly-owned
corporations, two of which are directly owned by the Holding Company and six of
which are directly owned by the Bank. Havemeyer Equities Inc., a corporation
formerly owned by the Bank, was dissolved in 2007. The following
table presents an overview of the Holding Company's subsidiaries, other than the
Bank, as of December 31, 2008:
Subsidiary
|
Year/
State of Incorporation
|
Primary Business Activities
|
Direct
Subsidiaries of the Holding Company:
|
|
|
842
Manhattan Avenue Corp.
|
1995/
New York
|
Management
and ownership of real estate. Currently
inactive
|
Dime
Community Capital Trust I
|
2004/
Delaware
|
Statutory
Trust (1)
|
Direct
Subsidiaries of the Bank:
|
|
|
Boulevard
Funding Corp.
|
1981
/ New York
|
Management
and ownership of real estate
|
Havemeyer
Investments, Inc.
|
1997
/ New York
|
Sale
of non-FDIC insured investment products
|
DSBW
Preferred Funding Corp.
|
1998
/ Delaware
|
Real
Estate Investment Trust investing in multifamily residential
and commercial real
estate loans
|
DSBW
Residential Preferred Funding Corp.
|
1998
/ Delaware
|
Real
Estate Investment Trust investing in one- to four-family
real estate loans
|
Dime
Reinvestment Corporation
|
2004
/ Delaware
|
Community
Development Entity. Currently inactive.
|
195
Havemeyer Corp.
|
2008
/ New York
|
Management
and ownership of real estate
|
|
(1) Dime
Community Capital Trust I was established for the exclusive purpose of
issuing and selling $72.2 million of capital securities and using the
proceeds to acquire $72.2 million of junior subordinated debt securities
issued by the Holding Company. The junior subordinated debt securities
(referred to later in this Annual Report as "trust preferred securities
payable," bear an interest rate of 7.0%, mature on April 14, 2034 and are
the sole assets of Dime Community Capital Trust I. In
accordance with revised interpretation No. 46, "Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51," Dime Community
Capital Trust I is not consolidated with the Holding Company for financial
reporting purposes.
|
Personnel
As of December 31, 2008, the Company
had 363 full-time employees and 90 part-time employees. The employees
are not represented by a collective bargaining unit, and the Holding Company and
all of its subsidiaries consider their relationships with their employees to be
good.
Federal,
State and Local Taxation
Federal
Taxation
The following is a general description
of material tax matters and does not purport to be a comprehensive review of the
tax rules applicable to the Company.
General. The
Company was last audited by the Internal Revenue Service ("IRS") for its taxable
year ended December 31, 1988. For federal income tax purposes, the
Company files a consolidated income tax return on a December 31st fiscal year
basis using the accrual method of accounting and is subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's tax reserve for bad debts, discussed
below.
Tax Bad Debt
Reserves. The Bank, as a "large bank" under IRS
classifications (i.e.,
one with assets having an adjusted basis in excess of $500 million), is: (i)
unable to make additions to its tax bad debt reserve, (ii) permitted to deduct
bad debts only as they occur, and (iii) required to recapture (i.e., take into income) over
a multi-year period a portion of the balance of its tax bad debt reserves as of
June 30, 1997. At the time of enactment of the recapture requirement,
the Bank had already provided a deferred income tax liability for the bad debt
reserve for financial reporting purposes. There was thus no adverse
impact to the Bank's financial condition or results of operations as a result of
the legislation.
Distributions. Non-dividend
distributions to shareholders of the Bank are considered distributions from the
Bank's "base year tax bad debt reserve" (i.e., its reserve as of
December 31, 1987, to the extent thereof), and then from its supplemental
reserve for losses on loans. Non-dividend distributions include
distributions: (i) in excess of the Bank's current and accumulated earnings and
profits, as calculated for federal income tax purposes; (ii) for redemption of
stock; and (iii) for partial or complete liquidation.
An amount based on the total
non-dividend distributions paid will be included in the Bank's taxable income in
the year of distribution. The amount of additional taxable income
created
from a non-dividend distribution is the amount that, when reduced by the amount
of the tax attributable to this income, is equal to the amount of the
distribution. Thus, assuming a 35% federal corporate income tax rate,
approximately one and one-half times the amount of such distribution (but not in
excess of the amount of the above-mentioned reserves) would be includable in
income for federal income tax purposes. (See "Item 1 – Business - Regulation -
Regulation of Federal Savings Associations - Limitation on Capital
Distributions," for a discussion of limits on the payment of dividends by the
Bank). The Bank does not intend to pay dividends that would result in a
recapture of any portion of its base year tax bad debt
reserves. Dividends paid out of current or accumulated earnings and
profits will not be included in the Bank's income.
Corporate Alternative Minimum
Tax. The Bank's current federal rate is 35% of taxable
income. The Internal Revenue Code of 1986, as amended (the "Code")
imposes a tax on alternative minimum taxable income ("AMTI") at a rate of 20%.
AMTI is adjusted by determining the tax treatment of certain items in a manner
that negates the deferral or deduction of income resulting from the customary
tax treatment of those items. Thus, the Bank's AMTI is increased by 75% of the
amount by which the Bank's adjusted current earnings exceed its AMTI (determined
without regard to this adjustment and prior to reduction for net operating
losses).
State
and Local Taxation
State of New York. The
Company is subject to New York State ("NYS") franchise tax based on one of
several alternative methods, whichever results in the greatest
tax. These methods are as follows: 1) entire net income, which is
federal taxable income with adjustments; 2) 1% of assets; or 3) the alternative
minimum tax of 3% (after the exclusion of certain preferential
items).
For NYS tax purposes, as long as the
Bank continues to satisfy certain definitional tests relating to its assets and
the nature of its business, it will be permitted deductions, within specified
formula limits, for additions to its tax bad debt reserves for purposes of
computing its entire net income.
The Bank is permitted a deduction
with respect to "qualifying loans," which are generally loans secured by certain
interests in real property. The deduction may be computed using an
amount based on the Bank's actual loss experience (the "Experience Method") or
32% of the Bank's entire net income, computed without regard to this deduction
and reduced by the amount of any permitted addition to the Bank's reserve for
non-qualifying loans. The Bank's deduction with respect to
non-qualifying loans must be computed pursuant to the Experience
Method. The Bank reviews the most appropriate method of calculating
the deduction attributable to an addition to the tax bad debt reserves each
year.
The portion of the NYS tax bad debt
reserve in excess of a reserve amount computed pursuant to the Experience Method
is subject to recapture upon a non-dividend distribution in a manner similar to
the recapture of the federal tax bad debt reserves for such distributions. The
tax bad debt reserve is additionally subject to recapture in the event that the
Bank fails either to satisfy a thrift definitional test relating to the
composition of its assets or to maintain a thrift charter.
In general, the Holding Company is not
required to pay NYS tax on dividends and interest received from the
Bank.
The statutory NYS tax rate for the year
ended December 31, 2008 approximated 8.63% of taxable income. This
rate included a metropolitan commuter transportation district
surcharge.
City of New
York. The Holding Company and the Bank are both subject to a
NYC banking corporation tax based on one of several methods, whichever results
in the greatest tax. These methods are as follows: 1) entire
net income allocated to NYC, which is federal taxable income with adjustments;
2) 1% of assets; or 3) the alternative minimum tax of 3% (after the exclusion of
certain preferential items).
NYC generally conforms its tax law to
NYS tax law in the determination of taxable income (including the laws relating
to tax bad debt reserves). NYC tax law, however, does not allow a
deduction for the carryover of a net operating loss of a banking
company.
State of Delaware. As a
Delaware holding company not earning income in Delaware, the Holding Company is
exempt from Delaware corporate income tax, however, is required to file an
annual report and pay an annual franchise tax to the State of
Delaware.
Regulation
General
The Bank
is subject to extensive regulation, examination, and supervision by the OTS, as
its chartering agency, and the Federal Deposit Insurance Corporation ("FDIC"),
as its deposit insurer. The Bank's deposit accounts are insured up to
applicable limits by the FDIC under the Deposit Insurance Fund
("DIF"). The Bank must file reports with the OTS concerning its
activities and financial condition, and must obtain regulatory approval prior to
entering into certain transactions, such as mergers with, or acquisitions of,
other depository institutions. The OTS conducts periodic examinations to assess
the Bank's safety and soundness and compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which a savings association may engage and is
intended primarily for the protection of the DIF and depositors. As a
publicly-held unitary savings and loan holding company, the Holding Company is
required to file certain reports with, and otherwise comply with the rules and
regulations of, both the SEC, under the federal securities laws, and the
OTS.
The OTS and the FDIC have significant
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such policies, whether by the OTS, the FDIC or the
United States Congress, could have a material adverse impact on the operations
of the Company.
The following discussion is intended
to be a summary of the material statutes and regulations applicable to savings
associations and savings and loan holding companies, and does not purport to be
a comprehensive description of all such statutes and regulations.
Regulation
of Federal Savings Associations
Business
Activities. The Bank derives its lending and investment
powers from the Home Owners' Loan Act, as amended (''HOLA''), and the
regulations of the OTS enacted thereunder. Pursuant thereto, the Bank may invest
in mortgage loans secured by residential and commercial real estate, commercial
and consumer loans, certain types of debt securities, and certain other assets.
The Bank may also establish service corporations that may engage in activities
not otherwise permissible for the Bank, including certain real estate equity
investments and securities and insurance brokerage activities. The investment
powers are subject to various limitations, including a: (i) prohibition against
the acquisition of any corporate debt security not rated in one of the four
highest rating categories; (ii) limit of 400% of capital on the aggregate amount
of loans secured by non-residential real property; (iii) limit of 20% of assets
on commercial loans, with the amount of commercial loans in excess of 10% of
assets being limited to small business loans; (iv) limit of 35% of assets on the
aggregate amount of consumer loans and commercial paper and corporate debt
securities; (v) limit of 5% of assets on non-conforming loans (i.e., loans in excess of
specified amounts); and (vi) limit of the greater of 5% of assets or capital on
certain construction loans made for the purpose of financing property which is,
or is expected to become, residential.
Emergency
Economic Stabilization Act of 2008 (the “EESA”)
The U.S.
and global economies are experiencing significantly reduced activity as a result
of, among other factors, disruptions in the financial system during the past
year as well as a various other recessionary conditions. Reflecting concern
about the stability of the financial markets, many lenders and institutional
investors have reduced, and in some cases ceased to provide, funding to
borrowers, including other financial institutions. The availability of credit,
confidence in the financial sector, and level of volatility in the financial
markets have been significantly adversely affected as a result.
In
response to the financial crises affecting the banking system and financial
markets, the EESA was enacted on October 3, 2008. Pursuant to the EESA, the U.S.
Department of Treasury ("Treasury") was granted the authority to, among others,
establish the Troubled Asset Relief Program ("TARP") to purchase up to $700
billion of certain troubled assets, including mortgages, MBS and certain other
financial instruments from financial institutions for the purpose of stabilizing
and providing liquidity to the U.S. financial markets.
In the
case of a publicly-traded financial institution that sells troubled assets into
the TARP, the Treasury must receive a warrant giving the Treasury the right to
receive nonvoting common stock or preferred stock in such financial institution,
or voting stock with respect to which the Treasury agrees not to exercise voting
power, subject to certain de minimis exceptions. Further, all
financial institutions that sell troubled assets to the TARP and satisfy certain
conditions will also be subject to certain executive compensation restrictions,
which differ depending on how the troubled assets are acquired under the
TARP.
In
addition to establishing the TARP, the EESA also requires that the Secretary of
the Treasury establish a program that will guarantee the principal of, and
interest on, troubled assets originated or issued prior to March 14, 2008 in
order to help restore liquidity and stability to the financial
system. The Secretary of the Treasury will establish premiums for
financial
institutions that participate in this program and may provide for variations in
such rates in accordance with the credit risk associated with the particular
troubled asset being guaranteed.
Troubled
Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase
Program”)
Under the
TARP, on October 14, 2008, the Treasury announced the TARP Capital Purchase
Program to strengthen the capital and liquidity positions of viable institutions
and encourage banks and thrifts to increase lending to creditworthy borrowers.
Under the TARP Capital Purchase Program, qualifying financial institutions are
able to sell senior preferred shares to the Treasury, which will qualify as Tier
1 capital for regulatory capital purposes. The minimum amount of preferred
shares that may be issued is equal to 1% of the institution’s risk-weighted
assets, and the maximum is the lesser of $25 billion or 3% of the institution's
risk-weighted assets. The Treasury would also receive warrants to purchase
common stock of the participating institution with an aggregate market price
equal to 15% of the senior preferred investment. In addition, qualifying
financial institutions would also be required to adopt the Treasury’s standards
for executive compensation and corporate governance for the period during which
the Treasury holds equity issued under the program.
On January 5, 2009, after receiving
approval of its application from the Treasury, the Company announced that it had
decided to forego participation in the TARP Capital Purchase
Program. The Company conducted extensive financial analysis, and
concluded that the benefits of the TARP Capital Purchase Program to the Company
and its shareholders were mitigated by several factors, including the Company's
strong capital levels and historically prudent investment and underwriting
practices, and the potential dilution to both earnings and book value that
participation in the TARP Capital Purchase Program would have created over the
next three to five years.
Temporary
Liquidity Guarantee Program
On
November 21, 2008, the FDIC adopted the Temporary Liquidity Guarantee Program
(“TLGP”) pursuant to its authority to prevent “systematic risk” in the U.S
banking system. The TLGP was announced by the FDIC on October 14, 2008 as an
initiative to counter the system-wide crisis in the nation’s financial
sector. Under the TLGP, the FDIC will (i) guarantee, through the
earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt
issued by participating institutions on or after October 14, 2008 and before
June 30, 2009 under the Debt Guarantee Program ("DGP") and (ii) fully insure
non-interest bearing transaction deposit accounts held at participating
FDIC-insured institutions, through December 31, 2009 under the Transaction
Account Guarantee Program ("TAGP"). The Company elected not to
participate in the TLGP.
Eligible
institutions were covered under the TLGP at no cost for the first 30
days. Institutions that did not desire to continue to participate in
one or both parts of the TLGP were required to notify the FDIC of their election
to opt out on or before December 5, 2008. Institutions that did not
opt out are subject to a fee of 50 to 100 basis points per annum based on the
length of maturity of senior unsecured debt issued under the
DGP. Under the TAGP, a 10 basis point surcharge will be added to the
institution’s current insurance assessment, quarterly, for balances in
non-interest bearing transaction accounts that exceed the existing deposit
insurance limit of $250,000. The TLGP was scheduled to expire in June
of 2009, however, on February 10, 2009 the FDIC announced its intention to
extend the TLGP through October 2009 for an additional premium.
On
January 16, 2009, in an effort to further strengthen the financial system and
U.S economy, the FDIC announced that it will soon propose rule changes to the
TLGP to extend the maturity of the guarantee from three to up to 10 years where
the debt is supported by collateral and the issuance supports new consumer
lending. Until the details of this extended program are finalized and
published, management cannot determine to what extent, if any, the Company would
participate in this program. The Company did not elect to participate
in the TLGP.
It is presently unclear what impact
the EESA, the TARP Capital Purchase Program, the TLGP, other previously
announced liquidity and funding initiatives of the Federal Reserve and other
agencies, and any additional programs that may be initiated in the future will
have on the financial markets and the other difficulties described above,
including the current extreme levels of volatility and limited credit
availability, or on the U.S. banking and financial industries and the broader
U.S. and global economies. Further negative effects could have an adverse impact
on the Company and its business.
Interagency Guidance on
Nontraditional Mortgage Product Risks. On October 4, 2006, the
OTS and other federal bank regulatory authorities published the Interagency
Guidance on Nontraditional Mortgage Product Risks (the “Nontraditional Mortgage
Product Guidance”). The Nontraditional Mortgage Product Guidance describes sound
practices for managing risk, as well as marketing, originating and servicing
nontraditional mortgage products, which include, among other things, interest
only loans. The Nontraditional Mortgage Product Guidance sets forth supervisory
expectations with respect to loan terms and underwriting standards, portfolio
and risk management practices and consumer protection. For example, the
Nontraditional Mortgage Product Guidance indicates that originating interest
only loans with reduced documentation is considered a layering of risk and that
institutions
are
expected to demonstrate mitigating factors to support their underwriting
decision and the borrower’s repayment capacity. Specifically, the Nontraditional
Mortgage Product Guidance indicates that a lender may accept a borrower’s
statement as to the borrower’s income without obtaining verification only if
there are mitigating factors that clearly minimize the need for direct
verification of repayment capacity and that, for many borrowers, institutions
should be able to readily document income.
Statement on Subprime Lending.
On June 29, 2007, the OTS and other federal bank regulatory agencies
issued a final Statement on Subprime Mortgage Lending (the “Subprime Mortgage
Statement”) to address the growing concerns facing the subprime mortgage market,
particularly with respect to rapidly rising subprime default rates that may
indicate borrowers do not have the ability to repay adjustable-rate subprime
loans originated by financial institutions. In particular, the
agencies express concern in the Subprime Mortgage Statement that current
underwriting practices do not take into account that many subprime borrowers are
not prepared for "payment shock" and that current subprime lending practices
compound the risk for financial institutions. The Subprime Mortgage
Statement describes the prudent safety and soundness and consumer protection
standards that financial institutions should follow to ensure borrowers obtain
loans that they can afford to repay. These standards include a fully
indexed, fully amortized qualification for borrowers and cautions on
risk-layering features, including expectation that stated income and reduced
documentation should be accepted only if there are documented mitigating factors
that clearly minimize the need for verification of a borrower's repayment
capacity. Consumer protection standards include clear and balanced
product disclosures to customers and limits on prepayment penalties that allow
for a reasonable period of time, typically at least 60 days, for borrowers to
refinance prior to the expiration of the initial fixed interest rate period
without penalty. The Subprime Mortgage Statement also reinforces the
April 17, 2007 Interagency Statement on Working with Mortgage Borrowers, in
which the federal bank regulatory agencies encouraged institutions to work
constructively with residential borrowers who are financially unable or
reasonably expected to be unable to meet their contractual payment obligations
on their home loans.
The Company has never originated
subprime loans. The Company has evaluated the Nontraditional Mortgage Product
Guidance and the Subprime Mortgage Statement and determined its risk management
practices, underwriting guidelines and consumer protection standards to be in
compliance.
Loans to One
Borrower. Under HOLA, savings associations are generally
subject to limits on loans to one borrower identical to those imposed on
national banks. Generally, pursuant to these limits, a savings association may
not advance a loan or extend credit to a single or related group of borrowers in
excess of 15% of the association's unimpaired capital and unimpaired surplus.
Additional amounts may be advanced, not in excess of 10% of unimpaired capital
and unimpaired surplus, if such loans or extensions of credit are fully secured
by readily-marketable collateral. Such collateral is defined to include certain
debt and equity securities and bullion, but generally does not include real
estate. At December 31, 2008, the Bank's limit on loans to one
borrower was $45.5 million. The Bank's largest aggregate amount of
loans to one borrower on that date was $41.0 million and the second largest
borrower had an aggregate loan balance of $37.4 million.
QTL Test. HOLA
requires savings associations to satisfy a QTL test. A savings
association may satisfy the QTL test by maintaining at least 65% of its
''portfolio assets'' in certain ''qualified thrift investments'' during at least
nine months of the most recent twelve-month period. ''Portfolio assets'' means,
in general, an association's total assets less the sum of: (i) specified liquid
assets up to 20% of total assets, (ii) certain intangibles, including goodwill,
credit card relationships and purchased MSR, and (iii) the value of property
used to conduct the association's business. ''Qualified thrift investments''
include various types of loans made for residential and housing purposes;
investments related to such purposes, including certain mortgage-backed and
related securities; and small business, education, and credit card
loans. A savings association may additionally satisfy the QTL test by
qualifying as a "domestic building and loan association" as defined in the
Code. At December 31, 2008, the Bank maintained 69.2% of its
portfolio assets in qualified thrift investments. The Bank also satisfied the
QTL test in each month during 2008, and, therefore, was a QTL.
A savings association that fails the
QTL test must either operate under certain restrictions on its activities or
convert to a bank charter. The initial restrictions include prohibitions against
(i) engaging in any new activity not permissible for a national bank, (ii)
paying dividends not permissible under national bank regulations, and (iii)
establishing any new branch office in a location not permissible for a national
bank in the association's home state. In addition, within one year of the date a
savings association ceases to satisfy the QTL test, any company controlling the
association must register under, and become subject to the requirements of, the
Bank Holding Company Act of 1956, as amended ("BHCA"). A savings
association that has failed the QTL test may requalify under the QTL test and be
relieved of the limitations; however, it may do so only once. If the
savings association does not requalify under the QTL test within three years
after failing the QTL test, it will be required to terminate any activity, and
dispose of any investment, not permissible for a national bank.
Capital
Requirements. OTS regulations require savings associations to
satisfy three minimum capital standards: (i) a tangible capital ratio of 1.5%;
(ii) a risk-based capital ratio of 8%; and (iii) a leverage capital
ratio. For depository institutions that have been assigned the
highest composite rating of 1 under the Uniform Financial Institutions Rating
System, the minimum required leverage capital ratio is 3%. For any
other depository institution, the minimum required leverage capital ratio is 4%,
unless a higher leverage capital ratio is warranted by the particular
circumstances or risk profile of the depository institution. In
assessing an institution's capital adequacy, the OTS takes into consideration
not only these numeric factors but qualitative factors as well, and possesses
the authority to establish increased capital requirements for individual
institutions when necessary.
The Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") requires that the OTS and other federal
banking agencies revise their risk-based capital standards, with appropriate
transition rules, to ensure that they take into account interest rate risk
("IRR"), concentration of risk and the risks of non-traditional
activities. Current OTS regulations do not include a specific IRR
component of the risk-based capital requirement; however, the OTS monitors the
IRR of individual institutions through a variety of methods, including an
analysis of the change in net portfolio value ("NPV"). NPV is the
difference between the present value of the expected future cash flows of the
Bank’s assets and liabilities, plus the value of net expected cash flows from
either loan origination commitments or purchases of securities and, therefore,
hypothetically represents the value of an institution's net
worth. The OTS has also used the NPV analysis as part of its
evaluation of certain applications or notices submitted by thrift
institutions. In addition, OTS Thrift Bulletin 13a provides guidance
on the management of IRR and the responsibility of boards of directors in that
area. The OTS, through its general oversight of the safety and
soundness of savings associations, retains the right to impose minimum capital
requirements on individual institutions to the extent they are not in compliance
with certain written OTS guidelines regarding NPV analysis. The OTS
has not imposed any such requirements on the Bank.
The table below presents the Bank's
regulatory capital compared to OTS regulatory capital requirements:
|
As
of December 31, 2008
|
|
Actual
|
Minimum
Capital Requirement
|
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|
(Dollars
in Thousands)
|
Tangible
|
$304,455
|
7.63%
|
$59,873
|
1.5%
|
Leverage
Capital
|
304,455
|
7.63
|
159,662
|
4.0
|
Total
Risk-based capital
|
303,033
|
11.43
|
212,140
|
8.0
|
The following is a reconciliation of
GAAP capital to regulatory capital for the Bank:
|
At
December 31, 2008
|
|
Tangible
Capital
|
Leverage
Capital
|
Total
Risk-Based Capital
|
|
(Dollars
in Thousands)
|
GAAP
capital
|
$350,715
|
$350,715
|
$350,715
|
Non-allowable
assets:
|
|
|
|
MSR
|
(281)
|
(281)
|
(281)
|
Accumulated
other comprehensive loss
|
9,659
|
9,659
|
9,659
|
Goodwill
|
(55,638)
|
(55,638)
|
(55,638)
|
Tier
1 risk-based capital
|
304,455
|
304,455
|
304,455
|
Adjustment
for recourse provision on loans sold
|
-
|
-
|
(18,876)
|
General
valuation allowance
|
-
|
-
|
17,454
|
Total
(Tier 2) risk based capital
|
304,455
|
304,455
|
303,033
|
Minimum
capital requirement
|
59,873
|
159,662
|
212,140
|
Regulatory
capital excess
|
$244,582
|
$144,793
|
$90,893
|
Limitation on Capital
Distributions. OTS regulations impose limitations upon
capital distributions by savings associations, such as cash dividends, payments
to purchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger, and other distributions charged against
capital.
As the subsidiary of a savings and
loan holding company, the Bank is required to file a notice with the OTS at
least 30 days prior to each capital distribution. However, if the
total amount of all capital distributions (including each proposed capital
distribution) for the applicable calendar year exceeds net income for that year
plus the retained net income for the
preceding
two years, the Bank must file an application for OTS approval of a proposed
capital distribution. In addition, the OTS can prohibit a proposed
capital distribution otherwise permissible under the regulation if it determines
that the association is in need of greater than customary supervision or that a
proposed distribution would constitute an unsafe or unsound practice. Further,
under OTS prompt corrective action regulations, the Bank would be prohibited
from making a capital distribution if, after the distribution, the Bank would
fail to satisfy its minimum capital requirements, as described
above (See ''Item 1 – Business - Regulation - Regulation of Federal
Savings Associations - Prompt Corrective Regulatory Action''). In
addition, pursuant to the Federal Deposit Insurance Act ("FDIA"), an insured
depository institution such as the Bank is prohibited from making capital
distributions, including the payment of dividends, if, after making such
distribution, the institution would become "undercapitalized" as defined in the
FDIA.
Liquidity. Pursuant
to OTS regulations, the
Bank is required to maintain sufficient liquidity to ensure its safe and sound
operation (See "Part II - Item 7 – Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
for further discussion). At December 31, 2008, the Bank's liquid
assets approximated 14.12% of total assets.
Assessments. Savings
associations are required by OTS regulation to pay semi-annual assessments to
the OTS to fund its operations. The regulations base the assessment
for individual savings associations, other than those with total assets never
exceeding $100.0 million, on three components: the size of the association (on
which the basic assessment is based); the association's supervisory condition,
which results in percentage increases for any savings institution with a
composite rating of 3, 4 or 5 in its most recent safety and soundness
examination; and the complexity of the association's operations, which results
in percentage increases for a savings association that managed over $1 billion
in trust assets, serviced loans for other institutions aggregating more than $1
billion, or had certain off-balance sheet assets aggregating more than $1
billion. Savings and loan holding companies are also required to pay
semi-annual assessments to the OTS. For the year ended December 31,
2008, assessments paid for the Bank and Holding Company totaled
$622,000.
Branching. Subject
to certain limitations, HOLA and OTS regulations permit federally chartered
savings associations to establish branches in any state of the United States.
The authority to establish such a branch is available: (i) in states that
expressly authorize branches of savings associations located in another state,
and (ii) to an association that either satisfies the QTL test or qualifies as a
''domestic building and loan association'' under the Code, which imposes
qualification requirements similar to those for a QTL under HOLA (See "Item 1 –
Business - Regulation - Regulation of Federal Savings Associations - QTL
Test''). HOLA and OTS regulations preempt any state law purporting to
regulate branching by federal savings associations.
Community
Reinvestment. Under the Community Reinvestment Act
("CRA"), as implemented by OTS regulations, a savings association possesses a
continuing and affirmative obligation, consistent with its safe and sound
operation, to help satisfy the credit needs of its entire community, including
low and moderate income neighborhoods. The CRA does not establish specific
lending requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services it
believes are most appropriate to its particular community. The CRA requires the
OTS, in connection with its examination of a savings association, to assess the
association's record of satisfying the credit needs of its community and
consider such record in its evaluation of certain applications by the
association. The assessment is composed of three tests: (i) a lending
test, to evaluate the institution's record of making loans in its service areas;
(ii) an investment test, to evaluate the institution's record of investing in
community development projects, affordable housing, and programs benefiting low
or moderate income individuals and businesses; and (iii) a service test, to
evaluate the institution's delivery of services through its branches, automated
teller machines and other offices. The CRA also requires all
institutions to make public disclosure of their CRA ratings. The Bank received
an "Outstanding" CRA rating in its most recent
examination. Regulations additionally require that the Bank
publicly disclose certain agreements that are in fulfillment of the
CRA. The Bank has no such agreements.
Transactions with Related
Parties. The Bank's authority to engage in transactions
with its ''affiliates'' is limited by OTS regulations, Sections 23A, 23B, 22(g)
and 22(h) of the Federal Reserve Act (''FRA''), Regulation W issued by the
Federal Reserve Board ("FRB"), as well as additional limitations adopted by the
Director of the OTS. OTS regulations regarding transactions with
affiliates conform to Regulation W. These provisions, among other
matters, prohibit, limit or place restrictions upon a savings institution
extending credit to, or entering into certain transactions with, its affiliates,
which, for the Bank, would include the Holding Company, principal shareholders,
directors and executive officers.
OTS
regulations include additional restrictions on savings associations under
Section 11 of HOLA, including provisions prohibiting a savings association from:
(i) advancing a loan to an affiliate engaged in non-bank holding company
activities; and (ii) purchasing or investing in securities issued by an
affiliate that is not a subsidiary. OTS regulations also include
certain exemptions from these prohibitions. The FRB and the OTS
require each depository institution that is subject to Sections 23A and 23B to
implement policies and procedures to ensure compliance with Regulation W and the
OTS regulations regarding transactions with affiliates.
Section 402 of the Sarbanes-Oxley Act
of 2002 ("Sarbanes-Oxley") prohibits the extension of personal loans to
directors and executive officers of issuers (as defined in
Sarbanes-Oxley). The prohibition, however, does not apply to any loan
by an insured depository institution, such as the Bank, if the loan is subject
to the insider lending restrictions of Section 22(h) of the FRA, as implemented
by Regulation O (12 CFR 215).
The Bank's authority to extend credit
to its directors, executive officers, and shareholders owning 10% or more of the
Holding Company's outstanding common stock, as well as to entities controlled by
such persons, is additionally governed by the requirements of Sections 22(g) and
22(h) of the FRA and Regulation O of the FRB enacted thereunder. Among other
matters, these provisions require that extensions of credit to insiders: (i) be
made on terms substantially the same as, and follow credit underwriting
procedures not less stringent than, those prevailing for comparable transactions
with unaffiliated persons and that do not involve more than the normal risk of
repayment or present other unfavorable features; and (ii) not exceed certain
amount limitations individually and in the aggregate, which limits are based, in
part, on the amount of the association's capital. Regulation O additionally
requires that extensions of credit in excess of certain limits be approved in
advance by the association's board of directors. The Holding
Company and Bank both presently prohibit loans to Directors and executive
management.
Enforcement. Under
FDICIA, the OTS possesses primary enforcement responsibility over
federally-chartered savings associations and has the authority to bring
enforcement action against all ''institution-affiliated parties,'' including any
controlling stockholder or any shareholder, attorney, appraiser or accountant
who knowingly or recklessly participates in any violation of applicable law or
regulation, breach of fiduciary duty or certain other wrongful actions that
cause, or are likely to cause, more than minimal loss or other significant
adverse effect on an insured savings association. Civil penalties cover a wide
series of violations and actions and range from $5,000 for each day during which
violations of law, regulations, orders, and certain written agreements and
conditions continue, up to $1 million per day if the person obtained a
substantial pecuniary gain as a result of such violation or knowingly or
recklessly caused a substantial loss to the institution. Criminal penalties for
certain financial institution crimes include fines of up to $1 million and
imprisonment for up to 30 years. In addition, regulators possess substantial
discretion to take enforcement action against an institution that fails to
comply with regulatory structure, particularly with respect to capital
requirements. Possible enforcement actions range from the imposition of a
capital plan and capital directive to receivership, conservatorship, or the
termination of deposit insurance. Under FDICIA, the FDIC has the authority to
recommend to the Director of the OTS that enforcement action be taken with
respect to a particular savings association. If action is not taken by the
Director, the FDIC possesses authority to take such action under certain
circumstances.
Standards for Safety and
Soundness. Pursuant to FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994, the OTS, together
with the other federal bank regulatory agencies, has adopted guidelines
prescribing safety and soundness standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, asset quality, earnings
and compensation, fees and benefits. In general, the guidelines require, among
other features, appropriate systems and practices to identify and manage the
risks and exposures specified in the guidelines. The guidelines prohibit
excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal shareholder. In addition, the OTS has adopted
regulations pursuant to FDICIA that authorize, but do not require, the OTS to
order an institution that has been given notice by the OTS that it is not
satisfying any of such safety and soundness standards to submit a compliance
plan. If, after being so notified, an institution fails to submit an acceptable
compliance plan or fails in any material respect to implement an accepted
compliance plan, the OTS must issue an order directing action to correct the
deficiency and may issue an order directing other actions of the types to which
an undercapitalized association is subject under the ''prompt corrective
action'' provisions of FDICIA (See "Item 1 – Business - Regulation - Regulation
of Savings Associations – Prompt Corrective Regulatory Action"). If
an institution fails to comply with such an order, the OTS may seek enforcement
in judicial proceedings and the imposition of civil money
penalties.
Real Estate Lending
Standards. The OTS and the other federal banking
agencies have adopted regulations prescribing standards for extensions of credit
that are (i) secured by real estate, or (ii) made for the purpose of financing
the construction of improvements on real estate. The regulations
require each savings association to establish and maintain written internal real
estate lending standards that are consistent with safe and sound banking
practices and appropriate to the size of the association and the nature and
scope of its real estate lending activities. The standards must additionally
conform to accompanying OTS guidelines, which include loan-to-value ratios for
the different types of real estate loans. Associations are permitted to make a
limited amount of loans that do not conform to the loan-to-value limitations
provided such exceptions are reviewed and justified appropriately. The
guidelines additionally contain a number of lending situations in which
exceptions to the loan-to-value standards are permitted.
In 2006, the OTS adopted guidance
entitled "Concentrations in Commercial Real Estate (CRE) Lending, Sound Risk
Management Practices" (the "CRE Guidance"), to address concentrations of
commercial real estate loans in savings associations. The CRE
Guidance reinforces and enhances the OTS existing regulations and guidelines for
real estate lending
and loan
portfolio management, but does not establish specific commercial real estate
lending limits. Rather, the CRE Guidance seeks to promote sound risk
management practices that will enable savings associations to continue to pursue
commercial real estate lending in a safe and sound manner. The CRE
Guidance applies to savings associations with an accumulation of credit
concentration exposures and asks that the associations quantify the additional
risk such exposures may pose. Such quantification should include the
stratification of the commercial real estate portfolio by, among other
qualities, property type, geographic market, tenant concentrations, tenant
industries, developer concentrations and risk rating. In addition, an
institution should perform periodic market analyses for the various property
types and geographic markets represented in its portfolio. Further,
an institution with commercial real estate concentration risk should also
perform portfolio level stress tests or sensitivity analysis to quantify the
impact of changing economic conditions on asset quality, earnings and
capital. The Bank commenced implementation of the requirements and
suggestions set forth in the CRE Guidance during 2007 and 2008, and will expand
this process in 2009.
Prompt Corrective Regulatory
Action. Under the OTS prompt corrective action
regulations, the OTS is required to take certain, and authorized to take other,
supervisory actions against undercapitalized savings associations. For this
purpose, a savings association is placed in one of five categories based on its
capital: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." Generally,
a capital restoration plan must be filed with the OTS within 45 days of the date
an association receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized," and the plan must be
guaranteed by any parent holding company. In addition, the
institution becomes subject to various mandatory supervisory actions, including
restrictions on growth of assets and other forms of
expansion. Generally, under the OTS regulations, a federally
chartered savings association is treated as well capitalized if its total
risk-based capital ratio is 10% or greater, its Tier 1 risk-based capital ratio
is 6% or greater, its leverage ratio is 5% or greater, and it is not subject to
any order or directive by the OTS to meet a specific capital
level. As of December 31, 2008, the Bank satisfied all criteria
necessary to be categorized "well capitalized" under the prompt
corrective action regulatory framework.
When appropriate, the OTS can require
corrective action by a savings association holding company under the ''prompt
corrective action'' provisions of FDICIA.
Insurance of Deposit
Accounts. Traditionally, the FDIC provided insurance of up to
$100,000 per depositor. On October 3, 2008, the
FDIC announced a temporary increase in deposit insurance from $100,000 to
$250,000 per depositor through December 31, 2009, in response to the problems
affecting the banking system and financial markets.
Savings associations are required to
pay a deposit insurance premium. The amount of the premium is
determined based upon a risk-based assessment system, which was amended
effective January 1, 2007. During the years ended December 31, 2006
and 2005, the Bank was not required to pay any assessments on its deposits under
the previously existing FDIC policies. Under the amended
system, the FDIC assigns an institution to one of four risk
categories entitled Risk Category I, II, III and IV, with Risk Category I
considered most favorable and Risk Category IV considered least
favorable. Risk Category I contains all well capitalized institutions
with capital adequacy, asset quality, management, earnings, and liquidity
component ratings ("CAMEL Component Ratings") of either 1 or 2. Risk
Category II contains all institutions that are adequately capitalized and
possess CAMEL Component Ratings of either 1, 2 or 3. Risk Category
III contains either undercapitalized institutions that have CAMEL Composite
Ratings of 1, 2 or 3 or adequately capitalized institutions that have CAMEL
Composite Ratings of 4 or 5. Risk Category IV contains all
institutions that are undercapitalized and have a CAMEL Composite Ratings of 4
or 5. The Bank currently falls within Risk Category
I. Base assessment rates for institutions within Risk Category I
range from 2 to 4 basis points, depending upon a combination of the
institution's CAMEL Component Ratings and financial ratios. The base
assessment rates are fixed at 7 basis points, 25 basis points and 40 basis
points for institutions within Risk Categories II, III and IV,
respectively. The FDIC has the flexibility to adjust rates, without
further notice-and-comment rulemaking, provided that no such adjustment can be
greater than 3 basis points from one quarter to the next, adjustments cannot
result in rates more than 3 basis points above or below the base rates and rates
cannot be negative. Effective January 1, 2007, the FDIC set the assessment rates
at 3 basis points above the base rates. Assessment rates, therefore, currently
range from 5 to 43 basis points of deposits. The assessment rate for
the Bank's deposits approximated 5 basis points.
In November 2006, the FDIC notified
the Bank that it was granted a credit of $1.6 million to apply against its
insurance premiums commencing in 2007. This credit resulted from
final implementation of a provision of the Federal Deposit Insurance Reform Act
of 2005 that compensated financial institutions such as the Bank that were
required to pay insurance premiums prior to 1996 while other financial
institutions that had units that operated under industrial loan company and
thrift charters were not. This credit was used to offset 100% of the 2007
deposit insurance assessment. The $466,000 remaining credit was
utilized to offset a portion of the deposit insurance assessments in
2008. Total FDIC deposit insurance costs recognized by the Bank in
excess of the credit were $643,000 during the year ended December 31,
2008.
The Deposit Insurance Funds Act of
1996 amended the FDIA to recapitalize the SAIF (which was merged with the BIF
into the newly-formed DIF on March 31, 2006) and expand the assessment base for
the payments of Financing Corporation ("FICO") bonds. FICO bonds were
sold by the federal government in order to finance the recapitalization of the
SAIF and BIF insurance funds that was necessitated following payments from the
funds to compensate depositors of federally-insured depository institutions that
experienced bankruptcy and dissolution during the 1980's and
1990's. The assessment rate is adjusted quarterly and was 0.0114% of
total deposits of the Bank for the fourth quarter of 2007 and the first quarter
of 2008. The Bank's total expense in 2008 for the FICO bonds
assessment was $257,000.
The FDIC
established 1.25% of estimated insured deposits as the designated reserve ratio
of the DIF. The FDIC is authorized to change the assessment rates as
necessary, subject to the previously discussed limitations, to maintain the
required reserve ratio of 1.25%. As a result of the recent failures
of a number of banks and thrifts, there has been a significant increase in the
loss provisions of the DIF of the FDIC. This has resulted in a
decline in the DIF reserve ratio. Because the DIF reserve ratio
declined below 1.15% and is expected to remain below 1.15%, the FDIC was
required to establish a restoration plan in October, 2008 to restore the reserve
ratio to 1.15% within five years., which term has now been extended to 7 years
pursuant to a final rule adopted by the FDIC on February 27, 2009. In
order to restore the reserve ratio to 1.15%, the FDIC adopted a final rule in
October, 2008 that increased risk-based assessment rates uniformly by 7 basis
points (annualized) for the first quarter of 2009. In addition, on
February 27, 2009, the FDIC adopted a final rule further modifying the
risk-based assessment system and setting initial base assessment rates beginning
April 1, 2009, at 12 to 45 basis points depending on an institution’s risk
category, with adjustments resulting in increased assessment rates generally for
institutions with a significant reliance on secured liabilities and brokered
deposits. The Bank estimates that its total assessments will range
between 15 and 17 basis points during the year ending December 31,
2009.
On February 27, 2009, the FDIC also
adopted an interim rule imposing a 20 basis point emergency special assessment
on the industry on June 30, 2009, to be collected on September 30,
2009. The interim rule would also permit the FDIC to impose an
emergency special assessment of up to 10 basis points after June 30, 2009, if
necessary to maintain public confidence in federal deposit
insurance.
Based
upon the Bank's deposit insured balances at December 31, 2008, the adopted
increases in assessments will result in pre-tax assessment expense of
approximately $3.5 million to $4.0 million during 2009, and the 20 basis point
proposed special assessment would result in aggregate additional pre-tax expense
of approximately $4.5 million.
Privacy and Security
Protection. The OTS has adopted regulations implementing the
privacy protection provisions of The Gramm- Leach-Bliley Act of 1999
("Gramm-Leach"). The regulations require financial institutions to
adopt procedures to protect customers and their "non-public personal
information." The regulations require the Bank to disclose its
privacy policy, including identifying with whom it shares "non-public personal
information," to customers at the time of establishing the customer relationship
and annually thereafter. In addition, the Bank is required to provide
its customers the ability to "opt-out" of the sharing of their personal
information with unaffiliated third parties, if the sharing of such information
does not satisfy any of the permitted exceptions. The Bank's existing
privacy protection policy complies with the regulations.
The Bank is additionally subject to
regulatory guidelines establishing standards for safeguarding customer
information. The guidelines describe the federal banking agencies'
expectations for the creation, implementation and maintenance of an information
security program, including administrative, technical and physical safeguards
appropriate to the size and complexity of the institution and the nature and
scope of its activities. The standards set forth in the guidelines
are intended to insure the security and confidentiality of customer records and
information, and protect against anticipated threats or hazards to the security
or integrity of such records and unauthorized access to or use of such records
or information that could result in substantial customer harm or
inconvenience.
Gramm-Leach additionally permits each
state to enact legislation that is more protective of consumers' personal
information. Currently, there are a number of privacy bills pending
in the New York legislature. Management of the Company cannot predict
the impact, if any, of these bills if enacted.
Internet
Banking. Technological developments are dramatically altering
the methods by which most companies, including financial institutions, conduct
their business. The growth of the Internet is prompting banks to
reconsider business strategies and adopt alternative distribution and marketing
systems. The federal banking regulatory agencies have conducted
seminars and published materials targeted at various aspects of Internet banking
and have indicated their intention to re-evaluate their regulations to ensure
they encourage bank efficiency and competitiveness consistent with safe and
sound banking practices. The Company cannot assure that federal bank
regulatory agencies will not adopt new regulations that will materially affect
or restrict the Bank's Internet operations.
Insurance
Activities. As a federal savings association, the Bank is
generally permitted to engage in certain insurance activities through
subsidiaries. OTS regulations prohibit depository institutions from
conditioning the extension of credit to individuals upon either the purchase of
an insurance product or annuity or an agreement by the consumer not to purchase
an insurance product or annuity from an entity not affiliated with the
depository institution. The regulations additionally require prior
disclosure of this prohibition if such products are offered to credit
applicants.
Federal Home Loan Bank ("FHLB")
System. The Bank is a member of the FHLBNY, which is one
of the twelve regional FHLB's composing the FHLB System. Each FHLB provides a
central credit facility primarily for its member institutions. Any advances from
the FHLBNY must be secured by specified types of collateral, and long-term
advances may be obtained only for the purpose of providing funds for residential
housing finance. The Bank, as a member of the FHLBNY, is currently
required to acquire and hold shares of FHLBNY Class B stock. The
Class B stock has a par value of $100 per share and is redeemable upon five
years notice, subject to certain conditions. The Class B stock has
two subclasses, one for membership stock purchase requirements and the other for
activity-based stock purchase requirements. The minimum stock
investment requirement in the FHLBNY Class B stock is the sum of the membership
stock purchase requirement, determined on an annual basis at the end of each
calendar year, and the activity-based stock purchase requirement, determined on
a daily basis. For the Bank, the membership stock purchase
requirement is 0.2% of "mortgage-related assets," as defined by the FHLBNY,
which consist primarily of residential mortgage loans and MBS held by the
Bank. The activity-based stock purchase requirement for the Bank is
equal to the sum of: (i) 4.5% of outstanding borrowings from the FHLBNY; (ii)
4.5% of the outstanding principal balance of the "acquired member assets," as
defined by the FHLBNY, and delivery commitments for acquired member assets;
(iii) a specified dollar amount related to certain off-balance sheet items,
which for the Bank is zero; and (iv) a specific percentage range from 0% to 5%
of the carrying value on the FHLBNY's balance sheet of derivative contracts
between the FHLBNY and its members, which is also zero for the
Bank. The Bank was in compliance with these requirements with an
investment in FHLBNY Class B stock of $55.6 million at December 31,
2008. The FHLBNY can adjust the specific percentages and dollar
amount periodically within the ranges established by the FHLBNY capital
plan.
Federal Reserve
System. The Bank is subject to provisions of the FRA and
FRB regulations pursuant to which savings associations are required to maintain
non-interest-earning cash reserves against their transaction accounts (primarily
NOW and regular checking accounts). FRB regulations generally require
that reserves be maintained in the amount of 3% of the aggregate of transaction
accounts in excess of $10.3 million through $44.4 million (subject to adjustment
by the FRB) plus a reserve of 10% (subject to adjustment by the FRB between 8%
and 14%) against the portion of total transaction accounts in excess of $44.4
million. The initial $10.3 million of otherwise reservable balances
are currently exempt from the reserve requirements, however, the exemption is
adjusted by the FRB at the end of each year. The Bank is in
compliance with the foregoing reserve requirements.
Because required reserves must be
maintained in the form of either vault cash, a non-interest-bearing account at a
Federal Reserve Bank, or a pass-through account as defined by the FRB, the
effect of this reserve requirement is to reduce the Bank's interest-earning
assets. The balances maintained to satisfy the FRB reserve requirements may be
used to satisfy liquidity requirements imposed by the OTS.
Pursuant to the EESA, the FRB
announced on October 6, 2008, that the Federal Reserve Banks will begin to pay
interest on depository institutions’ required and excess reserve
balances. Paying interest on required reserve balances should
essentially eliminate the opportunity cost of holding required reserves,
promoting efficiency in the banking sector. The interest rate paid on
required reserve balances is currently the average target federal funds rate
over the reserve maintenance period. The rate on excess balances will be set
equal to the lowest FOMC target rate in effect during the reserve maintenance
period. The payment of interest on excess reserves will permit the
Federal Reserve to expand its balance sheet as necessary to provide the
liquidity necessary to support financial stability.
Depository institutions are
additionally authorized to borrow from the Federal Reserve ''discount window,''
however, FRB regulations require such institutions to hold reserves in the form
of vault cash or deposits with Federal Reserve Banks in order to
borrow.
Anti-Money Laundering and Customer
Identification. The Company is subject to OTS
regulations implementing the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
("PATRIOT Act"). The PATRIOT Act provides the federal government with
powers to address terrorist threats through enhanced domestic security measures,
expanded surveillance powers, increased information sharing and broadened
anti-money laundering requirements. By way of amendments to the Bank
Secrecy Act, Title III of the PATRIOT Act enacted measures intended to encourage
information sharing among bank regulatory and law enforcement
agencies. In addition, certain provisions of Title III and the
related OTS regulations impose affirmative obligations on a broad range of
financial institutions, including banks and
thrifts. Title
III imposes the following requirements, among others, with respect to financial
institutions: (i) establishment of anti-money laundering programs; (ii)
establishment of procedures for obtaining identifying information from customers
opening new accounts, including verifying their identity within a reasonable
period of time; (iii) establishment of enhanced due diligence policies,
procedures and controls designed to detect and report money laundering; and (iv)
prohibition on correspondent accounts for foreign shell banks and compliance
with recordkeeping obligations with respect to correspondent accounts of foreign
banks.
In addition, bank regulators are
directed to consider a holding company's effectiveness in preventing money
laundering when ruling on FRA and Bank Merger Act applications.
Regulation
of Holding Company
The Holding Company is a
non-diversified unitary savings and loan holding company within the meaning of
HOLA. As such, it is required to register with the OTS and is subject to OTS
regulations, examinations, supervision and reporting requirements. In addition,
the OTS has enforcement authority over the Holding Company's non-savings
association subsidiaries. Among other effects, this authority permits
the OTS to restrict or prohibit activities that are determined to be a serious
risk to the financial safety, soundness, or stability of a subsidiary savings
association.
HOLA prohibits a savings association
holding company, directly or indirectly, or through one or more subsidiaries,
from acquiring another savings association or holding company thereof, without
prior written approval of the OTS; acquiring or retaining, with certain
exceptions, more than 5% of a non-subsidiary savings association, non-subsidiary
holding company, or non-subsidiary company engaged in activities other than
those permitted by HOLA; or acquiring or retaining control of a depository
institution that is not insured by the FDIC. In evaluating an application by a
holding company to acquire a savings association, the OTS must consider the
financial and managerial resources and future prospects of the company and
savings association involved, the effect of the acquisition on the risk to the
insurance funds, the convenience and needs of the community, and competitive
factors.
Gramm-Leach additionally restricts
the powers of new unitary savings and loan association holding
companies. A unitary savings and loan holding company that is
"grandfathered," i.e.,
became a unitary savings and loan holding company pursuant to an application
filed with the OTS prior to May 4, 1999, such as the Holding Company, retains
the authority it possessed under the law in existence as of May 4,
1999. All other savings and loan holding companies are limited to
financially related activities permissible for bank holding companies, as
defined under Gramm-Leach. Gramm-Leach also prohibits non-financial
companies from acquiring grandfathered savings and loan association holding
companies.
Upon any non-supervisory acquisition
by the Holding Company of another savings association or a savings bank that
satisfies the QTL test and is deemed to be a savings association by the OTS and
that will be held as a separate subsidiary, the Holding Company will become a
multiple savings association holding company and will be subject to limitations
on the types of business activities in which it may engage. HOLA
currently limits the activities of a multiple savings association holding
company and its non-insured association subsidiaries primarily to activities
permissible under Section 4(c)(8) of the BHCA, subject to prior approval of the
OTS, and to other activities authorized by OTS regulation. Effective
in April 2008, however, all savings and loan association holding companies
became permitted, with the prior approval of the OTS, to engage in all
activities in which bank holding companies may engage under any regulation the
FRB has promulgated under Section 4(c) of the BHCA.
The OTS is prohibited from approving
any acquisition that would result in a multiple savings association holding
company controlling savings associations in more than one state, subject to two
exceptions: an acquisition of a savings association in another state (i) in a
supervisory transaction, or (ii) pursuant to authority under the laws of the
state of the association to be acquired that specifically permit such
acquisitions. The conditions imposed upon interstate acquisitions by
those states that have enacted authorizing legislation vary.
The Bank must file a notice with the
OTS prior to the payment of any dividends or other capital distributions to the
Holding Company (See "Item 1 – Business - Regulation - Regulation of
Federal Savings Associations - Limitation on Capital
Distributions'').
Federal
Securities Laws
The Holding Company's common stock is
registered with the SEC under Section 12(g) of the Exchange Act. It
is subject to the periodic reporting, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.
Item
1A. Risk Factors
The
Bank’s focus on multifamily and commercial real estate lending may subject it to
greater risk of an adverse impact on operations from a decline in the
economy.
The majority of loans in the Bank’s
portfolio are secured by multifamily residential property. Multifamily loans
have traditionally been viewed as exposing lenders to a greater risk of loss
than one- to four-family residential loans, due to the following
concerns: 1) They typically involve higher loan principal amounts and
thus expose the Bank to a greater potential impact of losses from any one loan
or concentration of loans to one borrower relative to the size of the Bank’s
capital position; 2) their borrowers often own several properties, and often a
borrower experiencing financial difficulties in connection with one income
producing property may default on all of his or her outstanding loans, even if
the properties securing the other loans are generating positive cash
flow. See "Item 7A. Quantitative and Qualitative Disclosures About
Market Risk" for a further discussion.
As part of the Company’s strategic
plan, it increased its emphasis on commercial real estate loans from 2002
through 2007. Loans secured by commercial real estate are generally larger and
involve a greater degree of risk than one- to four-family and multifamily
residential mortgage loans. Because payments on loans secured by commercial real
estate are often dependent upon successful operation or management of the
collateral properties, repayment of such loans is generally subject to a greater
extent to prevailing conditions in the real estate market or the economy.
Further, the collateral securing such loans may depreciate over time, may be
difficult to appraise and may fluctuate in value based upon the success of the
business.
Multifamily and commercial real
estate loans additionally involve a greater risk than one- to four- family
residential mortgage loans because economic and real estate conditions, and
government regulations such as rent control and rent stabilization laws, which
are outside the control of the borrower or the Bank, could impair the value of
the security for the loan or the future cash flow of such properties. As a
result, rental income might not rise sufficiently over time to satisfy increases
in the loan rate at repricing or increases in overhead expenses (i.e., utilities, taxes,
etc.). Impaired loans are thus difficult to identify before they become
problematic. In addition, if the cash flow from a collateral property is reduced
(e.g., if leases are
not obtained or renewed), the borrower’s ability to repay the loan and the value
of the security for the loan may be impaired.
Dependence
on economic and real estate conditions and geographic concentration in market
area.
The Bank gathers deposits primarily
from the communities and neighborhoods in close proximity to its branches. The
Bank lends primarily in the NYC metropolitan area, although its overall lending
area is much larger, and extends approximately 150 miles in each direction from
its corporate headquarters in Brooklyn. The majority of the Bank’s mortgage
loans are secured by properties located in its primary lending area,
approximately 75% of which are located in the NYC boroughs of Brooklyn, Queens
and Manhattan. As a result of this geographic concentration, the
Bank’s results of operations depend largely upon economic conditions in this
area. A deterioration in economic conditions in the NYC metropolitan area could
have a material adverse impact upon the quality of the Bank’s loan portfolio and
the demand for its products and services, and, accordingly, on the Company’s
results of operations, cash flows, business, financial condition and
prospects.
Conditions in the real estate markets
in which the collateral for the Bank’s mortgage loans are located strongly
influence the level of the Bank’s non-performing loans and the value of its
collateral. Real estate values are affected by, among other items, fluctuations
in general or local economic conditions, supply and demand, changes in
governmental rules or policies, the availability of loans to potential
purchasers and acts of nature. Declines in real estate markets have in the past,
and may in the future, negatively impact the Company’s results of operations,
cash flows, business, financial condition and prospects.
The Bank’s allowance for loan losses
is maintained at a level considered adequate by management to absorb losses
inherent in its loan portfolio. The amount of inherent loan losses which could
be ultimately realized is susceptible to changes in economic, operating and
other conditions, including changes in interest rates, that could be beyond the
Bank’s control. Such losses could exceed current estimates. Although management
believes that the Bank’s allowance for loan losses is adequate, there can be no
assurance that the allowance will be sufficient to satisfy actual loan losses
should such losses be realized.
Increases
in interest rates may reduce the Company’s profitability.
The Bank’s primary source of income
is its net interest income, which is the difference between the interest income
earned on its interest earning assets and the interest expense incurred on its
interest bearing liabilities. The one-year interest rate sensitivity gap is the
difference between interest rate sensitive assets maturing or repricing within
one year and interest rate sensitive liabilities maturing or repricing within
one year, expressed as a percentage of total assets. In a rising interest rate
environment, an institution with a negative gap would generally be expected,
absent the effects of other factors, to experience a greater increase in its
cost of liabilities relative to its yield on assets, and thus decrease its net
interest income.
Based upon historical experience, if
interest rates were to rise, the Bank would expect the demand for multifamily
loans to decline. Decreased loan origination volume would likely negatively
impact the Bank's interest income. In addition, if interest rates were to rise
rapidly and result in an economic decline, the Bank would expect its level of
non-performing loans to increase. Such an increase in non-performing loans may
result in an increase to the allowance for loan losses and possible increased
charge-offs, which would negatively impact the Company's net
income.
Further,
the actual amount of time before mortgage loans and MBS are repaid can be
significantly impacted by changes in mortgage redemption rates and market
interest rates. Mortgage prepayment, satisfaction and refinancing rates will
vary due to several factors, including the regional economy in the area where
the underlying mortgages were originated, seasonal factors, and other
demographic variables. However, the most significant factors affecting
prepayment, satisfaction and refinancing rates are prevailing interest rates,
related mortgage refinancing opportunities and competition. The level
of mortgage and MBS prepayment, satisfaction and refinancing activity impacts
the Company's earnings due to its effect on fee income earned on prepayment and
refinancing activities, along with liquidity levels the Company will experience
to fund new investments or ongoing operations.
As a federally-chartered savings
bank, the Bank is required to monitor changes in its NPV, which is the
difference between the estimated market value of its assets and liabilities. In
addition, the Bank monitors its NPV ratio, which is the NPV divided by the
estimated market value of total assets. The NPV ratio can be viewed as a
corollary to the Bank’s capital ratios. To monitor its overall sensitivity to
changes in interest rates, the Bank simulates the effect of instantaneous
changes in interest rates of up to 200 basis points on its assets and
liabilities. Interest rates do and will continue to fluctuate, and the Bank
cannot predict future FOMC actions or other factors that will cause interest
rates to vary.
Risks
related to changes in laws, government regulation and monetary
policy.
The Holding Company and the Bank are
subject to extensive supervision, regulation and examination by the OTS, as the
Bank's chartering agency, and the FDIC, as its deposit insurer. Such regulation
limits the manner in which the Holding Company and the Bank conduct business,
undertake new investments and activities and obtain financing. This regulation
is designed primarily for the protection of the deposit insurance funds and the
Bank’s depositors, and not to benefit the Bank or its creditors. The regulatory
structure also provides the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to capital levels, the classification
of assets and the establishment of adequate loan loss reserves for regulatory
purposes. For further information regarding the laws and regulations
that affect the Holding Company and the Bank, see "Item 1. Business - Regulation
- Regulation of Federal Savings Associations," and "Item 1. Business -
Regulation - Regulation of Holding Company."
Financial institution regulation has
been the subject of significant legislation in recent years, and may be the
subject of further significant legislation in the future, none of which is
within the control of the Holding Company or the Bank. Significant new laws or
changes in, or repeals of, existing laws may cause the Company's results of
operations to differ materially. Further, federal monetary policy, particularly
as implemented through the OTS, significantly affects credit conditions for the
Company, primarily through open market operations in United States government
securities, the discount rate for bank borrowings and reserve requirements for
liquid assets. A material change in any of these conditions would have a
material impact on the Bank, and therefore, on the Company’s results of
operations.
Competition
from other financial institutions in originating loans and attracting deposits
may adversely affect profitability.
The Bank's retail banking and a
significant portion of its lending business are concentrated in the NYC
metropolitan area. The NYC banking environment is extremely competitive. The
Bank’s competition for loans exists principally from savings banks, commercial
banks, mortgage banks and insurance companies. The Bank has faced sustained
competition for the origination of multifamily residential and commercial real
estate loans. Management anticipates that the current level of competition for
multifamily residential and commercial real estate loans will continue for the
foreseeable future, and this competition may inhibit the Bank’s ability to
maintain its current level and pricing of such loans.
The Bank gathers deposits in direct
competition with commercial banks, savings banks and brokerage firms, many among
the largest in the nation. In addition, it must also compete for deposit monies
against the stock markets and mutual funds, especially during periods of strong
performance in the equity markets. Over the previous decade, consolidation in
the financial services industry, coupled with the emergence of Internet banking,
has altered the deposit gathering landscape and may increase competitive
pressures on the Bank.
The
impact of recently enacted and proposed legislation and government programs to
stabilize the financial markets cannot be predicted at this time.
On October 3, 2008, President Bush
signed the EESA into law in response to the problems affecting the banking
system and financial markets. Pursuant to the EESA, Treasury was granted the
authority to, among other things, purchase up to $700 billion of troubled assets
(including mortgages, MBS and certain other financial instruments) from
financial institutions for the purpose of stabilizing and providing liquidity to
the U.S. financial markets. On October 14, 2008, Treasury, the FRB
and the FDIC issued a joint statement announcing additional steps aimed at
stabilizing the financial markets. Initially, Treasury announced the
TARP Capital Purchase Program, a $250 billion voluntary capital purchase program
available to qualifying financial institutions that sell preferred shares to
Treasury. In addition, the FDIC announced that its Board of
Directors, under the authority to prevent "systemic risk" in the U.S. banking
system, approved the TLGP, intended to strengthen confidence and encourage
liquidity in the banking system by permitting the FDIC to (i) guarantee certain
newly issued senior unsecured debt issued by participating institutions under
the DGP, and (ii) fully insure non-interest bearing transaction deposit accounts
held at participating FDIC-insured institutions, regardless of dollar amount
under the TAGP. Third, to further increase access to funding for
businesses in all sectors of the economy, the FRB announced further details of
its Commercial Paper Funding Facility program ("CPFF"), which provides a broad
backstop for the commercial paper market. The
Company does not currently participate in the TAGP, CPP, DGP or
CPFF.
On February 10, 2009, in a statement
to the Senate Banking Committee Hearing, Treasury Secretary Timothy Geithner
outlined a Financial Stability Plan to restore stability to the U.S. financial
system. The Financial Stability Plan includes a variety of measures
aimed at the broader credit markets and includes the creation of a comprehensive
housing program to forestall foreclosures and stabilize the residential mortgage
market. In addition, on February 11, 2009, the OTS urged
OTS-regulated institutions to suspend foreclosures on owner-occupied homes until
the Financial Stability Plan’s “home loan modification program” is finalized in
the next few weeks. On February 18, 2009, President Obama announced
the Administration’s Homeowner Affordability and Stability Plan, (the
"HASP"). The HASP aims to accomplish the following three key
objectives: (i) refinance mortgages of up to 4 to 5 million "responsible
homeowners" to prevent additional foreclosures; (ii) provide a $75 billion
initiative to help up to 3 to 4 million "at-risk homeowners" primarily through
the use of uniform loan modifications; and (iii) help maintain low mortgage
rates by strengthening confidence in FNMA and Freddie Mac. Mortgage
lenders may participate in the program on a voluntary basis.
On January 27, 2009, the House
Judiciary Committee approved H.R. 200, the "Helping Families Save Their Homes in
Bankruptcy Act of 2009" ("Bankruptcy Legislation"). The Bankruptcy
Legislation would grant a judge the ability to modify the terms of a mortgage
for a homeowner in Chapter 13 bankruptcy. Under the proposed
Bankruptcy Legislation, borrowers would be eligible to have a bankruptcy judge
reduce the principal balance on their home loan. If any such borrower
resells his or her home within five years, the borrower will be required to
share the proceeds with the lender.
The Company cannot predict the actual
impact that the foregoing or any other governmental program will have on the
financial markets. The failure of the financial markets to stabilize
and a continuation or worsening of current financial market conditions could
materially and adversely affect the Company's business, financial condition,
results of operations, access to credit or the trading price of the Holding
Company's common stock. In addition, the initiatives of President
Obama's administration, and the possible enactment of the Bankruptcy Legislation
as proposed, could materially and adversely affect the Company's financial
condition and results of operations.
Item
1B. Unresolved Staff Comments
Not applicable.
Item
2. Properties
The headquarters of both the Holding
Company and the Bank are located at 209 Havemeyer Street, Brooklyn, New
York 11211. The headquarters building is fully owned by
the Bank. The Bank conducts its business through twenty-three
full-service retail banking offices located throughout Brooklyn, Queens, the
Bronx and Nassau County, New York.
Item 3. 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 consolidated financial condition and results of
operations.
Item
4. Submission of Matters to a Vote of Security
Holders
None.
PART
II
Item 5. Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
The Holding Company's common stock is
traded on the Nasdaq National Market and quoted under the symbol
"DCOM." Prior to June 15, 1998, the Holding Company's common stock
was quoted under the symbol "DIME."
The following table indicates the high
and low sales price for the Holding Company's common stock, and dividends
declared, during the periods indicated. The Holding Company's common
stock began trading on June 26, 1996, the date of the initial public
offering.
|
Twelve
Months Ended December
31, 2008
|
|
Twelve
Months Ended December
31, 2007
|
Quarter
Ended
|
Dividends
Declared
|
High
Sales
Price
|
Low
Sales
Price
|
|
Dividends
Declared
|
High
Sales
Price
|
Low
Sales
Price
|
March
31st
|
$0.14
|
$17.83
|
$16.46
|
|
$0.14
|
$14.29
|
$12.21
|
June
30th
|
0.14
|
19.31
|
16.18
|
|
0.14
|
14.00
|
12.52
|
September
30th
|
0.14
|
23.55
|
12.00
|
|
0.14
|
15.99
|
10.70
|
December
31st
|
0.14
|
17.69
|
10.75
|
|
0.14
|
15.56
|
11.99
|
On December 31, 2008, the final trading
date in the fiscal year, the Holding Company's common stock closed at
$13.30.
Management estimates that the Holding
Company had approximately 5,400 shareholders of record as of March 1, 2009,
including persons or entities holding stock in nominee or street name through
various brokers and banks. There were 34,179,900 shares of Holding Company
common stock outstanding at December 31, 2008.
On August 21, 2001, the Holding Company
paid a 50% common stock dividend to all shareholders of record as of July 31,
2001. On April 24, 2002, the Holding Company paid a 50% common stock
dividend to all shareholders of record as of April 1, 2002. On March
16, 2004, the Holding Company paid a 50% common stock dividend to all
shareholders of record as of March 1, 2004. Each of these dividends
had the effect of a three-for-two stock split.
During
the year ended December 31, 2008, the Holding Company paid cash dividends
totaling $18.3 million, representing $0.56 per outstanding common
share. During the year ended December 31, 2007, the Holding Company
paid cash dividends totaling $19.0 million, representing $0.56 per outstanding
common share.
On
January 22, 2009, the Board of Directors declared a cash dividend of $0.14 per
common share to all shareholders of record as of February 2,
2009. This dividend was paid on February 17, 2009.
The Holding Company is subject to the
requirements of Delaware law, which generally limits dividends to an amount
equal to the excess of net assets (i.e., the amount by which
total assets exceed total liabilities) over statutory capital, or if no such
excess exists, to net profits for the current and/or immediately preceding
fiscal year.
As the principal asset of the Holding
Company, the Bank could be called upon to provide funds for the Holding
Company's payment of dividends (See "Item 1 – Business - Regulation –
Regulation of Federal Savings Associations – Limitation on Capital
Distributions"). (See also Note 2 to the Company's Audited
Consolidated Financial Statements for a discussion of limitations on
distributions from the Bank to the Holding Company).
In April 2000, the Holding Company
issued $25.0 million in subordinated notes payable, with a stated annual coupon
rate of 9.25%. Pursuant to the provisions of the notes, the Holding Company is
required to first satisfy the interest obligation on the notes, which
approximates $2.4 million annually, prior to the authorization and payment of
common stock cash dividends. Management of the Holding Company does
not believe that this requirement will materially affect its ability to pay
dividends to its common shareholders.
In March 2004, the Holding Company
issued $72.2 million in trust preferred debt, with a stated annual coupon rate
of 7.0%. Pursuant to the provisions of the debt, the Holding Company
is required to first satisfy the interest obligation on the debt, which
approximates $5.1 million annually, prior to the authorization and payment of
common stock cash dividends. Management of the Holding Company does
not believe that this requirement will materially affect its ability to pay
dividends to its common shareholders.
The
Holding Company did not purchase any shares of its common stock into treasury
during the three months ended December 31, 2008.
A summary
of the shares repurchased by month is as follows:
ISSUER
PURCHASES OF EQUITY SECURITIES
Period
|
Total
Number
of
Shares Purchased
|
|
Average
Price
Paid Per Share
|
|
Total
Number of
Shares
Purchased as Part of Publicly Announced Programs (1)
|
|
Maximum
Number of Shares that May Yet be Purchased Under the Programs
(1)
|
October
2008
|
-
|
|
-
|
|
-
|
|
1,124,549
|
November
2008
|
-
|
|
-
|
|
-
|
|
1,124,549
|
December
2008
|
-
|
|
-
|
|
-
|
|
1,124,549
|
(1) No
existing repurchase programs expired during the three months ended December 31,
2008, nor did the Company terminate any repurchase programs prior to expiration
during the quarter. The 1,124,549 shares that remained eligible for
repurchase at December 31, 2008 are available under the Company's twelfth stock
repurchase program, which was publicly announced in June 2007. The
twelfth stock repurchase program authorized the purchase of up to 1,787,665
shares of the Holding Company's common stock, and has no
expiration.
Performance
Graph
Pursuant
to regulations of the SEC, the graph below compares the Company's stock
performance with that of the total return for the U.S. Nasdaq Stock Market and
an index of all thrift stocks as reported by SNL Securities L.C. from January 1,
2004 through December 31, 2008. The graph assumes the reinvestment of
dividends in additional shares of the same class of equity securities as those
listed below.
|
|
Period
Ending December 31,
|
|
Index
|
2003
|
2004
|
2005
|
2006
|
2007
|
2008
|
Dime
Community Bancshares, Inc.
|
100.00
|
90.15
|
76.25
|
76.02
|
72.33
|
77.97
|
NASDAQ
Composite
|
100.00
|
108.59
|
110.08
|
120.56
|
132.39
|
78.72
|
SNL
Thrift Index
|
100.00
|
111.42
|
115.35
|
134.46
|
80.67
|
51.34
|
Item 6. Selected
Financial Data
Financial
Highlights
(Dollars
in Thousands, except per share data)
The consolidated financial and other
data of the Company as of and for the years ended December 31, 2008, 2007, 2006,
2005 and 2004 set forth below is derived in part from, and should be read in
conjunction with, the Company's audited Consolidated Financial Statements and
Notes thereto. Amounts as of and for the years ended December 31,
2007, 2006, 2005 and 2004 have been reclassified to conform to the December 31,
2008 presentation.
|
At
or for the Year Ended December 31,
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
Selected
Financial Condition Data:
|
|
|
|
|
|
Total
assets
|
$4,055,598
|
$3,501,175
|
$3,173,377
|
$3,126,226
|
$3,377,266
|
Loans
and loans held for sale (net of deferred costs or fees and
the allowancfor
loan losses)
|
3,274,051
|
2,861,638
|
2,688,159
|
2,596,310
|
2,486,262
|
MBS
|
301,351
|
162,764
|
154,437
|
193,453
|
519,885
|
Investment
securities (including FHLBNY capital stock)
|
80,898
|
73,204
|
61,078
|
74,750
|
80,750
|
Federal
funds sold and other short-term investments
|
-
|
128,014
|
78,752
|
60,014
|
103,291
|
Goodwill
|
55,638
|
55,638
|
55,638
|
55,638
|
55,638
|
Deposits
|
2,260,051
|
2,179,998
|
2,008,532
|
1,914,772
|
2,210,049
|
Borrowings
|
1,346,840
|
958,745
|
788,900
|
834,120
|
809,249
|
Stockholders'
equity
|
276,964
|
268,852
|
290,631
|
291,713
|
281,721
|
Tangible
Stockholders' equity
|
232,156
|
217,238
|
241,829
|
239,169
|
229,013
|
Selected
Operating Data:
|
|
|
|
|
|
Interest
income
|
$202,654
|
$182,160
|
$170,810
|
$169,712
|
$173,758
|
Interest
expense
|
111,302
|
111,147
|
93,340
|
77,341
|
67,776
|
Net
interest income
|
91,352
|
71,013
|
77,470
|
92,371
|
105,982
|
Provision
for loan losses
|
2,006
|
240
|
240
|
340
|
280
|
Net
interest income after provision for loan losses
|
89,346
|
70,773
|
77,230
|
92,031
|
105,702
|
Non-interest
income
|
2,814
|
10,420
|
12,390
|
5,151
|
10,376
|
Non-interest
expense
|
49,973
|
45,502
|
41,976
|
40,742
|
42,407
|
Income
before income tax
|
42,187
|
35,691
|
47,644
|
56,440
|
73,671
|
Income
tax expense
|
14,159
|
13,248
|
17,052
|
20,230
|
27,449
|
Net
income
|
$28,028
|
$22,443
|
$30,592
|
$36,210
|
$46,222
|
|
At
or for the Year Ended December 31,
|
|
2008
|
2007
|
2006
|
2005
|
2004
|
SELECTED
FINANCIAL RATIOS AND OTHER DATA (1):
|
|
|
|
|
|
Return
on average assets
|
0.76%
|
0.69%
|
0.98%
|
1.11%
|
1.38%
|
Return
on average stockholders' equity
|
10.29
|
8.11
|
10.43
|
12.65
|
16.76
|
Stockholders'
equity to total assets at end of period
|
6.83
|
7.68
|
9.16
|
9.33
|
8.34
|
Tangible
equity to tangible assets at end of period
|
5.79
|
6.29
|
7.74
|
7.78
|
6.88
|
Loans
to deposits at end of period
|
145.64
|
131.97
|
134.61
|
136.42
|
113.20
|
Loans
to interest-earning assets at end of period
|
89.60
|
88.77
|
90.18
|
88.82
|
78.04
|
Net
interest spread (2)
|
2.34
|
1.88
|
2.19
|
2.66
|
3.09
|
Net
interest margin (3)
|
2.60
|
2.29
|
2.60
|
2.96
|
3.32
|
Average
interest-earning assets to average interest-bearing
liabilities
|
108.35
|
111.48
|
113.07
|
111.88
|
110.79
|
Non-interest
expense to average assets
|
1.35
|
1.39
|
1.34
|
1.24
|
1.27
|
Efficiency
ratio (4)
|
51.25
|
55.88
|
48.36
|
40.03
|
36.67
|
Effective
tax rate
|
33.56
|
37.12
|
35.79
|
35.84
|
37.26
|
Dividend
payout ratio
|
65.88
|
83.58
|
64.37
|
54.90
|
42.97
|
Per
Share Data:
|
|
|
|
|
|
Diluted
earnings per share
|
$0.85
|
$0.67
|
$0.87
|
$1.02
|
$1.28
|
Cash
dividends paid per share
|
0.56
|
0.56
|
0.56
|
0.56
|
0.55
|
Book
value per share
|
8.10
|
7.93
|
7.97
|
7.89
|
7.58
|
Tangible
book value per share
|
6.79
|
6.41
|
6.63
|
6.47
|
6.16
|
Asset
Quality Ratios and Other Data(1):
|
|
|
|
|
|
Net
charge-offs
|
$584
|
$9
|
$27
|
$45
|
$133
|
Total
non-performing loans
|
7,402
|
2,856
|
3,606
|
958
|
1,459
|
OREO
|
300
|
-
|
-
|
-
|
-
|
Non-performing
loans to total loans
|
0.22%
|
0.10%
|
0.13%
|
0.04%
|
0.06%
|
Non-performing
loans and OREO to total assets
|
0.19
|
0.08
|
0.11
|
0.03
|
0.04
|
Allowance
for Loan Losses to:
|
|
|
|
|
|
Non-performing
loans
|
235.80%
|
538.76%
|
430.23%
|
1,647.70%
|
1,065.32%
|
Total
loans (5)
|
0.53
|
0.53
|
0.57
|
0.60
|
0.62
|
Regulatory Capital
Ratios: (Bank only) (1)
|
|
|
|
|
|
Tangible
capital
|
7.63%
|
7.88%
|
9.05%
|
9.84%
|
7.88%
|
Leverage
capital
|
7.63
|
7.88
|
9.05
|
9.84
|
7.88
|
Total
risk-based capital
|
11.43
|
11.92
|
12.61
|
14.30
|
12.83
|
Earnings
to Fixed Charges Ratios (6) (7):
|
|
|
|
|
|
Including
interest on deposits
|
1.41x
|
1.32x
|
1.51x
|
1.73x
|
2.09x
|
Excluding
interest on deposits
|
1.81
|
1.99
|
2.30
|
2.56
|
3.46
|
Full
Service Branches
|
23
|
21
|
21
|
20
|
20
|
(1)
|
With
the exception of end of period ratios, all ratios are based on average
daily balances during the indicated periods. Asset Quality Ratios and
Regulatory Capital Ratios are end of period
ratios.
|
(2)
|
The
net interest spread represents the difference between the weighted-average
yield on interest-earning assets and the weighted-average cost of
interest-bearing liabilities.
|
(3)
|
The
net interest margin represents net interest income as a percentage of
average interest-earning assets.
|
(4)
|
The
efficiency ratio represents non-interest expense as a percentage of the
sum of net interest income and non-interest income, excluding any gains or
losses on sales of assets.
|
(5)
|
Total
loans represent loans and loans held for sale, net of deferred fees and
costs, and excluding (thus not reducing the aggregate balance for) the
allowance for loan losses.
|
(6)
|
For
purposes of computing the ratios of earnings to fixed charges, earnings
represent income before taxes, extraordinary items and the cumulative
effect of accounting changes plus fixed charges. Fixed charges
represent total interest expense, including and excluding interest on
deposits.
|
(7)
|
Interest
on unrecognized tax benefits totaling $480,000 and $509,000 is included in
the calculation of fixed charges for the years ended December 31, 2008 and
2007, respectively.
|
Item
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Executive
Summary
The
Holding Company’s primary business is the operation of the Bank. The
Company’s consolidated results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and securities, and the interest expense
paid on interest-bearing liabilities, such as deposits and
borrowings. The Bank additionally generates non-interest income such
as service charges and other fees, as well as income associated with Bank Owned
Life Insurance ("BOLI"). Non-interest expense primarily consists of
employee compensation and benefits, federal deposit insurance premiums, data
processing costs, and occupancy and equipment,
marketing
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 seek to increase its product and service
utilization for each individual depositor, and to increase its household and
deposit market shares in the communities that it serves. In addition,
the Bank’s primary strategy includes the origination of, and investment in,
mortgage loans, with an emphasis on multifamily residential and mixed use real
estate loans. During much of 2006 and 2007, growth was restricted as
a result of the interest rate environment, which management deemed unfavorable
for significant balance sheet growth. During 2008, the Company grew
assets due to continued loan demand and favorable marketplace conditions
surrounding the origination of multifamily residential real estate
loans. By the end of 2008, the Company had begun restricting its
plans for future growth due to concerns over the long-term credit quality of the
real estate loans, and the desire to retain sufficient capital levels to
accommodate these concerns.
The
Company believes that multifamily residential and mixed use loans provide
advantages as investment assets. Initially, they offer a higher yield
than investment securities of comparable maturities or terms to
repricing. In addition, origination and processing costs for the
Bank’s multifamily residential and mixed 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 mixed use loan
originations. In order to address the credit risk associated with
multifamily residential and mixed use 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.
The year
ended December 31, 2008 was dominated by a global real estate and economic
recession fueled by significant weakness and/or failure in many of the world's
largest financial institutions. These events led to historically high
dislocations in credit markets, causing origination spreads from the benchmark
origination interest rate to increase significantly during the year ended
December 31, 2008. This increase, coupled with the reduction in
benchmark short-term interest rates by the FOMC (which greatly impact the
pricing of the Bank's retail deposits), resulted in significant increases in
both net interest spread and net interest margin during the year ended December
31, 2008, thus favorably impacting the Company's consolidated earnings during
the period. Partially offsetting this benefit were higher credit
costs recognized on loans owned by the Bank, loans sold to FNMA with recourse,
and pooled trust preferred security investments.
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, reserves for loan commitments and FNMA recourse
exposure, the valuation of 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 valuation 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 and 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.
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 and
impaired loans under Amended SFAS 114") and performing loans. The
Bank applied the process of determining the allowance for loan losses
consistently throughout the years ended December 31, 2008 and 2007.
Performing
Loans
At
December 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
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 years ended December 31, 2008 and 2007.
Under the
guidance established by Amended SFAS 114, loans determined to be impaired are
evaluated at least quarterly in order to establish impairment. 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. (See
"Item1 – Business – Asset Quality – Impaired Loans" for a discussion of impaired
loans.
Non-performing
one- to four-family loans of $625,500 or less are not required to be evaluated
for impairment, and are classified as Substandard, Doubtful or Loss, and
reviewed and reserved for in the manner discussed above for loans of such
classification.
See also
"Item 1 – Business – Asset Quality."
Reserve for Loan
Commitments. The Bank maintains a separate reserve within
other liabilities associated with commitments to fund future loans that have
been accepted by the borrower. This reserve is determined based upon
the historical loss experience of similar loans owned by the Bank at each period
end. Any increases in this reserve amount are obtained via a transfer
of reserves from the Bank's allowance for loan losses, with any resulting
shortfall in the Bank's allowance for loan losses being satisfied through the
quarterly provision for loan losses. Any decreases in this reserve
amount are recognized as a transfer of reserve balances back to the allowance
for loans losses at each period end.
Reserve For the Recourse Exposure on
Multifamily Loans Sold to FNMA. A reserve is also recorded
related to certain multifamily residential real estate loans sold with recourse
under an agreement with FNMA. This reserve, which is included in
other liabilities, is determined in a manner similar to the Company's allowance
for loan losses related to loans held in portfolio. See "Item 1 –
Business - Reserve Liability on the Recourse Exposure on Multifamily Loans
Serviced for FNMA" for a further discussion of this item.
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. In accordance with GAAP, 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. The Company
adopted SFAS No. 156, "Accounting for Servicing of Financial Assets" ("SFAS
156") effective January 1, 2007. SFAS 156 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. 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 December 31, 2008, the Company had goodwill
totaling $55.6 million.
The
Company identified a single reporting unit for purposes of its goodwill
impairment testing, and thus performs its impairment test on a consolidated
basis. The impairment test has two potential stages. In
the initial stage, the Holding Company's market capitalization (reporting unit
fair value) is compared to its outstanding equity (reporting unit carrying
value). The Company utilizes closing price data for the Holding
Company's common stock as reported on the Nasdaq National Market 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, 2008 and concluded that no potential
impairment of goodwill existed since the fair value of the Company's reporting
unit exceeded its carrying value. However, subsequent to December 31,
2008, the price of the Holding Company's common stock declined to such a level
that the Company's total market capitalization has, on occasion, fallen below
its consolidated stockholders' equity. As a result, no assurance can
be given that the Company will not recognize an impairment loss on goodwill
during the year ending December 31, 2009. In the event that an
impairment is recognized, it will not impact the Company's consolidated tangible
equity or capital ratios, nor will it impact any of the Bank's requisite capital
levels or ratios.
Valuation of Financial
Instruments.
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.
At December 31, 2008, the Company owned
eight pooled trust preferred securities classified as
held-to-maturity. During the year ended December 31, 2008, the market
for these securities was deemed to be illiquid. Prior to December 31,
2008, the valuation of these securities was obtained utilizing market quotations
reflecting likely marketplace transaction prices. However, due to the
lack of an active market for these securities, management elected to determine
their fair value utilizing a cash flow valuation approach at December 31,
2008. Under the cash flow valuation methodology utilized, for five of
the eight securities, three independent cash flow model valuations were averaged
and given a 50% weighting. A
separate
cash flow valuation for each of five these securities performed utilizing
default, cash flow and discount rate assumptions determined by the Company's
management (the "Internal Cash Flow Valuation") was given a 50%
weighting. For the remaining three securities, only one independent
cash flow valuation was available and was given a 50% weighting along with the
Internal Cash Flow Valuation.
The major
assumptions utilized in the Internal Cash Flow Valuation were as
follows:
Discount
rate – The discount rate utilized was derived from the Bloomberg fair market
value curve for debt offerings of similar credit rating. In the event
that a security had a split investment rating, separate cash flow valuations
were made utilizing the appropriate discount rate and were averaged in order to
determine the Internal Cash Flow Valuation.
Defaults
- All underlying issuers having Fitch bank rating of 5.0 were assumed to
default. Underlying issuers with a Fitch bank rating of 3.5 through
4.5 were assumed to default at levels ranging from 5% to 75% based upon both
their rating as well as whether they had been granted approval to receive
funding under the TARP Capital Purchase Program.
Cash
flows – The actual cash flows for the Company's investment tranche of each
security, adjusted to assume that all estimated defaults occurred on January 1,
2009, and an estimated recovery of 6% over the cash flow period (i.e., the remaining life of
the security).
Two of
the three independent cash flow valuations were made utilizing a similar
methodology from the Internal Cash Flow Valuation, differing only in the
underlying assumptions deriving their estimated cash flows, individual bank
defaults and discount rate. The third independent cash flow valuation
was derived from a different methodology in which the actual cash flow estimate
based upon the underlying collateral of the securities (including default
estimates) was not considered. Instead, this cash flow valuation was
determined utilizing a discount rate determined from the Bloomberg fair market
value curve for similar assets that still continue to trade actively, with
adjustments made for the illiquidity of the pooled trust preferred
market.
(See
"Item 1 – Business – Investment Activities – Corporate Debt Obligations" for a
further discussion of these securities).
Debt
securities that are not classified as held-to-maturity, along with all equity
securities, are classified as available-for-sale. The Company owned
no securities classified as trading securities during the year ended December
31, 2008. 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 December 31, 2008 had readily
determinable fair values, which were based on published or securities dealers'
market values.
The
Company conducts a periodic review and evaluation of its securities portfolio,
taking into account the severity and duration of each unrealized loss, as well
as management's intent and ability to hold the security until the unrealized
loss is substantially eliminated, in order to determine if a decline in market
value of any security below its carrying value is either temporary or other than
temporary. Unrealized losses on held-to-maturity securities that are
deemed temporary are disclosed but not recognized. Unrealized losses
on debt or equity securities available-for-sale that are deemed temporary are
excluded from net income and reported net of deferred taxes as other
comprehensive income or loss. All unrealized losses that are deemed
other than temporary on either available-for-sale or held-to-maturity securities
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. During the year ended December 31, 2008, unrealized
losses of $3.2 million were deemed other than temporary associated with two
held-to-maturity pooled trust preferred securities. (See "Item 1.
Business – Investment Activities – Corporate Debt Obligations"). No
other than temporary impairments were recognized in the Company's securities
portfolio during the year ended December 31, 2007. Total unrealized
holding losses on securities were $6.5 million at December 31, 2008, and
included $5.7 million of unamortized unrealized holding losses on securities
that were transferred from available-for-sale to held-to-maturity on September
1, 2008. Unrealized holding gains totaled $733,000 at December 31,
2007. See "Item 1 – Business – Investment Activities" for further
discussion utilized in determining whether unrealized losses on securities were
deemed other-than temporary.
Recognition of Deferred Tax
Assets. Management reviews all deferred tax assets
periodically. Upon such review, in the event that there is a greater
likelihood that the deferred tax asset will not be fully realized, a valuation
allowance is recognized against the deferred tax asset in the amount for which
realization is determined to be more unlikely than likely to occur.
Unrecognized 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, 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 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 generally discontinued on loans that have missed three
consecutive monthly payments, at which time the Bank does not recognize the
interest from the third month and evaluates whether the accrual of interest
associated with the first two missed payments should be
reversed. Payments on nonaccrual loans are generally applied to
principal. Management may elect to continue the accrual of interest
when a loan is in the process of collection and the estimated fair value of the
collateral is sufficient to satisfy the outstanding principal balance (including
any outstanding advances related to the loan) and accrued interest. 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 period of at least 6 months.
Accounting for Defined Benefit
Plans – Defined benefit plans are accounted for in accordance with 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"). SFAS 158 requires an employer sponsoring a
single employer defined benefit plan to recognize the funded status of a benefit
plan in its 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 trained actuaries
employed at an independent benefits plan administration entity in order to
assist in measuring the funded status of its defined benefit plans.
Liquidity
and Capital Resources
The Board
of Directors of the Bank has approved a liquidity policy that it reviews and
updates at least annually. Senior management is responsible for implementing the
policy. The Bank's ALCO is responsible for general oversight and
strategic implementation of the policy, and management of the appropriate
departments are designated responsibility for implementing any strategies
established by ALCO. On a daily basis, senior management receives a
current cash position report and one-week forecast to ensure that all short-term
obligations are satisfied timely and that adequate liquidity exists to fund
future activities. On a monthly basis, reports detailing the Bank's
liquidity reserves and forecasted cash flows are presented to both senior
management and the Board of Directors. In addition on a monthly
basis, a twelve-month liquidity forecast is presented to ALCO in order to assess
potential future liquidity concerns. A summary of the financial plan,
including cash flow data for the upcoming 12 months, is presented to the Board
of Directors on an annual basis.
The
Bank's primary sources of funding for its lending and investment activities
include deposits, loan and MBS payments, investment security maturities,
advances from the FHLBNY, and REPOS entered into with various financial
institutions, including the FHLBNY. The Bank also sells selected
multifamily residential, mixed use and 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, deposit 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.
Retail
branch and Internet banking deposits increased $80.1 million during the year
ended December 31, 2008, compared to an increase of $171.5 million during the
year ended
December
31, 2007. During the year ended December 31, 2008, CDs increased
$76.1 million and interest bearing checking accounts increased $51.0
million. In September 2008, the Bank commenced a deposit gathering
campaign offering a highly competitive short-term CD, coupled with the
requirement that the customer establish and retain an active, minimum balance
"Prime Dime" checking account. While initially resulting in higher
deposit costs during the campaign period, the Bank’s long-term goal is to
establish a more cost effective and stable component of deposit funding and
build core retail customer relationships. The success of this campaign resulted
in the increases in CDs and interest bearing checking accounts during the year
ended December 31, 2008. Partially offsetting these increases was a
decline of $45.6 million in money market deposits, as the Bank did not
aggressively price these deposits for the great majority of 2008. During the
majority of the year ended December 31, 2007, management elected to seek deposit
growth as its primary source of funding, and thus the Company experienced an
increase of $12.4 million in CDs and $164.2 million in money market accounts in
2007, due primarily to successful promotional campaigns.
During
the year ended December 31, 2008, principal repayments totaled $522.4 million on
real estate loans and $48.2 million on MBS. During the year ended
December 31, 2007, principal repayments totaled $324.4 million on real estate
loans and $33.3 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
dates), coupled with growth in the portfolio during the year ended December 31,
2008. The increase in principal paydowns on MBS resulted from the
purchase of $183.8 million of MBS during the year ended December 31, 2008 that
increased their average balance by $124.8 million compared to the year ended
December 31, 2007. The Company does not presently believe that its
future levels of principal repayments will be materially impacted by problems
currently 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.
From
December 2002 through December 31, 2008, the Bank originated and sold
multifamily residential mortgage and mixed use loans in the secondary market to
FNMA while retaining servicing and generating fee income while it services the
loans. The Bank underwrote these loans using its customary underwriting
standards, funded the loans, and sold them to FNMA at agreed upon
pricing. Typically, the Bank sought to sell loans with terms to
maturity or repricing in excess of seven years from the origination date since
it did not desire to retain such loans in portfolio as a result of the
heightened interest rate risk they possessed. Under the terms of the
sales program, the Bank retains a recourse exposure on these sold
loans. Once established, such amount continued to increase as long as
the Bank sold 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
years ended December 31, 2008 and 2007, the Bank sold FNMA $27.5 million and
$71.4 million of loans, respectively, pursuant to this program. The
reduction in sales activity during the year ended December 31, 2008 reflected
less favorable offering rates by FNMA on new loans during the
period. The Bank's contract to sell multifamily loans to FNMA expired
on December 31, 2008.
In
addition, during the years ended December 31, 2008 and 2007, the Bank sold
participation interests in multifamily loans totaling $114.6 million and $6.1
million, respectively, to a third party financial institution. All of
these loan participations remain fully serviced by the Bank, and were sold at
par and without recourse, with a gain recognized for the value of the net
servicing rights associated with the loans. These sales were made in
order to permit the Bank to achieve its desired volume of lending without
excessively leveraging capital.
During
the year ended December 31, 2008, the Company increased its REPO borrowings by
$74.9 million and FHLBNY advances by $313.2 million,
respectively. These borrowings were added in order to fund real
estate loan originations and purchases of MBS during the period, both of which
significantly exceeded their respective 2007 levels. These borrowings
enabled management to extend the average duration of the Company’s liabilities,
as the average cost of the new REPOS and FHLBNY advances was significantly lower
than the cost of raising new, or retaining existing, retail deposit funding of
similar durations. In addition, embedded within a portion of the
added REPOS and FHLBNY advances 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 year ended December 31, 2007,
the Company increased its REPO borrowings by $34.8 million and FHLBNY advances
by $135.0 million, respectively. The REPO borrowings were added in
order to fund real estate loan originations and ongoing Bank operations. The
majority of the additional FHLBNY advances were undertaken late in 2007 when
favorable pricing made that form of funding more desirable than promotional
deposits.
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 December 31, 2008, the Bank had an
additional potential borrowing capacity of $395.6 million available, provided it
owned the minimum required level of FHLBNY common stock. The Holding
Company additionally possessed a $15.0 million committed line of credit
agreement from a reputable financial institution. That agreement
expired on December 31, 2008, and management is currently reviewing its
replacement options. In addition, the Bank maintains an uncommitted
line of credit for up to $50.0 million with a reputable financial
institution.
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 December 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, the repurchase of Holding Company common stock into treasury and the
payment of dividends on Holding Company common stock. During the
years ended December 31, 2008 and 2007, real estate loan originations totaled
$1.09 billion and $574.5 million, respectively. Purchases of
investment securities (excluding short-term investments and federal funds sold)
and MBS totaled $189.3 million during the year ended December 31, 2008, compared
to $52.2 million during the year ended December 31, 2007. The
increase in real estate loan originations resulted, in part, from increased
borrower refinance activity, as real estate loans originated during 2003 and
2004 approached their contractual interest rate repricing dates. 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. Purchases of investment securities and MBS were lower
during the year ended December 31, 2007 as the Company elected to retain excess
funds in federal funds sold and other short-term investments while short-term
rates equaled or exceeded medium and long-term rates.
During
the year ended December 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.
Share repurchase levels were significantly lower during the year ended December
31, 2008 than the year ended December 31, 2007 as management elected to retain
additional capital while resuming loan growth during the year ended December 31,
2008. As of December 31, 2008, up to 1,124,549 shares remained
available for purchase under authorized share purchase
programs. Based upon the $13.30 per share closing price of its common
stock as of December 31, 2008, the Holding Company would utilize $15.0 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.
During
the year ended December 31, 2008, the Company paid $18.3 million in cash
dividends on its common stock, compared to $19.0 million during the year ended
December 31, 2007. The reduction reflected a decline of 814,000 in
the average basic shares of common stock outstanding during the year ended
December 31, 2008 compared to the year ended December 31, 2007, that resulted
primarily from 2.3 million shares of treasury stock repurchased during
2007.
Contractual
Obligations
The Bank has outstanding at any time, a
significant number of borrowings in the form of FHLBNY advances or REPOS, as
well as fixed interest obligations on CDs. The Holding Company also
has an outstanding $25.0 million non-callable subordinated note payable due to
mature in 2010, and $72.2 million of trust preferred borrowings due to mature in
April 2034, which are callable at any time after April 2009. The
Holding Company currently does not intend to call this debt.
The Bank is obligated under leases for
certain rental payments due on its branches and equipment. A summary
of CDs, borrowings and lease obligations at December 31, 2008 is as
follows:
|
Payments
Due By Period
|
Contractual
Obligations
|
Less
than One Year
|
One
Year to Three Years
|
Over
Three Years to Five Years
|
Over
Five Years
|
|
Total
|
|
(Dollars
in thousands)
|
CDs
|
$986,226
|
$122,435
|
$44,505
|
$-
|
|
$1,153,166
|
Weighted
average interest rate of CDs (1)
|
3.58%
|
3.65%
|
4.19%
|
-
|
|
3.61%
|
Borrowings
|
$230,000
|
$289,900
|
$379,775
|
$447,165
|
|
$1,346,840
|
Weighted
average interest rate of borrowings
|
4.03%
|
4.40%
|
3.72%
|
4.57%
|
|
4.20%
|
Operating
lease obligations
|
$2,062
|
$4,056
|
$3,706
|
$17,272
|
|
$27,096
|
Minimum
data processing system obligation
|
$752
|
$1,004
|
-
|
-
|
|
$1,756
|
(1) The
weighted average cost of CDs, inclusive of their contractual compounding of
interest, was 3.69% at December 31, 2008.
The Company had a reserve recorded
related to unrecognized income tax benefits totaling $1.2 million at December
31, 2008. Due to the uncertainty of the amounts to be
ultimately paid as well as the timing of such payments, all liabilities pursuant
to FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" that
were not paid by December 31, 2008 have been excluded from the tabular
disclosure of contractual obligations.
Off-Balance
Sheet Arrangements
The Bank implemented a program in
December 2002 to originate and sell multifamily residential mortgage loans in
the secondary market to FNMA while retaining servicing. The Bank is
required to retain a recourse obligation on all loans sold under this program,
which will remain in effect until either the entire portfolio of loans sold to
FNMA is satisfied or the Bank funds claims by FNMA for the full balance of the
recourse obligation.
In addition, as part of its loan
origination business, the Bank generally 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 table presents off-balance sheet
arrangements as of December 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
|
$55,097
|
$-
|
$-
|
$-
|
|
$55,097
|
Other
loan commitments
|
49,928
|
-
|
-
|
-
|
|
49,928
|
Recourse
obligation on loans sold to FNMA
|
21,865
|
-
|
-
|
-
|
|
21,865
|
Total
Credit Commitments
|
$126,890
|
$-
|
$-
|
$-
|
|
$126,890
|
Analysis
of Net Interest Income
The
Company's profitability, like that of most banking institutions, is dependent
primarily upon net interest income, which is the difference between interest
income on interest-earnings assets, such as loans and securities, and interest
expense on interest-bearing liabilities, such as deposits or
borrowings. Net interest income depends on the relative amounts of
interest-earning assets and interest-bearing liabilities, and the interest rate
earned or paid on them. The following tables set forth certain
information relating to the Company's consolidated statements of operations for
the years ended December 31, 2008, 2007 and 2006, and reflect the average yield
on interest-earning assets and average cost of interest-bearing liabilities for
the periods indicated. Such yields and costs are derived by dividing interest
income or expense by the average balance of interest-earning assets or
interest-bearing liabilities, respectively, for the periods indicated. Average
balances are derived from daily balances. The yields and costs include fees that
are considered adjustments to yields. All material changes in average
balances and interest income or expense are discussed in the sections entitled
"Interest Income" and "Interest Expense" in the comparison of operating results
commencing on page F-54.
|
For the Year Ended December
31,
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
|
(Dollars
in Thousands)
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
Average
|
|
Yield/
|
|
Average
|
|
Yield/
|
|
Average
|
|
Yield/
|
|
Balance
|
Interest
|
Cost
|
|
Balance
|
Interest
|
Cost
|
|
Balance
|
Interest
|
Cost
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans (1)
|
$3,088,242
|
$182,934
|
5.92%
|
|
$2,775,397
|
$165,221
|
5.95%
|
|
$2,649,623
|
$155,510
|
5.87%
|
Other
loans
|
1,790
|
166
|
9.27
|
|
1,823
|
178
|
9.77
|
|
1,978
|
190
|
9.61
|
Investment
securities
|
32,230
|
1,950
|
6.05
|
|
26,683
|
2,011
|
7.54
|
|
32,609
|
2,276
|
6.98
|
MBS
|
280,307
|
12,685
|
4.53
|
|
155,462
|
6,344
|
4.08
|
|
177,490
|
6,850
|
3.86
|
Federal
funds sold and other short-term investments
|
110,202
|
4,919
|
4.46
|
|
146,094
|
8,406
|
5.75
|
|
116,447
|
5,984
|
5.14
|
Total
interest-earning assets
|
3,512,771
|
$202,654
|
5.77
|
|
3,105,459
|
$182,160
|
5.87
|
|
2,978,147
|
170,810
|
5.74%
|
Non-interest
earning assets
|
197,153
|
|
|
|
157,559
|
|
|
|
148,493
|
|
|
Total
assets
|
$3,709,924
|
|
|
|
$3,263,018
|
|
|
|
$3,126,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing checking accounts
|
$91,988
|
$2,200
|
2.39%
|
|
$44,406
|
$833
|
1.88%
|
|
$35,475
|
$361
|
1.02%
|
Money
Market accounts
|
655,853
|
18,551
|
2.83
|
|
630,375
|
24,238
|
3.85
|
|
463,885
|
12,038
|
2.60
|
Savings
accounts
|
273,720
|
1,535
|
0.56
|
|
287,420
|
1,631
|
0.57
|
|
317,572
|
1,866
|
0.59
|
CDs
|
1,017,951
|
37,692
|
3.70
|
|
1,072,678
|
49,059
|
4.57
|
|
1,019,562
|
42,394
|
4.16
|
Borrowed
Funds
|
1,202,581
|
51,324
|
4.27
|
|
750,822
|
35,386
|
4.71
|
|
797,318
|
36,681
|
4.60
|
Total
interest-bearing liabilities
|
3,242,093
|
$111,302
|
3.43
|
|
2,785,701
|
$111,147
|
3.99
|
|
2,633,812
|
93,340
|
3.54%
|
Non-interest
bearing checking accounts
|
91,699
|
|
|
|
93,470
|
|
|
|
95,067
|
|
|
Other
non-interest-bearing liabilities
|
103,833
|
|
|
|
107,260
|
|
|
|
104,562
|
|
|
Total
liabilities
|
3,437,625
|
|
|
|
2,986,431
|
|
|
|
2,833,441
|
|
|
Stockholders'
equity
|
272,299
|
|
|
|
276,587
|
|
|
|
293,199
|
|
|
Total
liabilities and stockholders' equity
|
$3,709,924
|
|
|
|
$3,263,018
|
|
|
|
$3,126,640
|
|
|
Net
interest spread (2)
|
|
|
2.34%
|
|
|
|
1.88%
|
|
|
|
2.19%
|
Net
interest income/ interest margin (3)
|
|
$91,352
|
2.60%
|
|
|
$71,013
|
2.29%
|
|
|
$77,470
|
2.60%
|
Net
interest-earning assets
|
$270,678
|
|
|
|
$319,758
|
|
|
|
$344,335
|
|
|
Ratio
of interest-earning assets to
interest-bearing liabilities
|
|
108.35%
|
|
|
|
111.48%
|
|
|
|
113.07%
|
(1) In
computing the average balance of real estate loans, non-performing loans have
been included. Interest income on real estate loans includes loan
fees as defined under SFAS 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases—an amendment of FASB Statements No. 13, 60, and 65 and a rescission of
FASB Statement No. 17." Interest income on real estate loans also
includes applicable prepayment fees and late charges under
SFAS 91.
(2) Net
interest spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) The
interest margin represents net interest income as a percentage of average
interest-earning assets.
Rate/Volume
Analysis. The following table represents the extent to which
variations in interest rates and the volume of interest-earning assets and
interest-bearing liabilities have affected interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) variances attributable to fluctuations in volume (change in
volume multiplied by prior rate), (ii) variances attributable to rate (changes
in rate multiplied by prior volume), and (iii) the net change. Variances
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to
rate.
|
Year
Ended December 31, 2008
Compared
to
Year
Ended December 31, 2007
Increase/
(Decrease) Due to
|
|
Year
Ended December 31, 2007
Compared
to
Year
Ended December 31, 2006
Increase/
(Decrease) Due to
|
|
Year
Ended December 31, 2006
Compared
to
Year
Ended December 31, 2005
Increase/
(Decrease) Due to
|
|
Volume
|
Rate
|
Total
|
|
Volume
|
Rate
|
Total
|
|
Volume
|
Rate
|
Total
|
Interest-earning
assets:
|
(Dollars
in Thousands)
|
Real
Estate Loans
|
$16,152
|
$1,561
|
$17,713
|
|
$6,828
|
$2,883
|
$9,711
|
|
$6,818
|
$250
|
$7,068
|
Other
loans
|
(4)
|
(8)
|
(12)
|
|
(12)
|
-
|
(12)
|
|
(37)
|
13
|
(24)
|
Investment
securities
|
276
|
(337)
|
(61)
|
|
(357)
|
92
|
(265)
|
|
(1,927)
|
1,601
|
(326)
|
MBS
|
4,818
|
1,523
|
6,341
|
|
(719)
|
213
|
(506)
|
|
(5,475)
|
626
|
(4,849)
|
Federal
funds sold and
other
short-term investments
|
(1,811)
|
(1,676)
|
(3,487)
|
|
1,516
|
906
|
2,422
|
|
(3,487)
|
2,716
|
(771)
|
Total
|
$19,431
|
$1,063
|
$20,494
|
|
$7,256
|
$4,094
|
$11,350
|
|
$(4,108)
|
$5,206
|
$1,098
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing checking accounts
|
$933
|
$434
|
$1,367
|
|
$156
|
$316
|
$472
|
|
$(54)
|
$7
|
($47)
|
Money
market accounts
|
($73)
|
($5,614)
|
($5,687)
|
|
5,547
|
6,653
|
12,200
|
|
(3,107)
|
5,372
|
2,265
|
Savings
accounts
|
(66)
|
(30)
|
(96)
|
|
(160)
|
(75)
|
(235)
|
|
(204)
|
127
|
(77)
|
CDs
|
(3,129)
|
(8,238)
|
(11,367)
|
|
2,595
|
4,070
|
6,665
|
|
1,342
|
12,118
|
13,460
|
Borrowed
funds
|
17,168
|
(1,230)
|
15,938
|
|
(1,776)
|
481
|
(1,295)
|
|
(481)
|
879
|
398
|
Total
|
$14,833
|
($14,678)
|
$155
|
|
6,362
|
11,445
|
17,807
|
|
(2,504)
|
18,503
|
15,999
|
Net
change in net interest income
|
$4,598
|
$15,741
|
$20,339
|
|
$894
|
$(7,351)
|
$(6,457)
|
|
$(1,604)
|
$(13,297)
|
$(14,901)
|
Comparison
of Financial Condition at December 31, 2008 and December 31, 2007
Assets. Assets
totaled $4.06 billion at December 31, 2008, an increase of $554.4 million from
total assets of $3.50 billion at December 31, 2007.
Real
estate loans increased $415.3 million during the year ended December 31, 2008,
due primarily to originations of $1.09 billion during the period (as marketplace
competition diminished and new origination rates remained favorable for the Bank
to pursue a higher lending volume compared to 2007), that were partially offset
by amortization of $522.4 million and sales of $151.0 million.
MBS
available-for-sale increased $138.6 million during the year ended December 31,
2008, as purchases of $183.8 million and an increase in their fair value of $3.4
million were partially offset by principal repayments of $48.2 million during
the period.
Cash and
due from banks increased $109.3 million during the year ended December 31,
2008. The reduction in yields offered on federal funds investments
coupled with deposit inflows late in 2008 resulted in an unusually high level of
cash balances at December 31, 2008. These balances are expected to be
deployed in some capacity during 2009.
Federal
funds sold and other short-term investments declined $128.0 million, as the
reduction in yield offered on these short-term investments made them
undesirable.
The
Company acquired an additional $14.4 million of FHLBNY common stock during the
year ended December 31, 2008 in order to satisfy the requisite ownership levels
necessary to obtain additional FHLBNY advances during the
period. (See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources" for a discussion of requisite ownership of FHLBNY common
stock).
Liabilities. Total
liabilities grew $546.3 million during the year ended December 31, 2008,
reflecting increases of $74.9 million in REPOS, $313.2 million in FHLBNY
advances, $80.1 million in retail branch and Internet banking deposits, and
$77.9 million in escrow and other deposits during the period. The
increase in escrow and other deposits resulted from the significant increase in
real estate loans, on which the Bank maintains escrow and other related
deposits, during the year ended December 31, 2008. (See "Item
7. 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
retail branch and Internet banking deposits during the period).
Stockholders'
Equity. Stockholders' equity increased $8.1 million during the
year ended December 31, 2008, due primarily to net income of $28.0 million,
amortization of stock benefit plans of $2.9 million, and $2.5 million of
proceeds received in consideration for shares issued in connection with the
exercise of stock options, all of which were partially offset by dividend
payments of $18.3 million, treasury stock repurchases of $654,000, and an
increase of $6.8 million in the accumulated other comprehensive loss component
of stockholders' equity. The increase in accumulated other
comprehensive loss related to both an increase in the unfunded status of the
Bank's defined benefit plans during the year ended December 31, 2008, as well as
an unrealized loss on trust preferred securities that were classified as
available-for-sale prior to being transferred to held-to-maturity during the
period.
Comparison
of Financial Condition at December 31, 2007 and December 31, 2006
Assets. Assets
totaled $3.50 billion at December 31, 2007, an increase of $327.8 million from
total assets of $3.17 billion at December 31, 2006.
Real
estate loans increased $173.7 million during the year ended December 31, 2007,
due primarily to originations of $574.5 million during the period (as interest
rates offered on new loans continued to stimulate origination activity), that
were partially offset by amortization of $324.4 million and sales to third
parties of $77.6 million.
Cash and
due from banks and federal funds sold and other short-term investments increased
by $75.4 million and $49.3 million, respectively, during the year ended December
31, 2007, as the Company added FHLBNY advances late in the year ended December
31, 2007, and held the funds in cash and due from banks and federal funds sold
and other short-term investments at year-end. In future periods,
these funds are anticipated to be invested in higher-yielding investment
securities, MBS and real estate loans to the extent permissible under the Bank's
regulations.
Liabilities. During
the year ended December 31, 2007, total liabilities increased $349.6 million,
reflecting increases of $171.5 million in deposits, $34.8 million in REPOS and
$135.0 million in FHLBNY advances during the period. (See "Item 7. –
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for a discussion of the deposit,
FHLBNY advances and REPO increases during the period).
Stockholders'
Equity. Stockholders' equity decreased $21.8 million during
the year ended December 31, 2007, due to treasury stock repurchases of $29.6
million, cash dividends on the Holding Company's common stock of $19.0 million
and a reduction to equity of $1.7 million related to an additional reserve
recorded by the Company upon adoption of FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes."
Partially
offsetting these items were increases to equity during the period resulting from
the following: (i) net income of $22.4 million; (ii) $2.0 million related to
amortization of the Employee Stock Ownership Plan of Dime Community Bancshares,
Inc. and Certain Affiliates (the "ESOP") and restricted stock awards issued
under other stock benefit plans; and (iii) $958,000 of cash dividends re-assumed
through the liquidation of the Recognition and Retention Plan for Outside
Directors, Officers and Employees of Dime Community Bancshares,
Inc. The ESOP and restricted stock awards are initially recorded as
reductions in stockholders' equity ("Contra Equity Balances"). As
compensation expense is recognized on the ESOP and restricted stock awards, the
Contra Equity Balances are reduced in a corresponding amount, resulting in an
increase to their respective equity balances. This increase to equity
offsets the decline in the Company's retained earnings related to the periodic
recorded ESOP and restricted stock award expenses.
Comparison
of Operating Results for the Years Ended December 31, 2008 and 2007
General. Net
income was $28.0 million during the year ended December 31, 2008, an increase of
$5.6 million from net income of $22.4 million during the year ended December 31,
2007. During the comparative period, net interest income increased
$20.3 million, the provision for loan losses increased $1.8 million,
non-interest income declined $7.6 million and non-interest expense increased
$4.5 million, resulting in an increase in pre-tax net income of $6.5
million. Income tax expense increased $911,000 during the comparative
period due to the increased pre-tax earnings.
Net Interest
Income. The discussion of net interest income for the years
ended December 31, 2008 and 2007 presented below should be read in conjunction
with the tables on pages F-52 and F-53, 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 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.
During
the year ended December 31, 2008, FOMC monetary policies resulted in a 425 basis
point reduction of the overnight federal funds rate from 4.25% to near zero
percent. This reduction significantly 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 year ended December 31, 2008 compared
to the year ended December 31, 2007.
Net
interest income for the year ended December 31, 2008 increased $20.3 million to
$91.4 million, from $71.1 million during the year ended December 31,
2007. The increase was attributable to an increase of $20.5 million
in interest income that was partially offset by an increase of $155,000 in
interest expense. The net interest spread increased 46 basis points,
from 1.88% for the year ended December 31, 2007 to 2.34% for the year ended
December 31, 2008, and the net interest margin increased 31 basis points, from
2.29% to 2.60% during the same period.
The
increases in both net interest spread and net interest margin reflected a
decrease of 56 basis points in the average cost of interest bearing
liabilities. This decrease resulted primarily from declines in the
average cost of money market deposits and CDs of 102 basis points and 87 basis
points, respectively, during the comparative period, reflecting the
aforementioned reduction in short-term interest rates during 2008.
Interest
Income. Interest income was $202.7 million during the year
ended December 31, 2008, an increase of $20.5 million, from $182.2 million,
during the year ended December 31, 2007. This resulted primarily from
increases in interest income of $17.7 million and $6.3 million on real estate
loans and MBS, respectively, that were partially offset by a decline of $3.5
million in interest income on federal funds sold and other short-term
investments.
The
increase in interest income on real estate loans resulted from growth in their
average balance of $312.8 million during the year ended December 31, 2008
compared to the year ended December 31, 2007, reflecting originations of $1.09
billion during 2008, which were partially offset by principal repayments of
$522.4 million and loan sales of $151.0 million during the same
period.
The
increase in interest income on MBS resulted from an increase of $124.8 million
in their average balance coupled with an increase of 45 basis points in their
average yield during the year ended December 31, 2008 compared to the year ended
December 31, 2007. The increase in average balance resulted from
$183.8 million of MBS purchases during the period October 2007 through September
2008, that were partially offset by $48.2 million in principal repayments during
the same period. The increase in average yield on MBS reflected the
steeper yield curve during the year ended December 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 FOMC monetary policy during
2008.
The
decrease in interest income on federal funds sold and other short-term
investments resulted from a decline of $35.9 million in their average balance
(as these liquid investments were utilized to fund real estate loans and MBS
purchases during the year ended December 31, 2008), along with a reduction of
129 basis points in their average yield (reflecting lower federal funds and
benchmark short-term interest rates during the year ended December 31, 2008 as a
result of FOMC monetary policy actions).
Interest
Expense. Interest expense increased $155,000, to $111.3
million, during the year ended December 31, 2008, from $111.1 million during the
year ended December 31, 2007. The additional expense resulted
primarily from increased interest expense of $15.9 million on borrowed funds and
$1.4 million on interest bearing checking accounts, that was largely offset by
declines in interest expense of $5.7 million and $11.4 million on CDs and money
market accounts, respectively.
The
increase in interest expense on borrowed funds resulted from $451.8 million of
growth in their average balance during the year ended December 31, 2008 compared
to the year ended December 31, 2007, as the Company added $668.0 million of
REPOS and FHLBNY advances during the period October 1, 2007 through December 31,
2008 in order to fund operational requirements and help maintain pricing
discipline on deposits.
The
increase of $1.4 million in interest expense on interest bearing checking
accounts resulted from an increase of $47.6 million in their average balance,
coupled with an
increase
of 51 basis points in their average cost during the period, both of which
reflected growth in Prime Dime interest bearing checking accounts that began in
the second half of 2007 and continued during the year ended December 31, 2008,
as these accounts have traditionally carried a higher cost than other interest
bearing checking accounts.
The
decline in interest expense on CDs resulted from decreases of both $54.7 million
in their average balance and 87 basis points in their average cost during the
year ended December 31, 2008 compared to the year ended December 31,
2007. The decline in average cost reflected lower offering rates
during the year ended December 31, 2008, as short-term market interest rates,
which influence the pricing of CDs, declined by 425 basis points during the year
ended December 31, 2008. The decline in average balance of CDs
reflected deposit pricing strategies implemented by the Bank during the majority
of the year ended December 31, 2008 which de-emphasized the use of CDs as a
funding source.
The
decrease in interest expense on money market accounts was due to a decline of
102 basis points in their average rate, as the Bank lowered offering rates on
money market accounts from March through September 2008 in response to the
reduction in benchmark short-term interest rates during 2008. The
decrease in average rate was partially offset by a $25.5 million increase in the
average balance of money markets during the year ended December 31, 2008
compared to the year ended December 31, 2007, that was attributable to a
combination of two factors. The balance of money markets increased
during 2007 through successful promotional activities. In addition,
the Bank's offering rates on money market accounts lagged the decline in
short-term interest rates in the financial markets during most of the first six
months of 2008. 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 year ended December 31, 2008 compared to the year
ended December 31, 2007.
Provision for Loan
Losses. The provision for loan losses was $2.0 million during
the year ended December 31, 2008, an increase of $1.8 million over the provision
of $240,000 recorded during the year ended December 31, 2007. The
increase in the provision for loan losses during the year ended December 31,
2008 primarily reflected the following items: 1) the significant growth in the
Bank's loan portfolio during the year ended December 31, 2008; and 2) the
increase in non-accrual and other problem loans from December 31, 2007 to
December 31, 2008, along with deteriorating conditions in the Bank's local real
estate marketplace that resulted in a higher level of estimated loan loss
reserves on these non-accrual and other problem loans.
Non-Interest Income. Non-interest income
decreased $7.6 million, from $10.4 million during the year ended December 31,
2007 to $2.8 million during the year ended December 31, 2008. The
decline resulted primarily from a reduction in net mortgage banking income of
$3.7 million attributable to provisions to net mortgage banking income of $3.9
million recognized during the year ended December 31, 2008 for an increase to
the reserve liability for losses on loans sold to FNMA with
recourse. (See "Item 1 – Business - Reserve Liability on the Recourse
Exposure on Multifamily Loans Serviced for FNMA" for a further discussion of the
provisions to the book reserve for losses on loans sold with partial
recourse).
In
addition, during the year ended December 31, 2008, the Company recognized an
other-than temporary impairment charge of $3.2 million related to two pooled
trust preferred securities, and a loss of $129,000 on the sale of two OREO
properties. There were no other-than temporary impairment charges
recognized on securities or sales of either securities or OREO during the year
ended December 31, 2007.
The
remainder of the decline in non-interest income resulted primarily from a
non-recurring $546,000 BOLI settlement the Bank received during the year ended
December 31, 2007.
Non-Interest
Expense. Non-interest expense was $50.0 million during the
year ended December 31, 2008, an increase of $4.5 million from $45.5 million
during the year ended December 31, 2007.
Salaries
and employee benefits increased $2.3 million during the comparative period as a
result of regular increases to existing employee compensation levels, along with
management and staff positions required for two retail branch openings in 2008
and other general staff increases during the period. Stock benefit
plan amortization expense increased $906,000, reflecting equity awards granted
to officers in July 2008 along with higher ESOP expense resulting from an
increase in the Holding Company's common stock price during the year ended
December 31, 2008 compared to the year ended December 31, 2007.
Occupancy
and equipment expense increased by $536,000 during the comparative period, due
primarily to the opening of the Borough Park branch in March 2008 and the
Brooklyn Heights branch in December 2008 (for which the Bank paid rental expense
commencing in January 2008), along with a substantial increase in the monthly
rental cost of the Bank's Bronx branch commencing in late
2007. Federal deposit insurance costs increased $641,000 as a result
of an insurance fund re-capitalization plan implemented by the FDIC in late
2006.
Other
non-interest expenses (including advertising expenses) increased $223,000,
primarily as a result of additional professional fees related to various
consultation matters.
Non-interest
expense was 1.35% of average assets during the year ended December 31, 2008,
compared to 1.39% during the year ended December 31, 2007. This ratio
declined despite the increase in non-interest expense during the comparative
period due to growth of $446.9 million in average assets.
Income Tax
Expense. Income tax expense increased $911,000 during the year
ended December 31, 2008 compared to the year ended December 31, 2007, due to an
increase of $6.5 million in pre-tax income during the
period. Partially offsetting this increase were non-recurring
reductions to income tax expense during the year ended December 31, 2008 of
$662,000 from the reduction in the reserve for unrecognized tax benefits,
and $275,000 from adjustments related to completion of the June 2007
and December 2007 tax returns. These non-recurring items reduced the
actual effective tax rate for the year ended December 31, 2008 to
33.5%.
Comparison
of Operating Results for the Year Ended December 31, 2007 and 2006
General. Net
income was $22.4 million during the year ended December 31, 2007, a decrease of
$8.1 million from net income of $30.6 million during the year ended December 31,
2006. During the comparative period, net interest income declined
$6.5 million, non-interest income decreased $2.0 million due primarily to a
change in the net gains or losses on the disposal of assets, and non-interest
expense increased $3.5 million, resulting in a reduction in pre-tax net income
of $12.0 million. Income tax expense decreased $3.8 million during
the comparative period, primarily as a result of the decrease in pre-tax net
income.
Net Interest
Income. The discussion of net interest income for the years
ended December 31, 2007 and 2006 presented below should be read in conjunction
with the tables on pages F-52 and F-53, 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 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.
Net
interest income for the year ended December 31, 2007 decreased $6.5 million to
$71.0 million, from $77.5 million during the year ended December 31,
2006. The decrease was attributable to an increase of $17.8 million
in interest expense that was partially offset by an increase of $11.4 million in
interest income. The net interest spread decreased 31 basis points,
from 2.19% for the year ended December 31, 2006 to 1.88% for the year ended
December 31, 2007, and the net interest margin decreased 31 basis points, from
2.60% to 2.29% during the same period.
The
increase in funding costs resulting from the tightening of monetary policy by
the FOMC during the first six months of 2006 that remained in effect for the
majority of 2007, in combination with various market factors suppressing
increases in both general long-term interest rates and interest rates offered on
real estate loans within the Bank's lending market, resulted in a narrowing
spread between short and long-term interest rates during the great majority of
the year ended December 31, 2007, which negatively impacted net interest income
during the year ended December 31, 2007. While these conditions
improved late in 2007, the benefit occurred too late in the year to provide any
significant favorable impact during the year ended December 31,
2007.
The
decreases in both the net interest spread and net interest margin reflected an
increase of 45 basis points in the average cost of interest bearing
liabilities. The increase resulted primarily from increases in the
average cost of money market deposits and CDs of 125 basis points and 41 basis
points, respectively, during the comparative period, reflecting increases in
short-term interest rates during the first six months of 2006 that remained in
effect throughout the great majority of 2007. (See "Interest Expense"
below).
Interest
Income. Interest income was $182.2 million during the year
ended December 31, 2007, an increase of $11.4 million from $170.8 million during
the year ended December 31, 2006. This resulted primarily from
increases of $9.7 million and $2.4 million in interest income on real estate
loans and other short-term investments, respectively, that were partially offset
by decreases in interest income on MBS and investment securities of $506,000 and
$266,000, respectively, during the period.
The
increase in interest income on real estate loans resulted, in part, from growth
in their average balance of $125.8 million during the year ended December 31,
2007 compared to the year ended December 31, 2006. The increase
reflected originations of $574.5 million in 2007, which were partially offset by
principal repayments of $324.4 million and loan sales of $77.6
million
during the period. The increase in interest income on real
estate loans additionally resulted from an increase in the average yield from
5.87% during the year ended December 31, 2006 to 5.95% during the year ended
December 31, 2007, that was attributable to higher medium- and long-term
interest rates throughout much of the year ended December 31, 2007 compared to
the year ended December 31, 2006.
The
increase in interest income on other short-term investments resulted from growth
in their average balance of $29.6 million during the year ended December 31,
2007 compared to the year ended December 31, 2006 coupled with an increase of 61
basis points in their average yield during the same period. The
increase in average balance reflected cash flows from deposit growth during 2007
that were retained in short-term securities and federal funds sold, since the
flattened yield curve provided benefits to retaining the funds in short-term
investments. The increase in average yield reflected increases in
short-term interest rates throughout 2006 that remained in effect throughout the
great majority of 2007. The actions of the FOMC during the last few
months of 2007 resulting in lower short-term interest rates had only a minor
effect upon short-term investment yields during the year ended December 31, 2007
since they occurred so late in the period.
The
decline in interest income on MBS during the year ended December 31, 2007
compared to the year ended December 31, 2006 resulted from a decreased average
balance of $22.0 million (resulting from $33.3 million and $39.4 million in
principal repayments during the years ended December 31, 2007 and 2006,
respectively, that were partially offset by purchases of $38.0 million during
2007), that was partially offset by an increase of 22 basis points in average
yield during the year ended December 31, 2007 compared to the year ended
December 31, 2006 (resulting from increases in short and medium-term interest
rates throughout 2006 which remained in effect throughout the great majority of
2007). The decline in interest income on investment securities
reflected a decrease in their average balance of $5.9 million during the year
ended December 31, 2007 compared to the year ended December 31, 2006, as cash
flows from maturing investment securities were utilized to fund real estate loan
originations or Bank operations.
Interest
Expense. Interest expense increased $17.8 million, to $111.1
million, during the year ended December 31, 2007, from $93.3 million during the
year ended December 31, 2006. The growth resulted primarily from
increased interest expense of $12.2 million related to money markets and $6.7
million related to CDs, that was partially offset by a decline of $1.3 million
in interest expense on borrowings.
The
increase in interest expense on money markets was due to increases of 125 basis
points in their average cost and $166.5 million in their average balance during
the comparative period. During the year ended December 31, 2007, the
Bank increased the rates offered on both promotional and non-promotional money
market accounts, which led to the increase in average cost during the
period. In addition, the Bank grew its balance of money markets
during 2007 through successful promotional activities.
The
increase in interest expense on CDs resulted, in part, from an increase in their
average cost of 41 basis points during the year ended December 31, 2007 compared
to the year ended December 31, 2006. The increase in average cost
resulted from increases in short-term interest rates throughout 2006 that
remained in effect throughout the great majority of 2007, as a significant
majority of the Bank's CDs re-priced during 2007. In addition, the
average balance of CDs increased $53.1 million during the comparative period,
reflecting successful gathering of new CDs from promotional activities during
2007. (See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources").
The
decrease in interest expense on borrowed funds during the year ended December
31, 2007 compared to the year ended December 31, 2006 was due to a decline of
$46.5 million in average balance during the period as the Company elected not to
replace maturing borrowings throughout much of 2007 while deposit balances were
increasing. The average cost of borrowed funds increased 11 basis
points during the year ended December 31, 2007 compared to the year ended
December 31, 2006, due primarily to a reduction of $807,000 in borrowing expense
recorded during 2006 related to borrowing restructurings. (See
"Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" for a discussion of
the change in borrowing balances during the years ended December 31, 2007 and
2006).
Provision for Loan
Losses. The provision for loan losses was $240,000 during the
years ended both December 31, 2007 and December 31, 2006, as the Bank provided
for additional inherent losses in the portfolio.
Non-Interest
Income. Non-interest income, excluding gains or losses on the
sale of assets, increased $337,000 from $9.3 million during the year ended
December 31, 2006 to $9.7 million during the year ended December 31,
2007. This increase resulted primarily from a $546,000 BOLI benefit
payment received by the Bank during 2007.
Net gains
on the sale of loans and other assets (which were recorded as non-interest
income) declined from $3.1 million during the year ended December 31, 2006 to
$750,000 during
the year
ended December 31, 2007. The Company sold loans to FNMA totaling
$71.6 million and $145.4 million during the years ended December 31, 2007 and
2006, respectively. The gains recorded on these sales were $750,000
and $1.5 million during the years ended December 31, 2007 and 2006,
respectively. During the year ended December 31, 2006, the Company
additionally recorded non-recurring pre-tax gains of $478,000 on the sale of a
property obtained in its 1999 acquisition of Financial Bancorp, Inc. and $1.1
million on the sale of mutual fund investments associated with its Benefit
Maintenance Plan.
Non-Interest
Expense. Non-interest expense was $45.5 million during the
year ended December 31, 2007, an increase of $3.5 million from the year ended
December 31, 2006.
Salaries
and employee benefits increased $1.3 million during the comparative period as a
result of regular increases to existing employee compensation
levels. Stock benefit plan amortization expense increased $671,000 as
a result of stock option awards granted on May 1, 2007 to outside directors and
certain officers of the Company.
Occupancy
and equipment expense increased $669,000 during the year ended December 31, 2007
compared to the comparable period of 2006 due to general increases in rental
costs and real estate taxes, the expansion of administrative office space during
2007, and a $239,000 charge related to the early termination of
leased equipment .
Data
processing expense increased $37,000 during the comparative period as a result
of increased loan and deposit account activity during the year ended December
31, 2007 compared to the year ended December 31, 2006. Other expenses
increased $835,000 due primarily to increased advertising costs of $452,000
resulting from increased promotional activities and an aggregate increase of
$499,000 in accounting and legal fees related primarily to a change in tax
year-end along with added legal costs associated with new proxy compensation
disclosures implemented in 2007.
Non-interest
expense to average assets was 1.39% for the year ended December 31 2007,
compared to 1.34% for the year ended December 31, 2006. The increase
reflected the growth in non-interest expense during the comparative
period.
Income Tax
Expense. Income tax expense decreased $3.8 million during the
year ended December 31, 2007 compared to the year ended December 31, 2006, due
primarily to a decline of $12.0 million in pre-tax net income during the
period. The effective tax rate increased from 35.8% during the year
ended December 31, 2006 to 37.1% during the year ended December 31, 2007 due
primarily to the dissolution of a subsidiary in 2007.
Comparison
of Operating Results for the Years Ended December 31, 2006 and 2005
General. Net income was $30.6
million during the year ended December 31, 2006, a decrease of $5.6 million from
net income of $36.2 million during the year ended December 31,
2005. Net interest income decreased $14.9 million, non-interest
income increased $7.2 million and non-interest expense increased $1.2 million,
resulting in a decline in pre-tax net income of $8.8 million. Income
tax expense decreased $3.2 million as a result of the decline in pre-tax net
income.
Net Interest
Income. The discussion of net interest income for the years
ended December 31, 2006 and 2005 presented below should be read in conjunction
with the tables on pages F-52 and F-53 , 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 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.
Net interest income for the year ended
December 31, 2006 decreased $14.9 million to $77.5 million, from $92.4 million
during the year ended December 31, 2005. The decrease was
attributable to an increase of $16.0 million in interest expense that was
slightly offset by an increase of $1.1 million in interest
income. The net interest spread decreased 47 basis points, from 2.66%
for the year ended December 31, 2005 to 2.19% for the year ended December 31,
2006, and the net interest margin decreased 36 basis points, from 2.96% to 2.60%
during the same period.
The tightening of monetary policy by
the FOMC from the second half of 2004 through June 30, 2006, in combination with
various market factors suppressing increases in both general long-term interest
rates and interest rates offered on real estate loans within the Bank's lending
market, resulted in a narrowing spread between short and long-term interest
rates, which negatively impacted net interest income during the year ended
December 31, 2006.
The decrease in both the net interest
spread and net interest margin reflected an increase of 77 basis points in the
average cost of interest bearing liabilities. The increase resulted
primarily
from the following: (i) borrowings, which generally possess a higher average
cost than deposits, became a larger percentage of the Bank's total interest
bearing liabilities as a result of runoff in average deposit balances during
2006, and (ii) the average cost of money market deposits and CDs increased by
100 basis points and 121 basis points, respectively, during the comparative
period, reflecting increases in short-term interest rates during
2006. (See "Interest Expense" below).
Partially offsetting the increase in
the average cost of interest bearing liabilities was an increase of 31 basis
points in the average yield on interest earning assets during the year ended
December 31, 2006 compared to the year ended December 31, 2005. This
increase resulted primarily from an increase in the average balance of real
estate loans (the Bank's highest yielding interest earning asset) as a
percentage of total interest earning assets, which was coupled with an increase
in the average yields on real estate loans and MBS of 1 basis point and 25 basis
points, respectively, during the comparative period. The increase in
the composition of real estate loans as a percentage of interest earning assets
resulted from both loan origination activity during 2006 coupled with a
reduction in the level of investment securities and MBS during the same period,
as cash flows from maturing investment securities and MBS were utilized to fund
both loan originations and ongoing operations of the Company. The increase in
average yield on real estate loans reflected ongoing increases in medium- and
long-term interest rates during 2006. The increase in average yield
on MBS reflected ongoing increases in short- and medium-term interest rates
during 2006.
Interest
Income. Interest income was $170.8 million during the year
ended December 31, 2006, an increase of $1.1 million from the year ended
December 31, 2005. Interest income on real estate loans increased $7.1 million
and was partially offset by decreases in interest income on MBS, investment
securities and other short-term investments of $4.8 million, $326,000 and
$771,000, respectively, during the period.
The increase in interest income on real
estate loans resulted primarily from growth in their average balance of $116.4
million during the year ended December 31, 2006 compared to the year ended
December 31, 2005. The growth reflected real estate loan originations
of $563.2 during 2006, which were partially offset by principal repayments and
loan sales during the period.
The one basis point increase in average
yield on real estate loans during the year ended December 31, 2006 compared to
the year ended December 31, 2005 resulted from ongoing increases in medium and
long-term interest rates from October 2005 through June 2006, which resulted in
an increase in the average origination rate on real estate loans from 5.77%
during the year ended December 31, 2005 to 6.43% during the year ended December
31, 2006.
The decline in interest income on MBS
during the year ended December 31, 2006 compared to the year ended December 31,
2005 resulted from a decreased average balance of $146.5 million (resulting
primarily from the sale of $236.9 million of MBS in May 2005 and principal
repayments on MBS of $39.4 million during 2006), that was partially offset by an
increase of 25 basis points in average yield during the year ended December 31,
2006 compared to the year ended December 31, 2005 (resulting from increases in
short and medium-term interest rates during 2006). The decline in
interest income on investment securities and other short-term investments
reflected declines in their average balances of $35.7 million and $81.4 million,
respectively, during the year ended December 31, 2006 compared to the year ended
December 31, 2005, as cash flows from maturing investment securities and other
short-term investments were utilized to fund both loan originations and ongoing
operations of the Company.
Interest
Expense. Interest expense increased $16.0 million, to $93.3
million, during the year ended December 31, 2006, from $77.3 million during the
year ended December 31, 2005. The growth resulted primarily from
increased interest expense of $13.5 million related to CDs and $2.3 million
related to money market accounts.
The increase in interest expense on CDs
resulted from an increase in their average cost of 121 basis points during the
year ended December 31, 2006 compared to the year ended December 31,
2005. The increase in average cost resulted from increases in
short-term interest rates during 2006, as most of the Bank's CDs outstanding at
December 2005 matured during this timeframe. In addition, the average
balance of CDs increased $37.5 million during the period, reflecting successful
gathering of new CDs from promotional activities during 2006. The
increase of $2.3 million in interest expense on money market accounts resulted
from an increase of 100 basis points in average cost during 2006 that
was attributable to increases in short-term interest rates during 2006.
Partially offsetting the increased cost was a $147.8 million decline in the
average balance of money market accounts during 2006 that resulted primarily
from a $173.2 million decrease in money market accounts from June 30, 2005
through June 30, 2006, as management elected not to compete aggressively for
money market balances during this time period.
Provision for Loan
Losses. The provision for loan losses was $240,000 during the
year ended December 31, 2006, down from $340,000 during the year ended December
31,
2005. The
decline reflected an additional provision of $100,000 taken during 2005 related
to consumer loans. Otherwise the provisions taken in 2006 and 2005
reflected inherent losses in the Bank's real estate loan portfolio that resulted
from ongoing originations.
Non-Interest
Income. Non-interest income, excluding gains or losses on the
sale of assets, totaled $9.3 million during the year ended December 31, 2006,
compared to $9.4 million during the year ended December 31,
2005. There were no material changes in any individual item during
the comparable period.
The Company sold loans to FNMA
totaling $145.4 million and $108.5 million during the years ended December 31,
2006 and 2005, respectively. The gains recorded on these sales were
$1.5 million and $924,000, respectively, during the years ended December 31,
2006 and 2005. The majority of the loans sold during both of these
periods were designated for sale upon origination.
During the year ended December 31,
2006, the Company recorded a pre-tax gain of $1.1 million on the sale of mutual
fund investments associated with the Benefit Maintenance Plan of Dime Community
Bancshares, Inc. During the year ended December 31, 2005, the Company
incurred a pre-tax loss of $5.2 million related to the sale of $274.2 million of
investment and mortgage-backed securities under a restructuring of its
securities portfolio. During the year ended December 31, 2006, the
Company sold a parcel of real estate obtained in its acquisition of Financial
Bancorp, Inc. in 1999, recognizing a pre-tax gain of $478,000.
Non-Interest
Expense. Non-interest expense was $42.0 million during the
year ended December 31, 2006, an increase of $1.2 million from the year ended
December 31, 2005.
Salaries and employee benefits
increased $591,000 during the comparative period, reflecting normal salary
increases as well as the filling of open and new staffing and management
positions. Additions to staff occurred primarily in the retail
division of the Bank, where initiatives included product and sales development
for business and professional banking.
Occupancy and equipment expense
increased $369,000 during the year ended December 31, 2006 compared to the year
ended December 31, 2005 due to both general increases in utility costs and real
estate taxes as well as the addition of the Valley Stream branch in March
2006.
Data systems expense increased $339,000
during the year ended December 31, 2006 compared to the year ended December 31,
2005, resulting from the expiration of promotional pricing the Company received
throughout the first six months of 2005 from its new data systems
vendor.
Non-interest expense to average assets
was 1.34% during the year ended the December 31, 2006, compared to 1.24% for the
year ended December 31, 2005. Average assets decreased by $149.9
million during 2006 as a result of the previously discussed declines in the
average balance of investment securities, MBS and other short-term investments
during 2006.
Income Tax
Expense. Income tax expense decreased $3.2 million during the
year ended December 31, 2006 compared to the year ended December 31, 2005, due
primarily to a decline of $8.8 million in pre-tax net income during the
period.
Impact
of Inflation and Changing Prices
The consolidated financial statements
and notes thereto presented herein have been prepared in accordance with GAAP,
which requires the measurement of financial position and operating results in
terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased costs of operations. Unlike industrial companies,
nearly all of the Company's consolidated assets and liabilities are monetary in
nature. As a result, interest rates have a greater impact on the Company's
consolidated performance than do the effects of general levels of inflation.
Interest rates do not necessarily fluctuate in the same direction or to the same
extent as the price of goods and services.
Recently
Issued Accounting Standards
For a discussion of the impact of
recently issued accounting standards, please see Note 1 to the Company's
consolidated financial statements that commence on page F-72.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
As a depository financial
institution, the Bank's primary source of market risk is interest rate
volatility. Fluctuations in interest rates will ultimately impact the
level of interest income recorded on, and the market value of, a significant
portion of the Bank's assets. Fluctuations in interest rates will
also ultimately impact the level of interest expense recorded on, and the market
value of, a significant portion of the Bank's liabilities. In
addition, the Bank's real estate loan portfolio, concentrated primarily within
the NYC metropolitan area, is subject to risks associated with the local
economy.
Real estate loans, the largest
component of the Bank's interest earning assets, traditionally derived their
current interest rates primarily from either the five- or seven-year constant
maturity Treasury index. As a result, the Bank's interest earning
assets were historically most sensitive to these benchmark interest
rates. Dislocations in the credit markets during the year ended
December 31, 2008 resulted in a lower level of sensitivity of the Bank's
multifamily loans to these benchmark interest rates. Since the
majority of the Bank's interest bearing liabilities mature within one year, its
interest bearing liabilities are most sensitive to fluctuations in short-term
interest rates.
Neither
the Holding Company nor the Bank is subject to foreign currency exchange or
commodity price risk. In addition, the Company owned no trading
assets, nor did it engage in any hedging transactions utilizing derivative
instruments (such as interest rate swaps and caps) or embedded derivative
instruments that required bifurcation during the years ended December 31, 2008
or 2007. In the future, the Company may, with appropriate Board
approval, engage in hedging transactions utilizing derivative
instruments.
Since a
majority of the Company's consolidated interest-earning assets and
interest-bearing liabilities are located at the Bank, virtually all of the
interest rate risk exposure exists at the Bank level. As a result,
all of the significant interest rate risk management procedures are performed at
the Bank level. The Bank's interest rate risk management strategy is
designed to limit the volatility of net interest income and preserve capital
over a broad range of interest rate movements and has the following three
primary components:
Assets. The Bank's
largest single asset type is the adjustable-rate multifamily residential loan.
Multifamily residential loans typically carry shorter average terms to maturity
than one- to four-family residential loans, thus significantly reducing the
overall level of interest rate risk. Over 90% of multifamily
residential loans originated during the years ended both December 31, 2008 and
2007 were adjustable rate, with repricing typically occurring after five or
seven years. In
addition, the Bank has sought to include in its portfolio various types of
adjustable-rate one- to four-family loans and adjustable and floating-rate
investment securities, which generally have repricing terms of three years or
less. At December 31, 2008, adjustable-rate real estate and consumer
loans totaled $2.77 billion, or 68.4% of total assets, and adjustable-rate
investment securities (CMOs, REMICs, MBS issued by GSEs and other securities)
totaled $128.3 million, or 3.2% of total assets. At December
31, 2007, adjustable-rate real estate and consumer loans totaled $2.41 billion,
or 68.8% of total assets, and adjustable-rate investment securities (CMOs,
REMICs, MBS issued by GSEs and other securities) totaled $53.6 million, or 1.5%
of total assets.
Deposit
Liabilities. As a traditional community-based savings bank,
the Bank is largely dependent upon its base of competitively priced core
deposits to provide stability on the liability side of the balance
sheet. The Bank has retained many loyal customers over the years
through a combination of quality service, convenience, and a stable and
experienced staff. Core deposits, at December 31, 2008, were $1.11 billion, or
49.0% of total deposits. The balance of CDs as of December 31, 2008 was $1.16
billion, or 51.0% of total deposits, of which $996.2 million, or 85.5%, were to
mature within one year. The weighted average maturity of the Bank's
CDs at December 31, 2008 was 8.8 months
compared to 5.8 months at December 31, 2007. The Bank generally
prices its CDs in an effort to encourage the extension of the average maturities
of deposit liabilities beyond one year, and the increase in the average maturity
of CDs during the year ended December 31, 2008 reflected promotional CDs with
maturities of 12 months and higher that were added throughout 2008.
Wholesale
Funds. The Bank is a member of the FHLBNY, which provided the
Bank with a borrowing line of up to $1.42 billion at December 31, 2008. The Bank borrows from
the FHLBNY for various purposes. At December 31, 2008, the Bank had outstanding
advances of $1.02 billion from the FHLBNY, all of which were secured by a
blanket lien on the Bank's loan portfolio.
The Bank
has authority to accept brokered deposits as a source of funds and considers
them a potential funding source. The Bank had no outstanding brokered
deposits at either December 31, 2008 or December 31, 2007.
Interest
Sensitivity Gap
The Bank
regularly monitors its interest rate sensitivity through the calculation of an
interest sensitivity gap. The interest sensitivity gap is the
difference between the amount of interest-earning assets and interest-bearing
liabilities anticipated to mature or reprice within a specific
period. The interest sensitivity gap is considered positive when the
amount of interest-earning assets anticipated to mature or reprice within a
specified time frame exceeds the amount of interest-bearing liabilities
anticipated to mature or reprice within the same period. Conversely,
the interest sensitivity gap is considered negative when the amount of
interest-bearing liabilities anticipated to mature or reprice within a specific
time frame exceeds the amount of interest-earning assets anticipated to mature
or reprice within the same period. In a rising interest rate
environment, an institution with a positive interest sensitivity gap would
generally be expected, absent the effects of other factors, to experience a
greater increase in the yields of its assets relative to the costs of its
liabilities and thus an increase in its net interest income, whereas an
institution with a negative interest sensitivity gap would generally be expected
to experience a decline in net interest income. Conversely, in a
declining interest rate environment, an institution with a positive interest
sensitivity gap would generally be expected, absent the effects of other
factors, to experience a greater decline in the yields of its assets relative to
the costs of its liabilities and thus a decrease in its net interest income,
whereas an institution with a negative interest sensitivity gap would generally
be expected to experience an increase in net interest income.
The
following table sets forth the amounts of the Company's consolidated
interest-earning assets and interest-bearing liabilities outstanding at December
31, 2008 which are anticipated, based upon certain assumptions, to reprice,
prepay or mature in each of the time periods shown. Except as stated below, the
amounts of assets and liabilities shown repricing or maturing during a
particular period reflect the earlier of term to repricing or maturity of the
asset or liability. The table is intended to provide an approximation of the
projected repricing of assets and liabilities which existed at December 31, 2008
on the basis of contractual maturities, anticipated prepayments, and scheduled
rate adjustments within a three-month period and selected subsequent time
intervals. For purposes of presentation in the table, the Bank utilized its own
historical deposit attrition experience ("Deposit Decay Rate") for savings
accounts, which it believes to be the most accurate measure. For NOW, Super NOW
and money market accounts, it utilized the Deposit Decay Rates published by the
OTS. All amounts calculated in the table for both loans and MBS
reflect principal balances expected to reprice as a result of contractual
interest rate adjustments or from reinvestment of cash flows generated from
anticipated principal repayments (inclusive of early prepayments).
There are certain limitations inherent
in the method of analysis presented in the table. For example,
although certain assets and liabilities may possess similar maturities or
periods to repricing, they are impacted by different market forces, and may
therefore react differently to changes in interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate with changes in
market interest rates, while interest rates on other types of assets may lag
behind changes in market rates. Additionally, certain assets, such as
adjustable-rate loans, have features, like annual and lifetime rate caps, which
restrict changes in the interest rates charged, both on a short-term basis and
over the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate from those assumed
in the table. Finally, the ability of certain borrowers to make scheduled
payments on their adjustable-rate loans may decrease in the event of an interest
rate increase.
At
December 31, 2008
|
3
Months
or
Less
|
More
than
3
Months to
6
Months
|
More
than 6 Months
to
1 Year
|
More
than
1
Year
to
3 Years
|
More
than
3
Years
to
5 Years
|
More
than
5
Years
|
Non-interest
bearing
|
Total
|
|
(Dollars
in Thousands)
|
Interest-Earning
Assets (1):
|
|
|
|
|
|
|
|
Mortgages
and other loans
|
$331,084
|
$181,401
|
$288,047
|
$1,270,151
|
$896,478
|
$324,344
|
-
|
$3,291,505
|
Investment
securities
|
10,861
|
-
|
-
|
-
|
361
|
16,241
|
-
|
27,463
|
MBS
(2)
|
11,916
|
11,916
|
23,832
|
72,273
|
94,546
|
86,868
|
-
|
301,351
|
Cash
and due from banks (3)
|
193,872
|
-
|
|
-
|
-
|
-
|
-
|
193,872
|
FHLBNY
capital stock
|
53,435
|
-
|
-
|
-
|
-
|
-
|
-
|
53,435
|
Total
interest-earning assets
|
601,168
|
193,317
|
311,879
|
1,342,424
|
991,385
|
427,453
|
-
|
3,867,626
|
Less:
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
-
|
-
|
-
|
-
|
-
|
-
|
$(17,454)
|
(17,454)
|
Net
interest-earning assets
|
601,168
|
193,317
|
311,879
|
1,342,424
|
991,385
|
427,453
|
(17,454)
|
3,850,172
|
Non-interest-earning
assets
|
-
|
-
|
-
|
-
|
-
|
-
|
205,426
|
205,426
|
Total
assets
|
$601,168
|
$193,317
|
$311,879
|
$1,342,424
|
$991,385
|
$427,453
|
$187,972
|
$4,055,598
|
Interest-Bearing
Liabilities
|
|
|
|
|
|
|
|
|
Savings
accounts
|
$9,286
|
$8,967
|
$17,020
|
$57,337
|
$43,351
|
$134,360
|
-
|
$270,321
|
Interest
bearing checking accounts
|
22,256
|
17,860
|
25,835
|
22,224
|
11,656
|
12,856
|
-
|
112,687
|
Money
market accounts
|
125,050
|
100,353
|
145,161
|
124,872
|
65,493
|
72,238
|
-
|
633,167
|
CDs
|
247,047
|
276,444
|
462,735
|
122,435
|
44,505
|
-
|
-
|
1,153,166
|
Borrowed
funds
|
40,000
|
45,000
|
145,000
|
264,900
|
379,775
|
375,000
|
-
|
1,249,675
|
Subordinated
notes
|
-
|
-
|
-
|
25,000
|
-
|
-
|
|
25,000
|
Trust
preferred securities
|
-
|
-
|
-
|
-
|
-
|
72,165
|
|
72,165
|
Interest-bearing
escrow
|
-
|
-
|
-
|
-
|
-
|
1,278
|
-
|
1,278
|
Total
interest-bearing liabilities
|
443,639
|
448,624
|
795,751
|
616,768
|
544,780
|
667,897
|
-
|
3,517,459
|
Non-interest
bearing checking accounts
|
-
|
-
|
-
|
-
|
-
|
-
|
$90,710
|
90,710
|
Other
non-interest-bearing liabilities
|
-
|
-
|
-
|
-
|
-
|
-
|
170,465
|
170,465
|
Stockholders'
equity
|
-
|
-
|
-
|
-
|
-
|
-
|
276,964
|
276,964
|
Total
liabilities and stockholders' equity
|
$443,639
|
$448,624
|
$795,751
|
$616,768
|
$544,780
|
$667,897
|
$538,139
|
$4,055,598
|
Positive
(Negative) interest sensitivity gap per period
|
$157,529
|
$(255,307)
|
$(483,872)
|
$725,656
|
$446,605
|
$(240,444)
|
-
|
|
Positive
(Negative) cumulative interest sensitivity gap
|
$157,529
|
$(97,778)
|
$(581,650)
|
$144,006
|
$590,611
|
$350,167
|
-
|
|
Positive
(Negative) cumulative interest sensitivity gap
as
a percent of total assets
|
3.88%
|
(2.41)%
|
(14.34)%
|
3.55%
|
14.56%
|
8.63%
|
-
|
|
Cumulative
total interest-earning assets as a percent
of
cumulative total interest-bearing liabilities
|
135.51%
|
89.04%
|
65.54%
|
106.25%
|
120.73%
|
109.96%
|
-
|
|
(1)
|
Interest-earning
assets are included in the period in which the balances are expected to be
redeployed and/or repriced as a result of anticipated prepayments,
scheduled rate adjustments, or contractual maturities or
calls.
|
(2)
|
Based
upon historical repayment experience, and, where applicable, balloon
payment dates.
|
(3)
|
Amount
represents funds placed on deposit with the Federal Reserve Bank of New
York earning a nominal rate of interest that was higher than the federal
funds sold offering rate at December 31, 2008. These balances
are not included in the population of interest-earning assets in the net
interest income table on page F-52.
|
At December 31, 2008, the Company's
consolidated balance sheet was comprised primarily of assets that were estimated
to mature or reprice within five years, with a significant portion maturing or
repricing within one year. In addition, the Bank's deposit base was comprised
primarily of savings accounts, money market accounts, interest and non-interest
bearing checking accounts, and CDs with maturities of five years or
less. At December 31, 2008, interest-bearing liabilities estimated to
mature or reprice within one year totaled $1.69 billion, while interest-earning
assets estimated to mature or reprice within one year totaled $1.11 billion,
resulting in a negative one-year interest sensitivity gap of $581.7 million, or
negative 14.3% of total assets. In comparison, at December 31, 2007,
interest-bearing liabilities estimated to mature or reprice within one year
totaled $1.52 billion, while interest-earning assets estimated to mature or
reprice within one year totaled $765.8 million, resulting in a negative one-year
interest sensitivity gap of $752.7 million, or negative 21.5% of total
assets. The decrease in the magnitude of the one-year negative
interest sensitivity gap resulted from an increase in the level of real estate
loans scheduled to mature or reprice within one year (as loans originated during
the refinance boom period of 2002 through 2004 approached their contractual
repricing date) coupled with a decline in CDs maturing or repricing within one
year, as a portion of the Bank's customers became more willing to accept CDs
with maturities in excess of one year in order to lock in a fixed return while
short-term interest rates were declining during 2008.
Under interest rate scenarios other
than that which existed on December 31, 2008, the interest sensitivity gap for
assets and liabilities could differ substantially based upon different
assumptions about the manner in which core Deposit Decay Rates and loan
prepayments would change. For example, the interest rate risk management model
assumes that in a rising rate scenario, by paying competitive rates on non-core
deposits, a portion of core deposits will transfer to CDs and be retained,
although at higher cost. Also, in a rising interest rate environment,
loan and MBS prepayment rates would be expected to slow, as borrowers postpone
loan refinancings until rates again decline.
Interest
Rate Risk Exposure (NPV) Compliance
Under
guidelines established by OTS Thrift Bulletin 13a, the Bank also measures its
interest rate risk through an analysis of the change in its NPV under several
interest rate scenarios. NPV is the difference between the present
value of the expected future cash flows of the Bank’s assets and liabilities,
plus the value of net expected cash flows from either commitments to originate
or sell loans or purchase securities.
Traditionally, the fair value of
fixed-rate instruments fluctuates inversely with changes in interest
rates. Increases in interest rates thus result in decreases in the
fair value of interest-earning assets, which could adversely affect the
Company's consolidated results of operations in the event they were to be sold,
or, in the case of interest-earning assets classified as available-for-sale,
reduce the Company's consolidated stockholders' equity, if
retained. During the year ended December 31, 2008, dislocations in
the credit markets resulted in a significantly lower correlation between changes
in interest rates and changes in these fair values. The changes in
the value of assets and liabilities due to fluctuations in interest rates
reflect the interest rate sensitivity of those assets and
liabilities. Under GAAP, changes in the unrealized gains and losses,
net of taxes, on securities classified as available-for-sale are reflected in
stockholders' equity through other comprehensive income. As of
December 31, 2008, the Company's consolidated securities portfolio included
$318.0 million in securities classified as available- for-sale, which possessed
a gross unrealized loss of $798,000. Neither the Holding
Company nor the Bank owned any trading assets as of December 31, 2008 or
2007.
In order
to measure the Bank’s sensitivity to changes in interest rates, NPV is
calculated under market interest rates prevailing at a given quarter-end
("Pre-Shock Scenario"), and under various other interest rate scenarios ("Rate
Shock Scenarios") representing immediate, permanent, parallel shifts in the term
structure of interest rates from the actual term structure observed in the
Pre-Shock Scenario. The changes in NPV between the Pre-Shock Scenario
and various Rate Shock Scenarios due to fluctuations in interest rates reflect
the interest rate sensitivity of the Bank’s assets, liabilities, and commitments
to either originate or sell loans and/or purchase or sell securities that are
included in the NPV. The NPV ratio under any interest rate scenario
is defined as the NPV in that scenario divided by the present value of the
assets in the same scenario (the "NPV Ratio").
An interest rate risk exposure
compliance report is presented to the Bank's Board of Directors on a quarterly
basis. The report, prepared in accordance with Thrift Bulletin 13a, compares the
Bank's estimated Pre-Shock Scenario NPV to the estimated NPVs calculated under
the various Rate Shock Scenarios. The calculated estimates of the
resulting NPV Ratios are compared to current limits established by management
and approved by the Board of Directors.
The analysis that follows presents the estimated NPV in the Pre-Shock Scenario
and three Rate Shock Scenarios and measures the dollar amount and percentage by
which each of the Rate Shock Scenario NPVs changes from the Pre-Shock Scenario
NPV. Interest rate sensitivity is measured by the changes in the
various Rate Shock Scenario NPV Ratios from the Pre-Shock Scenario NPV
Ratio. The greater the change, the greater the sensitivity of the
Bank's assets and liabilities to changes in interest rates.
|
At
December 31, 2008
|
|
|
|
|
|
Net
Portfolio Value
|
|
|
|
|
At
December 31, 2007
|
|
|
Dollar
Amount
|
Dollar
Change
|
Percentage
Change
|
|
NPV
Ratio
|
Basis
Point Change in NPV Ratio
|
|
NPV
Ratio
|
Basis
Point Change in NPV Ratio
|
Board
Approved
NPV
Ratio Limit
|
|
(Dollars
in Thousands)
|
|
Rate
Shock Scenario
|
|
|
|
|
|
|
|
|
|
|
+
200 Basis Points
|
$236,751
|
$(60,083)
|
-20.24%
|
|
6.02%
|
(126)
|
|
7.79%
|
(211)
|
5.0%
|
+
100 Basis Points
|
270,905
|
(25,929)
|
-8.74
|
|
6.77
|
(51)
|
|
9.00
|
(90)
|
6.0
|
Pre-Shock
Scenario
|
296,834
|
-
|
-
|
|
7.28
|
-
|
|
9.90
|
-
|
7.0
|
-
100 Basis Points
|
312,334
|
15,500
|
5.22
|
|
7.54
|
26
|
|
10.25
|
35
|
7.0
|
-
200 Basis Points
|
N/A
|
N/A
|
N/A
|
|
N/A
|
N/A
|
|
10.14
|
24
|
7.0
|
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 obtained from reputable independent sources,
such as values for the Bank's MBS and CMO 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
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 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 $296.8 million at December 31,
2008. The NPV Ratio at December 31, 2008 was 7.28% 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 December 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 their
increased spread above the benchmark interest rate.
The Bank’s +200 basis point Rate
Shock Scenario NPV decreased from $263.7 million at December 31, 2007 to $236.8
million at December 31, 2008. The decrease resulted primarily from
the growth in the loan portfolio during the year ended December 31, 2008,
including the loan commitment pipeline at December 31, 2008. The
growth in the loan portfolio that resulted from the new loans originated during
the year ended December 31, 2008 created a longer term to next interest rate
repricing for assets at December 31, 2008 compared to December 31,
2007. Assets with a longer term to next interest rate repricing
generate a less favorable NPV in a rising rate interest rate
environment. As a result, the decline in the NPV of total assets from
the Pre-Shock Scenario to the +200 basis point Rate Shock Scenario was greater
at December 31, 2008 than December 31, 2007.
The NPV Ratio was 6.02% in the +200
basis point Rate Shock Scenario at December 31, 2008, a decrease from the NPV
Ratio of 7.79% in the +200 basis point Rate Shock Scenario at December 31,
2007. The decrease reflected the aforementioned decrease in the +200
basis point Rate Shock Scenario NPV during the comparative period.
At
December 31, 2008, the interest rate sensitivity (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 was negative
126 basis points, compared to negative 211 basis points in the +200 basis point
Rate Shock Scenario at December 31, 2007. The reduction in
sensitivity was due primarily to the favorable valuation of borrowings in the
+200 basis point Rate Shock Scenario NPV compared to the Pre-Shock Scenario NPV
at December 31, 2008 versus these valuations at December 31,
2007. 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 year ended December 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.
Item 8. Financial
Statements and Supplementary Data
For the Company's consolidated
financial statements, see index on page F-72.
Item 9. Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
None.
Item 9A. Controls
and Procedures
Disclosure
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 December 31, 2008, of the
Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and
15(d)-15(e) under the Exchange Act. Based upon this evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective as of December 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 SEC’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.
Management’s
Report On Internal Control Over Financial Reporting
Management of the Company is
responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. The Company’s internal control
over financial reporting is a process designed to provide reasonable assurance
to the Company's management and Board of Directors regarding the preparation and
fair presentation of financial statements.
Because of inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. In addition, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
The Company’s management assessed the
effectiveness of the Company's internal control over financial reporting as of
December 31, 2008, utilizing the criteria established by the Committee of
Sponsoring Organizations of the Treadway Commission in "Internal Controls –
Integrated Framework." Based upon its assessment, management believes
that, as of December 31, 2008, the Company's internal control over financial
reporting is effective.
Deloitte & Touche LLP, the
independent registered public accounting firm that audited the consolidated
financial statements included in the Annual Report, has issued an audit report
on the effectiveness of the Company’s internal control over financial reporting
as of December 31, 2008, which is included below.
Item
9B. Other
Information
None.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Dime
Community Bancshares, Inc. & Subsidiaries
Brooklyn,
New York
We have
audited the internal control over financial reporting of Dime Community
Bancshares, Inc. and Subsidiaries (the "Company") as of December 31, 2008, based
on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on
the Company's internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on the criteria
established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2008 of the Company and our report dated
March 16, 2009 expressed an unqualified opinion on those consolidated
financial statements.
/s/
DELOITTE & TOUCHE LLP
New York,
New York
March 16,
2009
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance
Information regarding directors and
executive officers of the Company is presented under the headings "Proposal 1 -
Election of Directors," "Section 16(a) Beneficial Ownership Reporting
Compliance" and "Executive Officers" in the Holding Company's definitive Proxy
Statement for its Annual Meeting of Shareholders to be held on May 21, 2009 (the
"Proxy Statement") which will be filed with the SEC within 120 days of December
31, 2008, and is incorporated herein by reference.
Information regarding the audit
committee of the Holding Company's Board of Directors, including information
regarding audit committee financial experts serving on the audit committee, is
presented under the headings, "Meetings and Committees of the Company's Board of
Directors," and "Report of the Audit Committee" in the Proxy Statement and is
incorporated herein by reference.
The Holding Company has adopted a
written Code of Business Ethics that applies to its principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. The Code of Business Ethics is
published on the Company's website, www.dime.com. The
Company will provide to any person, without charge, upon request, a copy of such
Code of Business Ethics. Such request should be made in writing
to: Dime Community Bancshares, Inc., 209 Havemeyer Street, Brooklyn,
New York 11211, attention Investor Relations.
Item
11. Executive Compensation
Information regarding executive and
director compensation and the Compensation Committee of the Holding Company's
Board of Directors is presented under the headings, "Directors' Compensation,"
"Compensation - Executive Compensation, "Compensation Discussion and Analysis,"
"Compensation Committee Interlocks and Insider Participation," and "Compensation
Committee Report" in the Proxy Statement and is incorporated herein by
reference.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information regarding security
ownership of certain beneficial owners and management is included under the
heading "Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement and is incorporated herein by reference.
The following table presents
information as of December 31, 2008 with respect to compensation plans under
which equity securities of the Holding Company are authorized for
issuance:
|
|
EQUITY
COMPENSATION PLAN INFORMATION
|
Plan
Category
|
|
Number
of Securities to be Issued Upon Exercise of Outstanding
Options
(a)
|
|
Weighted
Average Exercise
Price
of Outstanding Options (b)
|
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans [Excluding Securities Reflected in Column (a)]
(c)
|
|
|
|
|
|
|
|
Equity
compensation plans approved by
the Holding Company's shareholders
|
|
3,116,564
|
|
$14.97
|
|
1,133,027(1)
|
|
|
|
|
|
|
|
Equity
compensation plans not approved
by the Holding Company's shareholders
|
|
-
|
|
-
|
|
-
|
|
(1)
|
Amount
comprised of 75,866 stock options that remain available for future
issuance under the 2001 Stock Option Plan for Outside Directors, Officers
and Employees of Dime Community Bancshares, Inc., and 1,057,161 equity
awards that remain available for future issuance under the 2004 Stock
Incentive Plan for Outside Directors, Officers and Employees of Dime
Community Bancshares, Inc.
|
Item 13. Certain
Relationships and Related Transactions, and Director
Independence
Information regarding certain
relationships and related transactions is included under the heading
"Transactions with Certain Related Persons" in the Proxy Statement and is
incorporated herein by reference. Information regarding director
independence is included under the heading "Information as to Nominees and
Continuing Directors" in the Proxy Statement and is incorporated herein by
reference.
Item
14. Principal Accounting Fees
and Services
Information regarding principal
accounting fees and services, as well as the Audit Committee's pre-approval
policies and procedures, is included under the heading "Proposal 2 –
Ratification of Appointment of Independent Auditors," in the Proxy Statement and
is incorporated herein by reference.
PART
IV
Item
15. Exhibits, Financial Statement Schedules
(a) (1) Financial
Statements
See index to Consolidated Financial
Statements on page F-72.
(2) Financial
Statement Schedules
Financial statement schedules have
been omitted because they are not applicable or not required or the required
information is shown in the Consolidated Financial Statements or Notes thereto
under "Item 8. Financial Statements and Supplementary
Data."
(3) Exhibits
Required by Item 601 of SEC Regulation S-K
See Index
of Exhibits on pages F-119 and F-120.
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) 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 on March 16, 2009.
DIME COMMUNITY BANCSHARES,
INC.
By: /s/ VINCENT F.
PALAGIANO
Vincent F. Palagiano
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below on March 16,
2009 by the following persons on behalf of the registrant and in the capacities
indicated.
Name
|
Title
|
/s/ VINCENT F. PALAGIANO
Vincent
F. Palagiano
|
Chairman
of the Board and Chief Executive Officer (Principal
Executive Officer)
|
/s/ MICHAEL P. DEVINE
Michael
P. Devine
|
President
and Chief Operating Officer and Director
|
/s/ KENNETH J. MAHON
Kenneth
J. Mahon
|
First
Executive Vice President and Chief Financial Officer and Director
(Principal Financial Officer and Principal Accounting
Officer)
|
/s/ ANTHONY BERGAMO
Anthony
Bergamo
|
Director
|
/s/ GEORGE L. CLARK, JR.
George
L. Clark, Jr.
|
Director
|
/s/ STEVEN D. COHN
Steven
D. Cohn
|
Director
|
/s/ PATRICK E. CURTIN
Patrick
E. Curtin
|
Director
|
/s/ FRED P. FEHRENBACH
Fred
P. Fehrenbach
|
Director
|
/s/ JOHN J. FLYNN
John
J. Flynn
|
Director
|
/s/ JOSEPH J. PERRY
Joseph
J. Perry
|
Director
|
/s/ OMER S.J. WILLIAMS
Omer
S.J. Williams
|
Director
|
CONSOLIDATED
FINANCIAL STATEMENTS OF
DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
INDEX
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
F-73
|
Consolidated
Statements of Financial Condition at December 31, 2008 and
2007
|
F-74
|
Consolidated
Statements of Operations for the years ended December 31, 2008, 2007 and
2006
|
F-75
|
Consolidated
Statements of Changes in Stockholders' Equity and Comprehensive Income for
the years ended December
31, 2008, 2007 and 2006
|
F-76
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008, 2007 and
2006
|
F-77
|
Notes
to Consolidated Financial Statements
|
F78-F118
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Dime
Community Bancshares, Inc. & Subsidiaries
Brooklyn,
NY
We have
audited the accompanying consolidated statements of financial condition of Dime
Community Bancshares, Inc. and Subsidiaries (the "Company") as of December 31,
2008 and 2007, and the related consolidated statements of operations, changes in
stockholders' equity and comprehensive income, and cash flows for each of the
three years in the period ended December 31, 2008. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Dime Community Bancshares, Inc. and
Subsidiaries as of December 31, 2008 and 2007, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2008, in conformity with accounting principles generally accepted in the United
States of America.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of December 31, 2008, based on the criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 16, 2009 expressed an unqualified
opinion on the Company’s internal control over financial reporting.
/s/
DELOITTE & TOUCHE LLP
New York,
New York
March 16,
2009
DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
(Dollars
in thousands except share amounts)
|
December
31, 2008
|
December
31, 2007
|
ASSETS:
|
|
|
Cash
and due from banks
|
$211,020
|
$101,708
|
Federal
funds sold and other short-term investments
|
-
|
128,014
|
Investment
securities held-to-maturity (estimated fair value of $9,082
and $80 at December 31, 2008 and 2007, respectively)
(Encumbered at December 31, 2007, Unencumbered
at December 31, 2008) (Note 3)
|
10,861
|
80
|
Investment
securities available-for-sale, at fair value (fully unencumbered) (Note
3)
|
16,602
|
34,095
|
Mortgage-backed
securities available-for-sale, at fair value (Note 4):
|
|
|
Encumbered
|
251,744
|
160,821
|
Unencumbered
|
49,607
|
1,943
|
|
301,351
|
162,764
|
Loans
(Note 5):
|
|
|
Real
estate, net
|
3,289,314
|
2,873,966
|
Other
loans
|
2,191
|
2,169
|
Less
allowance for loan losses (Note 6)
|
(17,454)
|
(15,387)
|
Total
loans, net
|
3,274,051
|
2,860,748
|
Loans
held for sale
|
-
|
890
|
Premises
and fixed assets, net (Note 8)
|
30,426
|
23,878
|
Federal
Home Loan Bank of New York capital stock (Note 9)
|
53,435
|
39,029
|
Other
real estate owned
|
300
|
-
|
Goodwill
(Note 1)
|
55,638
|
55,638
|
Other
assets (Notes 7, 14 and 15)
|
101,914
|
94,331
|
Total
Assets
|
$4,055,598
|
$3,501,175
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
Liabilities:
|
|
|
Due
to depositors (Note 10):
|
|
|
Interest
bearing deposits
|
$2,169,341
|
$2,091,600
|
Non-interest
bearing deposits
|
90,710
|
88,398
|
Total
deposits
|
2,260,051
|
2,179,998
|
Escrow
and other deposits (Note 7)
|
130,121
|
52,209
|
Securities
sold under agreements to repurchase (Note 11)
|
230,000
|
155,080
|
Federal
Home Loan Bank of New York advances (Note 12)
|
1,019,675
|
706,500
|
Subordinated
notes payable (Note 13)
|
25,000
|
25,000
|
Trust
Preferred securities payable (Note 13)
|
72,165
|
72,165
|
Other
liabilities (Note 14 and 15)
|
41,622
|
41,371
|
Total
Liabilities
|
3,778,634
|
3,232,323
|
Commitments and Contingencies
(Note 16)
|
|
|
Stockholders'
Equity:
|
|
|
Preferred
stock ($0.01 par, 9,000,000 shares authorized, none issued or outstanding
at December
31, 2008 and 2007)
|
-
|
-
|
Common
stock ($0.01 par, 125,000,000 shares authorized,
51,122,319 shares and 50,906,278 shares
issued at December 31, 2008 and 2007,
respectively, and 34,179,900 shares and 33,909,902
shares outstanding at December 31, 2008 and 2007,
respectively)
|
511
|
509
|
Additional
paid-in capital
|
213,917
|
208,369
|
Retained
earnings (Note 2)
|
297,848
|
288,112
|
Accumulated
other comprehensive loss, net of deferred taxes
|
(11,111)
|
(4,278)
|
Unallocated
common stock of Employee Stock Ownership Plan ("ESOP") (Note
15)
|
(3,933)
|
(4,164)
|
Unearned
Restricted Stock Award common stock (Note 15)
|
(1,790)
|
(634)
|
Common
stock held by Benefit Maintenance Plan ("BMP") (Note 15)
|
(8,007)
|
(7,941)
|
Treasury
stock, at cost (16,942,419 shares and 16,996,376 shares at December
31, 2008 and 2007, respectively) (Note 18)
|
(210,471)
|
(211,121)
|
Total
Stockholders' Equity
|
276,964
|
268,852
|
Total
Liabilities And Stockholders' Equity
|
$4,055,598
|
$3,501,175
|
See notes
to consolidated financial statements.
DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Dollars
in thousands except per share amounts)
|
Year
Ended December 31,
|
|
2008
|
2007
|
2006
|
Interest
income:
|
|
|
|
Loans
secured by real estate
|
$182,934
|
$165,221
|
$155,510
|
Other
loans
|
166
|
178
|
190
|
Mortgage-backed
securities
|
12,685
|
6,344
|
6,850
|
Investment
securities
|
1,950
|
2,011
|
2,276
|
Federal
funds sold and other short-term investments
|
4,919
|
8,406
|
5,984
|
Total
interest income
|
202,654
|
182,160
|
170,810
|
|
|
|
|
Interest
expense:
|
|
|
|
Deposits
and escrow
|
59,978
|
75,761
|
56,659
|
Borrowed
funds
|
51,324
|
35,386
|
36,681
|
Total
interest expense
|
111,302
|
111,147
|
93,340
|
Net
interest income
|
91,352
|
71,013
|
77,470
|
Provision
for loan losses
|
2,006
|
240
|
240
|
|
|
|
|
Net
interest income after provision for loan losses
|
89,346
|
70,773
|
77,230
|
|
|
|
|
Non-interest
income:
|
|
|
|
Service
charges and other fees
|
4,766
|
4,780
|
5,273
|
Mortgage
banking (loss) income (Note 7)
|
(2,190)
|
1,512
|
2,228
|
Other-than
temporary Impairment charge on securities (Note 3)
|
(3,209)
|
-
|
-
|
Net
(loss) gain on sales of securities and other real estate
owned
|
(129)
|
-
|
1,541
|
Income
from Bank Owned Life Insurance ("BOLI")
|
1,999
|
2,513
|
1,868
|
Other
|
1,577
|
1,615
|
1,480
|
|
|
|
|
Total
non-interest income
|
2,814
|
10,420
|
12,390
|
|
|
|
|
Non-interest
expense:
|
|
|
|
Salaries
and employee benefits
|
24,922
|
22,620
|
21,307
|
Stock
benefit plan compensation expense
|
3,702
|
2,796
|
2,125
|
Occupancy
and equipment
|
6,967
|
6,431
|
5,762
|
Data
processing costs
|
3,067
|
3,204
|
3,167
|
Advertising
and marketing
|
2,364
|
2,638
|
2,186
|
Federal
deposit insurance premiums
|
899
|
258
|
257
|
Other
|
8,052
|
7,555
|
7,172
|
|
|
|
|
Total
non-interest expense
|
49,973
|
45,502
|
41,976
|
|
|
|
|
Income
before income taxes
|
42,187
|
35,691
|
47,644
|
Income
tax expense
|
14,159
|
13,248
|
17,052
|
|
|
|
|
Net
income
|
$28,028
|
$22,443
|
$30,592
|
|
|
|
|
Earnings
per Share:
|
|
|
|
Basic
|
$0.85
|
$0.67
|
$0.88
|
Diluted
|
$0.85
|
$0.67
|
$0.87
|
See notes
to consolidated financial statements.
DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
(Dollars
in thousands)
|
Year
Ended December 31,
|
|
2008
|
2007
|
2006
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
|
|
Common
Stock (Par Value $0.01):
|
|
|
|
Balance
at beginning of period
|
$509
|
$509
|
$506
|
Shares
issued in exercise of options
|
2
|
-
|
3
|
Balance
at end of period
|
511
|
509
|
509
|
Additional
Paid-in Capital:
|
|
|
|
Balance
at beginning of period
|
208,369
|
206,601
|
204,083
|
Stock
options exercised
|
2,471
|
136
|
907
|
Excess
tax benefit of stock benefit plans
|
518
|
174
|
621
|
Amortization
of excess fair value over cost – ESOP stock
|
1,011
|
813
|
882
|
Stock
option expense
|
1,079
|
630
|
-
|
Release
from treasury stock for restricted stock award shares
|
469
|
15
|
108
|
Balance
at end of period
|
213,917
|
208,369
|
206,601
|
Retained
Earnings:
|
|
|
|
Balance
at beginning of period
|
288,112
|
285,420
|
274,579
|
Net
income for the period
|
28,028
|
22,443
|
30,592
|
Cash
dividends re-assumed through liquidation of Recognition and Retention Plan
("RRP")
|
-
|
958
|
-
|
Cumulative
effect adjustment for the adoption of FASB Interpretation
No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN
48")
|
-
|
(1,703)
|
-
|
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)
|
-
|
-
|
Cash
dividends declared and paid
|
(18,269)
|
(19,006)
|
(19,751)
|
Balance
at end of period
|
297,848
|
288,112
|
285,420
|
Accumulated
Other Comprehensive Loss, Net of Deferred
Taxes:
|
|
|
|
Balance
at beginning of period
|
(4,278)
|
(7,100)
|
(3,328)
|
(Increase)
Decrease in unrealized loss on available-for-sale securities during the
period, net of deferred benefit (taxes) of $1,964,
($1,469)
and $11, respectively
|
(2,246)
|
1,800
|
(14)
|
Minimum
pension liability, net of deferred taxes of $(123)
|
-
|
-
|
148
|
Cumulative
effect adjustment for the adoption of the transition requirements of SFAS
158
|
(64)
|
-
|
-
|
Increase
in defined benefit plan liability from the adoption of SFAS 158, net of
deferred benefit of $3,246
|
-
|
-
|
(3,906)
|
Unrecognized
(loss) gain of pension and other postretirement obligations, net of
deferred benefit (tax) of $3,776 and $(874)
|
(4,523)
|
1,022
|
-
|
Balance
at end of period
|
(11,111)
|
(4,278)
|
(7,100)
|
Unallocated
Common Stock of ESOP:
|
|
|
|
Balance
at beginning of period
|
(4,164)
|
(4,395)
|
(4,627)
|
Amortization
of earned portion of ESOP stock
|
231
|
231
|
232
|
Balance
at end of period
|
(3,933)
|
(4,164)
|
(4,395)
|
Unearned
Restricted Stock Award and RRP Common Stock:
|
|
|
|
Balance
at beginning of period
|
(634)
|
(3,452)
|
(2,979)
|
Release
from treasury stock for restricted stock award shares
|
(1,773)
|
(165)
|
(770)
|
Transfer
of common stock to treasury upon liquidation of RRP
|
-
|
2,611
|
-
|
Amortization
of earned portion of RRP stock
|
617
|
372
|
297
|
Balance
at end of period
|
(1,790)
|
(634)
|
(3,452)
|
Common
Stock Held by BMP:
|
|
|
|
Balance
at beginning of period
|
(7,941)
|
(7,941)
|
(7,941)
|
Plan
contributions
|
(66)
|
-
|
-
|
Common
stock acquired
|
-
|
-
|
-
|
Balance
at end of period
|
(8,007)
|
(7,941)
|
(7,941)
|
Treasury
Stock, at cost:
|
|
|
|
Balance
at beginning of period
|
(211,121)
|
(179,011)
|
(168,579)
|
Release
of treasury stock for allocated restricted stock awards and shares
acquired by BMP
|
1,304
|
151
|
592
|
Transfer
of common stock to treasury upon liquidation of RRP
|
-
|
(2,611)
|
-
|
Purchase
of treasury shares, at cost
|
(654)
|
(29,650)
|
(11,024)
|
Balance
at end of period
|
(210,471)
|
(211,121)
|
(179,011)
|
TOTAL
STOCKHOLDERS' EQUITY AT THE END OF PERIOD
|
$276,964
|
$268,852
|
$290,631
|
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME:
|
|
|
|
Net
Income
|
$28,028
|
$22,443
|
$30,592
|
Increase
in Actuarial Gain or Reduction in Actuarial Loss on defined benefit plans,
net of taxes of $(123) during the year ended December 31,
2006
|
-
|
-
|
148
|
Change
in pension and other postretirement obligations, net of deferred benefit
(taxes) of $3,776 during the year ended
December
31, 2008 and $(874) during the year ended December 31,
2007
|
(4,523)
|
1,022
|
-
|
Amortization
and reversal of net unrealized loss on securities transferred from
available-for- sale to held-to-maturity,
net
of tax of $(1,224) during the year ended December 31, 2008
|
1,496
|
-
|
-
|
Reclassification
adjustment for securities sold, net of taxes of $(489) during the year
ended December 31, 2006
|
-
|
-
|
(575)
|
Net
unrealized securities (loss) gain arising during the period, net of
benefit (taxes) of $3,188, $(1,469) and $(478) during the
years
ended
December 31, 2008, 2007 and 2006, respectively
|
(3,742)
|
1,800
|
561
|
Comprehensive
Income
|
$21,259
|
$25,265
|
$30,726
|
See notes
to consolidated financial statements.
DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Dollars
in thousands)
|
Year
Ended December 31,
|
|
2008
|
2007
|
2006
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
Income
|
$28,028
|
$22,443
|
$30,592
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
Net
gain on investment and mortgage backed securities sold
|
-
|
-
|
(1,063)
|
Net
gain on sale of loans held for sale
|
(1,012)
|
(750)
|
(1,516)
|
Net
loss (gain) on sales and disposals of other assets
|
129
|
-
|
(478)
|
Net
depreciation, amortization and accretion
|
1,757
|
1,252
|
1,265
|
Stock
plan compensation expense (excluding ESOP)
|
1,696
|
372
|
296
|
ESOP
compensation expense
|
1,242
|
1,674
|
1,115
|
Provision
for loan losses
|
2,006
|
240
|
240
|
Charge
to net mortgage banking income - provision to increase the liability for
loans sold with recourse
|
3,946
|
-
|
-
|
Impairment
charge on mortgage servicing rights
|
60
|
-
|
-
|
Other-than
temporary impairment charge on investment securities
held-to-maturity
|
3,209
|
-
|
-
|
Increase
in cash surrender value of BOLI
|
(1,999)
|
(1,965)
|
(1,868)
|
Deferred
income tax provision (credit)
|
(3,054)
|
(834)
|
103
|
Excess
tax benefits of stock plans
|
(518)
|
(174)
|
(621)
|
Changes
in assets and liabilities:
|
|
|
|
Originations
of loans sold during the period
|
(149,081)
|
(76,568)
|
(145,430)
|
Proceeds
from sales of loans held for sale
|
150,983
|
77,628
|
146,646
|
Decrease
(Increase) in other assets
|
(143)
|
(6,368)
|
929
|
(Decrease)
Increase in other liabilities
|
(8,327)
|
823
|
840
|
Net
cash provided by Operating Activities
|
28,922
|
17,773
|
31,050
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Decrease
(increase) in federal funds sold and other short-term
investments
|
128,014
|
(49,262)
|
(18,734)
|
Proceeds
from maturities of investment securities held-to-maturity
|
242
|
155
|
220
|
Proceeds
from maturities and calls of investment securities
available-for-sale
|
1,729
|
1,000
|
17,075
|
Proceeds
from sales of investment securities available-for-sale
|
-
|
-
|
3,032
|
Proceeds
from sales and calls of mortgage backed securities
available-for-sale
|
-
|
8,542
|
-
|
Purchases
of investment securities available-for-sale
|
(5,464)
|
(14,162)
|
(4,002)
|
Purchases
of mortgage backed securities available-for-sale
|
(183,849)
|
(37,992)
|
-
|
Principal
collected on mortgage backed securities available-for-sale
|
48,155
|
33,329
|
39,420
|
Net
increase in loans
|
(416,504)
|
(174,029)
|
(91,789)
|
Proceeds
from the sale of other real estate owned ("OREO") and real
estate investment property owned
|
767
|
-
|
908
|
Proceeds
from BOLI benefit payment
|
-
|
631
|
-
|
Purchases
of fixed assets, net
|
(8,356)
|
(2,566)
|
(7,818)
|
Purchase
of Federal Home Loan Bank of New York capital stock
|
(14,406)
|
(7,734)
|
(1,378)
|
Net
cash used in Investing Activities
|
(449,672)
|
(242,088)
|
(63,066)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Increase
in due to depositors
|
80,053
|
171,466
|
93,760
|
Increase
(decrease) in escrow and other deposits
|
77,912
|
5,836
|
(1,145)
|
Increase
(Decrease) in securities sold under agreements to
repurchase
|
74,920
|
34,845
|
(85,220)
|
Proceeds
from Federal Home Loan Bank of New York advances
|
313,175
|
135,000
|
40,000
|
Proceeds
from exercise of stock options
|
2,473
|
136
|
910
|
Excess
tax benefits of stock plans
|
518
|
174
|
621
|
Cash
dividends re-assumed through liquidation of RRP
|
-
|
958
|
-
|
Purchase
of common stock by the RRP and BMP
|
(66)
|
-
|
(70)
|
Cash
dividends paid to stockholders and cash disbursed in payment of stock
dividends
|
(18,269)
|
(19,006)
|
(19,751)
|
Purchase
of treasury stock
|
(654)
|
(29,650)
|
(11,024)
|
Net
cash provided by Financing Activities
|
530,062
|
299,759
|
18,081
|
INCREASE(DECREASE)
IN CASH AND DUE FROM BANKS
|
109,312
|
75,444
|
(13,935)
|
CASH
AND DUE FROM BANKS, BEGINNING OF PERIOD
|
101,708
|
26,264
|
40,199
|
CASH
AND DUE FROM BANKS, END OF PERIOD
|
$211,020
|
$101,708
|
$26,264
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
Cash
paid for income taxes
|
$20,196
|
$20,622
|
$15,531
|
Cash
paid for interest
|
$109,787
|
$110,508
|
$93,530
|
Loans
transferred to OREO
|
$1,564
|
-
|
-
|
Transfer
of securities from available-for-sale to held-to-maturity (at fair
value)
|
$11,501
|
-
|
-
|
Amortization
of unrealized loss on securities transferred from available-for-sale to
held-to-maturity
|
$134
|
-
|
-
|
Reversal
of unrealized loss on securities transferred from available-for-sale to
held-to-maturity
|
$2,586
|
-
|
-
|
See notes
to consolidated financial statements.
DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
In Thousands except for share amounts)
1. NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Dime
Community Bancshares, Inc. (the "Holding Company" and together with its direct
and indirect subsidiaries, the "Company") is a Delaware corporation organized by
The Dime Savings Bank of Williamsburgh (the "Bank") for the purpose of acquiring
all of the capital stock of the Bank issued in the Bank's conversion to stock
ownership on June 26, 1996. At December 31, 2008, the significant
assets of the Holding Company were the capital stock of the Bank, the Holding
Company's loan to the ESOP and investments retained by the Holding
Company. The liabilities of the Holding Company were comprised
primarily of a $25,000 subordinated note payable maturing in May 2010 and
$72,165 of trust preferred securities payable maturing in 2034. The
Company is subject to the financial reporting requirements of the Securities
Exchange Act of 1934, as amended.
The Bank
was originally founded in 1864 as a New York State-chartered mutual savings
bank. In November 1995, the Bank converted to a federally chartered
stock savings bank. The Bank has been a community-oriented financial
institution providing financial services and loans for housing within its market
areas. The Bank maintains its headquarters in the Williamsburg
section of the borough of Brooklyn, New York. The Bank has
twenty-three retail banking offices located throughout the boroughs of Brooklyn,
Queens, and the Bronx, and in Nassau County, New York.
Summary of Significant Accounting
Policies – Management believes that the accounting and reporting policies
of the Company conform to accounting principles generally accepted in the United
States of America ("GAAP"). The following is a description of the
significant policies.
Principles of Consolidation -
The accompanying 2008, 2007 and 2006 consolidated financial statements include
the accounts of the Holding Company, and its wholly-owned subsidiaries, the Bank
and 842 Manhattan Avenue Corporation. 842 Manhattan Avenue
Corporation previously owned and managed a real estate property that housed a
former branch office of Financial Federal Savings Bank, F.S.B. ("FFSB"), a
subsidiary of Financial Bancorp, Inc. ("FIBC"), which the Holding Company
acquired on January 21, 1999. The property was sold in 2006, and as a
result, 842 Manhattan Avenue Corporation held no real estate at December 31,
2008. All financial statements presented also include the accounts of
the Bank's five wholly-owned subsidiaries, Boulevard Funding Corp. (''BFC''),
Havemeyer Investments, Inc., DSBW Preferred Funding Corporation ("DPFC"), DSBW
Residential Preferred Funding Corporation ("DRPFC"), Dime Reinvestment Company
("DRC") and 195 Havemeyer Corp. DPFC and DRPFC were both established
in March 1998 and are intended to qualify as real estate investment trusts for
federal tax purposes. DPFC invests in multifamily and commercial real
estate loans, while DRPFC invests in one- to four-family real estate
loans. BFC was established in order to invest in real estate joint
ventures and other real estate assets. As of December 31, 2008, BFC owned a
property that entered OREO status in December 2008 and had some other minor
financial investments. DRC was established in 2004 in order to
function as a Qualified Community Development Entity as defined in the Internal
Revenue Code of 1986, as amended (the "Code"). DRC is currently
inactive. 195 Havemeyer Corp. was established in 2008 and owns and
manages a real estate property currently intended, in whole or in part, for Bank
use. All significant intercompany accounts and transactions have been
eliminated in consolidation. The financial statements presented for
the year ended December 31, 2006 and for the period January 1, 2007 through June
30, 2007, include the accounts of Havemeyer Equities Corp.
(''HEC''). HEC was originally established in order to invest in real
estate joint ventures and other real estate assets. In June 1998, HEC
assumed direct ownership of DPFC. HEC ceased operations effective the
close of business on June 30, 2007, and was legally dissolved prior to December
31, 2007. All of the assets and liabilities of HEC, including the
direct ownership of DPFC, were assumed by the Bank.
Cash and Due from Banks
-Cash and due from banks represents cash held
by the Bank (including cash on hand at its branches), as well as cash held by
the Holding Company and other subsidiary companies that is not subject to
elimination in consolidation.
Federal Funds Sold and Other
Short-term Investments - Purchases and sales of federal funds sold and
other short-term investments are recorded on trade date. Federal
funds sold and other short-term investments are carried at cost, which
approximates market value due to the short-term nature of the
investment.
Investment Securities and
Mortgage-Backed Securities ("MBS") - Purchases and sales of investment
and mortgage-backed securities are recorded on trade date. Gains and
losses on sales of investment and mortgage-backed securities are recorded on the
specific identification basis.
Debt and
equity securities that have readily determinable fair values are carried at fair
value unless they are held-to-maturity. 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. If not
classified as held-to-maturity, such securities are classified as securities
available-for-sale or as trading securities. Unrealized holding gains or losses
on 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. At December 31, 2008 and 2007, all equity securities were
classified as available-for-sale. Neither the Holding Company nor the Bank has
acquired securities for the purpose of engaging in trading
activities.
The
Company conducts a quarterly review and evaluation of its securities portfolio
taking into account the severity and duration of a decline in market value, as
well as its intent with regard to the securities in order to determine if a
decline in market value of any security below its amortized cost basis is other
than temporary. If such decline is deemed other than temporary, the carrying
amount of the security is adjusted through a charge to net income in the amount
of the decline in value.
Loans Held for Sale -
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of aggregate cost or estimated fair
value. Multifamily residential and mixed use loans sold are generally
sold with servicing rights retained.
Allowance for Loan Losses and
Reserve for Loan Commitments - The Company provides a valuation allowance
for estimated losses inherent in its loan portfolio. The valuation
allowance for estimated losses on loans is based on the Bank's past loan loss
experience, known and inherent risks in the portfolio, existing adverse
situations which may affect a borrower's ability to repay, estimated value of
underlying collateral and current economic conditions in the Bank's lending
area. The allowance is increased by provisions for loan losses charged to
operations and is reduced by charge-offs, net of recoveries. Although
management uses available information to estimate losses on loans, future
additions to, or reductions in, the allowance may be necessary based on changes
in economic conditions beyond management's control. Management believes, based
upon all relevant and available information, that the allowance for loan losses
is appropriate to absorb losses inherent in the portfolio.
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"),
requires all creditors to account for impaired loans, except those loans that
are accounted for at fair value or at the lower of cost or fair value, at the
present value of expected future cash flows discounted at the loan's effective
interest rate. As an expedient, creditors may account for impaired
loans at the fair value of the collateral or at the observable market price of
the loan if one exists. If the estimated fair value of an impaired
loan is less than the recorded amount, a specific valuation allowance is
established. If the impairment is considered to be permanent, a
write-down is charged against the allowance for loan losses. In
accordance with Amended SFAS 114, homogeneous loans are not individually
considered for impairment. The Company considers individual one- to
four-family residential mortgage and cooperative apartment loans having a
balance of $625.5 or less and all consumer loans to be small balance homogenous
loan pools and, accordingly, not covered by Amended SFAS 114.
The Bank
maintains a separate reserve within other liabilities associated with
commitments to fund future loans that have been accepted by the
borrower. This reserve is determined based upon the historical loss
experience of similar loans owned by the Bank at each period end. Any
increases in this reserve amount are achieved via a transfer of reserves from
the Bank's allowance for loan losses, with any resulting shortfall in the
allowance for loan losses satisfied through the quarterly provision for loan
losses. Any decreases in the loan commitment reserve are recognized
as a transfer of reserve balances back to the allowance for loans losses at each
period end.
Reserve For the Recourse Exposure on
Multifamily Loans Sold to Fannie Mae ("FNMA"). A reserve is
also recorded in other liabilities related to certain multifamily residential
real estate loans sold with recourse under an agreement with
FNMA. Consistent with the methodology utilized in determining the
allowance for loan losses, for all performing loans within the FNMA serviced
pool, the reserve recognized is the present value of the estimated future losses
calculated based upon the historical loss experience for comparable multifamily
loans owned by the Bank. For problem loans within the pool, the
estimated future losses are determined in a manner consistent with impaired and
classified loans within the Bank's loan portfolio.
Loans - Loans are reported at
the principal amount outstanding, net of unearned fees or costs and the
allowance for loan losses. Interest income on loans is recorded using
the level yield method. Under this method, discount accretion and
premium amortization are included in interest income. Loan
origination fees and certain direct loan origination costs are deferred and
amortized as a yield adjustment over the contractual loan terms.
Accrual
of interest is generally discontinued on loans that have missed three
consecutive monthly payments, at which time the Bank generally does not
recognize the interest from the third month and evaluates whether the accrual of
interest associated with the first two missed payments should be
reversed. Payments on nonaccrual loans are generally applied to
principal. Management may elect to continue the accrual of interest
when a loan is in the process of collection and the estimated fair value of the
collateral is sufficient to satisfy the outstanding principal balance (including
any outstanding advances related to the loan) and accrued interest. 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 period of at least six months.
Mortgage Servicing Rights -
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. Servicing assets 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. The Company
adopted SFAS No. 156, "Accounting for Servicing of Financial Assets" ("SFAS
156") effective January 1, 2007. SFAS 156 requires all separately
recognized mortgage servicing rights ("MSR") to be initially measured at fair
value, if practicable. The estimated fair value of loan servicing
assets is determined by calculating the present value of estimated future net
servicing cash flows, using assumptions of prepayments, defaults, servicing
costs and discount rates derived based upon actual historical results for the
Bank, or, in the absence of such data, from historical results for the Bank's
peers. Capitalized loan servicing assets are stratified based on predominant
risk characteristics of the underlying loans (i.e., collateral, interest
rate, servicing spread and maturity) for the purpose of evaluating impairment. A
valuation allowance is then established in the event the recorded value of an
individual stratum exceeds its fair value. Third party valuations of
the loan servicing asset are performed on a quarterly basis, and were performed
as of December 31, 2008 and 2007. In accordance with the provisions
of SFAS 156, the Bank elected to continue its practice of amortizing its MSR in
proportion to and over the period of estimated net servicing income or net
servicing loss.
OREO - Properties acquired as
a result of foreclosure on a mortgage loan or a deed in lieu of foreclosure are
classified as OREO and are 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. Subsequent write downs are charged directly to operating
expenses.
Premises and Fixed Assets,
Net - Land is stated at original cost. Buildings and furniture, fixtures
and equipment are stated at cost less accumulated depreciation. Depreciation is
computed by the straight-line method over the estimated useful lives of the
properties as follows:
Buildings
|
|
2.22%
to 2.50% per year
|
Furniture,
fixtures and equipment
|
|
10%
per year
|
Computer
equipment
|
|
33.33%
per year
|
Leasehold
improvements are amortized over the lesser of their useful lives or the
remaining non-cancelable terms of the related leases.
Earnings Per Share ("EPS") - EPS are
calculated and reported in accordance with SFAS 128, "Earnings Per
Share.'' SFAS 128 requires disclosure of basic EPS and diluted EPS
for entities with complex capital structures on the face of the income
statement, along with a reconciliation of the numerator and denominator of basic
and diluted EPS.
Basic EPS
is computed by dividing net income by the weighted-average common shares
outstanding during the year. In determining the weighted average
shares outstanding for basic EPS, treasury stock and unallocated ESOP shares are
excluded. All restricted stock award shares, vested or unvested, are
included in the calculation of the weighted average shares outstanding for basic
EPS. Diluted EPS is computed using the same method as basic
EPS, but reflects the potential dilution that would occur if "in the money"
stock options were exercised and converted into common stock.
The
following is a reconciliation of the numerator and denominator of basic EPS and
diluted EPS for the years ended December 31, 2008, 2007 and 2006:
|
Year Ended December 31,
|
|
2008
|
2007
|
2006
|
Numerator:
|
|
|
|
Net
Income per the Consolidated Statements of
Operations
|
$28,028
|
$22,443
|
$30,592
|
Denominator:
|
|
|
|
Weighted
average shares outstanding utilized in the calculation
of basic EPS
|
32,676,282
|
33,522,224
|
34,904,225
|
|
|
|
|
Common
stock equivalents resulting from the dilutive
effect of "in-the-money" stock options
|
259,905
|
112,183
|
250,602
|
Anti-dilutive
effect of tax benefits associated with "in-the-money"
non-qualified stock options
|
(111,385)
|
(27,381)
|
(79,918)
|
Weighted
average shares outstanding utilized in the calculation
of diluted EPS
|
32,824,802
|
33,607,026
|
35,074,909
|
Common
stock equivalents resulting from the dilutive effect of "in-the-money" stock
options are calculated based upon the excess of the average market value of the
Company's common stock over the exercise price of outstanding
options.
There
were approximately 812,421 weighted average options, 2,053,104 weighted average
options, and 1,077,676 weighted average options for the years ended December 31,
2008, 2007, and 2006, respectively, that were not considered in the calculation
of diluted EPS since their exercise prices exceeded the average market price
during the relevant period.
Accounting for Goodwill and Other
Intangible Assets – SFAS 142 "Goodwill and Other Intangible Assets,"
established standards for goodwill acquired in a business
combination. SFAS 142 eliminated amortization of goodwill and instead
required the performance of a transitional goodwill impairment test at least
annually. In accordance with SFAS 142, the Company performed
impairment tests of goodwill as of December 31, 2008, 2007 and
2006. In each instance, the Company concluded that no potential
impairment of goodwill existed. As of December 31, 2008 and 2007, the
Company had goodwill totaling $55.6 million.
Changes
in the carrying amount of goodwill for the periods presented are as
follows:
|
Year Ended December 31,
|
|
2008
|
2007
|
2006
|
Original
Amount
|
$73,107
|
$73,107
|
$73,107
|
Accumulated
Amortization
|
(17,469)
|
(17,469)
|
(17,469)
|
Net
Carrying Value
|
$55,638
|
$55,638
|
$55,638
|
Income Taxes - Income taxes
are accounted for in accordance with SFAS 109, "Accounting for Income Taxes,"
which requires that deferred taxes be provided for temporary differences between
the book and tax bases of assets and liabilities. A valuation
allowance is recognized against deferred tax assets in the event that it is more
likely than not that the deferred tax asset will not be fully
realized.
The
Company adopted FIN 48 on January 1, 2007. Provisions of FIN 48 were
clarified by FASB Staff Position FIN 48-1 "Definition of Settlement in FASB
Interpretation No. 48." Please refer to Note 14 for a discussion of
FIN 48.
Employee Benefits – The Bank
maintains The Dime Savings Bank of Williamsburgh 401(k) Plan [the "401(k) Plan"]
for substantially all of its employees, and the Retirement Plan of The Dime
Savings Bank of Williamsburgh (the "Employee Retirement Plan"), both of which
are tax qualified under the "Code".
The Bank
also maintains the Postretirement Welfare Plan of The Dime Savings Bank of
Williamsburgh (the "Postretirement Benefit Plan."), providing additional
postretirement benefits to certain employees that are recorded in accordance
with SFAS 106, ''Employers' Accounting for Postretirement Benefits Other Than
Pensions.'' SFAS 106 requires accrual of postretirement benefits
(such as health care benefits) during the years an employee provides
services.
The
Company adopted SFAS 158 effective December 31, 2006. SFAS 158
requires an employer sponsoring a single employer defined benefit plan to do the
following: (1) recognize the funded status of a benefit plan in its statements
of financial condition, measured as the difference between plan assets at fair
value (with limited exceptions) and the benefit obligation. For a pension plan,
the benefit obligation is the projected benefit obligation; for any other
postretirement benefit plan, such as a retiree health care plan, the benefit
obligation is the accumulated postretirement benefit obligation; (2) recognize
as a component of other comprehensive income, net of tax, the gains or losses
and prior service costs or credits that arise during the period but are not
recognized as components of net periodic benefit or cost pursuant to SFAS 87,
"Employers’ Accounting for Pensions," or SFAS 106, "Employers’ Accounting for
Postretirement Benefits Other Than Pensions." Amounts recognized in
accumulated other comprehensive income, including the gains or losses, prior
service costs or credits, and the transition asset or obligation remaining from
the initial application of SFAS 87 and SFAS 106, are adjusted as they are
subsequently recognized as components of net periodic benefit cost pursuant to
the recognition and amortization provisions of those Statements; (3) measure
defined benefit plan assets and obligations as of the date of the employer’s
fiscal year-end statements of financial condition (with limited exceptions); and
(4) disclose in the notes to financial statements additional information about
certain effects on net periodic benefit cost for the next fiscal year that arise
from delayed recognition of the gains or losses, prior service costs or credits,
and transition asset or obligation. Effective January 1, 2008, in
compliance with applicable provisions of SFAS 158, the Company changed the
measurement date for its defined benefit plans from October 1st to December
31st. As a result of this change, the Company recorded a transition
adjustment on January 1, 2008 that reduced its consolidated stockholders' equity
by $87.
The
Holding Company and Bank maintain the ESOP. Compensation expense
related to the ESOP is recorded in accordance with Statement of Position No.
93-6, which requires the compensation expense to be recorded during the period
in which the shares become committed to be released to
participants. The compensation expense is measured based upon the
fair market value of the stock during the period, and, to the extent that the
fair value of the shares committed to be released differs from the original cost
of such shares, the difference is recorded as an adjustment to additional
paid-in capital.
The
Holding Company and Bank maintain the Dime
Community Bancshares, Inc. 1996 Stock Option Plan for Outside Directors,
Officers and Employees (the "1996 Stock Option Plan"), the Dime Community
Bancshares, Inc. 2001 Stock Option Plan for Outside Directors, Officers and
Employees (the "2001 Stock Option Plan") and the Dime
Community Bancshares, Inc. 2004
Stock Incentive Plan for Outside Directors, Officers and Employees (the "2004
Stock Incentive Plan," and collectively the "Stock Plans"); which are discussed
more fully in Note 15. Grants of stock options during the
years ended December 31, 2008, 2007 and 2006 were accounted for at fair value in
accordance with SFAS No. 123 (revised 2004) "Share Based Payment" ("SFAS
123R").
Grants of
restricted stock awards during the years ended December 31, 2008, 2007 and 2006
were accounted for at fair value in accordance with SFAS 123R.
Derivative Instruments - All
derivatives are recognized at fair value as either assets or liabilities in the
consolidated statements of financial condition. A derivative may be
designated as a hedge against exposure to changes in either: (i) the fair value
of a recognized asset, liability or firm commitment, (ii) cash flows of a
recognized or forecasted transaction, or (iii) foreign currencies of a net
investment in foreign operations, firm commitments, available-for-sale
securities or a forecasted transaction. Depending upon the
effectiveness of the hedge and/or the transaction being hedged, any fluctuations
in the fair value of the derivative instrument are required to be either
recognized in earnings in the current year, deferred to future periods, or
recognized in other comprehensive income. Changes in the fair value
of derivative instruments not receiving hedge accounting recognition are
recorded in current year earnings.
During
the years ended December 31, 2008, 2007 and 2006, neither the Holding Company
nor the Bank held any derivative instruments or any embedded derivative
instruments that required bifurcation.
BOLI – BOLI is carried at its
contract value. Increases in the contract value are recorded as
non-interest income in the consolidated statements of operations and insurance
proceeds received are recorded as a reduction of the contract
value.
Comprehensive Income -
Comprehensive income for the years ended December 31, 2008, 2007 and 2006 was
determined in accordance with SFAS 130, "Reporting Comprehensive
Income.'' Comprehensive income includes changes in the unrealized
gain or loss on available-for-sale securities and minimum pension liability,
which, under GAAP, bypass net income and are typically reported as components of
stockholders' equity. All comprehensive income adjustment items are
presented net of applicable tax effect.
Disclosures About Segments of an
Enterprise and Related Information - The Company has one reportable
segment, "Community Banking." All of the Company's activities are
interrelated, and each activity is dependent and assessed based on the manner in
which it supports the other activities of the Company. For example,
lending is dependent upon the ability of the Bank to fund itself with retail
deposits and other borrowings and to manage interest rate and credit
risk. Accordingly, all significant operating decisions are based upon
analysis of the Company as one operating segment or unit. The Chief
Executive Officer is considered the chief decision maker for this reportable
segment.
For the
years ended December 31, 2008, 2007 and 2006, there was no customer that
accounted for more than 10% of the Company's consolidated revenue.
Recently Issued Accounting
Standards
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 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 17.
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.
On
October 10, 2008, the FASB issued Staff Position FAS 157-3, "Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active."
("FSP 157-3"). FSP 157-3 clarified the application of SFAS 157 in a
market that is not active. FSP 157-3 reiterated several key
principles of SFAS 157, such as the requirement that a fair value measurement
represent the price at which a transaction would occur between market
participants as of the measurement date. FSP 157-3 was deemed
effective upon issuance, including prior periods for which financial statements
have not been issued. The Company considered the relevant provisions
of FSP 157-3 in its election to change its method of valuation for its
investment in pooled trust preferred securities during the year ended December
31, 2008.
In June
2008, the FASB finalized Staff Position EITF 03-6-1, "Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities" ("FSP EITF 03-6-1"). FSP EITF 03-6-1 affects entities
that accrue cash dividends on share-based payment awards during the service
period when the dividends need not be returned if the employees forfeit the
awards. Under FSP EITF 03-6-1, all share-based payment awards that
accrue cash dividends (whether paid or unpaid) any time the common shareholders
receive dividends are considered participating securities if the dividends need
not be returned to the entity if the employee forfeits the award. Because the
awards are considered participating securities, the issuing entity is required
to apply the two-class method of computing basic and diluted EPS under SFAS
128. FSP EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. FSP
EITF 03-6-1 requires an entity to retroactively adjust all prior-period EPS
computations to reflect its provisions. Early adoption of the FSP
EITF 03-6-1 is not permitted. Adoption of FSP EITF 03-6-1 is not
expected to have a material impact upon the Company's consolidated financial
statements.
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles used in
the preparation of financial statements of non-governmental entities that are
presented in conformity with GAAP. SFAS 162 became effective on
November 15, 2008. Adoption of SFAS 162 is not expected to have a
material impact upon the Company's consolidated financial condition or results
of operations.
In March
2008, the FASB issued SFAS No. 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 occurring during a fiscal year beginning after
December 15, 2008.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements— an amendment 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 SEC 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 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 an 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.
On
January 12, 2009, the FASB issued Staff Position EITF 99-20-1, "Amendments to
the Impairment Guidance of EITF Issue No. 99-20" ("FSP EITF
99-20-1"). FSP EITF 99-20-1 amends the impairment guidance in EITF
Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased
Beneficial Interests and Beneficial Interests That Continue to Be Held
by a
Transferor in Securitized Financial Assets” ("EITF 99-20"), to achieve more
consistent determination of whether an other-than-temporary impairment has
occurred. GAAP provides two different models for determining whether
the impairment of a debt security is other than temporary. EITF 99-20
requires the use of market participant assumptions about future cash flows. This
cannot be overcome by management judgment of the probability of collecting all
cash flows previously projected. SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," ("SFAS 115") does not
require exclusive reliance on market participant assumptions about future cash
flows. Rather, SFAS 115 permits the use of reasonable management judgment of the
probability that the holder will be unable to collect all amounts
due. FSP EITF 99-20-1 retains and emphasizes the objective of an
other-than temporary impairment assessment and the related disclosure
requirements in SFAS 115, and permits the evaluation of impaired assets under
the jurisdiction of EITF 99-20 to be evaluated in accordance with the other-than
temporary impairment methodology of SFAS 115. EITF 99-20-1 was
effective immediately upon issuance. Adoption of EITF 99-20-1 did not
have a material impact on the Company’s consolidated financial condition or
results of operations.
On
September 12, 2008, the FASB issued Staff Position FAS 133-1 and FIN 45-4,
"Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of
FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the
Effective Date of FASB Statement No. 161" ("FSP FIN 45-4"). FSP FIN
45-4 amends FASB Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," to require disclosures by sellers of credit derivatives,
including credit derivatives embedded in a hybrid instrument. This FSP also
amends FASB Interpretation No. 45, "Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others," to require an additional disclosure about the current status of the
payment/performance risk of a guarantee. Further, this FSP clarifies the Board’s
intent about the effective date of SFAS 161. FSP FIN 45-4 is effective for
reporting periods ending after November 15, 2008. Application of FSP
FIN 45-4 resulted in expanded disclosure of the Company's FNMA recourse
exposure. Adoption of FSP FIN 45-4 did not have a material effect
upon the Company's consolidated financial condition or results of
operations.
In
December 2008, the FASB issued Staff Position FAS 140-4 and FIN 46(R)-8,
"Disclosures by Public Entities (Enterprises) about Transfers of Financial
Assets and Interests in Variable Interest Entities" ("FSP
140-4"). FSP 140-4 amends SFAS 140 to require public entities to
provide additional disclosures about transfers of financial assets. It also
amends FASB Interpretation No. 46 (revised December 2003), "Consolidation of
Variable Interest Entities," to require public enterprises, including sponsors
that have a variable interest in a variable interest entity, to provide
additional disclosures about their involvement with variable interest entities.
Additionally, FSP 140-4 requires certain disclosures to be provided by a public
enterprise that is (a) a sponsor of a qualifying special purpose entity ("SPE")
that holds a variable interest in the qualifying SPE but was not the transferor
(nontransferor) of financial assets to the qualifying SPE, or (b) a servicer of
a qualifying SPE that holds a significant variable interest in the qualifying
SPE but was not the transferor (nontransferor) of financial assets to the
qualifying SPE. FSP 140-4 is effective for reporting periods ending
after December 15, 2008. FSP 140-4 is applicable to the Company's
MSR. The adoption of FSP 140-4 did not have a material effect upon
the Company's consolidated financial condition or results of
operations.
In
December 2008, the FASB issued Staff Position FAS 132(R)-1, "Employers’
Disclosures About Postretirement Benefit Plan Assets" ("FSP
132R-1"). FSP 132R-1 requires additional disclosure regarding
investment allocations, major categories, valuation techniques and
concentrations of risk related to plan assets held in an employer's defined
benefit pension or postretirement plan. FSP 132R-1 further requires
disclosure of any effects of utilizing significant unobservable inputs (as
defined in SFAS 157) upon the overall change in the fair value of the plan
assets during the reporting period. FSP 132R-1 is effective for years
ending after December 31, 2009. The Company is currently evaluating
the impact of adoption.
Use of Estimates in the Preparation
of the Consolidated Financial Statements - 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, reserves for loan commitments and FNMA recourse
exposure, the valuation of 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 valuation 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 and estimates could result in
material variations in the Company's consolidated results of operations or
financial condition.
Reclassification
– Certain amounts as of and for the years ended December 31, 2007 and
2006 have been reclassified to conform to their presentation as of and for the
year ended December 31, 2008. In particular, the Company reclassified
the gains or losses recorded on sales of loans, along with servicing fees on
loans sold to third parties, into a separate line item within non-interest
income entitled "Mortgage Banking Income." The effects of this
reclassification are presented in Note 7.
2. CONVERSION
TO STOCK FORM OF OWNERSHIP
On
November 2, 1995, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from mutual to stock form of ownership. At the
time of conversion, the Bank established a liquidation account in an amount
equal to the retained earnings of the Bank as of the date of the most recent
financial statements contained in the final conversion prospectus. The
liquidation account is reduced annually to the extent that eligible account
holders have reduced their qualifying deposits as of each anniversary date.
Subsequent increases in deposits do not restore an eligible account holder's
interest in the liquidation account. In the event of a complete liquidation,
each eligible account holder will be entitled to receive a distribution from the
liquidation account in an amount proportionate to the adjusted qualifying
balances on the date of liquidation for accounts held
at conversion.
The
Holding Company acquired Conestoga Bancorp, Inc. ("Conestoga") on June 26,
1996. The liquidation account previously established by Conestoga's
subsidiary, Pioneer Savings Bank, F.S.B., during its initial public offering in
March 1993, was assumed by the Company in the acquisition.
The
Holding Company acquired FIBC on January 21, 1999. The liquidation
account previously established by FIBC's subsidiary, FFSB, during its initial
public offering, was assumed by the Company in the acquisition.
The
Holding Company may not declare or pay cash dividends on, or repurchase any of,
its shares of common stock if the effect thereof would cause stockholders'
equity to be reduced below either applicable regulatory capital maintenance
requirements, or the amount of the liquidation account, or if such declaration
or payment or repurchase would otherwise violate regulatory
requirements.
3. INVESTMENT
SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE
On
September 1, 2008, the Bank transferred eight investment securities with an
amortized cost of $19,922 that were primarily secured by the preferred debt
obligations of a pool of U.S. banks (with a small portion secured by debt
obligations of insurance companies) from its available-for-sale portfolio to its
held-to-maturity portfolio. Based upon the lack of an orderly market
for these securities, management determined that a formal election to hold these
securities to maturity was consistent with its initial investment
decision. On the date of transfer, the unrealized loss of $8,420 on
these securities continued to be recognized as a component of accumulated other
comprehensive loss within the Company's consolidated stockholders' equity (net
of income tax benefit), and was expected to be amortized over the remaining
average life of the securities, which approximated 25.7 years on a weighted
average basis. During the period September 1, 2008 through December
31, 2008, amortization of this unrealized loss totaled $134. In
addition, $2,586 of this unrealized loss was reversed related to two securities
for which an other-than temporary impairment charge was recognized during the
period. At December 31, 2008, the remaining unrealized loss will be
amortized during the remaining contractual life of these securities, which have
contractual maturities ranging from April 3, 2032 through September 22,
2037.
During
the year ended December 31, 2008, the Company recorded a pre-tax other-than
temporary impairment charge of $3,209 related to two of these pooled trust
preferred securities. As of December 31, 2008, these securities were
performing in accordance with their contractual terms, and had paid all
contractual cash flows since the Bank’s initial investment. In management’s
judgment, however, the credit quality of the collateral pool underlying the two
securities had deteriorated to the point that full recovery of the Bank’s
initial investment was considered uncertain. Consequently, an other-than
temporary impairment charge was deemed to be warranted as of December 31,
2008. The pre-tax other-than temporary impairment charge was
reflected in the Company's consolidated results of operations.
The
amortized cost, gross unrealized gains and losses and estimated fair value of
investment securities held-to-maturity at December 31, 2008 were as
follows:
|
Investment
Securities Held-to-Maturity
|
|
Carrying
Amount(1)
|
Amortized
Cost(2)
|
Gross
Unrealized Gains
|
Gross
Unrealized(Losses)
|
Estimated
Fair
Value
|
Debt
Securities:
|
|
|
|
|
|
Pooled
trust preferred securities
|
$10,861
|
$16,561
|
$-
|
$(7,479)
|
$9,082
|
(1)
|
Amount
reflects a remaining unrealized loss of $5,700 that existed when the
securities were transferred from available-for-sale to held-to-maturity on
September 1, 2008.
|
(2)
|
Amount
has been reduced by an other-than temporary impairment charge of $3,209
recognized during the year ended December 31,
2008.
|
The
balance of unrealized losses shown in the above table related to six pooled
trust preferred securities, each of which have been in an unrealized loss
position for 12 or more months at December 31, 2008. Despite both the
decline in market value and the period for which the securities have remained in
an unrealized loss position, management believes that the $7,479 of unrealized
losses on the six pooled trust preferred securities at December 31, 2008 were
temporary, and that the full value of these investments will be realized once
the market dislocations have been removed or as the securities continue to
satisfy their contractual payments of principal and interest. In
making this determination, management considered the following:
In
addition to satisfying all contractual payments since inception, each of the six
securities demonstrated the following beneficial credit
characteristics:
·
|
All
securities have maintained an investment grade rating since inception from
at least one rating agency
|
·
|
Each
security has a diverse pool of underlying
issuers
|
·
|
None
of the securities have exposure to real estate investment trust issued
debt (which has experienced high default
rates)
|
·
|
Each
security features either a mandatory auction or a de-leveraging mechanism
that could result in principal repayments to the Bank prior to the stated
maturity
of the security
|
·
|
Each
security is characterized by some level of
over-collateralization
|
Based
upon an internal review of the collateral backing these securities, which
accounted for current and prospective deferrals, each of the securities can
reasonably be expected to continue making contractual payments.
The
amortized/historical cost, gross unrealized gains and losses and estimated fair
value of investment securities available-for-sale at December 31, 2008 were as
follows:
|
Investment
Securities Available-for-Sale
|
|
|
|
|
Amortized/
Historical Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized (Losses)
|
Estimated
Fair
Value
|
Debt
securities:
|
|
|
|
|
Federal
agency obligations
|
$1,035
|
$1
|
-
|
$1,036
|
Municipal
agencies
|
9,931
|
216
|
$(14)
|
$10,133
|
Total
debt securities
|
10,966
|
217
|
(14)
|
11,169
|
Equity
securities:
|
|
|
|
|
Mutual
fund investments
|
8,057
|
-
|
(2,624)
|
5,433
|
|
$19,023
|
$217
|
$(2,638)
|
$16,602
|
The
amortized cost and estimated fair value of the debt securities component of
investment securities available-for-sale at December 31, 2008, are shown below
by contractual maturity. Actual maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations with
or without call or prepayment fees.
|
Amortized
Cost
|
Estimated
Fair
Value
|
Due
after one year through five years
|
$347
|
$361
|
Due
after five years through ten years
|
10,619
|
10,808
|
|
$10,966
|
$11,169
|
The
following summarizes the gross unrealized losses and fair value of investment
securities available-for-sale as of December 31, 2008, aggregated by investment
category and the length of time that the securities were in a continuous
unrealized loss position:
|
Less
than 12 Months
Consecutive
Unrealized
Losses
|
12
Months or More Consecutive
Unrealized
Losses
|
Total
|
|
Fair
Value
|
Gross
Unrealized Losses
|
Fair
Value
|
Gross
Unrealized Loss
|
Fair
Value
|
Gross
Unrealized Losses
|
Municipal
agencies (1)
|
$919
|
$8
|
297
|
6
|
$1,216
|
$14
|
Mutual
fund investments (2)
|
2,251
|
550
|
$3,138
|
$2,074
|
5,389
|
2,624
|
|
$3,170
|
$558
|
$3,435
|
$2,080
|
$6,605
|
$2,638
|
(1) At
December 31, 2008, the Bank owned one municipal security that possessed
unrealized losses for 12 or more consecutive months. This security
was sold in February 2009, with a gain recognized on the sale.
(2) The
mutual fund investments that possessed unrealized losses for 12 or more
consecutive months were three managed mutual funds that declined significantly
in 2008 as a result of problems encountered by the U.S. and international equity
markets. Two of these mutual funds were comprised solely of U.S.
equities and carried a high correlation to the performance of the Standard and
Poors 500 Equity Index. The third fund was comprised of international
equities and bears a high correlation to the performance of the MSCI Equity
index. Each of these mutual funds have regularly demonstrated the ability to
recover to their cost basis during periods in which the correlating equity
market indeces performed favorably. Management performed an historical analysis
of the average period for which a declining (or "bear") market has continued for
both the Standard and Poors 500 and MSCI Equity indeces. Based upon
this analysis, management believes that each of these securities were not other
than temporarily impaired at December 31, 2008, as the correlating indeces to be
reasonably expected to recover within a period permitting the
unrealized losses could be deemed temporary (less than two years based upon
historical experience). The Company has the intent and ability to hold the
securities until recovery.
During
the year ended December 31, 2008, there were no sales of investment securities
available-for-sale.
The
amortized cost, gross unrealized gains and losses and estimated fair value of
investment securities held-to-maturity at December 31, 2007 were as
follows:
|
Investment
Securities Held-to-Maturity
|
|
|
|
|
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized (Losses)
|
Estimated
Fair
Value
|
Debt
Securities:
|
|
|
|
|
Obligations
of state and political subdivisions,
maturity of less than one year
|
$80
|
$-
|
$-
|
$80
|
The
amortized/historical cost, gross unrealized gains and losses and estimated fair
value of investment securities available-for-sale at December 31, 2007 were as
follows:
|
Investment
Securities Available-for-Sale
|
|
|
|
|
Amortized/
Historical Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized (Losses)
|
Estimated
Fair
Value
|
Debt
securities:
|
|
|
|
|
Municipal
agencies
|
$9,951
|
$94
|
$(17)
|
$10,028
|
Pooled
trust preferred securities
|
17,177
|
1
|
(223)
|
16,955
|
Total
debt securities
|
27,128
|
95
|
(240)
|
26,983
|
Equity
securities:
|
|
|
|
|
Mutual
fund investments
|
7,573
|
111
|
(572)
|
7,112
|
|
$34,701
|
$206
|
$(812)
|
$34,095
|
The
amortized cost and estimated fair value of the debt securities component of
investment securities available-for-sale at December 31, 2007, by contractual
maturity, are shown below. Actual maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations with
or without call or prepayment fees.
|
Amortized
Cost
|
Estimated
Fair
Value
|
Due
in one year or less
|
$5,218
|
$5,190
|
Due
after one year through five years
|
348
|
351
|
Due
after five years through ten years
|
9,603
|
9,677
|
Due
after ten years
|
11,959
|
11,765
|
|
$27,128
|
$26,983
|
The
following summarizes the gross unrealized losses and fair value of investment
securities available-for-sale as of December 31, 2007, aggregated by investment
category and the length of time that the securities were in a continuous
unrealized loss position:
|
Less
than 12 Months
Consecutive
Unrealized
Losses
|
12
Months or More Consecutive
Unrealized
Losses
|
Total
|
|
Fair
Value
|
Gross
Unrealized Losses
|
Fair Value
|
Gross
Unrealized Loss
|
Fair
Value
|
Gross
Unrealized Losses
|
Municipal
agencies
|
$2,679
|
$17
|
-
|
-
|
$2,679
|
$17
|
Pooled
trust preferred securities
|
15,512
|
223
|
-
|
-
|
15,512
|
223
|
Mutual
fund investments
|
1,245
|
58
|
$3,213
|
$514
|
4,458
|
572
|
|
$19,436
|
$298
|
$3,213
|
$514
|
$22,649
|
$812
|
At
December 31, 2007, the Company had two investment security positions that
possessed 12 months or more of consecutive unrealized losses, one of which was a
diversified mutual fund investment. The other security was a minor
equity investment in a financial institution that possessed an unrealized loss
of less than $2 as of December 31, 2007. Management does not believe
that any of the unrealized losses in the above table qualified as other-than
temporary impairments at December 31, 2007. In making this
determination, management considered the severity and duration of the loss, as
well as management's intent and ability to hold the securities until substantial
recovery of the loss.
During
the year ended December 31, 2007, there were no sales of investment securities
available-for-sale.
4. MBS
AVAILABLE-FOR-SALE
The
amortized cost, gross unrealized gains and losses and estimated fair value of
MBS available-for-sale at December 31, 2008 were as follows:
|
Mortgage-Backed Securities
Available-for-Sale
|
|
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized (Losses)
|
Estimated
Fair
Value
|
Collateralized
mortgage obligations ("CMOs")
|
$93,983
|
$30
|
$(768)
|
$93,245
|
Federal
Home Loan Mortgage Corporation ("FHLMC")
pass-through certificates
|
144,688
|
1,775
|
(105)
|
146,358
|
FNMA
pass-through certificates
|
55,526
|
1,049
|
(6)
|
56,569
|
Government
National Mortgage Association ("GNMA")
pass-through certificates
|
1,057
|
-
|
(16)
|
1,041
|
Private
label MBS
|
4,474
|
-
|
(336)
|
4,138
|
|
$299,728
|
$2,854
|
$(1,231)
|
$301,351
|
At
December 31, 2008, MBS available-for-sale possessed a weighted average
contractual maturity of 18.1 years and a weighted average estimated duration of
2.7 years. During the year ended December 31, 2008, there were no
sales of MBS available-for-sale.
The
following summarizes the gross unrealized losses and fair value of MBS
available-for-sale at December 31, 2008, aggregated by investment category and
the length of time that the securities were in a continuous unrealized loss
position:
|
Less
than 12 Months
Consecutive
Unrealized
Losses
|
12
Months or More Consecutive
Unrealized
Losses
|
Total
|
|
Fair
Value
|
Gross
Unrealized Losses
|
Fair
Value
|
Gross
Unrealized Loss
|
Fair
Value
|
Gross
Unrealized Losses
|
Government
Sponsored Entity ("GSE") CMOs (1)
|
$13,506
|
$15
|
$54,433
|
$214
|
$67,939
|
$229
|
Private
label CMOs (1)
|
-
|
-
|
7,813
|
539
|
7,813
|
539
|
FHLMC
pass-through certificates
|
22,409
|
105
|
-
|
-
|
22,409
|
105
|
FNMA
pass-through certificates
|
1,412
|
6
|
-
|
-
|
1,412
|
6
|
GNMA
pass-through certificates
|
1,041
|
16
|
-
|
-
|
1,041
|
16
|
Private
label pass-through certificates
|
4,138
|
336
|
-
|
-
|
4,138
|
336
|
|
$42,506
|
$478
|
$62,246
|
$753
|
$104,752
|
$1,231
|
(1) At
December 31, 2008, each of the ten GSE sponsored CMOs, and three private label
CMOs that possessed unrealized losses for 12 or more consecutive months had the
highest possible credit quality rating. Since inception, virtually
all unrealized losses on these securities have resulted from interest rate
fluctuations. These securities were not deemed to be other than
temporarily impaired at December 31, 2008 due to the following: (1) their credit
quality rating remained superior; (2) the Company's investment was within the
highest available tranche (or repayment pool); and (3) the Company had the
intent and ability to hold the securities until recovery.
The
amortized cost, gross unrealized gains and losses and estimated fair value of
MBS available-for-sale at December 31, 2007 were as follows:
|
Mortgage-Backed
Securities Available-for-Sale
|
|
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized (Losses)
|
Estimated
Fair
Value
|
CMOs
|
$119,386
|
$-
|
$(2,158)
|
$117,228
|
FHLMC
pass-through certificates
|
31,174
|
437
|
-
|
31,611
|
FNMA
pass-through certificates
|
12,677
|
77
|
(108)
|
12,646
|
GNMA
pass-through certificates
|
1,266
|
13
|
-
|
1,279
|
|
$164,503
|
$527
|
$(2,266)
|
$162,764
|
At
December 31, 2007, MBS available-for-sale possessed a weighted average
contractual maturity of 15.8 years and a weighted average estimated duration of
2.5 years. During the year ended December 31, 2007, there were no
sales of MBS available-for-sale.
The
following summarizes the gross unrealized losses and fair value of MBS
available-for-sale at December 31, 2007, aggregated by investment category and
the length of time that the securities were in a continuous unrealized loss
position:
|
Less
than 12 Months
Consecutive
Unrealized
Losses
|
12
Months or More Consecutive
Unrealized
Losses
|
Total
|
|
Fair
Value
|
Gross
Unrealized Losses
|
Fair
Value
|
Gross
Unrealized Loss
|
Fair
Value
|
Gross
Unrealized Losses
|
CMOs
|
$-
|
$-
|
$7,860
|
$108
|
$7,860
|
$108
|
FNMA
pass-through certificates
|
-
|
-
|
117,227
|
2,158
|
117,227
|
2,158
|
|
$-
|
$-
|
$125,087
|
$2,266
|
$125,087
|
$2,266
|
At
December 31, 2007, there were twenty-three MBS positions that possessed 12
months or more of consecutive unrealized losses. The unrealized loss
for all twenty-three securities resulted solely from changes in interest rates
subsequent to acquisition of the security. Management does not
believe that any of the unrealized losses in the above table qualified as
other-than temporary impairments at December 31, 2007. In making this
determination, management considered the severity and duration of the loss, as
well as management's intent and ability to hold the securities until substantial
recovery of the loss. At December 31, 2007, all of the FNMA
pass-through certificates and CMOs that possessed unrealized losses for 12 or
more consecutive months had the highest possible credit quality
rating.
5. LOANS
The
Bank's real estate loans were composed of the following:
|
December
31, 2008
|
December
31, 2007
|
One-
to four-family
|
$130,663
|
$139,416
|
Multifamily
residential
|
2,241,800
|
1,948,000
|
Commercial
real estate
|
848,208
|
728,129
|
Construction
and land acquisition
|
52,982
|
49,387
|
Federal
Housing Authority and Veterans Administration Insured
mortgage loans
|
742
|
1,029
|
Cooperative
apartment unit loans
|
11,632
|
6,172
|
|
3,286,027
|
2,872,133
|
Net
unearned costs
|
3,287
|
1,833
|
|
$3,289,314
|
$2,873,966
|
The Bank
originates both adjustable and fixed interest rate real estate
loans. At December 31, 2008, the approximate composition of these
loans was as follows:
Fixed
Rate
|
|
Adjustable
Rate
|
Period
to Maturity
|
Book Value
|
|
Earlier
of Period to Maturity or
Next Repricing
|
Book
Value
|
1
year or less
|
$16,004
|
|
1
year or less
|
$310,361
|
>
1 year-3 years
|
27,025
|
|
>
1 year-3 years
|
1,009,357
|
>
3 years-5 years
|
182,898
|
|
>
3 years-5 years
|
1,100,111
|
>
5 years-10 years
|
181,453
|
|
>
5 years-10 years
|
351,146
|
>
10 years
|
107,404
|
|
>
10 years
|
268
|
|
$514,784
|
|
|
$2,771,243
|
The
adjustable-rate loans are generally indexed to the Federal Home Loan Bank of New
York ("FHLBNY") five-year borrowing rate, or the one- or three-year constant
maturity Treasury index. The contractual terms of adjustable rate
multifamily residential and commercial real estate loans provide that their
interest rate, upon repricing, cannot fall below their rate at the time of
origination. The Bank's one- to four-family residential
adjustable-rate loans are subject to periodic and lifetime caps and floors on
interest rate changes that typically range between 200 and 650 basis
points.
A
concentration of credit risk existed within the Bank's loan portfolio at
December 31, 2008, as the majority of real estate loans on that date were
collateralized by properties located in the New York City metropolitan
area.
At
December 31, 2008, the Bank had $492,999 of loans in its portfolio that featured
interest only payments. These loans subject the Bank to additional
risk since their principal balance will not be reduced significantly prior to
contractual maturity. In addition at December 31, 2008, the Bank
possessed a loss exposure of up to $21,865 in connection with $50,957 of
interest only loans sold to FNMA.
The
Bank's other loans were composed of the following:
|
December
31, 2008
|
December
31, 2007
|
Passbook
loans (secured by savings and
time deposits)
|
$1,059
|
$1,122
|
Consumer
installment and other loans
|
1,132
|
1,047
|
|
$2,191
|
$2,169
|
Loans on
which the accrual of interest was discontinued were $7,402 and $2,856 at
December 31, 2008 and 2007, respectively. Interest income foregone on
nonaccrual loans was $302 during the year ended December 31, 2008, $108 during
the year ended December 31, 2007, and $131 during the year ended December 31,
2006.
The Bank
had no loans considered troubled-debt restructurings at December 31, 2008 and
2007.
At
December 31, 2008, there were fifteen loans totaling $8,900 deemed impaired
under Amended SFAS 114, compared to six loans totaling $2,814 as of December 31,
2007. The average balance of impaired loans was approximately $5,106
during the year ended December 31, 2008, $2,717 during the year ended December
31, 2007, and $1,920 during the year ended December 31, 2006. During
the year ended December 31, 2008, write-downs of principal totaling $586 were
recognized on impaired loans. There were no write-downs on impaired
loans during the years ended December 31, 2007 and 2006. At December
31, 2008 and 2007, reserves allocated within the allowance for loan losses for
impaired loans totaled $1,056 and $348, respectively. Net principal
received on impaired loans totaled $293 and net interest received on impaired
loans totaled $63 during the year ended December 31, 2008. Net
principal received on impaired loans totaled $1,950 and net interest received on
impaired loans totaled $326 during the year ended December 31,
2007. Net principal received on impaired loans totaled $628 and net
interest received on impaired loans totaled $132 during the year ended December
31, 2006.
The
following assumptions were utilized in evaluating the loan portfolio pursuant to
the provisions of Amended SFAS 114:
Homogenous Loans - Individual
one- to four-family residential mortgage loans and cooperative apartment loans
having a balance of $625.5 or less and all consumer loans were considered to be
small balance homogenous loan pools and, accordingly, not subject to Amended
SFAS 114.
Loans Evaluated for
Impairment - All non-homogeneous loans were individually evaluated for
potential impairment. Additionally, individual one- to four-family residential
and cooperative apartment unit mortgage loans exceeding $625.5 and delinquent in
excess of 60 days were evaluated for impairment. A loan is considered
impaired when it is probable that all contractual amounts due will not be
collected in accordance with the terms of the loan. A loan is not deemed to be
impaired, even during a period of delayed payment by the borrower, if the Bank
ultimately expects to collect all amounts due, including interest accrued at the
contractual rate. At December 31, 2007, all impaired loans were
on nonaccrual status. In addition, at December 31, 2008 and 2007, approximately
$597 and $42, respectively, of one- to four-family residential and cooperative
apartment loans with a balance of $625.5 or less and consumer loans were on
nonaccrual status. These loans are considered as a homogeneous loan pool not
subject to Amended SFAS 114. At December 31, 2008, loans totaling
$2,096, while on accrual status, were deemed impaired due to concerns over their
payment history coupled with the potential shortfall of the value of their
underlying collateral in the event of foreclosure.
Reserves and Charge-Offs -
The Bank allocates a portion of its total allowance for loan losses to loans
deemed impaired under Amended SFAS 114. All charge-offs on impaired loans are
recorded as a reduction in both loan principal and the allowance for loan
losses. Management evaluates the adequacy of its allowance for loan losses on a
regular basis. Management believes that its allowance for impaired
loans was adequate at December 31, 2008 and 2007.
Measurement of Impairment -
Since all impaired loans are secured by real estate properties, the fair
value of the collateral is utilized to measure impairment. The fair
value of the collateral is measured as soon as practicable after the loan
becomes impaired and periodically thereafter.
Income Recognition - Accrual
of interest is generally discontinued on loans that have missed three
consecutive monthly payments, at which time the Bank does not recognize the
interest from the third month and evaluates whether the accrual of interest
associated with the first two missed payments should be
reversed. Payments on nonaccrual loans are generally applied to
principal. Management may elect to continue the accrual of interest
when a loan is in the process of collection and the estimated fair value of the
collateral is sufficient to satisfy the outstanding principal balance (including
any outstanding advances made related to the loan) and accrued interest. 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 period of at least six months.
Delinquent
Serviced Loans Subject to a Recourse Exposure
The Bank
has a recourse exposure associated with multifamily loans that it sold to FNMA
between December 2002 and December 31, 2008. Under the terms of its
seller/servicer agreement with FNMA, the Bank is obligated to fund FNMA all
monthly principal and interest payments under the original terms of the loans
until the earlier of the following events: (1) the loans have been fully
satisfied or enter OREO status; or (2) the recourse exposure is fully
exhausted.
Within
the pool of multifamily loans sold to FNMA, the Bank had not received a payment
from the borrower in excess of 90 days on loans totaling $23,749 at December 31,
2008, and has identified an additional $3,555 of other problem
loans.
6. ALLOWANCE
FOR LOAN LOSSES AND RESERVE FOR RECOURSE EXPOSURE ON MULTIFAMILY LOANS SOLD TO
FNMA
Changes
in the allowance for loan losses for loans owned by the Bank were as
follows:
|
Year Ended December 31,
|
|
2008
|
2007
|
2006
|
Balance
at beginning of period
|
$15,387
|
$15,514
|
$15,785
|
Provision
for loan losses
|
2,006
|
240
|
240
|
Loans
charged off
|
(612)
|
(28)
|
(50)
|
Recoveries
|
29
|
19
|
23
|
Transfer
from (to) reserves on loan commitments
|
644
|
(358)
|
(484)
|
Balance
at end of period
|
$17,454
|
$15,387
|
$15,514
|
The Bank
maintains a reserve liability in relation to the recourse exposure on
multifamily loans sold to FNMA that reflects estimated future losses on this
loan pool at each period end. In determining the estimate of probable
future losses, the Bank utilizes a methodology similar to the calculation of its
allowance for loan losses. For all performing loans within the
FNMA
serviced pool, the reserve recognized is the present value of the estimated
future losses calculated based upon the historical loss experience for
comparable multifamily loans owned by the Bank. For problem loans
within the pool, the estimated future losses are determined in a manner
consistent with impaired or classified loans within the Bank's loan
portfolio.
The
following is a summary of the aggregate balance of multifamily loans serviced
for FNMA, the period-end balance of total recourse exposure associated with
these loans, and activity related to the reserve liability.
|
At
or for the Year Ended December 31,
|
|
2008
|
2007
|
2006
|
Outstanding
balance of multifamily loans serviced for FNMA at period
end
|
$519,831
|
$535,793
|
$494,770
|
Total
recourse exposure at end of period
|
21,865
|
20,409
|
18,495
|
Reserve
Liability on the Recourse Exposure
|
|
|
|
Balance
at beginning of period
|
$2,436
|
$2,223
|
$1,771
|
Additions
for loans sold during the period 1
|
101
|
213
|
452
|
Provision
for losses on problem loans1
|
3,946
|
-
|
-
|
Charge-offs
|
(910)
|
-
|
-
|
Balance
at period end
|
$5,573
|
$2,436
|
$2,223
|
1 Amount
recognized as a portion of mortgage banking income during the
period.
Absent
extenuating circumstances, the $910 of charge-offs recognized in 2008, and the
full reserve liability balance of $5,573 at December 31, 2008, would have
represented likely future loss claims, and upon ultimate settlement of the
loans, the Bank would have sought to reduce the $21,865 total recourse
exposure. However, of the $5,573 million reserve liability that
existed at December 31, 2008, $1,361 related to a loan that the Bank was
required to repurchase under the terms of its seller/servicer agreement with
FNMA at the initial purchase price. This loan also accounted for $146
of the $910 in charge-offs recognized during 2008. The re-acquisition
of this loan was completed on January 30, 2009, and the Bank understands that no
losses associated with this loan shall reduce the $21,865 total recourse
exposure.
In
addition, on January 30, 2009, the Bank re-acquired three other problem loans
from FNMA (all associated with one common borrower), on which aggregate
charge-offs of $701 were recognized during the year ended December 31, 2008, and
on which a specific reserve of $1,593 was included in the $5,573 reserve
liability at December 31, 2008. Under the terms of the re-acquisition
agreement, upon ultimate resolution of these loans, 50% of their aggregate
losses will reduce the $21,865 total recourse exposure. In exchange
for this concession, the Bank received the potential right to reduce the $21,865
total recourse exposure commencing on January 1, 2015.
7. MORTGAGE
SERVICING ACTIVITIES
At
December 31, 2008, 2007 and 2006, the Bank was servicing loans for others having
principal balances outstanding of approximately $659,381, $563,383, and
$519,165, respectively. Servicing loans for others generally consists
of collecting mortgage payments, maintaining escrow accounts, disbursing
payments to investors, paying taxes and insurance, and processing
foreclosure. In connection with loans serviced for others, the Bank
held borrowers' escrow balances of approximately $10,550 and $7,121 at December
31, 2008 and 2007, respectively.
There are
no restrictions on the Company's consolidated assets or liabilities related to
loans that were sold with servicing rights retained. Upon sale of
these loans, the Company recognized MSR, and has elected to account for the MSR
under the "amortization method" prescribed in SFAS No. 156. The MSR
related to these loans totaled $2,778 and $2,496 at December 31, 2008 and 2007,
respectively. MSR recognized from loan sales were $974, $493 and $815
during the years ended December 31, 2008, 2007 and 2006,
respectively. A reserve of $60 was recognized during the year ended
December 31, 2008 related to the decline in the fair value of a portion of the
MSR below its amortized cost basis. There were no such reserves
recognized related to MSR during the years ended December 31, 2007 and
2006. Amortization of servicing rights was $632, $589 and $569 during
the years ended December 31, 2008, 2007 and 2006, respectively.
Key
economic assumptions and the sensitivity of the current fair value of residual
cash flows to immediate 10 and 20 percent adverse changes in those assumptions
used to value the MSR were as follows:
|
At
December
31, 2008
|
At
December
31, 2007
|
At
December
31, 2006
|
Net
carrying value of the servicing asset
|
$2,778
|
$2,496
|
$2,592
|
Fair
value of the servicing asset
|
2,841
|
3,914
|
3,556
|
Weighted
average life (in years)
|
6.29
|
8.25
|
8.25
|
Prepayment
speed assumptions (annual rate)
|
150
PSA
|
151
PSA
|
151
PSA
|
Impact
on fair value of 10% adverse change
|
$(45)
|
$(89)
|
$(76)
|
Impact
on fair value of 20% adverse change
|
$(90)
|
$(174)
|
$(150)
|
Expected
credit losses (annual rate)
|
$13
|
$13
|
$65
|
Impact
on fair value of 10% adverse change
|
$(9)
|
$(1)
|
$(1)
|
Impact
on fair value of 20% adverse change
|
$(18)
|
$(3)
|
$(3)
|
Residual
cash flows discount rate (annual rate)
|
13.75%
|
12.75%
|
13.75%
|
Impact
on fair value of 10% adverse change
|
$(60)
|
$(107)
|
$(101)
|
Impact
on fair value of 20% adverse change
|
$(117)
|
$(207)
|
$(195)
|
Average
Interest rate on adjustable rate loans
|
5.74%
|
5.66%
|
5.62%
|
Impact
on fair value of 10% adverse change
|
-
|
-
|
-
|
Impact
on fair value of 20% adverse change
|
-
|
-
|
-
|
Net
mortgage banking income presented in the consolidated statements of operations
was comprised of the following items:
|
Year Ended December 31,
|
|
2008
|
2007
|
2006
|
Gain
on the sale of loans originated for sale (1)
|
$1,012
|
$750
|
$1,516
|
Provision
to increase the liability for loans sold with recourse
|
(3,946)
|
-
|
-
|
Mortgage
banking fees (1)
|
804
|
762
|
712
|
Valuation
reserve recognized on MSR
|
(60)
|
-
|
-
|
Net
mortgage banking (loss) income
|
$(2,190)
|
$1,512
|
$2,228
|
(1) These
amounts for the
years ended December 31, 2007 and 2006 have been reclassified to conform to
their presentation for the year ended December 31, 2008. These
amounts were included in non-interest income during the years ended December 31,
2007 and 2006. The reclassification thus does not result in a
materially different presentation.
8. PREMISES
AND FIXED ASSETS, NET
The
following is a summary of premises and fixed assets, net:
|
December
31, 2008
|
December
31, 2007
|
Land
|
$7,237
|
$7,237
|
Buildings
|
25,986
|
21,532
|
Leasehold
improvements
|
7,181
|
5,209
|
Furniture,
fixtures and equipment
|
16,488
|
14,558
|
|
56,892
|
48,536
|
Less: accumulated
depreciation and amortization
|
(26,466)
|
(24,658)
|
|
$30,426
|
$23,878
|
Depreciation
and amortization expense amounted to approximately $1,808, $1,574 and $1,459
during the years ended December 31, 2008, 2007 and 2006,
respectively.
9. FEDERAL
HOME LOAN BANK OF NEW YORK CAPITAL STOCK
The Bank
is a Savings Bank Member of the FHLBNY. Membership requires the
purchase of shares of FHLBNY capital stock at $100 per share. The Bank owned
534,346 shares and 390,294 shares at December 31, 2008 and 2007, respectively.
The Bank recorded dividends on the FHLBNY capital stock of $2,647, $2,169 and
$1,688 during the years ended December 31,
2008,
2007 and 2006, respectively. The FHLBNY satisfied all stock
redemptions at par during 2008, and has guaranteed a minimum quarterly dividend
between 2.5% and 3.0% for the fourth quarter of 2008, which will be paid during
the quarter ending March 31, 2009.
10. DUE
TO DEPOSITORS
Deposits
are summarized as follows:
|
At December 31, 2008
|
At December 31, 2007
|
|
Effective
Cost
|
Liability
|
Effective
Cost
|
Liability
|
Savings
accounts
|
0.57%
|
$270,321
|
0.55%
|
$274,067
|
Certificates
of deposit
|
3.69
|
1,153,166
|
4.61
|
1,077,087
|
Money
market accounts
|
2.63
|
633,167
|
4.04
|
678,759
|
Interest
bearing checking accounts
|
2.10
|
112,687
|
2.38
|
61,687
|
Non-interest
bearing checking accounts
|
-
|
90,710
|
-
|
88,398
|
|
2.79%
|
$2,260,051
|
3.67%
|
$2,179,998
|
The
distribution of certificates of deposit by remaining maturity was as
follows:
|
|
|
Maturity
in one year or less
|
$986,226
|
$968,128
|
Over
one year through three years
|
122,435
|
99,928
|
Over
three years to five years
|
44,505
|
9,021
|
Over
five years
|
-
|
10
|
Total
certificates of deposit
|
$1,153,166
|
$1,077,087
|
The
aggregate amount of certificates of deposit with a minimum denomination of
one-hundred thousand dollars was approximately $410,711 and $364,591 at December
31, 2008 and 2007, respectively.
11. SECURITIES
SOLD UNDER AGREEMENTS TO REPURCHASE
Presented
below is information concerning securities sold under agreements to
repurchase:
|
At or for the Year Ended December 31,
|
|
2008
|
2007
|
2006
|
Balance
outstanding at end of period
|
$230,000
|
$155,080
|
$120,235
|
Average
interest cost at end of period
|
4.32%
|
4.53%
|
3.54%
|
Average
balance outstanding during the period
|
$227,828
|
$132,685
|
$134,541
|
Average
interest cost during the period
|
3.80%
|
4.11%
|
1.95%(a)
|
Carrying
amount of underlying collateral
|
$251,744
|
$163,116
|
$126,830
|
Estimated
fair value of underlying collateral
|
$251,744
|
$163,116
|
$126,830
|
Maximum
balance outstanding at month end during the year
|
$265,000
|
$155,160
|
$205,455
|
(a)
During the year ended December 31, 2006, the Company recorded a reduction of
$2,176 in interest expense on securities sold under agreements to repurchase
that were prepaid. Excluding this reduction, the average cost of
securities sold under agreements to repurchase would have been 3.56% during the
year ended December 31, 2006.
12. FEDERAL
HOME LOAN BANK OF NEW YORK ADVANCES
The Bank
had borrowings (''Advances'') from the FHLBNY totaling $1,019,675 and $706,500
at December 31, 2008 and 2007, respectively. The average interest cost of FHLBNY
Advances was 4.02%, 4.30%, and 4.69% during the years ended December 31, 2008,
2007 and 2006, respectively. During the year ended December 31, 2006,
the Company incurred $1,369 in additional interest expense related to the
prepayment of FHLBNY Advances. Excluding this increase, the average
cost of FHLBNY Advances would have been 4.45% during the year ended December 31,
2006. The average interest rate on outstanding FHLBNY Advances was 3.85% and
4.07% at December 31, 2008 and 2007, respectively. At December 31,
2008, in
accordance
with its Advances, Collateral Pledge and Security Agreement with the FHLBNY, the
Bank maintained the requisite qualifying collateral with the FHLBNY (principally
real estate loans), as defined by the FHLBNY, to secure such
Advances. At December 31, 2008, the FHLBNY Advances had contractual
maturities ranging from January 2009 through December 2017. Certain
of the FHLBNY Advances outstanding at December 31, 2008 contained call features
that may be exercised by the FHLBNY.
13. SUBORDINATED
NOTES PAYABLE AND TRUST PREFERRED SECURITIES PAYABLE
On April
12, 2000, the Holding Company issued subordinated notes in the aggregate amount
of $25,000. The notes have a 9.25% fixed rate of interest and mature on May 1,
2010. Interest expense recorded on the notes, inclusive of
amortization of related issuance costs, was $2,396 during each of the years
ended December 31, 2008, 2007 and 2006.
On March
19, 2004, the Holding Company completed an offering of an aggregate amount of
$72,165 of trust preferred securities through Dime Community Capital Trust I, an
unconsolidated special purpose entity formed for the purpose of the
offering. Of the total amount offered, the Holding Company retained
ownership of $2,165 of the securities. The trust preferred securities
bear a fixed interest rate of 7.0%, mature on April 14, 2034, and are callable
without penalty at any time on or after April 15, 2009. The Holding
Company currently does not intend to call this debt.
Interest
expense recorded on the trust preferred securities totaled $5,129 during each of
the years ended December 31, 2008, 2007 and 2006. Of the total
interest payments, $152 was paid to the Holding Company in each of the years
ended December 31, 2008, 2007 and 2006 related to its $2,165 investment in the
securities, and was recorded in other non-interest income.
14. INCOME
TAXES
The
Company's consolidated Federal, State and City income tax provisions were
comprised of the following:
|
Year
Ended December 31, 2008
|
|
Year
Ended December 31, 2007
|
|
Year
Ended December 31, 2006
|
|
Federal
|
State
and
City
|
Total
|
|
Federal
|
State
and
City
|
Total
|
|
Federal
|
State
and
City
|
Total
|
Current
|
$15,906
|
$1,307
|
$17,213
|
|
$11,976
|
$2,106
|
$14,082
|
|
$15,385
|
$1,564
|
$16,949
|
Deferred
|
(1,936)
|
(1,118)
|
(3,054)
|
|
(204)
|
(630)
|
(834)
|
|
(176)
|
279
|
103
|
|
$13,970
|
$189
|
$14,159
|
|
$11,772
|
$1,476
|
$13,248
|
|
$15,209
|
$1,843
|
$17,052
|
The
preceding table excludes tax effects recorded directly to stockholders’ equity
in connection with unrealized gains and losses on securities available-for-sale,
stock-based compensation plans, and adjustments to other comprehensive income
relating to the minimum pension liability, unrecognized gains of pension and
other postretirement obligations and the adoption of SFAS 158. These
tax effects are disclosed as part of the presentation of the consolidated
Statements of Changes in Stockholders’ Equity and Comprehensive
Income.
The
provision for income taxes differed from that computed at the Federal statutory
rate as follows:
|
Year Ended December 31,
|
|
2008
|
2007
|
2006
|
Tax
at Federal statutory rate
|
$14,765
|
$12,492
|
$16,675
|
State
and local taxes, net of Federal
income tax benefit
|
1,058
|
959
|
1,198
|
Benefit
plan differences
|
48
|
(37)
|
(159)
|
Adjustments
for prior period tax returns
|
(317)
|
641
|
(42)
|
Investment
in BOLI
|
(700)
|
(880)
|
(654)
|
Recovery
of reserve for unrecognized tax benefits
|
(581)
|
(183)
|
-
|
Other,
net
|
(114)
|
256
|
34
|
|
$14,159
|
$13,248
|
$17,052
|
Effective
tax rate
|
33.56%
|
37.12%
|
35.79%
|
In
accordance with SFAS 109, "Accounting for Income Taxes," deferred tax assets and
liabilities are recorded for temporary differences between the book and tax
bases of assets and liabilities.
The
components of Federal and State and City deferred income tax assets and
liabilities were as follows:
|
At December 31,
|
Deferred
tax assets:
|
2008
|
2007
|
Excess
book bad debt over tax bad debt reserve
|
$7,890
|
$7,156
|
Employee
benefit plans
|
11,468
|
7,063
|
Tax
effect of other comprehensive income on securities
available-for-sale
|
2,987
|
1,079
|
Other-than
temporary impairment on securities
|
1,449
|
-
|
State
net operating loss carryforwards expiring in 2027 and 2026
|
-
|
873
|
Other
|
691
|
504
|
Total
deferred tax assets
|
24,485
|
16,675
|
Deferred
tax liabilities:
|
|
|
Difference
in book and tax carrying value of fixed assets
|
541
|
600
|
Tax
effect of purchase accounting fair value adjustments
|
174
|
179
|
Other
|
94
|
103
|
Total
deferred tax liabilities
|
809
|
882
|
Valuation
Allowance for State net operating loss carryforwards
|
-
|
873
|
Net
deferred tax asset (recorded in other assets)
|
$23,676
|
$14,920
|
At
December 31, 2007, a valuation allowance of $873 was established against the
deferred tax asset associated with State net operating loss
carryforwards. This deferred tax asset and the valuation allowance
were eliminated during the year ended December 31, 2008, as the Company
determined that the benefit of the net operating loss will not be
recognized. No other valuation allowances were recognized during the
years ended December 31, 2008 and 2007, since, at each period end, it was more
likely than not that the deferred tax assets would be fully
realized. At December 31, 2008, the Company had capital loss
carryforwards totaling $2,036, which expire beginning in the tax year ending
December 31, 2011. The Company believes that the full amount of these
carryforwards will be fully utilized prior to expiration.
At
December 31, 2008 and 2007, the Bank had bad debt reserves for New York State
and New York City income tax purposes for which no provision for income tax was
required to be recorded. These bad debt reserves could be subject to recapture
into taxable income under certain circumstances. The Bank’s previously
accumulated bad debt deductions were similarly subject to potential recapture
for federal income tax purposes at December 31, 2008. These recapture
liabilities could be triggered by certain actions, including a distribution of
these bad debt benefits to the Holding Company or the failure of the Bank to
qualify as a bank for federal or New York State and New York City tax
purposes. A summary of these balances is as
follows:
|
|
At
December 31, 2008
|
|
At
December 31, 2007
|
Federal
|
|
$15,158
|
|
$15,158
|
New
York State
|
|
66,023
|
|
60,920
|
New
York City
|
|
69,833
|
|
64,334
|
In order
for the Bank to permissibly maintain a New York State and New York City tax bad
debt reserve for thrifts, certain thrift definitional tests must be satisfied on
an ongoing basis. These include maintaining at least 60% of assets in
thrift qualifying assets, as defined for tax purposes, and maintaining a thrift
charter. If the Bank fails to satisfy these definitional tests, it would be
required to transition to the reserve method permitted to commercial banks under
New York State and New York City income tax law, which would result in an
increase in the New York State and New York City income tax provision, and a
deferred tax liability would be established to reflect the eventual recapture of
some or all of the New York State and New York City bad debt
reserve.
The
Company expects to take no action in the foreseeable future that would require
the establishment of a tax liability associated with these bad debt
reserves.
The
Company is subject to regular examination by various tax authorities in
jurisdictions in which the Company conducts significant business
operations. The Company regularly assesses the likelihood of
additional assessments in each of the tax jurisdictions resulting from ongoing
assessments.
The
Company adopted FIN 48 on January 1, 2007. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in financial statements
prepared in accordance with SFAS 109, "Accounting for Income Taxes." FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. Pursuant to FIN 48, a tax position
adopted is subjected to two levels of evaluation. Initially, a
determination is made as to whether it is more likely than not that a tax
position
will be
sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. In
conducting this evaluation, management 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 financial statements. The tax position is
measured at the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. FIN 48 further requires
tabular disclosure of material activity related to unrecognized tax benefits
that do not satisfy the recognition provisions established under FIN
48. The adoption of FIN 48 on January 1, 2007 resulted in an increase
of $1,703 in the liability for unrecognized tax benefits, which was accounted
for as a reduction of the Company's consolidated January 1, 2007 retained
earnings.
The
following table reconciles the Company's gross unrecognized tax
benefits:
|
|
Year
Ended December 31,
|
|
|
2008
|
2007
|
Gross
unrecognized tax benefits at the beginning of the period
|
|
$2,274
|
$2,716
|
Lapse
of statue of limitations
|
|
-
|
(183)
|
Gross
increases – current period tax positions
|
|
-
|
73
|
Gross
decreases – prior period tax positions
|
|
(866)
|
(332)
|
Gross
unrecognized tax benefits at the end of the period
|
|
$1,408
|
$2,274
|
If
recognized, the net unrecognized tax benefits as of December 31, 2008 would have
reduced the Company's consolidated income tax expense by $915 (excluding
interest of $312) all of which would have favorably impacted the Company's
consolidated effective tax rate.
Interest
associated with unrecognized tax benefits approximated $480 and $509 at December
31, 2008 and 2007, respectively. The Company recognizes interest
accrued related to unrecognized tax benefits and penalties as income tax
expense. Related to the unrecognized tax benefits noted above, the
Company reversed interest of $29 during 2008 and $139 during 2007 and in total,
as of December 31, 2008, had an unrecognized tax liability for interest of $312,
and no unrecognized tax liability for penalties. The Company is
currently under audit by taxing jurisdictions. As a result of these
examinations, the entire amount of the unrecognized tax benefits (including
interest) could be impacted within the next twelve months.
All
entities for which unrecognized tax benefits existed as of December 31, 2008
currently possess a December 31st tax
year. These entities changed their tax year end from June 30th to
December 31st
effective December 31, 2007. As of December 31, 2008, the tax year
ended June 30, 2007, the tax period July 1, 2007 through December 31, 2007 and
the tax year ended December 31, 2008 remained subject to examination by all of
the Company's relevant tax jurisdictions, while the tax years ended June 30,
2005 and 2006 additionally remained subject to examination by both the Internal
Revenue Service and the New York State Department of Taxation. The
Company is currently under audit by taxing jurisdictions.
15. EMPLOYEE
BENEFIT PLANS
Employee Retirement Plan -
The Bank sponsors the Employee Retirement Plan, a tax-qualified,
noncontributory, defined-benefit retirement plan. Prior to April 1,
2000, substantially all full-time employees of at least 21 years of age were
eligible for participation after one year of service. Effective April
1, 2000, the Bank froze all participant benefits under the Employee Retirement
Plan.
The net
periodic (credit)cost for the Employee Retirement Plan included the following
components:
|
Year Ended December 31,
|
|
2008
|
2007
|
2006
|
Interest
cost
|
1,117
|
1,071
|
1,041
|
Expected
return on plan assets
|
(1,942)
|
(1,799)
|
(1,753)
|
Net
amortization and deferral
|
268
|
470
|
580
|
Net
periodic (credit) cost
|
$(557)
|
$(258)
|
$(132)
|
The
funded status of the Employee Retirement Plan was as follows:
|
At December 31,
|
|
2008
|
2007
|
Accumulated
benefit obligation at end of period
|
$17,660
|
$18,357
|
Reconciliation
of Projected benefit obligation:
|
|
|
Projected
benefit obligation at beginning of period
|
$18,357
|
$18,753
|
Adjustment
for change in measurement date
|
279
|
-
|
Interest
cost
|
1,117
|
1,070
|
Actuarial
gain
|
(266)
|
(430)
|
Benefit
payments
|
(1,287)
|
(1,036)
|
Settlements
|
(540)
|
-
|
Projected
benefit obligation at end of period
|
17,660
|
18,357
|
Plan
assets at fair value (investments in trust funds managed by
trustee)
|
|
|
Balance
at beginning of period
|
22,172
|
20,509
|
Return
on plan assets
|
(6,190)
|
2,699
|
Contributions
|
-
|
-
|
Benefit
payments
|
(1,287)
|
(1,036)
|
Settlements
|
(540)
|
-
|
Balance
at end of period
|
14,155
|
22,172
|
|
|
|
Funded
status:
|
|
|
(Deficiency)
Excess of plan assets over projected benefit obligation
|
(3,505)
|
3,815
|
Unrecognized
loss from experience different from that assumed
|
N/A
|
N/A
|
(Accrued)
Prepaid retirement expense included in other (liabilities)
assets
|
$(3,505)
|
$3,815
|
At
December 31, 2008, an unfunded pension liability of $7,019 was recognized as a
component of accumulated other comprehensive loss, related to the pre-tax
unfunded pension obligation of $12,796 on the Employee Retirement
Plan. For the year ended December 31, 2008, the Bank used December
31st
as its measurement date for the Employee Retirement Plan. For the
year ended December 31, 2007, the Bank used October 1st as its
measurement date for the Employee Retirement Plan. Due to recent
changes in pension funding law and sharp declines in asset values, the Company
cannot provide a current estimate of expected contributions to the Employee
Retirement Plan in 2009. During the year ending December 31, 2009,
$1,162 in actuarial losses are anticipated to be recognized as a component of
net periodic cost.
Major
assumptions utilized to determine the net periodic cost (credit) or the benefit
obligations were as follows:
|
At December 31,
|
|
2008
|
2007
|
Discount
rate
|
6.09%
|
6.29%
|
Expected
long-term return on plan assets
|
9.00
|
9.00
|
Employee
Retirement Plan assets are invested in six diversified investment funds of RSI
Retirement Trust (the "Trust"), a no-load series open-ended mutual
fund. The investment funds include four equity mutual funds and two
bond mutual funds, each with its own investment objectives, strategies and
risks, as detailed in the Trust's prospectus. All of the investment
funds have quoted market prices. The Trust has been given discretion
by the Employee Retirement Plan sponsor to determine the appropriate strategic
asset allocation versus plan liabilities, as governed by the Trust's Statement
of Investment Objectives and Guidelines (the "Guidelines").
The
long-term investment objective is to be invested 65% in equity mutual funds and
35% in bond mutual funds. If the Employee Retirement Plan is
underfunded under the Guidelines, the bond fund portion will be temporarily
increased to 50% in the manner prescribed under the Guidelines, in order to
lessen asset value volatility. When the Employee Retirement Plan is
no longer underfunded, the bond fund portion will be returned to
35%. Asset rebalancing is performed at least annually, with interim
adjustments performed when the investment mix varies in excess of 10% from the
target.
The
investment goal is to achieve investment results that will contribute to the
proper funding of the Employee Retirement Plan by exceeding the rate of
inflation over the long-term. In addition, investment managers for
the Trust are expected to provide above average performance when compared to
their peer managers. Performance volatility is also
monitored. Risk/volatility is further managed by the distinct
investment objectives of each of the Trust funds and the diversification within
each fund.
The
weighted average allocation by asset category of the assets of the Employee
Retirement Plan were summarized as follows:
|
At December 31,
|
|
2008
|
2007
|
Asset
Category
|
|
|
Equity
securities
|
59%
|
70%
|
Debt
securities (bond mutual funds)
|
41
|
30
|
Total
|
100%
|
100%
|
The
allocation percentages in the above table are consistent with future planned
allocation percentages as of December 31, 2008.
The
expected long-term rate of return assumptions on Employee Retirement Plan assets
were established based upon historical returns earned by equities and fixed
income securities, adjusted to reflect expectations of future returns as applied
to the Employee Retirement Plan's target allocation of asset
classes. Equities and fixed income securities were assumed to earn
real rates of return in the ranges of 5% to 9% and 2% to 6%,
respectively. The long-term inflation rate was estimated to be
3%. When these overall return expectations were applied to the
Employee Retirement Plan's target allocation, the expected rate of return was
determined to be 9.0%, which approximates the midpoint of the range of the
expected return.
Benefit
payments, which reflect expected future service (as appropriate), are
anticipated to be made as follows:
Year
Ending December 31,
|
|
|
2009
|
|
$1,178
|
2010
|
|
1,180
|
2011
|
|
1,186
|
2012
|
|
1,200
|
2013
|
|
1,206
|
2014
to 2018
|
|
6,060
|
BMP - The Holding Company and
Bank maintain the BMP, which exists in order to compensate executive officers
for any curtailments in benefits due to statutory limitations on benefit
plans. As of December 31, 2008 and 2007, the BMP had investments in
the Holding Company's common stock of $9,788 and $9,352,
respectively. Benefit accruals under the defined benefit portion of
the BMP were suspended on April 1, 2000, when they were suspended under the
Employee Retirement Plan.
Retirement Plan for Board Members of
Dime Community Bancshares, Inc. ("Directors' Retirement Plan") -
Effective July 1, 1996, the Bank established the Directors' Retirement
Plan, to provide benefits to each eligible outside director commencing upon
termination of their Board service or at age 75. The Directors'
Retirement Plan was frozen on March 31, 2005, and only outside directors who
were in service prior to that date are eligible for benefits.
The
combined net periodic cost for the defined benefit portions of the BMP and the
Directors' Retirement Plan included the following components:
|
Year
Ended December 31,
|
|
2008
|
2007
|
2006
|
Service
cost
|
$-
|
$-
|
$-
|
Interest
cost
|
315
|
281
|
269
|
Net
amortization and deferral
|
-
|
-
|
38
|
Net
periodic cost
|
$315
|
$281
|
$307
|
The
defined contribution costs incurred by the Company related to the BMP were $28
and $75 for the years ended December 31, 2008 and 2007,
respectively. There is no defined contribution cost incurred by the
Holding Company or Bank under the Directors' Retirement Plan.
The
combined funded status of the defined benefit portions of the BMP and Directors'
Retirement Plan was as follows:
|
At December 31,
|
|
2008
|
2007
|
Accumulated
benefit obligation at end of period
|
$5,174
|
$5,166
|
Reconciliation
of projected benefit obligation:
|
|
|
Projected
benefit obligation at beginning of period
|
$5,134
|
$4,910
|
Adjustment
for change in measurement date
|
79
|
-
|
Service
cost
|
-
|
-
|
Interest
cost
|
315
|
281
|
Benefit
payments
|
(128)
|
(128)
|
Actuarial
(gain) loss
|
(226)
|
71
|
Projected
benefit obligation at end of period
|
5,174
|
5,134
|
Plan
assets at fair value:
|
|
|
Balance
at beginning of period
|
-
|
-
|
Contributions
|
128
|
128
|
Benefit
payments
|
(128)
|
(128)
|
Balance
at end of period
|
-
|
-
|
Funded
status:
|
|
|
Deficiency
of plan assets over projected benefit obligation
|
(5,174)
|
(5,134)
|
Contributions
by employer
|
N/A
|
N/A
|
Unrecognized
(gain) loss from experience different from that assumed
|
N/A
|
N/A
|
Unrecognized
net past service liability
|
N/A
|
N/A
|
Accrued
expense included in other liabilities
|
$(5,174)
|
$(5,134)
|
Major
assumptions utilized to determine the net periodic cost and benefit obligation
for the BMP were as follows:
|
Year
Ended December 31,
|
|
2008
|
2007
|
2006
|
Discount
rate
|
6.29%
|
5.875%
|
5.50%
|
Major
assumptions utilized to determine the net periodic cost and benefit obligation
for the Directors' Retirement Plan were as follows:
|
Year
Ended December 31,
|
|
2008
|
2007
|
2006
|
Discount
rate
|
6.29%
|
5.875%
|
5.50%
|
Rate
of increase in fee compensation levels
|
-
|
-
|
4.0
|
As of
December 31, 2008, the Bank used December 31st as its
measurement date for both the BMP and Directors' Retirement Plan. As
of December 31, 2007, the Bank used October 1st as its
measurement date for both the BMP and Directors' Retirement
Plan. Both the BMP and Directors' Retirement Plan are unfunded
non-qualified benefit plans that are not anticipated to ever hold assets for
investment. Any contributions made to either the BMP or Directors'
Retirement Plan are expected to be used immediately to pay benefits that come
due.
The Bank
expects to contribute $198 to the BMP and $131 to the Directors' Retirement Plan
during the year ending December 31, 2009 in order to pay benefits due under the
respective plans. During the year ending December 31, 2009, no
actuarial gains or losses are anticipated to be recognized as a component of net
periodic cost.
Combined
benefit payments under the BMP and Directors' Retirement Plan, which reflect
expected future service (as appropriate), are anticipated to be made as
follows:
Year
Ending December 31,
|
|
|
2009
|
|
$328
|
2010
|
|
350
|
2011
|
|
377
|
2012
|
|
473
|
2013
|
|
469
|
2014
to 2018
|
|
$2,322
|
Postretirement Benefit Plan -
The Bank offers the Postretirement Benefit Plan to its retired employees who
provided at least five consecutive years of credited service and were active
employees prior to April 1, 1991, as follows:
|
(1) Qualified
employees who retired prior to April 1, 1991 receive the full medical
coverage in effect at the time of retirement until their death at no cost
to such retirees;
|
|
(2) Qualified
employees retiring on or after after April 1, 1991 are eligible for
continuation of the medical coverage in effect at the time of retirement
until their death. Throughout retirement, the Bank will continue to pay
the premiums for the coverage not to exceed the premium amount paid for
the first year of retirement coverage. Should the premiums increase, the
employee is required to pay the differential to maintain full medical
coverage.
|
Postretirement
Benefit Plan benefits are available only to full-time employees who commenced
collecting retirement benefits immediately upon termination of service from the
Bank. The Bank reserves the right at any time, to the extent permitted by law,
to change, terminate or discontinue any of the group benefits, and can exercise
the maximum discretion permitted by law in administering, interpreting,
modifying or taking any other action with respect to the plan or
benefits.
The
Postretirement Benefit Plan net periodic cost included the following
components:
|
Year
Ended December 31,
|
|
2008
|
2007
|
2006
|
Service
cost
|
$83
|
$83
|
$82
|
Interest
cost
|
261
|
245
|
227
|
Unrecognized
past service liability
|
(26)
|
(29)
|
(29)
|
Amortization
of unrealized loss
|
16
|
29
|
40
|
Net
periodic cost
|
$334
|
$328
|
$320
|
Major
assumptions utilized to determine the net periodic cost were as
follows:
|
Year
Ended December 31,
|
|
2008
|
2007
|
2006
|
Discount
rate
|
6.29%
|
5.875%
|
5.50%
|
Rate
of increase in compensation levels
|
4.00
|
3.50
|
3.00
|
As of
December 31, 2008, an escalation in the assumed medical care cost trend rates by
1% in each year would increase the net periodic cost by approximately
$20. A decline in the assumed medical care cost trend rates by 1% in
each year would decrease the net periodic cost by approximately
$18.
The
funded status of the Postretirement Benefit Plan was as follows:
|
|
|
Accumulated
benefit obligation at end of period
|
$5,066
|
$4,236
|
Reconciliation
of projected benefit obligation:
|
|
|
Projected
benefit obligation at beginning of period
|
$4,236
|
$4,244
|
Adjustment
for change in measurement date
|
86
|
-
|
Service
cost
|
83
|
83
|
Interest
cost
|
261
|
244
|
Actuarial
(gain) loss
|
566
|
(166)
|
Benefit
payments
|
(166)
|
(169)
|
Projected
benefit obligation at end of period
|
5,066
|
4,236
|
|
|
|
Plan
assets at fair value:
|
|
|
Balance
at beginning of period
|
-
|
-
|
Contributions
|
167
|
169
|
Benefit
payments
|
(167)
|
(169)
|
Balance
at end of period
|
-
|
-
|
|
|
|
Funded
status:
|
|
|
(Deficiency)
of plan assets over projected benefit obligation
|
(5,066)
|
(4,236)
|
Unrecognized
loss from experience different from that assumed
|
N/A
|
N/A
|
Unrecognized
net past service liability
|
N/A
|
N/A
|
Accrued
expense included in other liabilities
|
$(5,066)
|
$(4,236)
|
At
December 31, 2008, an unfunded pension liability of $637 was recognized as a
component of accumulated other comprehensive loss related to the pre-tax
unfunded pension obligation of $1,162 on the Postretirement Benefit
Plan. As of December 31, 2008, the Bank used December 31st
as its measurement date for the Postretirement Benefit Plan. As of
December 31, 2007, the Bank used October 1st
as its measurement date for the Postretirement Benefit Plan. The
assumed medical care cost trend rate used in computing the accumulated
Postretirement Benefit Plan obligation was 9.0% in 2008 and was assumed to
decrease gradually to 5.00% in 2013 and remain at that level
thereafter. An escalation in the assumed medical care cost trend
rates by 1% in each year would increase the accumulated Postretirement Benefit
Plan obligation by approximately $262. A decline in the assumed
medical care cost trend rates by 1% in each year would decrease the accumulated
Postretirement Benefit Plan obligation by approximately $240. The
assumed discount rate and rate of compensation increase used to measure the
accumulated Postretirement Benefit Plan obligation were 6.29% and 4.0%,
respectively, at December 31, 2008. The assumed discount rate and
rate of compensation increase used to measure the accumulated Postretirement
Benefit Plan obligation were 5.875% and 3.5%, respectively, at December 31,
2007. The assumed discount rate and rate of compensation increase
used to measure the accumulated Postretirement Benefit Plan obligation at
December 31, 2006 were 5.50% and 3.00%, respectively.
In May
2004, the FASB issued FSP 106-2 ("FSP 106-2"), "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug Improvement and
Modernization Act of 2003 (the "Act")," to provide guidance on accounting for
the effects of the Act to employers that sponsor postretirement health care
plans which provide prescription drug benefits. FSP 106-2 provides
guidance on measuring the accumulated postretirement benefit obligation ("APBO")
and net periodic postretirement benefit cost, and the effects of the Act on the
APBO. The Company determined that the benefits provided by the
Postretirement Benefit Plan are actuarially equivalent to Medicare Part D under
the Act. The effects of the subsidy were treated as an actuarial gain
for purposes of calculating the APBO as of December 31, 2008 and 2007. The
Company is still in the process of claiming this subsidy from the government,
and, as a result, the Bank cannot determine the amount of subsidy it will
ultimately receive.
The
Postretirement Benefit Plan is an unfunded non-qualified benefit plan that is
not anticipated to ever hold assets for investment. Any contributions
made to the Postretirement Benefit Plan are expected to be used immediately to
pay benefits that come due.
The Bank
expects to contribute $161 to the Postretirement Benefit Plan during the year
ending December 31, 2009 in order to pay benefits due under the
plan. During the year ending December 31, 2009, $57 of actuarial
losses are anticipated to be recognized as components of net periodic
cost.
Benefit
payments under the Postretirement Benefit Plan, which reflect expected future
service (as appropriate), are expected to be made as follows:
Year
Ending December 31,
|
|
|
2009
|
|
$161
|
2010
|
|
166
|
2011
|
|
176
|
2012
|
|
189
|
2013
|
|
198
|
2014
to 2018
|
|
1,160
|
401(k) Plan - The Bank also
maintains the 401(k) Plan which covers substantially all of its
employees. During the years ended December 31, 2008 and 2007, an
employer contribution equal to 3% of "covered compensation" [defined as total
W-2 compensation including amounts deducted from W-2 compensation for pre-tax
benefits such as health insurance premiums and contributions to the 401(k) Plan]
up to applicable Internal Revenue Service limits, was awarded to all employees
who were eligible to participate in the 401(k) Plan regardless of whether or not
they participated in the 401(k) Plan during 2008 and 2007. During the
year ended December 31, 2006, the 401(k) Plan received the proceeds from a 100%
vested cash contribution to all participants in the ESOP in the amount of 3% of
"covered compensation" up to applicable Internal Revenue Service
limits. 401(k) Plan participants possess the ability to invest
this contribution in any of the investment options offered under the 401(k)
Plan. The Bank makes no other contributions to the 401(k)
Plan. Expenses associated with this contribution totaled $480, $383
and $397 during the years ended December 31, 2008, 2007 and 2006,
respectively.
The
401(k) Plan owned participant investments in the Holding Company's common stock
for the accounts of participants totaling $6,006 and $7,498 at December 31, 2008
and 2007, respectively.
ESOP - The Holding Company
adopted the ESOP in connection with the Bank's June 26, 1996 conversion to stock
ownership. The ESOP borrowed $11,638 from the Holding Company and
used the funds to purchase 3,927,825 shares of the Holding Company's common
stock. The loan was originally to be repaid principally from the
Bank's discretionary contributions to the ESOP over a period of time not to
exceed 10 years from the date of the conversion. Effective July 1,
2000, the loan agreement was amended to extend the repayment period to thirty
years from the date of the conversion, with the right of optional
prepayment. In exchange for the extension of the loan agreement,
various benefits were offered to participants, including the addition of pre-tax
employee contributions to the 401(k) Plan, a 3% annual employer contribution to
the ESOP [which is automatically transferred to the 401(k) Plan], and the
pass-through of cash dividends received by the ESOP to the individual
participants. The loan had an outstanding balance of $4,325 and
$4,444 at December 31, 2008 and December 31, 2007, respectively, and a fixed
rate of 8.0%.
Shares
purchased with the loan proceeds are held in a suspense account for allocation
among participants as the loan is repaid. Shares released from the
ESOP suspense account are allocated among participants on the basis of
compensation, as defined in the plan, in the year of allocation. ESOP
distributions vest at a rate of 25% per year of service, beginning after two
years, with full vesting after five years, or upon attainment of age 65, death,
disability, retirement or in the event of a "change of control" of the Holding
Company as defined in the ESOP. Common stock allocated to
participating employees totaled 78,155 shares during each of the years ended
December 31, 2008, 2007 and 2006. The ESOP benefit expense
recorded in accordance with Statement of Position 93-6 for allocated shares
totaled $2,005, $1,794 and $1,829, respectively, for the years ended December
31, 2008, 2007 and 2006.
As
indicated previously, effective July 1, 2000, the Holding Company or Bank became
required to make a 100% vested cash contribution annually to all ESOP
participants in the amount of 3% of "covered compensation" as defined in the
ESOP. This contribution was guaranteed until December 31, 2006
(unless the ESOP was terminated prior thereto) and became discretionary after
that date. This annual contribution was made in January of each year
based upon the total covered compensation through December 31st of the
previous year. The participant possesses the ability to invest this
contribution in any of the investment options offered under the 401(k)
Plan.
Stock
Option Activity
1996 Stock Option Plan - In
November 1996, the Holding Company adopted the 1996 Stock Option Plan, which
permitted the Company to grant up to 4,909,781 incentive or non-qualified stock
options to outside directors, certain officers and other employees of the
Holding Company or the Bank. The Compensation Committee of the Board
of Directors administers the 1996 Stock Option Plan and authorized all option
grants.
On
December 26, 1996, 4,702,796 stock options were granted to outside directors,
certain officers and certain employees under the 1996 Stock Option Plan, all of
which were fully exercisable at December 31, 2006. On January 20,
2000, 224,435 stock options remaining under the 1996 Stock Option Plan were
granted to certain officers and employees. All of these stock options
expire on January 20, 2010. One-fifth of the shares granted to
participants under this grant vested on January 20, 2001, 2002, 2003, 2004 and
2005, respectively. No stock options may be granted under the 1996
Stock Option Plan after December 26, 2006.
On
January 21, 1999, holders of stock options which had been granted by FIBC to
purchase 327,290 shares of FIBC common stock were converted into options to
purchase 598,331 shares of the Holding Company's common stock under the 1996
Stock Option Plan (the "Converted Options"). The expiration dates on
all Converted Options remained unchanged from the initial grant by FIBC, and all
Converted Options were fully exercisable at December 31, 2005.
During
the year ended December 31, 2007, 25,075 unissued options under the 1996 Stock
Option Plan were deemed ineligible for future grant.
2001 Stock Option Plan - In
September 2001, the Holding Company adopted the 2001 Stock Option Plan, which
permitted the Company to grant up to 1,771,875 incentive or non-qualified stock
options to officers and other employees of the Holding Company or the Bank and
253,125 non-qualified stock options to outside directors of the Holding Company
or Bank. The Compensation Committee of the Board of Directors
administered the 2001 Stock Option Plan and authorized all option
grants.
On
November 21, 2001, 540,447 stock options were granted to certain officers and
employees under the 2001 Stock Option Plan. All of these stock
options expire on November 21, 2011. One-fourth of the options under
this grant vested on November 21, 2002, 2003, 2004 and 2005,
respectively. On November 21, 2001, 67,500 stock options were granted
to outside directors under the 2001 Stock Option Plan. All of these
stock options will expire on November 21, 2011 and vested on November 21,
2002.
On
February 1, 2003, a grant of 604,041 stock options was made to certain officers
and employees under the 2001 Stock Option Plan. All of these stock
options expire on February 1, 2013. When originally granted,
one-fourth of the options under this grant were to vest on February 1, 2004,
2005, 2006 and 2007, respectively. On December 30, 2005, vesting was
accelerated for all unvested options issued under this grant. On
February 1, 2003, 75,000 stock options were granted to outside directors under
the 2001 Stock Option Plan. All of these stock options will expire on
February 1, 2013 and vested on February 1, 2004.
On
January 27, 2004, a grant of 632,874 stock options was made to certain officers
and employees under the 2001 Stock Option Plan. All of these stock
options expire on January 27, 2014. When originally granted,
one-fourth of the options under this grant were to vest on January 27, 2005,
2006, 2007 and 2008, respectively. On December 30, 2005, vesting was
accelerated for all unvested options issued under this grant. On
January 27, 2004, 81,000 stock options were granted to outside directors under
the 2001 Stock Option Plan. All of these stock options will expire on
January 27, 2014 and vested on January 27, 2005. On March 3, 2008,
34,425 stock options were granted to an officer under the 2001 Stock Option
Plan. All of these stock options will expire on March 3, 2018 and
vest to the recipient in equal installments on May 1, 2009, 2010, 2011, and 2012
respectively.
2004 Stock Incentive Plan -
In November 2004, the Company adopted the 2004 Stock Incentive Plan,
which permits the Company to grant up to a total of 1,496,300 restricted stock
awards, incentive or non-qualified stock options or stock appreciation rights to
outside directors, officers and other employees of the Holding Company or the
Bank. Of the total shares eligible for grant under the 2004 Stock
Incentive Plan, only up to 374,075 may be granted as restricted stock
awards. The full amount of 1,496,300 shares may be issued either
fully as stock options or stock appreciation rights, or a combination
thereof. The Compensation Committee of the Board of Directors
administers the 2004 Stock Incentive Plan and authorizes all equity
grants.
On
January 31, 2005, a grant of 76,320 options was made to outside directors under
the 2004 Stock Incentive Plan. These options expire on January 31,
2015, and, upon grant, were to vest on January 31, 2006. On May 31,
2005, a grant of 318,492 stock options was made to certain officers of the
Company under the 2004 Stock Incentive Plan. All of the options
issued under this grant expire on May 31, 2015. When originally
granted, one-fourth of the options under this grant were to vest on May 31,
2006, 2007, 2008 and 2009, respectively. On December 30, 2005,
vesting was accelerated for all unvested options issued under both of these
grants. On May 1, 2007, a grant of 90,000 options was made to outside
directors of the Company under the 2004 Stock Incentive Plan. These
options expire on May 1, 2017, and vested on May 1, 2008. On May 1,
2007, a grant of 906,500 stock options was made to certain officers of the
Company under the 2004 Stock Incentive Plan. All of the options
issued under this grant expire on May 1, 2017. One-fourth of the
options under this grant vested on May 1, 2008, with the remainder vesting in
installments on May 1, 2009, 2010 and 2011, respectively. On May 1,
2008, a grant of 90,000 options was made to outside directors of the
Company
under the 2004 Stock Incentive Plan. In December 2008, 10,000 of
these options became exercisable due to the death of the award recipient, and
will expire if not exercised by the first anniversary of the recipient's
death. The remaining 80,000 options expire on May 1, 2018, and vest
on May 1, 2009. On July 31, 2008, 61,066 stock options were granted
to certain executive officers under the 2004 Stock Incentive
Plan. All of these stock options will expire on July 31, 2018 and
vest to the recipient in equal installments on May 1, 2009, 2010, 2011, and 2012
respectively.
Combined
stock option activity related to the Stock Plans was as follows:
|
At or for the Year Ended December 31,
|
|
2008
|
2007
|
2006
|
Options
outstanding – beginning of period
|
3,165,997
|
2,250,747
|
2,503,103
|
Options
granted
|
185,491
|
996,500
|
-
|
Weighted
average exercise price of grants
|
$17.10
|
$13.74
|
-
|
Options
exercised
|
230,424
|
56,540
|
246,169
|
Weighted
average exercise price of exercised options
|
$11.91
|
$5.64
|
$4.75
|
Options
forfeited
|
4,500
|
24,710
|
6,187
|
Weighted
average exercise price of forfeited options
|
$19.90
|
$18.88
|
$19.90
|
Options
outstanding - end of period
|
3,116,564
|
3,165,997
|
2,250,747
|
Weighted
average exercise price of outstanding options
- end of period
|
$14.97
|
$14.63
|
$14.85
|
Remaining
options available for grant
|
1,133,027
|
118,975
|
1,127,840
|
Vested
options at end of period
|
2,261,198
|
2,169,497
|
2,250,747
|
Weighted
average exercise price of vested options
– end of period
|
$15.18
|
$15.04
|
$14.85
|
Cash
received for option exercise cost
|
2,473
|
244
|
1,086
|
Income
tax benefit recognized
|
506
|
177
|
839
|
Compensation
expense recognized
|
1,079
|
629
|
-
|
Remaining
unrecognized compensation expense
|
2,069
|
2,377
|
-
|
Weighted
average remaining years for which compensation
expense is to be recognized
|
2.3
|
3.2
|
-
|
The range
of exercise prices and weighted-average remaining contractual lives of both
options outstanding and vested options as of December 31, 2008 were as
follows:
|
Outstanding
Options as of December 31, 2008
|
|
Range
of Exercise Prices
|
Amount
|
Weighted
Average
Exercise
Price
|
Weighted
Average Contractual Years Remaining
|
ExercisableOptions
as of
December
31, 2008
|
$4.50
- $5.00
|
9,465
|
$4.56
|
1.1
|
9,465
|
$10.50
- $11.00
|
380,351
|
10.91
|
2.9
|
380,351
|
$13.00-$13.50
|
530,278
|
13.16
|
4.1
|
530,278
|
$13.51-$14.00
|
958,875
|
13.74
|
8.3
|
279,000
|
$14.50-$15.00
|
34,425
|
14.92
|
9.3
|
-
|
$15.00-$15.50
|
318,492
|
15.10
|
6.4
|
318,492
|
$16.00-$16.50
|
76,320
|
16.45
|
6.1
|
76,320
|
$16.51-$17.00
|
61,066
|
16.73
|
9.6
|
-
|
$18.00-$18.50
|
90,000
|
18.18
|
9.4
|
10,000
|
$19.50-$20.00
|
657,292
|
19.90
|
5.1
|
657,292
|
Total
|
3,116,564
|
$14.97
|
6.1
|
2,261,198
|
There
were no stock options granted during the year ended December 31,
2006. The weighted average fair value per option on the date of grant
for stock options granted during the years ended December 31, 2008 and 2007 were
estimated as follows:
|
Year Ended December 31,
|
|
2008
|
2007
|
Total
options granted
|
185,491
|
996,500
|
Estimated
fair value on date of grant
|
$4.16
|
$3.06
|
Pricing
methodology utilized
|
Black-
Scholes
|
Black-
Scholes
|
Expected
life (in years)
|
6.36
|
6.2
|
Interest
rate
|
3.37%
|
4.56%
|
Volatility
|
30.09
|
28.39
|
Dividend
yield
|
3.29
|
4.08
|
Other
Stock Awards
RRP - On May 17, 2002, 67,500
RRP shares were granted to certain officers of the Bank. These shares
vested as follows: 20% on November 25, 2002, and 20% each on April
25, 2003, 2004, 2005 and 2006. The fair value of the Holding
Company's common stock on May 17, 2002 was $16.19. The Company
accounts for compensation expense under the RRP in accordance with SFAS
123R. During the year ended December 31, 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.
The
following is a summary of activity related to the RRP for the years ended
December 31, 2007 and 2006:
|
At
or for the Year Ended December 31,
|
|
2007
|
2006
|
Shares
acquired (a)
|
-
|
5,023
|
Shares
vested
|
-
|
13,500
|
Shares
allocated
|
-
|
-
|
Shares
transferred to the Holding Company
|
303,137
|
|
Unallocated
shares - end of period
|
-
|
303,137
|
Unvested
allocated shares – end of period
|
-
|
-
|
Compensation
recorded to expense
|
-
|
$45
|
Income
recognized upon transfer of assets
|
109
|
-
|
Income
tax benefit recognized
|
-
|
134
|
(a)
Represents shares re-acquired from either participant sales of vested shares in
order to satisfy income tax obligations or participant forfeitures.
Restricted Stock Awards – On
March 17, 2005, a grant of 31,804 restricted stock awards was made to certain
officers of the Bank under the 2004 Stock Incentive Plan. One-fourth
of these awards vested to the respective recipients on May 1, 2006, 2007, and
2008, respectively, with the remainder vesting on May 1, 2009. The
fair value of the Company's common stock on March 17, 2005 was
$15.44. On January 3, 2006, a grant of 30,000 restricted stock awards
was made to certain officers of the Bank under the 2004 Stock Incentive
Plan. One-fifth of these awards vested to the respective recipients
on February 1, 2007, 2008 and 2009, respectively, with the remainder to vest in
equal installments on February 1, 2010 and 2011, respectively. The
fair value of the Company's common stock on January 3, 2006 was $14.61 (the
opening price on the grant date). On March 16, 2006, a grant of
18,000 restricted stock awards was made to certain officers of the Bank under
the 2004 Stock Incentive Plan. One-fifth of these awards vested to
the respective recipients on May 1, 2007 and 2008, respectively, with the
remainder vesting in equal installments on May 1, 2009, 2010 and 2011,
respectively. The fair value of the 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. All of these awards vested to the respective recipients on May
1, 2008. The fair value of the Company's common stock on May 1, 2007
was $13.74. On May 30, 2008, a grant of 12,000 restricted stock
awards was made to outside Directors of the Bank under the 2004 Stock Incentive
Plan. The awards will fully vest to the respective recipients on May
30, 2009. The fair value of the Holding Company's common stock on May
30, 2008 was $18.18. On July 31, 2008, a grant of 92,957 restricted
stock awards was made to certain officers of the Company under the 2004 Stock
Incentive Plan. The awards will fully vest to the respective
recipients in equal installments on May 1, 2009, 2010, 2011, and 2012
respectively. The fair value of the Holding Company's common stock on
July 31, 2008 was $16.73.
In
accordance with SFAS 123R, compensation expense was recorded on these restricted
stock awards based upon the fair value of the shares on the respective dates of
grant for all periods presented.
The
following is a summary of activity related to the restricted stock awards
granted under the 2004 Stock Incentive Plan:
|
At
or for the Year Ended December 31,
|
|
2008
|
2007
|
2006
|
Unvested
allocated shares – beginning of period
|
66,304
|
71,855
|
31,804
|
Shares
granted
|
104,957
|
12,000
|
48,000
|
Shares
vested
|
29,551
|
17,551
|
7,949
|
Unvested
allocated shares – end of period
|
141,710
|
66,304
|
71,855
|
Unallocated
shares - end of period
|
-
|
-
|
-
|
Compensation
recorded to expense
|
$618
|
$372
|
$252
|
Income
tax (benefit) recognized
|
12
|
(1)
|
16
|
Long Term Cash Incentive Payment
Plan - On October 16, 2008, pursuant to authority granted under the Dime
Community Bancshares, Inc. Annual Incentive Plan, the Compensation Committee
made an incentive award to the Company's Chief Executive Officer.
The
threshold, target and maximum award opportunities are $214, $428 and $643,
respectively, and are earned based on performance relative to three performance
goals measured over the period beginning August 1, 2008 and ending December 31,
2010. The three performance measures and their relative weights are
as follows:
Goal
|
Weight
|
Threshold
|
Target
|
Maximum
|
Total
Shareholder Return Relative to Compensation Peer Group
|
50%
|
40th
Percentile
|
50th
Percentile
|
74th
Percentile
|
Cumulative
Core Earnings per Share
|
25%
|
$2.23
|
$2.48
|
$2.73
|
GAAP
Return on Equity
|
25%
|
10.3%
|
12.1%
|
13.9%
|
At
December 31, 2008, based upon actual results for the period August 1, 2008
through December 31, 2008, the Company determined that the Target payment has
the greatest probability of ultimately being made, and thus established a
reserve of $76 related to this future award. During the year ended
December 31, 2008, total expense recognized related to this award was
$76.
16. COMMITMENTS
AND CONTINGENCIES
Mortgage Loan Commitments and Lines
of Credit - At December 31, 2008 and 2007, the Bank had outstanding
commitments to make real estate loans aggregating approximately $49,928 and
$102,397, respectively. At December 31, 2008, all of the commitments
were to originate adjustable-rate real estate loans. Substantially
all of the Bank's commitments expire within three months of their acceptance by
the prospective borrower. A concentration risk exists with these
commitments as virtually all of them involve multifamily and underlying
cooperative properties located within the New York City metropolitan
area.
At
December 31, 2008, unused lines of credit available on one- to four-family
residential, multifamily residential and commercial real estate loans totaled
$38,728. At December 31, 2008, unused commitments to fund
construction loans and overdraft checking accounts totaled $13,446 and $2,923,
respectively.
At
December 31, 2008, the Bank had available unused lines of credit with the FHLBNY
totaling $100,000 expiring on July 31, 2009.
Lease Commitments - At
December 31, 2008, aggregate minimum annual rental commitments on operating
leases were as follows:
Year
Ending December 31,
|
Amount
|
2009
|
$2,062
|
2010
|
2,093
|
2011
|
1,963
|
2012
|
1,848
|
2013
|
1,858
|
Thereafter
|
17,272
|
Total
|
$27,096
|
Rental
expense for the years ended December 31, 2008, 2007 and 2006 totaled $1,957,
$1,794, and $1,417, respectively.
Litigation - The Company is
subject to certain pending and threatened legal actions which arise out of the
normal course of business. Litigation is inherently unpredictable,
particularly in proceedings where claimants seek substantial or indeterminate
damages, or which are in their early stages. The Company cannot
predict with certainty the actual loss or range of loss related to such legal
proceedings, the manner in which they will be resolved, the timing of final
resolution or the ultimate settlement. Consequently, the Company
cannot estimate losses or ranges of losses related to such legal matters, even
in instances where it is reasonably possible that a future loss will be
incurred. In the opinion of management, after consultation with
counsel, the resolution of all ongoing legal proceedings will not have a
material adverse effect on the consolidated financial condition or results of
operations of the Company. The Company accounts for potential losses
related to litigation in accordance with SFAS 5 "Accounting for
Contingencies." As of December 31, 2008 and 2007, reserves provided
for potential losses related to litigation matters were not
material.
17. FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
Company adopted SFAS 157 on January 1, 2008. The fair value hierarchy
established under SFAS 157 is summarized as follows:
Level 1 Inputs – Quoted
prices (unadjusted) for identical assets or liabilities in active markets 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 tables present the assets that are reported on the condensed
consolidated statements of financial condition at fair value as of December 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 December 31, 2008
|
|
Level
1
|
|
Level
2
|
Level
3
|
Investment
securities available-for-sale
|
|
$16,602
|
|
$5,433
|
|
$11,169
|
$-
|
MBS
available-for-sale
|
|
301,351
|
|
-
|
|
301,351
|
-
|
Available-For-Sale
Investment Securities and MBS
The
Company’s available-for-sale investment securities and MBS are
reported at fair value, which is determined 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 (obtained only 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. Prioritization of inputs may vary on any given day based
on market conditions.
The
Company's available-for-sale investment securities and MBS at December 31, 2008
were categorized as follows:
Investment
Category
|
|
Percentage
of Total
|
|
Valuation
Level Under
SFAS 157
|
Pass
Through MBS or CMOs issued by GSEs
|
|
91.0%
|
|
Two
|
Pass
Through MBS or CMOs issued by entities other than GSEs
|
|
3.8
|
|
Two
|
Agency
securities
|
|
0.3
|
|
Two
|
Mutual
fund investments
|
|
1.7
|
|
One
|
Municipal
securities
|
|
3.2
|
|
Two
|
The
agency securities possessed the highest possible credit rating published by
multiple established credit rating agencies as of December 31,
2008. Obtaining a market value as of December 31, 2008 for these
securities utilizing significant observable inputs as defined under SFAS 157 was
not difficult due to their continued marketplace demand. The pass
through MBS and CMOs (issued either by GSEs or entities other than GSEs), which
comprised approximately 94.8% of the Company's total available-for-sale
investment securities and MBS at December 31, 2008, all possessed the highest
possible credit rating published by multiple established credit rating agencies
as of December 31, 2008. Obtaining a market value as of December 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 December
31, 2008. For the municipal securities, which in aggregate were less
than 1% of the Company's consolidated assets at December 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
December 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 utilized a midpoint value obtained as its recorded fair value for
securities that were valued with significant observable inputs.
Assets
Measured at Fair Value on a Non-Recurring Basis
|
|
|
|
|
Fair
Value Measurements Using
|
|
|
Description
|
|
Total
at December 31, 2008
|
|
Level
1
|
|
Level
2
|
Level
3
|
|
Losses
for the Year Ended December 31, 2008
|
MSR
|
|
$713
|
|
-
|
|
-
|
$713
|
|
$60
|
Pooled
trust preferred securities
|
|
2,138
|
|
-
|
|
-
|
2,138
|
|
3,209
|
MSR
Mortgage
Servicing assets are carried at the lower of cost or estimated fair value. The
estimated fair value is obtained through independent third party valuation, and
is derived from estimates of future cash flows that incorporate estimates of
assumptions utilized by market participants in determining fair value,
including, but not limited to, market discount rates, prepayment speeds,
servicing income, servicing costs, default rates and other market driven data,
such as perception of future interest rate movements. Several of these
assumptions are noted in Note 7 to these financial statements. Since
several of these assumptions qualify as significant unobservable inputs, the
valuation of the mortgage servicing asset is determined to be Level 3 under SFAS
157.
Pooled
Trust Preferred Securities, Held to Maturity
At
December 31, 2008, the Company owned eight pooled trust preferred
securities classified as held-to-maturity. During the year ended
December 31, 2008, the market for these securities was deemed to be
illiquid. As a result, while the valuation of these securities had
previously been obtained utilizing significant observable inputs as defined in
SFAS 157, at December 31, 2008, their estimated fair value was obtained using a
cash flow valuation approach (Level 3 pricing as defined by SFAS
157). Under the cash flow valuation methodology utilized, for five of
the eight securities, three independent cash flow model valuations were averaged
and given a 50% weighting. A separate cash flow valuation for each of
these five securities performed utilizing default, cash flow and discount rate
assumptions determined by the Company's management (the "Internal Cash Flow
Valuation") was given a 50% weighting. For the remaining three
securities, only one independent cash flow valuation was available and was given
a 50% weighting along with the Internal Cash Flow Valuation.
The major
assumptions utilized (each of which represent significant unobservable inputs as
defined in SFAS 157) in the Internal Cash Flow Valuation were as
follows:
Discount
rate – The discount rate utilized was derived from the Bloomberg fair market
value curve for debt offerings of similar credit rating. In the event
that a security had a split investment rating, separate cash flow valuations
were made utilizing the appropriate discount rate and were averaged in order to
determine the Internal Cash Flow Valuation.
Defaults
- All underlying issuers with a Fitch bank rating of 5.0 were assumed to
default. Underlying issuers with a Fitch bank rating of 3.5 through
4.5 were assumed to default at levels ranging from 5% to 75% based upon both
their rating as well as whether they had been granted approval to receive
funding under the U.S. Department of Treasury's Troubled Asset Relief Program
Capital Purchase Program.
Cash
flows – The actual cash flows for the Company's investment tranche of each
security, adjusted to assume that all estimated defaults occurred on January 1,
2009, and an estimated recovery of 6% over the cash flow period (i.e. the remaining life of the
security).
Two of
the three independent cash flow valuations were made utilizing a methodology
similar to the Internal Cash Flow Valuation, differing only in the underlying
assumptions deriving estimated cash flows, individual bank defaults and discount
rate. The third independent cash flow valuation was derived from a
different methodology in which the actual cash flow estimate based upon the
underlying collateral of the securities (including default estimates) was not
considered. Instead, this cash flow valuation was determined
utilizing a discount rate determined from the Bloomberg fair market value curve
for similar assets that still continue to trade actively, with adjustments made
for the illiquidity of the pooled trust preferred market. Because of
the significant judgment underlying each of the pricing assumptions, management
elected to recognize each of the independent valuations and apply a weighting
system to all of the valuations, including the Internal Cash Flow Valuation, as
all of these valuations were determined utilizing a valid and objective pricing
methodology.
Impaired
Loans
Loans
with certain characteristics 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 December 31, 2008 were collateralized by
real estate and were thus carried at the lower of the outstanding principal
balance or the estimated fair value of the real estate collateral less estimated
selling costs. Fair value is estimated through current appraisals, where
practical, or a drive-by inspection and a comparison of the real estate
collateral with similar properties in the area by either a licensed appraiser or
real estate broker and adjusted as deemed necessary by management to reflect
current market conditions. At December 31, 2008, no impaired loans
were carried at fair value. Net charge-offs recognized on impaired
loans were $557 during the year ended December 31, 2008. The
recoveries and losses were charged against the allowance for loans
losses. All of the loans for which losses or recoveries were
recognized were satisfied or transferred to OREO during he year ended December
31, 2008.
While
quoted market prices available in active trading marketplaces are generally
recognized under SFAS 157 as the best evidence of fair value of financial
instruments, several of the Company's financial instruments are not bought or
sold in active trading marketplaces. Accordingly, their fair values
are derived or estimated based on a variety of alternative valuation
techniques. All such fair value estimates are made at a specific
point in time, based on relevant market information about the financial
instrument. These estimates do not reflect any possible tax
ramifications, estimated transaction costs, or any premium or discount that
could result from a one time sale of the entire holdings of a particular
financial instrument. In addition, their estimates are based on
assumptions of future loss experience, current economic conditions, risk
characteristics, and other such factors. These assumptions are
subjective in nature and involve inherent uncertainty. Changes in
these assumptions could significantly affect the estimates.
Methods
and assumptions used to estimate fair values for financial instruments that are
not valued utilizing formal marketplace quotations (other than those previously
discussed) are summarized as follows:
Cash and Due From Banks - The
fair value is assumed to be equal to their carrying value as these amounts are
due upon demand.
Federal Funds Sold and Other Short
Term Investments – As a result of their short duration to maturity, the
fair value of these assets, principally overnight deposits, is assumed to be
equal to their carrying value due.
FHLBNY Capital Stock - The
fair value of FHLBNY stock is assumed to be equal to the carrying value as the
stock is carried at par value and redeemable at par value by the
FHLBNY.
Loans and Loans Held for Sale
- The fair value of loans receivable is determined by
discounting anticipated future cash flows, net of anticipated prepayments
of the loans, using a discount rate reflecting current market rates for loans
with similar terms. This methodology is applied to all loans,
inclusive of non-accrual loans, as well as impaired loans for which a write-down
to the current fair market value of the underlying collateral is not determined
to be warranted under the criteria discussed above. In addition, the
valuation of loans reflects the consideration of secondary market prices for
loan types that have traditionally facilitated marketplace sales (over 80% of
the outstanding loan portfolio). Due to significant market
dislocation, the secondary market prices were given little weighting in deriving
the loan valuation at December 31, 2008.
Deposits - The fair value of
savings, money market, and checking accounts is assumed to be their carrying
amount. The fair value of certificates of deposit is based upon the present
value of contractual cash flows using current interest rates for instruments of
the same remaining maturity.
Escrow and Other Deposits -
The estimated fair value of escrow and other deposits is assumed to be
their carrying amount payable.
Securities Sold Under Agreements to
Repurchase and FHLBNY Advances - The fair value is measured by the
discounted anticipated cash flows through contractual maturity or next interest
repricing date, or an earlier call date if, as of the valuation date, the
borrowing is expected to be called. The carrying amount of accrued
interest payable is their fair value.
Commitments to Extend Credit
- The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current interest rates and the committed rates.
Based
upon the aforementioned valuation methodologies, the estimated carrying amount
and estimated fair values of all the Company's financial instruments were as
follows:
At
December 31, 2008
|
Carrying
Amount
|
Fair
Value
|
Assets:
|
|
|
Cash
and due from banks
|
$211,020
|
$211,020
|
Investment
securities held to maturity (pooled trust preferred
securities)
|
10,861
|
9,082
|
Investment
securities available-for-sale
|
16,602
|
16,602
|
MBS
available-for-sale
|
301,351
|
301,351
|
Loans,
net
|
3,274,051
|
3,300,154
|
Loans
held for sale
|
-
|
-
|
MSR
|
2,778
|
2,841
|
Federal
funds sold and other short-term investments
|
-
|
-
|
FHLBNY
capital stock
|
53,435
|
53,435
|
Liabilities:
|
|
|
Savings,
money market and checking accounts
|
1,106,885
|
1,106,885
|
Certificates
of deposit
|
1,153,166
|
1,160,436
|
Escrow
and other deposits
|
130,121
|
130,121
|
Securities
sold under agreements to repurchase
|
230,000
|
263,350
|
FHLBNY
advances
|
1,019,675
|
1,077,362
|
Subordinated
notes payable1
|
25,000
|
23,875
|
Trust
Preferred securities payable1
|
72,165
|
40,412
|
Commitments
to extend credit
|
272
|
272
|
At
December 31, 2007
|
Carrying
Amount
|
Fair
Value
|
Assets:
|
|
|
Cash
and due from banks
|
$101,708
|
$101,708
|
Investment
securities held-to-maturity
|
80
|
80
|
Investment
securities available-for-sale
|
34,095
|
34,095
|
MBS
available-for-sale
|
162,764
|
162,764
|
Loans,
net
|
2,860,748
|
2,848,863
|
Loans
held for sale
|
890
|
890
|
MSR
|
2,496
|
3,914
|
Federal
funds sold and other short-term investments
|
128,014
|
128,014
|
FHLBNY
capital stock
|
39,029
|
39,029
|
Liabilities:
|
|
|
Savings,
money market and checking accounts
|
1,102,911
|
1,102,911
|
Certificates
of deposit
|
1,077,087
|
1,076,362
|
Escrow
and other deposits
|
52,209
|
52,209
|
Securities
sold under agreements to repurchase
|
155,080
|
166,745
|
FHLBNY
advances
|
706,500
|
719,452
|
Subordinated
notes payable
|
25,000
|
25,750
|
Trust
Preferred securities payable1
|
72,165
|
57,732
|
Commitments
to extend credit
|
590
|
590
|
1 The fair
value of this liability is measured by independent market quotations obtained
based upon transactions occurring in the market as of the disclosure
date.
Assets Owned By the Employee
Retirement Plan – The fair value of the assets owned by the Employee
Retirement Plan, which, while not owned by the Company, were an integral part of
the determination of the plan's funded status (which is recognized as an asset
or liability by the Company) at December 31, 2008. The fair value of
these assets was determined in accordance with the valuation hierarchy
established by SFAS 157.
Non-financial Assets and
Liabilities. The provisions of SFAS 157 related to disclosures
surrounding non-financial assets and non-financial liabilities such as goodwill
and OREO have not been applied since the Company elected the deferral rules of
FSP 157-2 (discussed in Note 1 to the consolidated financial
statements).
18. TREASURY
STOCK
The
Holding Company purchased 51,000 shares, 2,298,726 shares and 777,539 shares of
its common stock into treasury during the years ended December 31, 2008, 2007
and 2006, respectively. All shares were purchased in accordance with
applicable regulations of the Office of Thrift Supervision ("OTS") and the
SEC.
19. REGULATORY
MATTERS
The
Bank is subject to various regulatory capital requirements established by the
federal banking agencies. Failure to satisfy minimum capital
requirements may result in certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must satisfy specific capital
guidelines that involve quantitative measures of its assets, liabilities, and
certain off-balance-sheet items as calculated pursuant to regulatory accounting
practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative
measures that have been established by regulation to ensure capital adequacy
require the Bank to maintain minimum capital amounts and ratios (set forth in
the table below). The Bank's primary regulatory agency, the OTS,
requires that the Bank maintain minimum ratios of tangible capital (as defined
in the regulations) of 1.5%, and total risk-based capital (as defined in the
regulations) of 8%. In addition, insured institutions in the
strongest financial and managerial condition, with a rating of one (the highest
rating of the OTS under the Uniform Financial Institutions Rating System) are
required to maintain a Leverage Capital Ratio (the "Leverage Capital
Ratio") of not less than 3.0% of total assets. For all other banks,
the minimum Leverage Capital Ratio requirement is 4.0%, unless a higher leverage
capital ratio is warranted by the particular circumstances or risk profile of
the institution. As of December 31, 2008, the Bank satisfied all capital
adequacy requirements to which it was subject.
As of
December 31, 2008 and 2007, the Bank satisfied all criteria necessary to be
categorized as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized," the Bank
was required to maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the following tables:
|
Actual
|
|
For
Capital Adequacy
Purposes
|
|
To
Be Categorized as "Well Capitalized"
|
As
of December 31, 2008
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
Tangible
capital
|
$304,455
|
7.63%
|
|
$59,873
|
1.5%
|
|
$199,578
|
5.00%
|
Leverage
capital
|
304,455
|
7.63
|
|
159,662
|
4.0%
|
|
199,578
|
5.00
|
Total
risk-based capital (to risk weighted
assets)
|
303,033
|
11.43
|
|
212,140
|
8.0%
|
|
265,176
|
10.00
|
Tier
I risk-based capital (to risk weighted
assets)
|
285,579
|
10.77
|
|
106,070
|
4.0%
|
|
159,105
|
6.00
|
|
Actual
|
|
For
Capital Adequacy
Purposes
|
|
To
Be Categorized as "Well Capitalized"
|
As
of December 31, 2007
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
Tangible
capital
|
$269,231
|
7.88%
|
|
$51,228
|
1.5%
|
|
$170,761
|
5.00%
|
Leverage
capital
|
269,231
|
7.88
|
|
136,609
|
4.0%
|
|
170,761
|
5.00
|
Total
risk-based capital (to risk weighted
assets)
|
266,645
|
11.92
|
|
178,954
|
8.0%
|
|
$223,693
|
10.00
|
Tier
I risk-based capital (to risk weighted
assets)
|
251,258
|
11.23
|
|
89,477
|
4.0%
|
|
134,216
|
6.00
|
The
following is a reconciliation of stockholders' equity to regulatory capital for
the Bank:
|
At
December 31, 2008
|
|
At
December 31, 2007
|
|
Tangible
Capital
|
Leverage
Capital
|
Total
Risk-Based Capital
|
|
Tangible
Capital
|
Leverage
Capital
|
Total
Risk-Based
Capital
|
Stockholders'
equity
|
$350,715
|
$350,715
|
$350,715
|
|
$321,091
|
$321,091
|
$321,091
|
Non-allowable
assets:
|
|
|
|
|
|
|
|
MSR
|
(281)
|
(281)
|
(281)
|
|
(254)
|
(254)
|
(254)
|
Accumulated
other comprehensive loss
|
9,659
|
9,659
|
9,659
|
|
4,032
|
4,032
|
4,032
|
Goodwill
|
(55,638)
|
(55,638)
|
(55,638)
|
|
(55,638)
|
(55,638)
|
(55,638)
|
Tier
1 risk-based capital
|
304,455
|
304,455
|
304,455
|
|
269,231
|
269,231
|
269,231
|
Adjustment
for recourse provision on loans sold
|
-
|
-
|
(18,876)
|
|
-
|
-
|
(17,973)
|
General
valuation allowance
|
-
|
-
|
17,454
|
|
-
|
-
|
15,387
|
Total
(Tier 2) risk based capital
|
304,455
|
304,455
|
303,033
|
|
269,231
|
269,231
|
266,645
|
Minimum
capital requirement
|
59,873
|
159,662
|
212,140
|
|
51,228
|
136,609
|
178,954
|
Regulatory
capital excess
|
$244,582
|
$144,793
|
$90,893
|
|
$218,003
|
$132,622
|
$87,691
|
20. UNAUDITED
QUARTERLY FINANCIAL INFORMATION
The
following represents the unaudited condensed consolidated results of operations
for each of the quarters during the fiscal years ended December 31, 2008 and
2007:
|
For the three months ended
|
|
March
31, 2008
|
June
30, 2008
|
September
30, 2008
|
December
31, 2008
|
Net
interest income
|
$19,231
|
$23,110
|
$25,182
|
$23,829
|
Provision
for loan losses
|
60
|
310
|
596
|
1,040
|
Net
interest income after provision for loan losses
|
19,171
|
22,800
|
24,586
|
22,789
|
Non-interest
(loss) income
|
2,167
|
1,860
|
1,677
|
(2,890)
|
Non-interest
expense
|
12,280
|
12,258
|
12,913
|
12,522
|
Income
before income taxes
|
9,058
|
12,402
|
13,350
|
7,377
|
Income
tax expense
|
3,101
|
3,977
|
4,997
|
2,084
|
Net
income
|
$5,957
|
$8,425
|
$8,353
|
$5,293
|
Earnings
per share (1):
|
|
|
|
|
Basic
|
$0.18
|
$0.26
|
$0.26
|
$0.16
|
Diluted
|
$0.18
|
$0.26
|
$0.25
|
$0.16
|
|
For the three months ended
|
|
March
31, 2007
|
June
30, 2007
|
September
30, 2007
|
December
31, 2007
|
Net
interest income
|
$17,886
|
$17,669
|
$17,378
|
$18,080
|
Provision
for loan losses
|
60
|
60
|
60
|
60
|
Net
interest income after provision for loan losses
|
17,826
|
17,609
|
17,318
|
18,020
|
Non-interest
income
|
2,490
|
2,387
|
3,131
|
2,411
|
Non-interest
expense
|
11,248
|
11,199
|
11,717
|
11,337
|
Income
before income taxes
|
9,068
|
8,797
|
8,732
|
9,094
|
Income
tax expense
|
3,251
|
3,152
|
3,188
|
3,657
|
Net
income
|
$5,817
|
$5,645
|
$5,544
|
$5,437
|
Earnings
per share (1):
|
|
|
|
|
Basic
|
$0.17
|
$0.17
|
$0.17
|
$0.17
|
Diluted
|
$0.17
|
$0.17
|
$0.17
|
$0.17
|
(1) The
quarterly earnings per share amounts, when added, may not coincide with the full
fiscal year earnings per share reported on the Consolidated Statements of
Operations due to differences in the computed weighted average shares
outstanding as well as rounding differences.
21. CONDENSED
PARENT COMPANY ONLY FINANCIAL STATEMENTS
The
following statements of condition as of December 31, 2008 and 2007, and the
related statements of operations and cash flows for the years ended December 31,
2008, 2007 and 2006, reflect the Holding Company's investment in its
wholly-owned subsidiaries, the Bank, 842 Manhattan Avenue Corp., and its
unconsolidated subsidiary, Dime Community Capital Trust I, using, as deemed
appropriate, the equity method of accounting:
DIME
COMMUNITY BANCSHARES, INC.
CONDENSED
STATEMENTS OF FINANCIAL CONDITION
|
At
December 31, 2008
|
At
December 31, 2007
|
ASSETS:
|
|
|
Cash
and due from banks
|
$8,419
|
$5,103
|
Investment
securities available-for-sale
|
5,433
|
7,112
|
MBS
available-for-sale
|
1,041
|
1,279
|
Federal
funds sold and other short term investments
|
-
|
22,733
|
ESOP
loan to subsidiary
|
4,325
|
4,444
|
Investment
in subsidiaries
|
351,360
|
321,737
|
Other
assets
|
5,575
|
5,690
|
Total
assets
|
$376,153
|
$368,098
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY:
|
|
|
Subordinated
notes payable
|
$25,000
|
$25,000
|
Trust
Preferred securities payable
|
72,165
|
72,165
|
Other
liabilities
|
2,024
|
2,081
|
Stockholders'
equity
|
276,964
|
268,852
|
Total
liabilities and stockholders' equity
|
$376,153
|
$368,098
|
DIME
COMMUNITY BANCSHARES, INC.
CONDENSED
STATEMENTS OF OPERATIONS
|
Year Ended December 31,
|
|
2008
|
2007
|
2006
|
Net
interest loss
|
$(6,658)
|
$(5,902)
|
$(5,178)
|
Dividends
received from Bank
|
-
|
35,000
|
58,012
|
Non-interest
income
|
513
|
516
|
1,215
|
Non-interest
expense
|
(408)
|
(424)
|
(484)
|
Income
(Loss) before income taxes and equity in
undistributed
earnings of direct subsidiaries
|
(6,553)
|
29,190
|
53,565
|
Income
tax credit
|
2,751
|
2,143
|
698
|
Income
(Loss) before equity in undistributed earnings
of
direct subsidiaries
|
(3,802)
|
31,333
|
54,263
|
Equity
in (overdistributed) undistributed earnings of
subsidiaries
|
31,830
|
(8,890)
|
(23,671)
|
Net
income
|
$28,028
|
$22,443
|
$30,592
|
DIME
COMMUNITY BANCSHARES, INC.
CONDENSED
STATEMENTS OF CASH FLOWS
|
Year Ended December 31,
|
|
2008
|
2007
|
2006
|
Cash
flows from Operating Activities:
|
|
|
|
Net
income
|
$28,028
|
$22,443
|
$30,592
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
Equity
in (undistributed) overdistributed earnings of direct
subsidiaries
|
(31,830)
|
8,890
|
23,671
|
Gain
on sale of assets
|
-
|
-
|
(1,063)
|
Net
(amortization) and accretion
|
(489)
|
(547)
|
(594)
|
(Increase)
Decrease in other assets
|
115
|
(36)
|
703
|
(Decrease)
Increase in other liabilities
|
930
|
(89)
|
596
|
Net
cash (used in) provided by Operating Activities
|
(3,246)
|
30,661
|
53,905
|
|
|
|
|
Cash
flows from Investing Activities:
|
|
|
|
Net
Decrease (Increase) in federal funds sold and other short-term
Investments
|
22,733
|
16,945
|
(25,962)
|
Proceeds
from maturities and redemptions of investment securities
available-for-sale
|
4
|
-
|
3,000
|
Proceeds
from sale of investment securities available-for-sale
|
-
|
-
|
3,032
|
Purchases
of investment securities available-for-sale
|
-
|
-
|
(3,029)
|
Principal
collected on MBS available-for-sale
|
209
|
507
|
571
|
Principal
repayments on ESOP loan
|
119
|
110
|
102
|
Net
cash provided by (used in) Investing Activities
|
23,065
|
17,562
|
(22,286)
|
|
|
|
|
Cash
flows from Financing Activities:
|
|
|
|
Cash
dividends re-assumed through liquidation of RRP
|
-
|
958
|
-
|
Common
stock issued for exercise of stock options
|
2,473
|
136
|
910
|
Purchase
of common stock by the BMP
|
(66)
|
-
|
-
|
Cash
dividends paid to stockholders
|
(18,256)
|
(18,991)
|
(19,751)
|
Purchase
of treasury stock
|
(654)
|
(29,650)
|
(11,024)
|
Benefit
plan payments reimbursed by subsidiary
|
-
|
-
|
-
|
Net
cash used in financing activities
|
(16,503)
|
(47,547)
|
(29,865)
|
|
|
|
|
Net
increase in cash and due from banks
|
3,316
|
676
|
1,754
|
Cash
and due from banks, beginning of period
|
5,103
|
4,427
|
2,673
|
Cash
and due from banks, end of period
|
$8,419
|
$5,103
|
$4,427
|
* * * * *
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
|
10.2
|
|
Amended
and Restated Employment Agreement between The Dime Savings Bank of
Williamsburgh and Michael P. Devine
|
10.3
|
|
Amended
and Restated Employment Agreement between The Dime Savings Bank of
Williamsburgh and Kenneth
J. Mahon
|
10.4
|
|
Employment
Agreement between Dime Community Bancorp, Inc. and Vincent F.
Palagiano
|
10.5
|
|
Employment
Agreement between Dime Community Bancorp, Inc. and Michael P.
Devine
|
10.6
|
|
Employment
Agreement between Dime Community Bancorp, Inc. and Kenneth J.
Mahon
|
10.7
|
|
Form
of Employee Retention Agreement by and among The Dime Savings Bank of
Williamsburgh, Dime Community Bancorp, Inc. and
certain officers (5)
|
10.7(i)
|
|
Amendment
to Form of Employee Retention Agreement by and among The Dime Savings Bank
of Williamsburgh, Dime Community Bancorp, Inc. and
certain officers
|
10.8
|
|
The
Benefit Maintenance Plan of Dime Community Bancorp,
Inc.
|
10.9
|
|
Severance
Pay Plan of The Dime Savings Bank of Williamsburgh
|
10.10
|
|
Retirement
Plan for Board Members of Dime Community Bancorp, Inc.
|
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 200 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 (12)
|
10.22
|
|
Waiver
executed by Vincent F. Palagiano (11)
|
10.23
|
|
Waiver
executed by Michael P. Devine (11)
|
10.24
|
|
Waiver
executed by Kenneth J. Mahon (11)
|
10.25
|
|
Form
of restricted stock award notice for officers and employees under the 2004
Stock Incentive Plan (10)
|
10.26
|
|
Employee
Retention Agreement between The Dime Savings Bank of Williamsburgh, Dime
Community Bancshares, Inc. and Christopher D. Maher
|
10.27
|
|
Form
of restricted stock award notice for outside directors under the 2004
Stock Incentive Plan (10)
|
10.28
|
|
Employee
Retention Agreement between The Dime Savings Bank of Williamsburgh, Dime
Community Bancshares, Inc. and Daniel Harris
|
10.29
|
|
Dime
Community Bancshares, Inc. Annual Incentive Plan
|
10.30
|
|
Amendment
to the Dime Savings Bank of Williamsburgh 401(K) Plan
|
10.31
|
|
Employee
Stock Ownership Plan of Dime Community Bancshares, Inc. and Certain
Affiliates
|
31(i).1
|
|
Certification
of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a)
|
31(i).2
|
|
Certification
of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a)
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. 1350
|
32.2
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C.
1350
|
(1)
|
Incorporated
by reference to the registrant's Transition Report on Form 10-K for the
transition period ended December 31, 2002 filed on March 28,
2003.
|
(2)
|
Incorporated
by reference to the registrant's 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 Current Report on Form 8-K filed on March
22, 2005.
|
(11)
|
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.
|
(12)
|
Incorporated
by reference to the registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2008 filed on August 8,
2008.
|