form10q-83322_necb.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
(Mark
One)
ý
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended March 31, 2007
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from ______________ to _____________
Commission
file number: 0-51852
Northeast
Community Bancorp,
Inc.
(Exact
name of registrant as specified in its charter)
United
States of
America
|
06-1786701
|
(State
or other jurisdiction of incorporation or
|
(I.R.S.
Employer Identification No.)
|
organization)
|
|
|
|
325
Hamilton Avenue, White Plains, New York
|
10601
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(914)
684-2500
(Registrant’s
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last
report)
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 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
ý No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. (See definition of
"accelerated filer and large accelerated filer" in rule 12b-2 of the exchange
act).
Large
accelerated ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ý
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨ No
ý
As
of May
10, 2007, there were 13,225,000 shares of the registrant’s common stock
outstanding.
NORTHEAST
COMMUNITY BANCORP, INC.
Table
of Contents
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Page
No.
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1
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2
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3
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4
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5
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7
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12
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13
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14
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14
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14
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14
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14
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14
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14
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14
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|
15
|
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
|
|
|
|
|
|
|
|
|
(In
thousands,
except
share and per share data)
|
|
|
|
ASSETS
|
|
|
|
Cash
and amounts due from depository institutions
|
|
$ |
2,559
|
|
|
$ |
2,650
|
|
Interest-bearing
deposits
|
|
|
24,693
|
|
|
|
34,099
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
|
27,252
|
|
|
|
36,749
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
|
346
|
|
|
|
355
|
|
Securities
held to maturity
|
|
|
29,804
|
|
|
|
27,455
|
|
Loans
receivable, net of allowance for loan losses $1,200 and
$1,200
|
|
|
209,563
|
|
|
|
201,306
|
|
Bank
owned life insurance
|
|
|
8,242
|
|
|
|
8,154
|
|
Premises
and equipment, net
|
|
|
10,984
|
|
|
|
11,117
|
|
Federal
Home Loan Bank of New York stock, at cost
|
|
|
399
|
|
|
|
399
|
|
Accrued
interest receivable
|
|
|
1,038
|
|
|
|
1,101
|
|
Other
assets
|
|
|
2,215
|
|
|
|
1,781
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
289,843
|
|
|
$ |
288,417
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
LIABILITIES
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest
bearing
|
|
$ |
1,203
|
|
|
$ |
1,439
|
|
Interest
bearing
|
|
|
187,018
|
|
|
|
187,153
|
|
|
|
|
|
|
|
|
|
|
Total
Deposits
|
|
|
188,221
|
|
|
|
188,592
|
|
|
|
|
|
|
|
|
|
|
Advance
payments by borrowers for taxes and insurance
|
|
|
3,261
|
|
|
|
1,929
|
|
Accounts
payable and accrued expenses
|
|
|
1,151
|
|
|
|
1,145
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
192,633
|
|
|
|
191,666
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value; 1,000,000 shares authorized, none
issued
|
|
|
–
|
|
|
|
–
|
|
Common
stock, $0.01 par value; 19,000,000 shares authorized, issued and
outstanding: 13,225,000
|
|
|
132
|
|
|
|
132
|
|
Additional
paid-in capital
|
|
|
57,526
|
|
|
|
57,513
|
|
Unearned
Employee Stock Ownership Plan (“ESOP”) shares
|
|
|
(4,860 |
) |
|
|
(4,925 |
) |
Retained
earnings
|
|
|
44,537
|
|
|
|
44,147
|
|
Accumulated
other comprehensive loss
|
|
|
(125 |
) |
|
|
(116 |
) |
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
97,210
|
|
|
|
96,751
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$ |
289,843
|
|
|
$ |
288,417
|
|
See
Notes
to Consolidated Financial Statements
CONSOLIDATEDSTATEMENTS
OF
INCOME (UNAUDITED)
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands,
except
per share data)
|
|
|
|
INTEREST
INCOME
|
|
|
|
Loans
|
|
$ |
3,181
|
|
|
$ |
3,162
|
|
Interest-earning
deposits
|
|
|
416
|
|
|
|
247
|
|
Securities
- taxable
|
|
|
372
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Income
|
|
|
3,969
|
|
|
|
3,545
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
Deposits
|
|
|
1,284
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Expense
|
|
|
1,284
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income
|
|
|
2,685
|
|
|
|
2,642
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOAN LOSSES
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income after Provision for Loan Losses
|
|
|
2,685
|
|
|
|
2,642
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
|
Other
loan fees and service charges
|
|
|
90
|
|
|
|
106
|
|
Earnings
on bank owned life insurance
|
|
|
88
|
|
|
|
–
|
|
Other
|
|
|
4
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total
Non-Interest Income
|
|
|
182
|
|
|
|
113
|
|
|
|
NON-INTEREST
EXPENSES
|
|
|
|
Salaries
and employee benefits
|
|
|
1,129
|
|
|
|
1,053
|
|
Net
occupancy expense of premises
|
|
|
265
|
|
|
|
258
|
|
Equipment
|
|
|
140
|
|
|
|
96
|
|
Outside
data processing
|
|
|
156
|
|
|
|
145
|
|
Advertising
|
|
|
32
|
|
|
|
27
|
|
Other
|
|
|
537
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
Total
Non-Interest Expenses
|
|
|
2,259
|
|
|
|
2,035
|
|
|
|
|
|
|
|
|
|
|
Income
before Income Taxes
|
|
|
608
|
|
|
|
720
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
218
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
390
|
|
|
$ |
409
|
|
Net
Income per Common Share – Basic and Diluted
|
|
$ |
.03
|
|
|
N/A
(A)
|
|
Weighted
Average Number of Common Shares Outstanding – Basic and
Diluted
|
|
|
12,736
|
|
|
N/A
(A)
|
|
(A)
|
The
Company completed its initial public stock offering on July 5,
2006.
|
See
Notes
to Consolidated Financial Statements
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Three
Months Ended March 31, 2007 and 2006
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Unearned
ESOP
Shares
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income
(loss)
|
|
|
Total
Equity
|
|
|
Comprehensive
Income
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
43,089
|
|
|
$ |
31
|
|
|
$ |
43,120
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
409
|
|
|
|
-
|
|
|
|
409
|
|
|
$ |
409
|
|
Unrealized
gain on securities
available
for sale, net of taxes of $(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2006
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
43,498
|
|
|
$ |
34
|
|
|
$ |
43,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
$ |
132
|
|
|
$ |
57,513
|
|
|
$ |
(4,925 |
) |
|
$ |
44,147
|
|
|
$ |
(116 |
) |
|
$ |
96,751
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
390
|
|
|
|
-
|
|
|
|
390
|
|
|
$ |
390
|
|
Unrealized
loss on securities
available
for sale, net of taxes of $2
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
Prior
Service Cost – DRP, net of
taxes
of $3
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP
shares earned
|
|
|
-
|
|
|
|
13
|
|
|
|
65
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2007
|
|
$ |
132
|
|
|
$ |
57,526
|
|
|
$ |
(4,860 |
) |
|
$ |
44,537
|
|
|
$ |
(125 |
) |
|
$ |
97,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes
to Consolidated Financial Statements
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
390
|
|
|
$ |
409
|
|
Adjustments
to reconcile net income to net cash (used in) provided by operating
activities:
|
|
|
|
|
|
|
|
|
Amortization
of securities
premiums and (discounts), net
|
|
|
(285 |
) |
|
|
6
|
|
Provision
for
depreciation
|
|
|
154
|
|
|
|
140
|
|
Amortization
of deferred loan
discounts, fees and costs, net
|
|
|
29
|
|
|
|
48
|
|
Earnings
on bank owned life
insurance
|
|
|
(88 |
) |
|
|
–
|
|
Decrease
in accrued interest
receivable
|
|
|
63
|
|
|
|
33
|
|
(Increase)
in other
assets
|
|
|
(429 |
) |
|
|
(369 |
) |
Increase
in accrued interest
payable
|
|
|
6
|
|
|
|
–
|
|
Increase
(decrease) in other
liabilities
|
|
|
(1 |
) |
|
|
121
|
|
ESOP
shares
earned
|
|
|
78
|
|
|
|
–
|
|
Net
Cash (Used in) Provided by Operating Activities
|
|
|
(83 |
) |
|
|
388
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net
(increase) in loans
|
|
|
(8,286 |
) |
|
|
(7,705 |
) |
Purchase
of securities held to maturity
|
|
|
(24,689 |
) |
|
|
–
|
|
Principal
repayments on securities available for sale
|
|
|
2
|
|
|
|
4
|
|
Principal
repayments on securities held to maturity
|
|
|
22,625
|
|
|
|
515
|
|
Purchases
of premises and equipment
|
|
|
(21 |
) |
|
|
(47 |
) |
Net
Cash (Used in) Investing Activities
|
|
|
(10,369 |
) |
|
|
(7,233 |
) |
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
Net
(decrease) in deposits
|
|
|
(377 |
) |
|
|
(1,374 |
) |
Increase
in advance payments by borrowers for taxes and
insurance
|
|
|
1,332
|
|
|
|
1,489
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
|
|
955
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
Net
(Decrease) in Cash and Cash Equivalents
|
|
|
(9,497 |
) |
|
|
(6,730 |
) |
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - Beginning
|
|
|
36,749
|
|
|
|
27,389
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - Ending
|
|
$ |
27,252
|
|
|
$ |
20,659
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY
CASH FLOWS INFORMATION
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
paid
|
|
$ |
340
|
|
|
$ |
258
|
|
Interest
paid
|
|
$ |
1,278
|
|
|
$ |
903
|
|
See
Notes
to Consolidated Financial Statements
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF PRESENTATION
Northeast
Community Bancorp, Inc. (the “Company”) is a Federally-chartered corporation
organized as a mid-tier holding company for Northeast Community Bank (the
“Bank”), in conjunction with the Bank’s reorganization from a mutual savings
bank to the mutual holding company structure on July 5, 2006. The
accompanying unaudited consolidated financial statements as of and for the
three-month period ended March 31, 2007, include the accounts of the Company
and
the Bank. All significant intercompany accounts and transactions have
been eliminated in consolidation. The unaudited consolidated
financial statements for the three months ended March 31, 2006 include only
the
accounts of the Bank as the Company was not in existence prior to such
date.
The
accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
three-month period ended March 31, 2007 are not necessarily indicative of the
results that may be expected for the full year or any other interim
period. The December 31, 2006 consolidated statement of financial
condition data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting
principles.
The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain recorded amounts and
disclosures. Accordingly, actual results could differ from those
estimates. The most significant estimate pertains to the allowance
for loan losses.
NOTE
2 – EARNINGS PER SHARE
Basic
earnings per common share is calculated by dividing the net income available
to
common stockholders by the weighted-average number of common shares outstanding
during the period. Diluted earnings per common share is computed in a
manner similar to basic earnings per common share except that the weighted
average number of common shares outstanding is increased to include the
incremental common shares (as computed using the treasury stock method) that
would have been outstanding if all potentially dilutive common stock equivalents
were issued during the period. Common stock equivalents may include
restricted stock awards and stock options. Anti-dilutive shares are
common stock equivalents with weighted-average exercise prices in excess of
the
weighted-average market value for the periods presented. The Company
has not granted any restricted stock awards or stock options and, during the
three-month periods ended March 31, 2007 and 2006, had no potentially dilutive
common stock equivalents. Unallocated common shares held by the
Employee Stock Ownership Plan (“ESOP”) are not included in the weighted-average
number of common shares outstanding for purposes of calculating both basic
and
diluted earnings per common share until they are committed to be
released.
Earnings
per common share data is not presented for the three months ended March 31,
2006
as the Company had no publicly held shares outstanding prior to the Company’s
initial public offering on July 5, 2006. Per share data for the three
months ended March 31, 2007 is calculated by utilizing net income and the
weighted-average common shares outstanding in the three-month
period.
NOTE
3 – EMPLOYEE STOCK OWNERSHIP PLAN
As
of
December 31, 2006 and March 31, 2007, the ESOP owned 518,420 shares of the
Company’s common stock, which are held in a suspense account until released for
allocation to participants. As of December 31, 2006 and March 31,
2007, the Company had committed to release 25,921 shares and 32,401 shares,
respectively. The Company recognized compensation expense of $78,000
during the three-month period ended March 31, 2007, which equals the fair value
of the ESOP shares when they became committed to be released.
NOTE
4 –OUTSIDE DIRECTOR RETIREMENT PLAN
(“DRP”)
Periodic
expenses for the Company’s DRP were as follows:
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
11
|
|
|
$ |
8
|
|
Interest
cost
|
|
|
6
|
|
|
|
5
|
|
Amortization
of Prior Service Cost
|
|
|
5
|
|
|
|
5
|
|
Total
|
|
$ |
22
|
|
|
$ |
18
|
|
Effective
January 1, 2006, the Bank implemented the DRP. This plan is a
non-contributory defined benefit pension plan covering all non-employee
directors meeting eligibility requirements as specified in the plan document.
The DRP is accounted for under Statements of Financial Accounting Standards
Nos.
132 and 158. The amortization of prior service cost in the
three-month period ended March 31, 2007, is also reflected as a reduction in
other comprehensive income during the period.
NOTE
5 – EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In
September 2006, the Financial
Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standards (“SFAS”) No. 157, “Fair Value Measurements”, which defines fair
value, establishes a framework for measuring fair value under U.S. generally
accepted accounting principles (“GAAP”), and expands disclosures about fair
value measurements. SFAS No. 157 applies to other accounting pronouncements
that require or permit fair value measurements. The new guidance is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and for interim periods within those fiscal
years. We are currently evaluating the potential impact, if any, of
the adoption of SFAS No. 157 on our consolidated financial position,
results of operations and cash flows.
In
February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement No. 115 (“SFAS
159”). SFAS 159 creates a fair value option allowing an entity to
irrevocably elect fair value as the initial and subsequent measurement attribute
for certain financial assets and financial liabilities, with changes in fair
value recognized in earnings as they occur. SFAS 159 also requires an
entity to report those financial assets and financial liabilities measured
at
fair value in a manner that separates those reported fair values from the
carrying amount of assets and liabilities measured using another measurement
attribute in the face of the statement of financial position. Lastly,
SFAS 159 requires an entity to provide information that would allow users
to
understand the effect on earnings of changes in the fair value on those
instruments selected for the fair value election. SFAS 159 is
effective for fiscal years beginning after November 15, 2007, with early
adoption permitted. After evaluating the impact SFAS 159 would have
on our consolidated financial statements, we have determined not to early
adopt
SFAS 159 at this time.
On
September 7, 2006, the Emerging
Issues Task Force (“EITF”) reached a conclusion on EITF Issue No. 06-5,
“Accounting for Purchases of Life Insurance – Determining the Amount That Could
Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting
for Purchases of Life Insurance”. The scope of EITF Issue
No. 06-5 consists of six separate issues relating to accounting for life
insurance policies purchased by entities protecting against the loss of “key
persons.” The six issues are clarifications of previously issued
guidance on FASB Technical Bulletin No. 85-4. EITF 06-5 is effective for
fiscal years beginning after December 15, 2006. The adoption of EITF 06-5
did not have a material impact on the Company’s consolidated financial
statements.
In
March
2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 “Accounting
for Collateral Assignment Split-Dollar Life Insurance
Agreements”. EITF Issue No. 06-10 provides guidance for
determining a liability for the postretirement benefit obligation as well as
recognition and measurement of the associated asset on the basis of the terms
of
the collateral assignment agreement. EITF Issue No. 06-10 is effective for
fiscal years
beginning
after December 15, 2007. The Company is currently assessing the impact of
EITF
Issue No. 06-10 on its consolidated financial position and results of
operations.
In
July 2006, the FASB issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an
interpretation of FASB Statement No. 109 (FIN 48), which
clarifies the accounting for uncertainty in tax positions. This
Interpretation requires that companies recognize in their financial statements
the impact of a tax position, if that position is more likely than not of
being
sustained on audit, based on the technical merits of the position. The
provisions of FIN 48 are effective for fiscal years beginning after December
15,
2006, with the cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. As a result of the
Company’s evaluation of the implementation of FIN 48, no significant income tax
uncertainties were identified. Therefore, the Company recognized no adjustment
for unrecognized income tax benefits at the implementation date or during
the
three months ended March 31, 2007. The Company had no amounts accrued
for tax penalties or interest at March 31, 2007. Our policy is
to record any such penalties and interest as other non-interest
expense. Corporate tax returns which remain subject to examination
include: Federal from 2004 to present, Massachusetts from 2004 to present,
New York State from 2003 to present and New York City from 2003 to
present.
NOTE
6 –
EXPECTED SALE OF OUR NEW YORK CITY BRANCH
OFFICE
On
December 13, 2006, the Bank entered
into an agreement to sell the Bank’s branch office building located at 1353-1355
First Avenue, New York, New York. The purchase price for the building
is $28 million. Under the terms of the agreement, the Bank will
receive $10 million in cash at closing and the remaining $18 million will be
paid in two equal installments of $9 million on each of the first and second
anniversary of the date of the closing pursuant to a promissory note secured
by
a purchase money real estate mortgage, assignment and security
agreement. The agreement to sell the building is subject to numerous
customary undertakings, covenants, obligations and
conditions. Concurrently with the execution of the agreement, the
purchaser deposited $200,000 with an escrow agent. On March 30, 2007,
the purchaser’s due diligence period expired, at which time the purchaser
delivered an additional $800,000 with the escrow agent. The sale of
the building is expected to be completed in June 2007.
In
connection with the sale of the
branch office building, the Bank will enter into a 99 year lease to enable
the
Bank to retain a branch office at 1355 First Avenue. In anticipation
of the sale, and the renovation of the building by its new owner, the Bank
has
closed its branch office at this location and temporarily relocated its branch
office to 1470 First Avenue, New York, New York.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Forward-Looking
Statements
This
quarterly report contains forward-looking statements that are based on
assumptions and may describe future plans, strategies and expectations of the
Company. These forward-looking statements are generally identified by
use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,”
“project” or similar expressions. The Company’s ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse effect on the operations
of the Company include, but are not limited to, changes in interest rates,
national and regional economic conditions, legislative and regulatory changes,
monetary and fiscal policies of the U.S. government, including policies of
the
U.S. Treasury and the Federal Reserve Board, the quality and composition of
the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Bank’s market area, changes in
real estate market values in the Bank’s market area, and changes in relevant
accounting principles and guidelines. Additional factors that may
affect the Company’s results are discussed in the Company’s Annual Report on
Form 10-K under “Item 1A. Risk Factors.” These risks and
uncertainties should be considered in evaluating forward-looking statements
and
undue reliance should not be placed on such statements. Except as
required by applicable law or regulation, the Company does not undertake, and
specifically disclaims any obligation, to release publicly the result of any
revisions that may
be
made
to any forward-looking statements to reflect events or circumstances after
the
date of the statements or to reflect the occurrence of anticipated or
unanticipated events.
Comparison
of Financial Condition at March 31, 2007 and December 31,
2006
Total
assets increased by $1.4 million, or 0.5%, to $289.8 million at March 31, 2007
from $288.4 million at December 31, 2006. Cash and cash equivalents
decreased by $9.4 million, or 25.6%, to $27.3 million at March 31, 2007, from
$36.7 million at December 31, 2006. The decrease in short-term
liquidity was primarily the result of the deployment of the stock conversion
proceeds into higher yielding investment securities and mortgage
loans. Securities held to maturity increased by $2.3 million, or
8.4%, to $29.8 million at March 31, 2007 from $27.5 million at December 31,
2006, due primarily to purchases of $24.7 million in securities compared to
$22.6 million of securities that matured.
Loans
receivable increased by $8.3
million, or 4.1%, to $209.6 million at March 31, 2007 from $201.3 million at
December 31, 2006, due to $17.2 million in loan originations that was partially
offset by loan repayments of $8.9 million.
Deposits
decreased by $371,000, or
0.2%, to $188.2 million at March 31, 2007 from $188.6 million at December 31,
2006. The decrease in deposits was primarily related to a decrease of
$236,000 in non-interest bearing accounts due to the seasonal needs of our
customers. The decrease in our interest-bearing accounts was
primarily attributable to the continuing intense rate competition in all markets
in which we operate and our strategy of offering rates on our deposit accounts
that are in the middle of the market.
Advance
payments by borrowers for taxes
and insurance increased by $1.4 million, or 73.7%, to $3.3 million at March
31,
2007 from $1.9 million at December 31, 2006, due to accumulating balances paid
into escrow accounts by borrowers.
Stockholders’
equity
increased by
$459,000, or 0.5%, to $97.2 million at March 31, 2007, from $96.8 million at
December 31, 2006. This increase was primarily the result of net
income of $390,000 and the amortization of $78,000 for the ESOP for the quarter
ended March 31, 2007.
Comparison
of Operating Results for the Three Months Ended March 31, 2007 and
2006
General. Net
income decreased by $19,000, or 4.6%, to $390,000 for the quarter ended March
31, 2007 from $409,000 for the quarter ended March 31, 2006. The
decrease was the result of an increase in non-interest expense, which was offset
in part by increases in net interest income and noninterest income and a
reduction in income taxes.
Net
Interest Income. Net
interest income increased by $43,000, or 1.6%, to $2.7 million for the three
months ended March 31, 2007 from $2.6 million for the three months ended March
31, 2006. The increase in net interest income resulted primarily from
an increase of $236,000 in interest earned on securities, an increase of
$169,000 in interest earned on interest-earning deposits, and an increase of
$19,000 in interest earned on our loan portfolio, partially offset by an
increase of $381,000 in interest expense on deposits.
Our
net
interest margin decreased by 51 basis points between these periods from 4.58%
during the quarter ended March 31, 2006 to 4.07% during the quarter ended March
31, 2007. In addition, our net interest spread decreased by 100 basis
points from 4.25% for the quarter ended March 31, 2006 to 3.25% for the quarter
ended March 31, 2007. Despite the decrease in net interest margin and
net interest spread, our net interest income increased modestly due to an
increase in net interest earning assets to $78.1 million in the three-month
period ended March 31, 2007, from $39.3 million for the three months ended
March
31, 2006. The increase in net interest earning assets resulted from
the deployment of funds received in our initial public stock
offering.
The
following table summarizes average balances and average yields and costs of
interest-earning assets and interest-bearing liabilities for the three months
ended March 31, 2007 and 2006.
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Yield/
Cost
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Yield/
Cost
|
|
|
|
(Dollars
in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
202,209
|
|
|
$ |
3,181
|
|
|
|
6.29 |
% |
|
$ |
197,042
|
|
|
$ |
3,162
|
|
|
|
6.42 |
% |
Securities
|
|
|
30,330
|
|
|
|
372
|
|
|
|
4.91
|
|
|
|
12,760
|
|
|
|
136
|
|
|
|
4.26
|
|
Other
interest-earning assets
|
|
|
31,576
|
|
|
|
416
|
|
|
|
5.27
|
|
|
|
21,055
|
|
|
|
247
|
|
|
|
4.69
|
|
Total
interest-earning assets
|
|
|
264,115
|
|
|
|
3,969
|
|
|
|
6.01
|
|
|
|
230,857
|
|
|
|
3,545
|
|
|
|
6.14
|
|
Allowance
for loan losses
|
|
|
(1,200 |
) |
|
|
|
|
|
|
|
|
|
|
(1,200 |
) |
|
|
|
|
|
|
|
|
Noninterest-earning
assets
|
|
|
25,135
|
|
|
|
|
|
|
|
|
|
|
|
10,110
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
288,050
|
|
|
|
|
|
|
|
|
|
|
$ |
239,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
demand
|
|
$ |
20,351
|
|
|
|
24
|
|
|
|
0.47
|
|
|
$ |
21,904
|
|
|
|
14
|
|
|
|
0.26
|
|
Savings
and club accounts
|
|
|
60,358
|
|
|
|
104
|
|
|
|
0.69
|
|
|
|
71,630
|
|
|
|
95
|
|
|
|
0.53
|
|
Certificates
of deposit
|
|
|
105,349
|
|
|
|
1,156
|
|
|
|
4.39
|
|
|
|
98,039
|
|
|
|
794
|
|
|
|
3.24
|
|
Total
interest-bearing deposits
|
|
|
186,058
|
|
|
|
1,284
|
|
|
|
2.76
|
|
|
|
191,573
|
|
|
|
903
|
|
|
|
1.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total
interest-bearing liabilities
|
|
|
186,058
|
|
|
|
1,284
|
|
|
|
2.76
|
|
|
|
191,573
|
|
|
|
903
|
|
|
|
1.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
demand
|
|
|
1,253
|
|
|
|
|
|
|
|
|
|
|
|
1,450
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
3,546
|
|
|
|
|
|
|
|
|
|
|
|
2,918
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
190,857
|
|
|
|
|
|
|
|
|
|
|
|
195,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
97,193
|
|
|
|
|
|
|
|
|
|
|
|
43,826
|
|
|
|
|
|
|
|
|
|
Total
liabilities and
Stockholders’
equity
|
|
$ |
288,050
|
|
|
|
|
|
|
|
|
|
|
$ |
239,767
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
2,685
|
|
|
|
|
|
|
|
|
|
|
$ |
2,642
|
|
|
|
|
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
|
|
3.25
|
|
|
|
|
|
|
|
|
|
|
|
4.25
|
|
Net
interest margin
|
|
|
|
|
|
|
|
|
|
|
4.07
|
|
|
|
|
|
|
|
|
|
|
|
4.58
|
|
Net
interest-earning assets
|
|
$ |
78,057
|
|
|
|
|
|
|
|
|
|
|
$ |
39,284
|
|
|
|
|
|
|
|
|
|
Average
interest-earning assets to
average
interest-bearing liabilities
|
|
|
141.95 |
% |
|
|
|
|
|
|
|
|
|
|
120.51 |
% |
|
|
|
|
|
|
|
|
Interest
income increased by $424,000, or 12.0%, to $4.0 million for the three months
ended March 31, 2007, from $3.5 million for the three months ended March 31,
2006. Interest income on loans increased by $19,000, or 0.6%, to
$3.18 million for the three months ended March 31, 2007 from $3.16 million
for
the three months ended March 31, 2006. The average balance of the
loan portfolio increased by $5.2 million to $202.2 million for the three months
ended March 31, 2007 from $197.0 million for the three months ended March 31,
2006. The average yield on loans decreased by 13 basis points to
6.29% for the three months ended March 31, 2007 from 6.42% for the three months
ended March 31, 2006.
Interest
income on securities increased by $236,000, or 173.5%, to $372,000 for the
three
months ended March 31, 2007 from $136,000 for the three months ended March
31,
2006. The increase was primarily due to the deployment of the stock
conversion proceeds to higher yielding securities, resulting in an increase
of
$17.6 million in average security balances and an increase in the average yield
on securities by 65 basis points to 4.91% for the quarter ended March 31, 2007
from 4.26% for the quarter ended March 31, 2006.
Interest
on other interest-earning assets increased by $169,000, or 68.4%, to $416,000
for the three months ended March 31, 2007 from $247,000 for the three months
ended March 31, 2006, primarily as a result of the deployment of the stock
conversion proceeds into other interest-earning assets and an increase in market
short-term interest rates from 2006 to 2007.
Interest
expense increased by $381,000, or 42.2%, to $1.3 million for the three months
ended March 31, 2007 from $903,000 for the three months ended March 31,
2006. The increase in interest expense is attributable to a
shift of $7.3 million of deposits from lower interest passbook savings into
higher interest certificates of deposit, which had the effect of raising the
average interest cost by 87 basis points to 2.76%. During this
period, the cost of our certificates of deposit increased 115 basis points
to
4.39%. Interest expense on our other deposit products increased by
$19,000, or 17.4%, due to an average cost increase in the rate of interest
paid
on such deposits of 16 basis points to 0.63%, which was partially offset by
a
$12.8 million, or 13.7%, decrease in average deposit balances to $80.7
million.
Provision
for Loan Losses. The following table summarizes the
activity in the allowance for loan losses and provision for loan losses for
the
three months ended March 31, 2007 and 2006.
|
|
Three
Months
Ended
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars
in thousands)
|
|
Allowance
at beginning of period
|
|
$ |
1,200
|
|
|
$ |
1,200
|
|
Provision
for loan losses
|
|
|
–
|
|
|
|
–
|
|
Charge-offs
|
|
|
–
|
|
|
|
–
|
|
Recoveries
|
|
|
–
|
|
|
|
–
|
|
Net
charge-offs
|
|
|
–
|
|
|
|
–
|
|
Allowance
at end of period
|
|
$ |
1,200
|
|
|
$ |
1,200
|
|
|
|
|
|
|
|
|
|
|
Allowance
to nonperforming loans
|
|
|
156.00 |
% |
|
|
0.00 |
% |
Allowance
to total loans outstanding at the end of the period
|
|
|
0.57 |
% |
|
|
0.60 |
% |
Net
charge-offs (recoveries) to average loans outstanding during the
period
|
|
|
0.00 |
% |
|
|
0.00 |
% |
The
allowance for loan losses was $1.2
million at March 31, 2007, December 31, 2006, and March 31, 2006. We
did not record any provisions for loan losses and did not have any loan
charge-offs or recoveries during the three months ended March 31, 2007 and
March
31, 2006.
The
following table provides information with respect to our nonperforming assets
at
the dates indicated. We did not have any troubled debt restructurings
at the dates presented.
|
|
At
March
31, 2007
|
|
|
At
December
31, 2006
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
$ |
769 |
(1) |
|
$ |
–
|
|
Loans
past due 90 days or more and accruing
|
|
|
–
|
|
|
|
2
|
|
Total
nonperforming loans
|
|
|
769
|
|
|
|
2
|
|
Other
nonperforming assets
|
|
|
–
|
|
|
|
–
|
|
Total
nonperforming assets
|
|
|
769
|
|
|
|
2
|
|
Troubled
debt restructurings
|
|
|
–
|
|
|
|
–
|
|
Troubled
debt restructurings and
total
nonperforming assets
|
|
$ |
769
|
|
|
$ |
2
|
|
|
|
|
|
|
|
|
|
|
Total
nonperforming loans to total loans
|
|
|
0.37 |
% |
|
|
–
|
|
Total
nonperforming loans to total assets
|
|
|
0.27 |
% |
|
|
–
|
|
Total
nonperforming assets and troubled
debt
restructurings to total assets
|
|
|
0.27 |
% |
|
|
–
|
|
(1)
Represents one non-residential mortgage loan, secured by three properties,
with
an outstanding principal balance of $769,000, 90 days past due. We
have classified this non-residential mortgage loan as substandard, placed it
on
non-accrual status, and commenced a foreclosure action. Aside from
the collateral properties, the debt is secured by personal and corporate
guarantees.
At
March
31, 2007, we had three multi-family mortgage loans 30-89 days past-due totaling
$1.4 million, which we classified as special mention.
Noninterest
Income. Noninterest income
increased by $69,000, or 61.1%, to $182,000 for the three months ended March
31,
2007 from $113,000 for the three months ended March 31, 2006. The
increase was primarily due to $88,000 in earnings on bank owned life insurance
partially offset a decrease of $16,000 in other loan fees and service charges
and a decrease of $3,000 in other noninterest income. We purchased
the bank owned life insurance in July 2006.
Noninterest
Expense. Noninterest expense
increased by $224,000, or 11.0%, to $2.3 million for the three months ended
March 31, 2007 from $2.0 million for the three months ended March 31,
2006. The increase resulted primarily from increases of $81,000 in
other noninterest expense, $76,000 in salaries and employee benefits, and
$44,000 in equipment expense.
Other
noninterest expense increased by $81,000, or 17.8%, to $537,000 in 2007 from
$456,000 in 2006 due mainly to expenses associated with being a public
company. The increase in salaries and employee benefits of $76,000,
or 7.2%, to $1.13 million in 2007 from $1.05 million in 2006 is associated
with
the ESOP implemented in connection with our initial public stock
offering. The ESOP expense was $78,000 during the quarter ended March
31, 2007. Equipment expenses increased by $44,000, or 45.8%, from
$96,000 in 2006 to $140,000 in 2007 due to the expenses related to the
relocation of our 1355 First Avenue office and the upgrade of
equipment.
Income
Taxes. Income tax expense
decreased by $93,000, or 29.9%, to $218,000 for the three months ended March
31,
2007, from $311,000 for the three months ended March 31, 2006. The
decrease resulted primarily from a decrease of $112,000 in income before taxes
to $608,000 for the three months ended March 31, 2007, as compared to $720,000
for the three months ended March 31, 2006, and the inclusion of $88,000 in
tax-exempt earnings on BOLI in the current quarter’s pre-tax
earnings. The effective tax rate was 35.9% for the three months ended
March 31, 2007 compared to 43.2% for the same period in 2006.
Liquidity
Management. Liquidity is the ability
to meet current and future financial obligations of a short-term
nature. Our primary sources of funds consist of deposit inflows, loan
repayments, maturities and sales of securities, and borrowings from the Federal
Home Loan Bank of New York. While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions and competition.
We
regularly adjust our investments in
liquid assets based upon our assessment of: (1) expected loan
demands; (2) expected deposit flows; (3) yields available on interest-earning
deposits and securities; and (4) the objectives of our asset/liability
management policy.
Our
most liquid assets are cash and
cash equivalents. The levels of these assets depend on our operating,
financing, lending, and investing activities during any given
period. Cash and cash equivalents totaled $27.3 million at March 31,
2007 and consist primarily of deposits at other financial institutions and
miscellaneous cash items. Securities classified as available for sale
and whose fair value exceeds our cost provide an additional source of
liquidity. Total securities classified as available for sale were
$346,000 at March 31, 2007.
At
March 31, 2007, we had $11.5 million
in loan commitments outstanding, consisting of $5.9 million of real estate
loan
commitments, $3.2 million in unused real estate equity lines of credit, $2.2
million in unused loans in process, and $203,000 in consumer lines of
credit. Certificates of deposit due within one year of March 31, 2007
totaled $69.4 million. This represented 65.3% of certificates of
deposit at March 31, 2007. We believe the large percentage of
certificates of deposit that mature within one year reflects customers’
hesitancy to invest their funds for long periods in the current interest rate
environment. If these maturing deposits do not remain with us, we
will
be
required to seek other sources of funds, including other certificates of deposit
and borrowings. Depending on market conditions, we may be required to
pay higher rates on such deposits or other borrowings than we currently pay
on
the certificates of deposit due on or before March 31, 2008. We
believe, however, based on past experience, a significant portion of our
certificates of deposit will remain with us. We have the ability to
attract and retain deposits by adjusting the interest rates
offered.
Our
primary investing activities are
the origination of loans and the purchase of securities. Our primary
financing activities consist of activity in deposit accounts and Federal Home
Loan Bank advances. At March 31, 2007, we had the ability to borrow
$12.0 million from the Federal Home Loan Bank of New York, which included two
available overnight lines of credit of $6.0 million each. At March
31, 2007, we had no overnight advances outstanding. Deposit flows are
affected by the overall level of interest rates, the interest rates and products
offered by us and our local competitors and other factors. We
generally manage the pricing of our deposits to be competitive and to maintain
or increase our core deposit relationships depending on our level of real estate
loan commitments outstanding. Occasionally, we offer promotional
rates on certain deposit products to attract deposits or to lengthen repricing
time frames.
Capital
Management. The Bank is subject to various regulatory capital
requirements administered by the Office of Thrift Supervision, including a
risk-based capital measure. The risk-based capital guidelines include both
a
definition of capital and a framework for calculating risk-weighted assets
by
assigning balance sheet assets and off-balance sheet items to broad risk
categories. At March 31, 2007, the Bank exceeded all of our
regulatory capital requirements. The Bank is considered “well
capitalized” under regulatory guidelines.
Off-Balance
Sheet
Arrangements. In the normal course of operations, we
engage in a variety of financial transactions that, in accordance with U.S.
generally accepted accounting principles, are not recorded in our financial
statements. These transactions involve, to varying degrees, elements
of credit, interest rate and liquidity risk. Such transactions are
used primarily to manage customers’ requests for funding and take the form of
loan commitments, letters of credit and lines of credit.
For
the three months ended March 31,
2007 and the year ended December 31, 2006, we engaged in no off-balance sheet
transactions reasonably likely to have a material effect on our financial
condition, results of operations or cash flows.
|
Quantitative
and Qualitative Disclosures About Market
Risk.
|
Qualitative
Aspects of Market Risk. The Company’s most significant form
of market risk is interest rate risk. We manage the interest rate sensitivity
of
our interest-bearing liabilities and interest-earning assets in an effort to
minimize the adverse effects of changes in the interest rate
environment. Deposit accounts typically react more quickly to changes
in market interest rates than mortgage loans because of the shorter maturities
of deposits. As a result, sharp increases in interest rates may
adversely affect our earnings while decreases in interest rates may beneficially
affect our earnings. To reduce the potential volatility of our
earnings, we have sought to improve the match between asset and liability
maturities and rates, while maintaining an acceptable interest rate
spread. Our strategy for managing interest rate risk
emphasizes: originating mortgage real estate loans that reprice to
market interest rates in three to five years; purchasing securities that
typically reprice within a three year time frame to limit exposure to market
fluctuations; and, where appropriate, offering higher rates on long term
certificates of deposit to lengthen the repricing time frame of our
liabilities. We currently do not participate in hedging programs,
interest rate swaps or other activities involving the use of derivative
financial instruments.
We
have an Asset/Liability Committee,
comprised of our chief executive officer, chief financial officer, chief
mortgage officer and treasurer, whose function is to communicate, coordinate
and
control all aspects involving asset/liability management. The
committee establishes and monitors the volume, maturities, pricing and mix
of
assets and funding sources with the objective of managing assets and funding
sources to provide results that are consistent with liquidity, growth, risk
limits and profitability goals.
Our
goal is to manage asset and
liability positions to moderate the effects of interest rate fluctuations on
net
interest income and net income.
Quantitative
Aspects of Market
Risk. We use an interest rate sensitivity analysis prepared
by the Office of Thrift Supervision to review our level of interest rate
risk. This analysis measures interest rate risk by computing changes
in net portfolio value of our cash flows from assets, liabilities and
off-balance sheet items in the event of a range of assumed changes in market
interest rates. Net portfolio value represents the market value of
portfolio equity and is equal to the market value of assets minus the market
value of liabilities, with adjustments made for off-balance sheet
items. These analyses assess the risk of loss in market
risk-sensitive instruments in the event of a sudden and sustained 100 to 300
basis point increase or 100 and 200 basis point decrease in market interest
rates with no effect given to any steps that we might take to counter the effect
of that interest rate movement.
The
following table presents the change
in our net portfolio value at December 31, 2006 that would occur in the event
of
an immediate change in interest rates based on Office of Thrift Supervision
assumptions, with no effect given to any steps that we might take to counteract
that change. The Bank expects that its net portfolio value at March
31, 2007 is materially consistent with the table below.
|
|
|
Net
Portfolio Value
(Dollars
in thousands)
|
|
|
Net
Portfolio Value as % of
Portfolio
Value of Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Point (“bp”)
Change
in Rates
|
|
Amount
|
|
|
Change
|
|
|
%
Change
|
|
|
NPV
Ratio
|
|
|
Change
(bp)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
$ |
69,424
|
|
|
$ |
(5,122 |
) |
|
|
(7 |
)% |
|
|
26.62 |
% |
|
(105)
bp
|
|
|
200
|
|
|
|
71,083
|
|
|
|
(3,463 |
) |
|
|
(5 |
)% |
|
|
26.97 |
% |
|
(70)
bp
|
|
|
100
|
|
|
|
72,789
|
|
|
|
(1,757 |
) |
|
|
(2 |
)% |
|
|
27.32 |
% |
|
(35)
bp
|
|
|
0
|
|
|
|
74,546
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27.67 |
% |
|
|
-
|
|
|
(100)
|
|
|
|
76,135
|
|
|
|
1,589
|
|
|
|
2 |
% |
|
|
27.96 |
% |
|
29
bp
|
|
|
(200)
|
|
|
|
77,541
|
|
|
|
2,996
|
|
|
|
4 |
% |
|
|
28.20 |
% |
|
53
bp
|
|
We
and
the Office of Thrift Supervision use various assumptions in assessing interest
rate risk. These assumptions relate to interest rates, loan
prepayment rates, deposit decay rates and the market values of certain assets
under differing interest rate scenarios, among others. As with any
method of measuring interest rate risk, certain shortcomings are inherent in
the
methods of analyses presented in the foregoing tables. For example,
although certain assets and liabilities may have similar maturities or periods
to repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate mortgage
loans, have features that restrict changes in interest rates on a short-term
basis and over the life of the asset. Further, in the event of a
change in interest rates, expected rates of prepayments on loans and early
withdrawals from certificates could deviate significantly from those assumed
in
calculating the table. Prepayment rates can have a significant impact
on interest income. Because of the large percentage of loans we hold,
rising or falling interest rates have a significant impact on the prepayment
speeds of our earning assets that in turn affect the rate sensitivity
position. When interest rates rise, prepayments tend to
slow. When interest rates fall, prepayments tend to
rise. Our asset sensitivity would be reduced if prepayments slow and
vice versa. While we believe these assumptions to be reasonable,
there can be no assurance that assumed prepayment rates will approximate actual
future loan repayment activity.
The
Company’s management, including the Company’s principal executive officer and
principal financial officer, have evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”). Based upon their evaluation, the principal executive
officer and principal financial officer concluded that, as
of
the
end of the period covered by this report, the Company’s disclosure controls and
procedures were effective for the purpose of ensuring that the information
required to be disclosed in the reports that the Company files or submits under
the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and (2) is accumulated and communicated to the
Company’s management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required
disclosure.
Not
applicable
From
time
to time, we may be party to various legal proceedings incident to our
business. At March 31, 2007, we were not a party to any pending legal
proceedings that we believe would have a material adverse effect on our
financial condition, results of operations or cash flows.
In
addition to the other information
set forth in this report, you should carefully consider the factors discussed
in
Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year
ended December 31, 2006, which could materially affect our business, financial
condition or future results. The risks described in our Annual Report
on Form 10-K are not the only risks that we face. Additional risks
and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially affect our business, financial condition and/or
operating results.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
|
Defaults
Upon Senior Securities
|
Not
applicable
|
Submission
Of Matters to a Vote of Security
Holders
|
Not
applicable
None
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
|
Northeast
Community Bancorp, Inc.
|
|
|
|
|
|
|
|
|
|
Date: May
14, 2007
|
By:
|
/s/
Kenneth A. Martinek
|
|
|
Kenneth
A. Martinek
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
Date: May
14, 2007
|
By:
|
/s/
Salvatore Randazzo
|
|
|
Salvatore
Randazzo
|
|
|
Executive
Vice President and Chief Financial
Officer
|
15