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EX-31.1 - CEO CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES OXLEY - DIME COMMUNITY BANCSHARES INCexhibit31_1.htm
EX-31.2 - CFO CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES OXLEY - DIME COMMUNITY BANCSHARES INCexhibit31_2.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A

[x]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended                                                                      September 30, 2012
OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

Commission file number 0-27782

Dime Community Bancshares, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
 
11-3297463
(I.R.S. employer identification number)
 
209 Havemeyer Street, Brooklyn, NY
(Address of principal executive offices)
 
 
11211
(Zip Code)

(718) 782-6200
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all the reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES              x     NO ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES              x            NO ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

LARGE ACCELERATED FILER ___
ACCELERATED FILER    x 
NON -ACCELERATED FILER  ___
SMALLER REPORTING COMPANY ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES                                            NO   x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Classes of Common Stock
 
Number of Shares Outstanding at November 7, 2012
$.01 Par Value
 
35,606,696
 
 
 

 

EXPLANATORY NOTE:

This Amendment No. 1 to the Quarterly Report on Form 10-Q of Dime Community Bancshares, Inc. and Subsidiaries (the "Registrant") for the period ended September 30, 2012 (the "10-Q") includes language documenting the filing of the 10-Q by the Registrant in accordance with the provisions of Securities Exchange Act of 1934 Release No. 68224 ("Exchange Act Release No. 68224").

Pursuant to SEC requirements, the deadline for filing the 10-Q was November 9, 2012.  The Registrant filed its 10-Q on November 13, 2012 pursuant to verbal and written communications with the SEC in which it had been informed that its reporting deadline for the 10-Q was extended to November 21, 2012 as a result of Hurrican Sandy. Exchange Act Release No. 68224 was issued on November 14, 2012, (i) extending the filing deadline for entities impacted by Hurricane Sandy, and (ii) requiring certain disclosures in the report for filers relying upon the extension.  Since this disclosure requirement was enacted subsequent to the filing of the 10-Q, the disclosure was not included in the 10-Q and is included herein.

________________________________
On November 14, 2012, the Securities and Exchange Commission ("SEC") issued Securities Exchange Act of 1934 (the "Exchange Act") Release No. 68224, in which the following order under Section 17A and Section 26 granting exemptions from specified provisions of the Exchange Act and certain rules thereunder was made:

Pursuant to Section 36 of the Exchange Act, that a registrant (as defined in Exchange Act Rule 12b-2) subject to the reporting requirements of Exchange Act Section 13(a) or 15(d), and any person required to make any filings with respect to such a registrant, is exempt from any requirement to file or furnish materials with the Commission under Exchange Act Sections 13(a), 13(d), 13(f), 13(g), 14(a), 14(c), 15(d) and 16(a), Regulations 13A, 13D, 13G, 14A, 14C and 15D, and Exchange Act Rules 13f-1 and 16a-3, as applicable, for the period from and including October 29, 2012 to November 20, 2012, where the conditions below are satisfied:

(a) The registrant or person other than a registrant is not able to meet a filing deadline due to Hurricane Sandy and its aftermath;

(b) The registrant or person other than a registrant files with the Commission any report, schedule or form required to be filed during the period from and including October 29, 2012 to November 20, 2012, on or before November 21, 2012; and

(c) In any such report, schedule or form filed pursuant to this Order, the registrant or person other than a registrant must disclose that it is relying on this Order and state the reasons why, in good faith, it could not file such report, schedule or form on a timely basis.

Lack of communications, transportation, electricity, facilities and available staff and professional advisors as a result of Hurricane Sandy and its aftermath significantly hampered the Registrant's effort to meet its Quarterly Report on Form 10-Q ("10-Q") filing deadline of November 9, 2012.  As a result, the Registrant, (i)  was unable, in good faith, to file the 10-Q on a timely basis; (ii) availed itself of the filing extension granted under the order issued in Exchange Act Release No. 68224; and (iii) filed its 10-Q on November 13, 2012.
 
________________________________
 

 


Except as stated herein, this Form 10-Q/A does not reflect events occurring after the filing of the Form 10Q on November 13, 2012, and no attempt has been made in the Quarterly Report on Form 10-Q/A to modify or update other disclosures in the Quarterly Report on Form 10-Q for the Period ended September 30, 2012.



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: November 15, 2012


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[x]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended                                                                      September 30, 2012
OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

Commission file number 0-27782

Dime Community Bancshares, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
 
11-3297463
(I.R.S. employer identification number)
 
209 Havemeyer Street, Brooklyn, NY
(Address of principal executive offices)
 
 
11211
(Zip Code)

(718) 782-6200
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all the reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES              x     NO ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES              x            NO ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

LARGE ACCELERATED FILER ___
ACCELERATED FILER    x 
NON -ACCELERATED FILER  ___
SMALLER REPORTING COMPANY ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES                                            NO   x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Classes of Common Stock
 
Number of Shares Outstanding at November 7, 2012
$.01 Par Value
 
35,606,696
 
 
 




 
 
Page
 
PART I – FINANCIAL INFORMATION
 
Item 1.
Unaudited Condensed Consolidated Financial Statements
 
 
Condensed Consolidated Statements of Financial Condition at September 30, 2012 and December 31, 2011
3
 
Condensed Consolidated Statements of Operations and Comprehensive Income for the Three-Month and Nine-Month Periods Ended September 30, 2012 and 2011
4
 
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Nine Months Ended September 30, 2012 and 2011
5
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011
6
 
Notes to Condensed Consolidated Financial Statements
7-31
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
32-49
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
49-50
Item 4.
Controls and Procedures
51
 
PART II - OTHER INFORMATION
 
Item 1.
Legal Proceedings
51
Item 1A.
Risk Factors
51
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
51
Item 3.
Defaults Upon Senior Securities
51
Item 5.
Other Information
51
Item 6.
Exhibits
51-53
 
Signatures
53

This Quarterly Report on Form 10-Q contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").  These statements may be identified by use of words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "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 Dime Community Bancshares, Inc. (the "Holding Company" and, together with its direct and indirect subsidiaries, the "Company") in light of management's experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes 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;
·
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; and
·
the risks referred to in the section entitled "Risk Factors."

The Company has no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.

2


Item 1.  Condensed Consolidated Financial Statements

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands except share amounts)
 
 
September 30,
2012
   
December 31,
2011
 
ASSETS:
 
   
 
Cash and due from banks
 
$
194,702
   
$
43,309
 
Federal funds sold and other short-term investments
   
59,999
     
951
 
  Total cash and cash equivalents
   
254,701
     
44,260
 
Investment securities held-to-maturity (estimated fair value of $6,244 and $4,924 at September 30, 2012 and December 31, 2011, respectively) (Fully unencumbered)
   
5,957
     
6,511
 
Investment securities available-for-sale, at fair value:
               
   Encumbered
   
49,111
     
124,282
 
   Unencumbered
   
5,915
     
50,586
 
 
   
55,026
     
174,868
 
Mortgage-backed securities available-for-sale, at fair value:
               
   Encumbered
   
69,977
     
90,164
 
   Unencumbered
   
11,815
     
3,713
 
 
   
81,792
     
93,877
 
Trading securities
   
3,432
     
1,774
 
Loans:
               
    Real estate, net
   
3,323,501
     
3,458,416
 
    Other loans
   
2,492
     
2,449
 
    Less allowance for loan losses
   
(20,694
)
   
(20,254
)
   Total loans, net
   
3,305,299
     
3,440,611
 
Loans held for sale
   
387
     
3,022
 
Premises and fixed assets, net
   
33,363
     
32,646
 
Federal Home Loan Bank of New York ("FHLBNY") capital stock
   
41,636
     
49,489
 
Goodwill
   
55,638
     
55,638
 
Other assets
   
117,127
     
118,484
 
Total Assets
 
$
3,954,358
   
$
4,021,180
 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Liabilities:
               
Due to depositors:
               
Interest bearing deposits
 
$
2,267,897
   
$
2,202,622
 
Non-interest bearing deposits
   
151,269
     
141,079
 
Total deposits
   
2,419,166
     
2,343,701
 
Escrow and other deposits
   
111,066
     
71,812
 
Securities sold under agreements to repurchase ("REPOS")
   
155,000
     
195,000
 
FHLBNY advances
   
767,500
     
939,775
 
Trust Preferred securities payable
   
70,680
     
70,680
 
Other liabilities
   
43,408
     
39,178
 
Total Liabilities
 
$
3,566,820
   
$
3,660,146
 
Commitments and Contingencies
               
Stockholders' Equity:
               
Preferred stock ($0.01 par, 9,000,000 shares authorized, none issued or outstanding at September 30, 2012 and December 31, 2011)
   
-
     
-
 
Common stock ($0.01 par, 125,000,000 shares authorized, 51,905,791 shares and 51,566,098 shares issued at September 30, 2012 and December 31, 2011,
   respectively, and 35,598,196 shares and 35,109,045 shares outstanding at September 30, 2012 and December 31, 2011, respectively)
 
$
519
   
$
516
 
Additional paid-in capital
   
237,192
     
231,521
 
Retained earnings
   
377,266
     
358,079
 
Accumulated other comprehensive loss, net of deferred taxes
   
(9,396
)
   
(9,709
)
Unallocated common stock of Employee Stock Ownership Plan ("ESOP")
   
(3,065
)
   
(3,239
)
Unearned Restricted Stock Award common stock
   
(3,594
)
   
(3,037
)
Common stock held by Benefit Maintenance Plan ("BMP")
   
(8,800
)
   
(8,655
)
Treasury stock, at cost (16,307,595 shares and 16,457,053 shares at September 30, 2012 and December 31, 2011, respectively)
   
(202,584
)
   
(204,442
)
Total Stockholders' Equity
 
$
387,538
   
$
361,034
 
Total Liabilities And Stockholders' Equity
 
$
3,954,358
   
$
4,021,180
 
See notes to condensed consolidated financial statements.
3


DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands except per share amounts)

 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2012
   
2011
   
2012
   
2011
 
Interest income:
 
   
   
   
 
Loans secured by real estate
 
$
45,963
   
$
49,139
   
$
143,735
   
$
151,625
 
Other loans
   
28
     
24
     
76
     
74
 
Mortgage-backed securities
   
677
     
1,192
     
2,456
     
3,974
 
Investment securities
   
223
     
321
     
1,043
     
1,019
 
Federal funds sold and other short-term investments
   
582
     
640
     
1,895
     
2,089
 
Total interest  income
   
47,473
     
51,316
     
149,205
     
158,781
 
Interest expense:
                               
Deposits and escrow
   
5,302
     
6,498
     
16,449
     
20,081
 
Borrowed funds
   
8,773
     
10,646
     
31,465
     
33,325
 
Total interest expense
   
14,075
     
17,144
     
47,914
     
53,406
 
Net interest income
   
33,398
     
34,172
     
101,291
     
105,375
 
Provision for loan losses
   
126
     
2,217
     
3,858
     
5,305
 
Net interest income after provision for loan losses
   
33,272
     
31,955
     
97,433
     
100,070
 
Non-interest income:
                               
Other than temporary impairment ("OTTI") losses:
   
-
     
(83
)
   
(187
)
   
(720
)
Less:  Non-credit portion of OTTI recorded in other comprehensive income (before taxes)
   
-
     
24
     
6
     
25
 
Net OTTI recognized in earnings
   
-
     
(59
)
   
(181
)
   
(695
)
Service charges and other fees
   
1,244
     
1,172
     
2,840
     
2,836
 
Net mortgage banking income
   
259
     
136
     
1,475
     
433
 
Net gain on sales of securities and other assets
   
67
     
(136
)
   
180
     
(69
)
Income from bank owned life insurance
   
423
     
420
     
1,265
     
1,334
 
Other
   
581
     
616
     
1,772
     
1,954
 
Total non-interest income
   
2,574
     
2,149
     
7,351
     
5,793
 
Non-interest expense:
                               
Salaries and employee benefits
   
8,245
     
7,723
     
25,751
     
24,518
 
Stock benefit plan amortization expense
   
975
     
939
     
2,884
     
2,886
 
Occupancy and equipment
   
2,527
     
2,649
     
7,431
     
7,741
 
Federal deposit insurance premiums
   
502
     
591
     
1,557
     
2,163
 
Data processing costs
   
746
     
760
     
2,223
     
2,236
 
Other
   
2,776
     
2,302
     
8,009
     
7,363
 
Total non-interest expense
   
15,771
     
14,964
     
47,855
     
46,907
 
Income before income taxes
   
20,075
     
19,140
     
56,929
     
58,956
 
Income tax expense
   
8,280
     
7,976
     
23,356
     
24,374
 
Net income
 
$
11,795
   
$
11,164
   
$
33,573
   
$
34,582
 
Earnings per Share:
                               
Basic
 
$
0.34
   
$
0.33
   
$
0.98
   
$
1.03
 
Diluted
 
$
0.34
   
$
0.33
   
$
0.98
   
$
1.02
 
 
                               
STATEMENTS OF COMPREHENSIVE INCOME
                               
Net Income
 
$
11,795
   
$
11,164
   
$
33,573
   
$
34,582
 
Amortization and reversal of net unrealized loss on securities transferred from
   available-for-sale to held-to-maturity, net of taxes of $11 and $14 during the three months
   ended September 30, 2012 and 2011, respectively, and $75 and $26 during the
   nine months ended September 30, 2012 and 2011, respectively
   
13
     
15
     
91
     
47
 
Reduction in non-credit component of OTTI charge, net of taxes of $6 and $290 during
   the three months ended September 30, 2012 and 2011, respectively, and $133 and
   $566 during the nine months ended September 30, 2012 and 2011, respectively
   
7
     
5
     
161
     
693
 
Non-credit component of OTTI charge recognized during the period, net of tax benefit of
   $(3) during the nine months ended September 30, 2011
   
-
     
(13
)
   
(3
)
   
(13
)
Reclassification adjustment for securities sold during the period, net of taxes of
   $20 during the nine months ended September 30, 2012 and $10 during the three months and nine months
   ended September 30, 2011
   
-
     
12
     
24
     
12
 
Net unrealized securities gains arising during the period, net of (tax benefits) taxes of $(6)
   and $304 during the three months ended September 30, 2012 and 2011, respectively and
   $(224) and $37 during the nine months ended September 30, 2012 and 2011, respectively
   
(7
)
   
(601
)
   
(272
)
   
(557
)
Defined benefit plan adjustments, net of taxes of $256 during the nine months
   ended September 30, 2012 and $23 during the nine months ended September 30, 2011
   
-
     
-
     
312
     
27
 
Comprehensive Income
 
$
11,808
   
$
10,582
   
$
33,886
   
$
34,791
 
See notes to condensed consolidated financial statements.

4


DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 (Dollars in thousands)

 
 
Nine Months Ended September 30,
 
 
 
2012
   
2011
 
Common Stock (Par Value $0.01):
 
   
 
Balance at beginning of period
 
$
516
   
$
512
 
Shares issued in exercise of options
   
3
     
3
 
Balance at end of period
   
519
     
515
 
Additional Paid-in Capital:
               
Balance at beginning of period
   
231,521
     
225,585
 
Stock options exercised
   
4,083
     
2,627
 
Forfeited restricted stock award shares returned to treasury stock
   
(3
)
   
2
 
Tax benefit of stock plans
   
349
     
399
 
Release from treasury stock for restricted stock award and BMP benefit shares
   
217
     
501
 
Amortization of excess fair value over cost – ESOP stock and stock options expense
   
1,025
     
1,082
 
Balance at end of period
   
237,192
     
230,196
 
Retained Earnings:
               
Balance at beginning of period
   
358,079
     
329,668
 
Net income for the period
   
33,573
     
34,582
 
Cash dividends declared and paid
   
(14,386
)
   
(14,156
)
Balance at end of period
   
377,266
     
350,094
 
Accumulated Other Comprehensive Loss, net of tax:
               
Balance at beginning of period
   
(9,709
)
   
(6,352
)
Amortization and reversal of net unrealized loss on securities transferred from available-for- sale to held-to-maturity, net of tax
   
91
     
47
 
Reduction in non-credit component of OTTI charge, net of tax
   
161
     
693
 
Non-credit component of OTTI charge recognized during the period, net of tax
   
(3
)
   
(13
)
Increase in unrealized loss on available-for-sale securities during the period
   
(248
)
   
(545
)
Adjustments related to defined benefit plans, net of tax
   
312
     
27
 
Balance at end of period
   
(9,396
)
   
(6,143
)
ESOP:
               
Balance at beginning of period
   
(3,239
)
   
(3,470
)
Amortization of earned portion of ESOP stock
   
174
     
173
 
Balance at end of period
   
(3,065
)
   
(3,297
)
Unearned Restricted Stock Award Common Stock:
               
Balance at beginning of period
   
(3,037
)
   
(2,684
)
Amortization of earned portion of restricted stock awards
   
1,370
     
1,139
 
Release from treasury stock for restricted stock award shares
   
(1,959
)
   
(1,953
)
Forfeited restricted stock award shares returned to treasury stock
   
32
     
22
 
Balance at end of period
   
(3,594
)
   
(3,476
)
Treasury Stock, at cost:
               
Balance at beginning of period
   
(204,442
)
   
(206,546
)
Forfeited restricted stock award shares returned to treasury stock
   
(29
)
   
(24
)
Release from treasury stock for restricted stock award and BMP benefit shares
   
1,887
     
2,128
 
Balance at end of period
   
(202,584
)
   
(204,442
)
Common Stock Held by BMP:
               
Balance at beginning of period
   
(8,655
)
   
(7,979
)
BMP award distribution
   
-
     
-
 
Release from treasury stock for BMP benefit shares
   
(145
)
   
(676
)
Balance at end of period
   
(8,800
)
   
(8,655
)
 
               
Total Stockholders' Equity
 
$
387,538
   
$
354,792
 

See notes to condensed consolidated financial statements.
.
5


DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In thousands)
 
 
Nine Months Ended September 30,
 
 
 
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
   
 
Net Income
 
$
33,573
   
$
34,582
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Net (gain) loss on sale of loans originated for sale
   
(26
)
   
8
 
Net gain on sale of investment securities available-for-sale
   
(44
)
   
(22
)
Net gain on trading securities
   
(136
)
   
105
 
Net depreciation and amortization
   
2,080
     
2,236
 
ESOP compensation expense
   
819
     
812
 
Stock plan compensation (excluding ESOP)
   
1,750
     
1,582
 
Provision for loan losses
   
3,858
     
5,305
 
Credit to reduce the liability for loans sold with recourse
   
(1,107
)
   
-
 
OTTI charge for investment securities recognized in earnings
   
181
     
695
 
Increase in cash surrender value of Bank Owned Life Insurance
   
(1,265
)
   
(1,334
)
Deferred income tax credit
   
47
     
(2,415
)
Excess tax benefit of stock plans
   
(349
)
   
(399
)
Changes in assets and liabilities:
               
Origination of loans held for sale
   
(5,080
)
   
(4,539
)
Proceeds from sale of loans held for sale
   
8,741
     
7,957
 
Decrease in other assets
   
2,666
     
5,966
 
Increase in other liabilities
   
5,906
     
21,473
 
Net cash provided by operating activities
   
51,614
     
72,012
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from principal repayments of investment securities held-to-maturity
   
904
     
118
 
Proceeds from maturities of investment securities available-for-sale
   
-
     
-
 
Proceeds from calls and principal repayments of investment securities available-for-sale
   
200,320
     
174,000
 
Proceeds from sales of investment securities available-for-sale
   
313
     
226
 
Proceeds from sales of trading securities
   
171
     
136
 
Purchases of investment securities available-for-sale
   
(80,086
)
   
(228,132
)
Purchases of mortgage backed securities available-for-sale
   
(23,186
)
   
-
 
Purchases of trading securities
   
(1,691
)
   
(426
)
Principal collected on mortgage backed securities available-for-sale
   
34,021
     
37,706
 
Purchases of loans
   
(24,483
)
   
(39,190
)
Proceeds from the sale of portfolio loans
   
30,906
     
15,712
 
Net decrease in loans
   
124,031
     
55,417
 
Purchases of fixed assets, net
   
(2,739
)
   
(3,271
)
Redemption of FHLBNY capital stock
   
7,853
     
4,704
 
Net cash provided by investing activities
   
266,334
     
17,000
 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net increase in due to depositors
   
75,465
     
34,036
 
Net increase in escrow and other deposits
   
39,254
     
23,803
 
Decrease in REPOS
   
(40,000
)
   
-
 
Repayment of FHLBNY advances
   
(172,275
)
   
(105,750
)
Cash dividends paid
   
(14,386
)
   
(14,156
)
Exercise of stock options
   
4,086
     
2,630
 
BMP award distribution
   
-
     
-
 
Excess tax benefit of stock plans
   
349
     
399
 
Net cash used in financing activities
   
(107,507
)
   
(59,038
)
INCREASE IN CASH AND DUE FROM BANKS
   
210,441
     
29,974
 
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD
   
44,260
     
90,729
 
CASH AND DUE FROM BANKS, END OF PERIOD
 
$
254,701
   
$
120,703
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Cash paid for income taxes
 
$
22,531
   
$
20,718
 
Cash paid for interest
   
48,244
     
53,573
 
Loans transferred to held for sale
   
1,000
     
-
 
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity
   
142
     
85
 
Net decrease in non-credit component of OTTI
   
(288
)
   
(1,239
)
Adjustments to other comprehensive income from defined benefit plans, net of tax
   
312
     
27
 
See notes to condensed consolidated financial statements.

 
6

 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in Thousands Except Per Share Amounts)

1.   NATURE OF OPERATIONS

The Holding Company is a Delaware corporation and parent company of the Bank, a New York State chartered stock savings bank.  The Holding Company's direct subsidiaries are the Bank, Dime Community Capital Trust 1 and 842 Manhattan Avenue Corp.  The Bank's direct subsidiaries are Boulevard Funding Corp., Dime Insurance Agency Inc. (f/k/a Havemeyer Investments, Inc.), DSBW Preferred Funding Corporation, DSBW Residential Preferred Funding Corp., Dime Reinvestment Corp. and 195 Havemeyer Corp.

The Bank maintains its headquarters in the Williamsburg section of Brooklyn, New York and operates twenty-six 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 is gathering deposits from customers within its market area and via the internet, and investing them primarily in multifamily residential, commercial real estate, one- to four-family residential, construction and land acquisition, and consumer loans, as well as mortgage-backed securities ("MBS"), obligations of the U.S. Government and Government Sponsored Enterprises ("GSEs"), and corporate debt and equity securities.  All of the Bank's lending occurs in the greater NYC metropolitan area.

2.   SUMMARY OF ACCOUNTING POLICIES

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for a fair presentation of the Company's financial condition as of September 30, 2012 and December 31, 2011, the results of operations and statements of comprehensive income for the three-month and nine-month periods ended September 30, 2012 and 2011, and the changes in stockholders' equity and cash flows for the nine months ended September 30, 2012 and 2011.  The results of operations for the three-month and nine-month periods ended September 30, 2012 are not necessarily indicative of the results of operations for the remainder of the year ending December 31, 2012.  Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to the rules and regulations of the U. S. Securities and Exchange Commission ("SEC').

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Please see "Part I - Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" for a discussion of areas in the accompanying condensed consolidated financial statements where significant estimates are utilized.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2011 and notes thereto.

3.   RECENT ACCOUNTING PRONOUNCEMENTS

In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-08, "Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment" ("ASU 2011-08").  Under ASU 2011-08, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing additional impairment testing is unnecessary. However, if an entity concludes otherwise, it is required to calculate the fair value of the reporting unit and compare the fair value with the carrying amount of the reporting unit, as described in the accounting guidance. This guidance is effective for fiscal years beginning after December 15, 2011 and interim periods within those years. While early adoption was permitted, the Company did not elect to early adopt ASU 2011-08.  Adoption of ASU 2011-08 did not have a material impact upon the Company's consolidated financial condition or results of operations.

In June 2011, FASB issued Accounting Standards Update No. 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income" ("ASU 2011-05").   ASU 2011-05 permits an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In either option, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the presentation of the components of other comprehensive income as part of the statement of changes in stockholders' equity.  ASU 2011-05 does not change the items that must be reported in other comprehensive income or the timing in which an item of other comprehensive income must be reclassified to net income. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  Since the Company's presentation of periodic comprehensive income already complied with the provisions of ASU 2011-05, adoption of ASU 2011-05 did not materially impact the Company's consolidated financial condition or results of operations or related disclosures.

7

In May 2011, FASB issued Accounting Standards Update No. 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs" ("ASU 2011-04").  ASU 2011-04 was issued concurrently with International Financial Reporting Standards ("IFRS") No. 13, "Fair Value Measurements," and these respective standards substantially converge the guidance in GAAP and IFRS on fair value measurements and disclosures.  ASU 2011-04 amended several aspects of the fair value measurement guidance in FASB Accounting Standards Codification ("ASC") 820, "Fair Value Measurement," as follows: 1) application of the concepts of highest and best use and valuation premise; 2) introduction of an option to measure groups of offsetting assets and liabilities on a net basis; 3) incorporation of certain premiums and discounts in fair value measurements; and 4) initiating a requirement to disclose the measurement of the fair value of certain instruments classified in shareholders' equity.  ASU 2011-04 additionally included several new fair value disclosure requirements, including, among others, information about valuation techniques and unobservable inputs used in Level 3 fair value measurements and a narrative description of the sensitivity of Level 3 measurements to changes in unobservable inputs.  The Company adopted ASU 2011-04 effective January 1, 2012.  Adoption of ASU 2011-04 did not have a material impact upon the Company's consolidated financial condition or results of operations.

4.   TREASURY STOCK

The Holding Company did not repurchase any of its common stock into treasury during the three months ended September 30, 2012 or 2011.

On April 30, 2012, 141,289 shares of the Holding Company's common stock were released from treasury in order to fulfill benefit obligations under the 2004 Stock Incentive Plan.  The closing price of the Holding Company's common stock on that date was $13.86, and the shares were released utilizing the average historical cost method.  On May 1, 2012, 10,729 shares of treasury stock were released in order to fulfill benefit obligations under the BMP.  The closing price of the Holding Company's common stock on that date was $13.55, and the shares were released utilizing the average historical cost method.

On April 29, 2011, 126,304 shares of the Holding Company's common stock were released from treasury in order to fulfill benefit obligations under the 2004 Stock Incentive Plan.  The closing price of the Holding Company's common stock on that date was $15.46, and the shares were released utilizing the average historical cost method.  On May 3, 2011, 45,056 shares of treasury stock were released in order to fulfill benefit obligations under the BMP.  The closing price of the Holding Company's common stock on that date was $15.16, and the shares were released utilizing the average historical cost method.

The Holding Company returned 2,371 and 1,984 forfeited restricted stock awards into treasury stock during the nine months ended September 30, 2012 and September 30, 2011, respectively.

5.   ACCOUNTING FOR GOODWILL

The Company has designated the last day of its fiscal year as its date for annual impairment testing.  The Company performed an impairment test as of December 31, 2011 and concluded that no impairment of goodwill existed.  No events or circumstances have occurred subsequent to December 31, 2011 that would, in management's opinion, reduce the fair value of the Company's reporting unit below its carrying value.  Such events or circumstances would require the immediate performance of an impairment test in accordance with FASB ASC reference number 350.

6.   EARNINGS PER SHARE ("EPS")

Basic EPS is computed by dividing net income by the weighted-average common shares outstanding during the reporting period.  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.  In determining the weighted average shares outstanding for basic and diluted EPS, treasury stock and unallocated ESOP shares are excluded.  Vested restricted stock award shares are included in the calculation of the weighted average shares outstanding for basic and diluted EPS.   Unvested restricted stock award shares are recognized as a special class of securities under ASC 260.
8


The following is a reconciliation of the numerators and denominators of basic EPS and diluted EPS for the periods presented:

 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2012
   
2011
   
2012
   
2011
 
Numerator:
 
   
   
   
 
Net Income per the Consolidated Statements of Operations
 
$
11,795
   
$
11,164
   
$
33,573
   
$
34,582
 
Denominator:
                               
Weighted-average number of shares outstanding utilized in the calculation of basic EPS
   
34,408,801
     
33,831,618
     
34,212,431
     
33,666,202
 
Common stock equivalents resulting from the dilutive effect of "in-the-money" outstanding stock options,
   net of the effect of tax benefits
   
89,016
     
49,705
     
75,348
     
117,206
 
Weighted average number of shares outstanding utilized in the calculation of diluted EPS
   
34,497,817
     
33,881,323
     
34,287,779
     
33,783,408
 

Common stock equivalents resulting from the dilutive effect of "in-the-money" outstanding stock options are calculated based upon the excess of the average market value of the Holding Company's common stock over the exercise price of outstanding in-the-money stock options during the period.

There were 1,330,792 and 2,746,738 weighted-average stock options outstanding for the three-month periods ended September 30, 2012 and 2011, respectively, that were not considered in the calculation of diluted EPS since their exercise prices exceeded the average market price during the period.  There were 1,323,076 and 1,245,159 weighted-average stock options outstanding for the nine-month periods ended September 30, 2012 and 2011, respectively, that were not considered in the calculation of diluted EPS since their exercise prices exceeded the average market price during the period.

7.    ACCOUNTING FOR STOCK BASED COMPENSATION

During the nine months ended September 30, 2012 and 2011, the Holding Company and Bank maintained the Dime Community Bancshares, Inc. 2001 Stock Option Plan for Outside Directors, Officers and Employees and the 2004 Stock Incentive Plan (collectively the "Stock Plans"), which are discussed more fully in Note 15 to the Company's audited consolidated financial statements for the year ended December 31, 2011, and which are subject to the accounting requirements of ASC 505-50 and ASC 718.

Stock Option Awards

Combined activity related to stock options granted under the Stock Plans during the periods presented was as follows:

 
 
At or for the Three Months
Ended September 30,
   
At or for the Nine Months
Ended September 30,
 
 
 
2012
   
2011
   
2012
   
2011
 
Options outstanding – beginning of period
   
2,830,302
     
3,079,040
     
2,893,760
     
3,213,007
 
Options granted
   
-
     
-
     
24,440
     
91,583
 
Options exercised
   
(253,182
)
   
(55,955
)
   
(339,693
)
   
(276,944
)
Options forfeited
   
(5,625
)
   
(10,312
)
   
(7,012
)
   
(14,873
)
Options outstanding – end of period
   
2,571,495
     
3,012,773
     
2,571,495
     
3,012,773
 
Remaining unrecognized compensation expense
 
$
408
   
$
628
   
$
408
   
$
628
 

The weighted average fair value per option at the date of grant for stock options granted was estimated as follows:

 
 
Nine Months Ended September 30,
 
 
 
2012
   
2011
 
Total options granted
   
24,440
     
91,583
 
Estimated fair value on date of grant
 
$
4.09
   
$
4.82
 
Pricing methodology utilized
 
Black- Scholes
   
Black- Scholes
 
Expected life (in years)
   
6.53
     
6.80
 
Interest rate
   
1.21
%
   
2.59
%
Volatility
   
45.17
     
42.35
 
Dividend yield
   
4.04
     
3.62
 
 
9

Restricted Stock Awards

The Company, from time to time, issues restricted stock awards to outside directors and officers under the 2004 Stock Incentive Plan.  Typically, awards to outside directors fully vest on the first anniversary of the grant date, while awards to officers vest in equal annual installments over a four-year period.

The following is a summary of activity related to the restricted stock awards granted under the 2004 Stock Incentive Plan during the periods indicated:

 
 
At or for the Three Months Ended September 30,
   
At or for the Nine Months Ended September 30,
 
 
 
2012
   
2011
   
2012
   
2011
 
Unvested allocated shares – beginning of period
   
328,003
     
324,454
     
324,454
     
309,783
 
Shares granted
   
-
     
-
     
141,289
     
126,304
 
Shares vested
   
-
     
-
     
(135,369
)
   
(109,649
)
Shares forfeited
   
-
     
-
     
(2,371
)
   
(1,984
)
Unvested allocated shares – end of period
   
328,003
     
324,454
     
328,003
     
324,454
 
 
8.   LOANS RECEIVABLE AND CREDIT QUALITY

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 yield adjustments over the contractual loan terms.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying them as to credit risk.  This analysis includes all non-homogeneous loans, such as multifamily residential, mixed use residential (i.e., loans in which the aggregate rental income of the underlying collateral property is generated from both residential and commercial units, but the majority of such income is generated from the residential units), mixed use commercial (i.e., loans in which the aggregate rental income of the underlying collateral property is generated from both residential and commercial units, but the majority of such income is generated from the commercial units), commercial real estate, and construction and land acquisition loans, as well as one-to four family residential and cooperative apartment loans in excess of the Fannie Mae ("FNMA") conforming loan limits for high-cost areas such as the Bank's primary lending area (the "FNMA Limits").  This analysis is performed on a quarterly basis.  The Company uses the following definitions for risk ratings:

Special Mention.  Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank's credit position at some future date.

Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of then existing facts, conditions, and values, highly questionable and improbable.

All loans not classified as Special Mention, Substandard or Doubtful were deemed pass loans at both September 30, 2012 and December 31, 2011.

The Bank had no loans classified as Doubtful at September 30, 2012 or December 31, 2011.
10


The following is a summary of the credit risk profile of real estate loans (including deferred costs) by internally assigned grade as of the dates indicated:

 
 
Balance at September 30, 2012
 
Grade
 
One- to Four-Family
Residential and
Cooperative Unit
   
Multifamily
Residential and Residential
Mixed Use
   
Mixed Use Commercial
Real Estate
   
Commercial Real Estate
   
Construction
   
Total
 
Pass
 
$
61,658
   
$
2,482,610
   
$
333,488
   
$
365,405
   
$
-
   
$
3,243,161
 
Special Mention
   
461
     
9,821
     
5,494
     
-
     
-
     
15,776
 
Substandard
   
9,086
     
2,208
     
4,964
     
30,158
     
528
     
46,944
 
Total real estate loans individually assigned a credit grade
 
$
71,205
   
$
2,494,639
   
$
343,946
   
$
395,563
   
$
528
   
$
3,305,881
 
Real estate loans not individually assigned a credit grade (1)
 
$
17,620
     
-
     
-
     
-
     
-
   
$
17,620
 
(1) Amount comprised of fully performing one- to four-family residential and cooperative unit loans with balances equal to or less than the FNMA Limits.  The credit quality of these loans was instead evaluated based upon payment activity.

 
 
Balance at December 31, 2011
 
Grade
 
One- to Four-Family
Residential and
Cooperative Unit
   
Multifamily
Residential and Residential
Mixed Use
   
Mixed Use Commercial
Real Estate
   
Commercial Real Estate
   
Construction
   
Total
 
Pass
 
$
66,949
   
$
2,587,573
   
$
320,556
   
$
364,462
   
$
-
   
$
3,339,540
 
Special Mention
   
1,133
     
7,101
     
10,562
     
9,244
     
2,576
     
30,616
 
Substandard
   
2,635
     
8,245
     
7,152
     
39,610
     
623
     
58,265
 
Total real estate loans individually assigned a credit grade
 
$
70,717
   
$
2,602,919
   
$
338,270
   
$
413,316
   
$
3,199
   
$
3,428,421
 
Real estate loans not individually assigned a credit grade (1)
 
$
29,995
     
-
     
-
     
-
     
-
   
$
29,995
 
(1) Amount comprised of fully performing one- to four-family residential and cooperative unit loans with balances equal to or less than the FNMA Limits.  The credit quality of these loans was instead evaluated based upon payment activity.

For consumer loans, the Company evaluates credit quality based on payment activity.  Consumer loans that are 90 days or more past due are placed on non-accrual status, while all remaining consumer loans are classified and evaluated as performing.

The following is a summary of the credit risk profile of consumer loans by internally assigned grade:

Grade
 
Balance at
September 30, 2012
   
Balance at
December 31, 2011
 
Pass (performing)
 
$
2,486
   
$
2,445
 
Substandard (non-accrual)
   
6
     
4
 
Total
 
$
2,492
   
$
2,449
 

11


The following is a breakdown of the past due status of the Company's investment in loans (excluding accrued interest and loans held for sale) as of the dates indicated:

At September 30, 2012
 
30 to 59 Days Past Due
60 to 89 Days Past Due
Loans 90 Days or More Past Due and Still Accruing Interest
Non-accrual (1)
Total Past Due
Current
Total Loans
Real Estate:
 
 
 
 
 
 
 
   One- to four-family residential and cooperative unit
$417
$- 
$- 
$1,150
$1,567
$87,258
$88,825
   Multifamily residential and residential mixed use
2,494
1,008
3,506
2,491,133
2,494,639
   Mixed use commercial real estate
1,172
721
1,893
342,053
343,946
   Commercial real estate
7,805
7,805
387,758
395,563
   Construction
528
528
Total real estate
$4,083
$4 
$- 
$10,684
$14,771
3,308,730
$3,323,501
Consumer
$4
$- 
$- 
$6
$10
$2,482
$2,492
(1) Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of September 30, 2012.

At December 31, 2011
 
30 to 59 Days Past Due
60 to 89 Days Past Due
Loans 90 Days or More Past Due and Still Accruing Interest
Non-accrual (1)
Total Past Due
Current
Total Loans
Real Estate:
 
 
 
 
 
 
 
   One- to four-family residential and cooperative unit
$1,221
$- 
$- 
$2,205
$3,426
$97,286
$100,712
   Multifamily residential and residential mixed use
2,589
946
7,069
10,604
2,592,315
2,602,919
   Mixed use commercial real estate
4,976
5,591
10,567
327,703
338,270
   Commercial real estate
478
2,874
11,083
14,435
398,881
413,316
   Construction
3,199
3,199
Total real estate
$9,264
$- 
$3,820
$25,948
$39,032
$3,419,384
$3,458,416
Consumer
$12
$5
$- 
$4
$21
$2,428
$2,449
(1) Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2011.

Accruing Loans 90 Days or More Past Due:

At December 31, 2011, the Bank owned five real estate loans totaling $3,820 that were 90 days or more past due on their contractual balloon principal payment that continued to make monthly payments consistent with their initial contractual amortization schedule exclusive of the balloon payment.  These loans remained on accrual status at December 31, 2011 and were deemed performing assets.  These loans were either fully re-financed or satisfied during the nine months ended September 30, 2012.   At September 30, 2012, there were no real estate loans that were 90 days or more past due on their contractual balloon principal payment that continued to make monthly payments consistent with their initial contractual amortization schedule exclusive of the balloon payment.
Troubled Debt Restructured Loans ("TDRs").

At September 30, 2012, the Bank had twenty-two loans totaling $51,241 with terms that were modified in a manner that met the criteria for a TDR.  Thirteen of these TDRs totaling $47,587 were commercial real estate loans, five loans totaling $1,968 were multifamily residential and residential mixed-use real estate loans, three loans totaling $951 were mixed use loans with four units or less and the remaining $735 loan was a mixed-use commercial real estate loan.  At December 31, 2011, the Bank had twenty-two loans totaling $48,753 with terms that were modified in a manner that met the criteria for a TDR.  Twelve of these TDRs totaling $44,458 were commercial real estate loans, three loans totaling $1,657 were mixed-use commercial real estate loans, five loans totaling $2,013 were multifamily residential and residential mixed-use real estate loans and the remaining two loans totaling $625 were mixed use loans with
 
12

four units or less.  (See "Part I - Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations – Asset Quality – TDRs" for a discussion of the criteria assessed in determining whether a loan modification has resulted in a TDR).
The following table summarizes outstanding TDRs as of the dates indicated:

 
As of September 30, 2012
As of December 31, 2011
 
No. of Loans
Balance
No. of Loans
Balance
Outstanding principal balance at period end
22
$51,241
22
$48,753
TDRs on accrual status at period end
18
43,106
17
40,688
TDRs on non-accrual status at period end
4
8,135
5
8,065

See "Part I - Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations – Asset Quality – TDRs" for a discussion of when a TDR is deemed accrual vs. non-accrual.

The Company has not restructured troubled consumer loans, as its consumer loan portfolio has not had any problem issues warranting restructuring.  Therefore, all TDRs were collateralized by real estate at both September 30, 2012 and December 31, 2011.

The following tables summarize activity related to TDRs for the periods indicated:

 
For the Three Months Ended September 30, 2012
 
For the Three Months Ended September 30, 2011
 
Number of Loans
Pre-Modification
Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
 
Number of Loans
Pre-Modification
Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
Loan modifications during the period
   that met the definition of a TDR:
 
 
 
 
 
 
 
     One- to four-family residential and cooperative unit
1
$330
$330
 
1
$212
$212
     Multifamily residential and residential mixed use
-
 
1
361
361
     Commercial real estate
-
 
5
20,523
20,523
TOTAL
1
$330
$330
 
7
$21,096
$21,096

 
For the Nine Months Ended September 30, 2012
 
For the Nine Months Ended September 30, 2011
 
Number of Loans
Pre-Modification
Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
 
Number of Loans
Pre-Modification
Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
Loan modifications during the period
   that met the definition of a TDR:
 
 
 
 
 
 
 
    One- to four-family residential and cooperative unit
1
$330
$330
 
 
 
 
     Multifamily residential and residential mixed use
1
459
459
 
2
$573
$573
     Commercial real estate
2
4,430
4,430
 
5
20,543
20,543
TOTAL
4
$5,219
$5,219
 
7
$21,096
$21,096

The Bank's allowance for loan losses at September 30, 2012 reflected $551 of allocated reserve associated with modifications identified as TDRs.  The Bank's allowance for loan losses at December 31, 2011 reflected $1,851 of allocated reserve associated with modifications identified as TDRs.  The reduction in the aggregate balance of allocated reserve associated with TDRs from December 31, 2011 to September 30, 2012 reflected the improvement in the underlying conditions of nine TDRs with an aggregate reserve of $1,064 at December 31, 2011, that resulted in the determination that the allocated reserve was no longer warranted on these TDRs as of September 30, 2012.  In addition, $154 of reserves as of December 31, 2011 were charged-off upon the disposal of two TDRs during the nine months ended September 30, 2012.  Otherwise, there was no impact on the Bank's allowance for loan losses related to TDRs as of September 30, 2012 and December 31, 2011.

As of September 30, 2012, the Bank had no loan commitments to borrowers with outstanding TDRs.

13

A TDR is considered to be in payment default once it is 90 days contractually past due under the modified terms.  All TDRs are considered impaired loans and are evaluated individually for measurable impairment, if any.

As of September 30, 2012, there were no TDRs modified within the previous 12 months that defaulted subsequent to modification (thus no significant impact to the allowance for loan losses during the three-month or nine-month periods ended September 30, 2012 related to such loans).

Impaired Loans
A loan is considered impaired when, based on current information and events, it is probable that all contractual amounts due will not be collected in accordance with the terms of the loan.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays or shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Generally, the Bank considers non-accrual and TDR multifamily residential and commercial real estate loans, along with non-accrual one- to four-family loans in excess of the FNMA Limits to be impaired. Non-accrual one-to four-family loans equal to or less than the FNMA Limits, as well as all consumer loans, are considered homogeneous loan pools and are not required to be evaluated individually for impairment.

Impairment is typically measured using the difference between the outstanding loan principal balance and either: 1) the likely realizable value of a note sale; 2) the fair value of the underlying collateral, net of likely disposal costs, if repayment is expected solely from liquidation of the collateral; or 3) the present value of estimated future cash flows using the loan's existing rate.  If a TDR is substantially performing in accordance with its restructured terms, management will look to either the present value of the expected cash flows from the debt service or the potential net liquidation proceeds of the underlying collateral property in measuring impairment (whichever is deemed most appropriate under the circumstances).  If a TDR has re-defaulted, generally the likely realizable net proceeds from either a note sale or the liquidation of the collateral is considered when measuring impairment.  While measured impairment on TDRs is typically charged off immediately, an allocated reserve within the allowance for loan losses can be recognized in limited instances.
Please refer to Note 9 for tabular information related to impaired loans.

Delinquent Serviced Loans Subject to the First Loss Position

As of September 30, 2012 and December 31, 2011, the Bank serviced a pool of multifamily loans sold to FNMA, and retained an obligation (off-balance sheet contingent liability) to absorb a portion of any losses (as defined in the seller/servicer agreement) incurred by FNMA in connection with these loans (the "First Loss Position").

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 sold loans until the earlier of the following events: (i) the Bank re-acquires the loan from FNMA or it enters Other Real Estate Owned ("OREO") status; (ii) the entire pool of loans sold to FNMA have either been fully satisfied or enter OREO status; or (iii) the First Loss Position is fully exhausted.

At September 30, 2012, within the pool of multifamily loans sold to FNMA, three loans totaling $2,040 were 90 days or more delinquent.  At December 31, 2011, within the pool of multifamily loans sold to FNMA, one $1,342 loan was delinquent between 30 and 89 days, and one $757 loan was 90 days or more delinquent.

9.   ALLOWANCE FOR LOAN LOSSES AND LIABILITY FOR FIRST LOSS POSITION ON MULTIFAMILY LOANS SOLD TO FNMA

The allowance for loan losses may consist of specific and general components.  The Bank's periodic evaluation of its allowance for loan losses (specific or general) is comprised of four primary components: (1) impaired loans;  (2) non-impaired substandard loans; (3) non-impaired special mention loans; and (4) pass graded loans.  Within these components, the Company has identified the following portfolio segments for purposes of assessing its allowance for loan losses (specific or general): 1) real estate loans; and 2) consumer loans.  Within the segments, the Bank analyzes the allowance based upon the underlying collateral type (classes).  Consumer loans represent a nominal portion of the Company's loan portfolio, and were thus evaluated in aggregate as of both September 30, 2012 and December 31, 2011.

14

Impaired Loan Component

All multifamily residential, mixed use, commercial real estate and construction loans that are deemed to meet the definition of impaired are individually evaluated for impairment.  In addition, all cooperative unit and one- to four-family residential loans in excess of the FNMA Limits are individually evaluated for impairment.  Impairment is typically measured using the difference between the outstanding loan principal balance and either: 1) the likely realizable value of a note sale; 2) the fair value of the underlying collateral, net of likely disposal costs, if repayment is expected solely from liquidation of the collateral; or 3) the present value of estimated future cash flows using the loan's existing rate.  For impaired loans on non-accrual status, either of the initial two measurements is utilized.

All TDRs are considered impaired loans and are evaluated individually for measurable impairment, if any.  If a TDR is substantially performing in accordance with its restructured terms, management will look to either the present value of the expected cash flows from the debt service or the potential net liquidation proceeds of the underlying collateral property in measuring impairment (whichever is deemed most appropriate under the circumstances).  If a TDR has re-defaulted, the likely realizable net proceeds from either a note sale or the liquidation of the collateral is generally considered when measuring impairment.  While measured impairment on TDRs is typically charged off immediately, impairment measured from a reduction in the present value of expected cash flows of a performing TDR was reflected as an allocated reserve within the allowance for loan losses at both September 30, 2012 and December 31, 2011.

Large groups of smaller balance homogeneous real estate loans, such as cooperative unit and one-to four-family residential real estate loans with balances equal to or less than the FNMA Limits, are collectively evaluated for impairment, and accordingly, are not separately identified for impairment disclosures.

Non-Impaired Substandard Loan Component

At September 30, 2012, the reserve allocated within the allowance for loan losses associated with loans internally classified as Substandard (excluding impaired loans internally designated as Substandard) reflected expected loss percentages on the Bank's pool of such loans that were derived based upon an analysis of historical losses over a measurement timeframe.  All non-impaired Substandard loans were deemed sufficiently well secured and performing to have remained on accrual status both prior and subsequent to their downgrade to the Substandard internal loan grade.  This reserve allocation was determined in a manner substantially similar to non-impaired Special Mention loans at September 30, 2012.

Non-impaired Substandard loans were non-existent prior to September 30, 2011.  As of December 31, 2011, the total population of such loans was not deemed significant enough to warrant a separate allocated reserve measurement.  
The portion of the allowance for loan losses attributable to non-impaired Substandard loans was zero at December 31, 2011, and increased to $867 at September 30, 2012, due to an increase of $12,905 in non-impaired Substandard loans from December 31, 2011 to September 30, 2012 as well as an increase in the estimated loss percentage applied to such loans from December 31, 2011 to September 30, 2012.

Non-Impaired Special Mention Loan Component

At both September 30, 2012 and December 31, 2011, the reserve allocated within the allowance for loan losses associated with loans internally classified as Special Mention (excluding impaired loans internally designated as Special Mention) reflected an expected loss percentage on the Bank's pool of such loans that was derived based upon an analysis of historical losses over a measurement timeframe.  The loss percentage resulting from this analysis was then applied to the aggregate pool of non-impaired Special Mention loans at September 30, 2012 and December 31, 2011.  Based upon this methodology, increases or decreases in the amount of either non-impaired Special Mention loans or charge-offs associated with such loans, or a change in the measurement timeframe utilized to derive the expected loss percentage, would impact the level of reserves determined on non-impaired Special Mention loans.  As a result, the allowance for loan losses associated with non-impaired Special Mention loans is subject to volatility.

The portion of the allowance for loan losses attributable to non-impaired Special Mention loans declined from $800 at December 31, 2011 to $100 at September 30, 2012, due to a reduction of $15,211 in non-impaired Special Mention loans from December 31, 2011 to September 30, 2012 as well as a reduction in the estimated loss percentage determined to be applied to such loans from December 31, 2011 to September 30, 2012.

Pass Graded Loan Component

The Bank initially looks to the underlying collateral type when determining the allowance for loan losses associated with pass graded real estate loans.  The following underlying collateral types are analyzed separately: 1) one- to four family residential and cooperative unit; 2) multifamily residential and residential mixed use; 3) mixed use commercial real estate, 4) commercial real estate; and 5) construction and land acquisition.  Within the analysis of each underlying collateral type, the following elements are additionally considered and provided weighting in determining the allowance for loan losses for pass graded real estate loans:

15

(i)
Charge-off experience
(ii)
Economic conditions
(iii)
Underwriting standards or experience
(iv)
Loan concentrations
(v)
Loan seasoning

The following is a brief synopsis of the manner in which each element is considered:

(i)  Charge-off experience – Loans within the pass graded loan portfolio are segmented by significant common characteristics, against which historical loss rates are applied.

(ii) Economic conditions - At both September 30, 2012 and December 31, 2011, the Bank assigned a loss allocation to its entire pass graded real estate loan portfolio based, in part, upon a review of economic conditions affecting the local real estate market. Specifically, the Bank considered both the level of, and recent trends in: 1) the local and national unemployment rate, 2) residential and commercial vacancy rates, 3) real estate sales and pricing, and 4) delinquencies in the Bank's loan portfolio.

(iii) Underwriting standards or experience – Underwriting standards are reviewed to ensure that changes in the Bank's lending policies and practices are adequately evaluated for risk and reflected in its analysis of potential credit losses.  Different loss expectations are then incorporated into the methodology.  The Bank modified only certain less critical underwriting practices during the nine months ended September 30, 2012 and the year ended December 31, 2011, and, as a result, this component did not impact the methodology at either September 30, 2012 or December 31, 2011.

(iv) Concentrations of credit – The Bank regularly reviews its loan concentrations (borrower, collateral type and location) in order to ensure that heightened risk has not evolved that has not been captured through other factors.  The risk component of loan concentrations is regularly evaluated for reserve adequacy.

(v) Loan Seasoning – The Bank analyzes its charge-off history in order to determine whether loans that are over three years past their origination date (referred to as seasoned loans) have experienced lower loss levels, and would thus warrant a lower expected loss percentage.  This element was given minimal consideration in the September 30, 2012 and December 31, 2011 evaluations.  The minimal consideration resulted from an analysis of the loss experience recognized during the recent recessionary period (to which the Company migrated late in 2010), which concluded that the age or seasoning of a loan did not inversely correlate to the Bank's loss experience.

Consumer Loans

Due to their small individual balances, the Bank does not evaluate individual consumer loans for impairment.  Loss percentages are applied to aggregate consumer loans based upon both their delinquency status and loan type.  These loss percentages are derived from a combination of the Company's historical loss experience and/or nationally published loss data on these loans.  Consumer loans in excess of 120 days delinquent are typically fully charged off against the allowance for loan losses.
16


The following table presents data regarding activity in the allowance for loan losses and loans evaluated for impairment by class of loan within the real estate loan segment as well as for the aggregate consumer loan segment:

At or for the Three Months Ended September 30, 2012
 
Real Estate Loans
Consumer Loans
 
One- to Four Family Residential
and Cooperative
Unit
Multifamily Residential and Residential
Mixed Use
Mixed Use Commercial
Real Estate
Commercial
Real Estate
Construction
Total Real Estate
 
Beginning balance
$258 
$14,551 
$2,181 
$3,230 
$-  
$20,220 
$23 
Charge-offs
(134)
(243)
(8)
(14)
-  
(398)
-  
Recoveries
687 
-  
36 
-  
723 
-  
Transfer to the reserve for loan commitments
-  
-  
-  
Provision (credit)
557 
(761)
143 
157 
27 
123 
Ending balance
$682 
$14,234 
$2,316 
$3,409 
$27 
$20,668 
$26 
 
 
 
 
 
 
 
Ending balance – loans individually evaluated for impairment
$621 
$3,319 
$1,456 
$47,587 
-  
$52,983 
$-  
Ending balance – loans collectively evaluated for impairment
88,204 
2,491,320 
342,490 
347,976 
$528 
3,270,518 
$2,492 
Allowance balance associated with loans
   individually evaluated for impairment
-  
-  
543 
-  
551 
-  
Allowance balance associated with loans
   collectively evaluated for impairment
674 
14,234 
2,316 
2,866 
27 
20,117 
26 

At or for the Three Months Ended September 30, 2011
 
Real Estate Loans
Consumer Loans
 
One- to Four Family Residential
and
Cooperative
Unit
Multifamily Residential and Residential Mixed Use
Mixed Use Commercial
Real Estate
Commercial Real Estate
Construction
Total Real Estate
 
 
(Dollars in Thousands)
Beginning balance
$399 
$14,396 
$1,108 
$3,407 
$179 
$19,489 
$29 
Charge-offs
(5)
(40)
(79)
(46)
-  
(170)
(5)
Recoveries
-  
14 
12 
-  
27 
-  
Transfer (to) from reserve for loan commitments
-  
(39)
(5)
(9)
(48)
-  
Provision
(12)
230 
432 
1,562 
2,213 
Ending balance
$382 
$14,548 
$1,470 
$4,926 
$185 
$21,511 
$28 

At or for the Nine Months Ended September 30, 2012
 
Real Estate Loans
Consumer Loans
 
One- to Four Family Residential
and Cooperative
Unit
Multifamily Residential and Residential Mixed Use
Mixed Use Commercial
Real Estate
Commercial
Real Estate
Construction
Total Real Estate
 
Beginning balance
$480 
$14,313 
$1,528 
$3,783 
$124 
$20,228 
$26 
Charge-offs
(774)
(2,381)
(670)
(500)
(3)
(4,328)
(10)
Recoveries
17 
773 
11 
37 
-  
838 
-  
Transfer to the reserve for loan commitments
-  
52 
25 
-  
82 
-  
Provision (reduction)
959 
1,477 
1,442 
64 
(94)
3,848 
10 
Ending balance
$682 
$14,234 
$2,316 
$3,409 
$27 
$20,668 
$26 
 
17

At or for the Nine Months Ended September 30, 2011
 
Real Estate Loans
Consumer Loans
 
One- to Four Family Residential
and
Cooperative
Unit
Multifamily Residential and Residential Mixed Use
Mixed Use Commercial
Real Estate
Commercial Real Estate
Construction
Total Real Estate
 
 
(Dollars in Thousands)
Beginning balance
$409 
$14,226 
$1,331 
$2,821 
$345 
$19,132 
$34 
Charge-offs
(88)
(552)
(362)
(1,642)
(725)
(3,369)
(18)
Recoveries
-  
143 
36 
146 
-  
325 
-  
Transfer from (to) reserve for loan commitments
-  
121 
(11)
15 
130 
-  
Provision
61 
610 
476 
3,596 
550 
5,293 
12 
Ending balance
$382 
$14,548 
$1,470 
$4,926 
$185 
$21,511 
$28 

 
As of December 31, 2011
 
Real Estate Loans
Consumer Loans
 
One- to Four Family Residential
and
Cooperative
Unit
Multifamily Residential and Residential Mixed Use
Mixed Use Commercial
Real Estate
Commercial Real Estate
Construction
Total Real Estate
 
Ending balance – loans individually evaluated for impairment
$2,547 
$10,028 
$6,739 
$51,070 
-  
$70,384 
-  
Ending balance – loans collectively evaluated for impairment
98,165 
2,592,891 
331,531 
362,246 
$3,199 
3,388,032 
$2,449 
Allowance balance associated with loans
   individually evaluated for impairment
130 
45 
73 
1,927 
-  
2,175 
-  
Allowance balance associated with loans
   collectively evaluated for impairment
350 
14,268 
1,455 
1,856 
124 
18,053 
26 

18


The following tables summarize impaired real estate loans as of or for the periods indicated (by collateral type within the real estate loan segment).  For purposes of these tables, adjustments between the unpaid principal balance and recorded investment (including accrued interest receivable) are deemed to be immaterial:

At September 30, 2012
 
Unpaid Principal Balance at Period End
Recorded Investment
at Period End
Reserve Balance Allocated within the Allowance for Loan Losses at Period End
One- to Four Family Residential and Cooperative Unit
 
 
 
   With no allocated reserve
$409 
$409 
   With an allocated reserve
212 
212 
$8 
Multifamily Residential and Residential Mixed Use
 
 
 
   With no allocated reserve
3,319
3,319
   With an allocated reserve
Mixed Use Commercial Real Estate
 
 
 
   With no allocated reserve
1,456
1,456
   With an allocated reserve
Commercial Real Estate
 
 
 
   With no allocated reserve
32,329
32,329
   With an allocated reserve
15,258
15,258
543
Construction
 
 
 
   With no allocated reserve
   With an allocated reserve
Total
 
 
 
   With no allocated reserve
$37,513
$37,513
$- 
   With an allocated reserve
$15,470
$15,470
$551
19


 
At December 31, 2011
 
Unpaid Principal Balance at Period End
Recorded Investment
at Period End
Reserve Balance Allocated within the Allowance for Loan Losses at Period End
One- to Four Family Residential and Cooperative Unit
 
 
 
   With no allocated reserve
$1,136
$1,136
$- 
   With an allocated reserve
1,411
1,411
130
Multifamily Residential and Residential Mixed Use
 
 
 
   With no allocated reserve
9,338
9,338
   With an allocated reserve
690
690
45
Mixed Use Commercial Real Estate
 
 
 
   With no allocated reserve
5,780
5,780
   With an allocated reserve
959
959
73
Commercial Real Estate
 
 
 
   With no allocated reserve
11,812
11,812
   With an allocated reserve
39,258
39,258
1,927
Construction
 
 
 
   With no allocated reserve
   With an allocated reserve
Total
 
 
 
   With no allocated reserve
$28,066
$28,066
$- 
   With an allocated reserve
$42,318
$42,318
$2,175

 
Three Months Ended
September 30, 2012
 
Three Months Ended
September 30, 2011
 
Nine Months Ended
September 30, 2012
 
Nine Months Ended
September 30, 2011
 
Average Recorded Investment
Interest
Income Recognized
 
Average Recorded Investment
Interest
Income Recognized
 
Average Recorded Investment
Interest
Income Recognized
 
Average Recorded Investment
Interest
Income Recognized
One- to Four Family Residential and Cooperative Unit
 
 
 
 
 
 
 
 
 
 
 
   With no allocated reserve
$629
$15
 
$1,121
$7
 
$814
$48
 
$1,475
$24
   With an allocated reserve
212
5
 
706
 
511
14
 
353
Multifamily Residential and Residential Mixed Use
 
 
 
 
 
 
 
 
 
 
 
   With no allocated reserve
4,787
49
 
10,904
181
 
6,178
305
 
11,912
427
   With an allocated reserve
 
6,549
82
 
525
 
3,275
82
Mixed Use Commercial Real Estate
 
 
 
 
 
 
 
 
 
 
 
   With no allocated reserve
1,459
12
 
3,131
67
 
2,670
56
 
3,431
152
   With an allocated reserve
 
4,253
8
 
240
 
2,126
8
Commercial Real Estate
 
 
 
 
 
 
 
 
 
 
 
   With no allocated reserve
35,596
404
 
17,290
141
 
28,648
1,318
 
16,100
286
   With an allocated reserve
15,284
189
 
13,573
51
 
21,290
567
 
9,711
310
Construction
 
 
 
 
 
 
 
 
 
 
 
   With no allocated reserve
- 
 
4,883
 
 
4,137
213
   With an allocated reserve
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
   With no allocated reserve
$40,471
$480
 
$37,329
$396
 
$38,310
$1,727
 
$37,055
$1,102 
   With an allocated reserve
$15,496
$194
 
$25,083
$141
 
$22,566
$581
 
$15,465
$400 

20

Liability for First Loss Position

The Bank maintains a liability in relation to the First Loss Position that reflects estimated losses associated with loans to which the First Loss Position applies at each period end.  For performing loans within the FNMA serviced pool, the liability recognized is computed in a similar manner to the calculation of the allowance for loan losses associated with performing multifamily loans owned by the Bank.  For problem loans within the pool, the estimated losses are determined in a manner consistent with impaired 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 First Loss Position associated with these loans, and activity in the related liability:

 
 
At or for the Three Months Ended September 30,
   
At or for the Nine Months Ended September 30,
 
 
 
2012
   
2011
   
2012
   
2011
 
Outstanding balance of multifamily loans serviced for FNMA at period end
 
$
279,830
   
$
318,113
   
$
279,830
   
$
318,113
 
Total First Loss Position at end of period
   
16,356
     
16,356
     
16,356
     
16,356
 
Liability on the First Loss Position
                               
Balance at beginning of period
 
$
1,684
   
$
2,993
   
$
2,993
   
$
2,993
 
Transfer of specific reserve for serviced loans re-acquired by the Bank
   
-
   
     
-
   
 
Credit for losses on problem loans(1)
   
(140
)
 
     
(1,107
)
 
 
Charge-offs and other net reductions in balance
   
-
   
     
(342
)
 
 
Balance at period end
 
$
1,544
   
$
2,993
   
$
1,544
   
$
2,993
 
                               
(1) Amount recognized as a component of mortgage banking income during the period.


10.   INVESTMENT AND MORTGAGE-BACKED SECURITIES

The following is a summary of major categories of securities owned by the Company at September 30, 2012:

 
 
   
   
Unrealized Gains or Losses Recognized in
Accumulated Other Comprehensive Loss
   
   
   
 
 
 
Purchase
Amortized / Historical Cost
   
Recorded Amortized/
Historical Cost (1)
   
Non-Credit
OTTI
   
Unrealized
Gains
   
Unrealized Losses
   
Book Value
   
Other Unrecognized Gains
   
Fair
Value
 
Investment securities held-to-maturity:
 
   
   
   
   
   
   
   
 
Pooled bank trust preferred securities ("TRUPS")
 
$
16,846
   
$
7,901
   
$
(642
)
   
-
   
$
(1,303
)(2)
 
$
5,956
   
$
288
   
$
6,244
 
Investment securities available for sale:
                                                               
Registered Mutual Funds
   
5,123
     
3,698
     
-
     
1,341
     
-
     
5,039
     
-
     
5,039
 
Agency notes
   
49,818
     
49,818
     
-
     
169
     
-
     
49,987
     
-
     
49,987
 
Pass-through MBS issued by GSEs
   
49,239
     
49,239
     
-
     
3,509
     
-
     
52,748
     
-
     
52,748
 
Collateralized mortgage obligations ("CMOs")
    issued by GSEs
   
26,824
     
26,824
     
-
     
136
     
-
     
26,960
     
-
     
26,960
 
Private issuer pass through MBS
   
1,068
     
1,068
     
-
     
-
     
(24
)
   
1,044
     
-
     
1,044
 
Private issuer CMOs
   
1,015
     
1,015
     
-
     
25
     
-
     
1,040
     
-
     
1,040
 
(1) Amount represents the purchase amortized / historical cost less any credit-related OTTI charges recognized through earnings.
(2) Amount represents the unamortized portion of the unrealized loss that was recognized in accumulated other comprehensive loss on September 1, 2008 (the day on which these securities were transferred from available-for-sale to held-to-maturity).
21


The following is a summary of major categories of securities owned by the Company at December 31, 2011:

 
 
   
   
Unrealized Gains or Losses Recognized in Accumulated
Other Comprehensive Loss
   
   
   
 
 
 
Purchase
Amortized / Historical Cost
   
Recorded Amortized/
Historical Cost (1)
   
Non-Credit
OTTI
   
Unrealized
Gains
   
Unrealized Losses
   
Book Value
   
Other Unrecognized Gains
   
Fair
Value
 
Investment securities held-to-maturity:
 
   
   
   
   
   
   
   
 
TRUPS
 
$
17,884
   
$
8,910
   
$
(929
)
   
-
   
$
(1,470
)(2)
 
$
6,511
   
$
(1,587)
   
$
4,924
 
Investment securities available for sale:
                                                               
Registered Mutual Funds
   
5,049
     
3,624
     
-
     
935
     
-
     
4,559
   
     
4,559
 
Agency notes
   
170,362
     
170,362
     
-
     
37
     
(90
)
   
170,309
   
     
170,309
 
Pass-through MBS issued by GSEs
   
71,008
     
71,008
     
-
     
4,554
   
     
75,562
   
     
75,562
 
CMOs issued by GSEs
   
15,128
     
15,128
     
-
     
261
   
     
15,389
   
     
15,389
 
Private issuer pass through MBS
   
1,614
     
1,614
     
-
     
-
     
(110
)
   
1,504
   
     
1,504
 
Private issuer CMOs
   
1,400
     
1,400
     
-
     
22
     
-
     
1,422
     
-
     
1,422
 
(1) Amount represents the purchase amortized / historical cost less any credit-related OTTI charges recognized through earnings.
(2) Amount represents the unamortized portion of the unrealized loss that was recognized in accumulated other comprehensive loss on September 1, 2008 (the day on which these securities were transferred from available-for-sale to held-to-maturity).

At September 30, 2012, the agency note investments in the table on the preceding page had contractual maturities as follows:

 
 
Amortized Cost
   
Estimated Fair Value
 
One year or less
 
$
-
   
$
-
 
Due after one year through five years
   
49,818
     
49,987
 
Due after five years through ten years
   
-
     
-
 
   TOTAL
 
$
49,818
   
$
49,987
 

The held-to-maturity TRUPS had a weighted average term to maturity of 22.3 years at September 30, 2012.  At September 30, 2012, MBS available-for-sale (which included pass-through MBS issued by GSEs, CMOs issued by GSEs, one private issuer pass through MBS and one private issuer CMO) possessed a weighted average contractual maturity of 20.2 years and a weighted average estimated duration of 1.2 years.  There were no sales of MBS available-for-sale during the three-month or nine-month periods ended September 30, 2012 or 2011. Sales of other investment securities available-for-sale were not material during the three-month and nine-month periods ended September 30, 2012 and 2011.

As of each reporting period through September 30, 2012, the Company has applied the protocol established by ASC 320-10-65 ("ASC 320-10-65") in order to determine whether OTTI existed for the TRUPS and/or to measure, for TRUPS that have been determined to be other than temporarily impaired, the credit related and non-credit related components of OTTI.  As of September 30, 2012, six TRUPS were determined to meet the criteria for OTTI based upon this analysis.  At September 30, 2012, these six securities had credit ratings ranging from "D" to "Caa3."

The following table provides a reconciliation of the pre-tax OTTI charges recognized on the Company's TRUPS:

 
 
At or for the Three Months Ended September 30, 2012
   
At or for the Three Months Ended September 30, 2011
 
 
 
Credit Related OTTI Recognized in Earnings
   
Non-Credit OTTI Recognized in Accumulated Other Comprehensive Loss
   
Total OTTI
   
Credit Related OTTI Recognized in Earnings
   
Non-Credit OTTI Recognized in Accumulated Other Comprehensive Loss
   
Total OTTI
 
Cumulative balance at the beginning of the period
 
$
8,945
   
$
655
   
$
9,600
   
$
8,883
   
$
951
   
$
9,834
 
OTTI recognized on securities with previous OTTI
   
-
     
-
     
-
     
59
     
24
     
83
 
Reductions and transfers to credit-related OTTI
   
-
     
-
     
-
   
     
-
     
-
 
Amortization of previously recognized OTTI
   
-
     
(14
)
   
(14
)
 
     
(9
)
   
(9
)
Cumulative balance at end of the period
 
$
8,945
   
$
641
   
$
9,586
   
$
8,942
   
$
966
   
$
9,908
 

22


 
At or for the Nine Months Ended September 30, 2012
 
At or for the Nine Months Ended September 30, 2011
 
Credit Related OTTI Recognized in Earnings
Non-Credit OTTI Recognized in Accumulated Other Comprehensive Loss
Total OTTI
 
Credit Related OTTI Recognized in Earnings
Non-Credit OTTI Recognized in Accumulated Other Comprehensive Loss
Total OTTI
Cumulative balance at the beginning of the period
$8,974 
$930 
$9,904 
 
$8,247 
$2,203 
$10,450 
OTTI recognized on securities with previous OTTI
181 
187 
 
695 
25 
720 
Reductions and transfers to credit-related OTTI
-  
(181)
(181)
 
-  
(1,245)
(1,245)
Amortization of previously recognized OTTI
(210)
(114)
(324)
 
-  
(17)
(17)
Cumulative balance at end of the period
$8,945 
$641 
$9,586 
 
$8,942 
$966 
$9,908 


The following table summarizes the gross unrealized losses and fair value of investment securities and MBS as of September 30, 2012, aggregated by investment category and the length of time the securities were in a continuous unrealized loss position:

 
 
Less than 12 Months Consecutive
Unrealized Losses
   
12 Months or More Consecutive
Unrealized Losses
   
Total
 
 
 
Fair Value
   
Gross Unrecognized/
Unrealized Losses
   
Fair Value
   
Gross Unrecognized/
Unrealized Losses
   
Fair Value
   
Gross Unrecognized/
Unrealized Losses
 
Held-to-Maturity Securities:
 
   
   
   
   
   
 
TRUPS (1)
 
$
-
   
$
-
   
$
3,672
   
$
1,838
   
$
3,672
   
$
1,838
 
Available-for-Sale Securities:
                                               
Private issuer pass through MBS
   
-
     
-
     
1,044
     
24
     
1,044
     
24
 
   TOTAL
 
$
-
   
$
-
   
$
4,716
   
$
1,862
   
$
4,716
   
$
1,862
 
(1)    At September 30, 2012, the recorded balance of these securities was $4,207.  This balance reflected the remaining unrealized loss of $1,303 that was recognized in accumulated other comprehensive loss on September 1, 2008 (the day on which these securities were transferred from available-for-sale to held-to-maturity).  In accordance with both ASC 320-10-35-17 and 320-10-65, these unrealized losses are currently being amortized over the remaining estimated life of these securities.
 
 
TRUPS That Have Maintained an Unrealized Holding Loss for 12 or More Consecutive Months

At September 30, 2012, impairment of two of the TRUPS, with an amortized cost of $5,510, was deemed temporary.  These securities remained in an unrealized loss for 12 or more consecutive months, and their cumulative unrealized loss was $1,838 at September 30, 2012, reflecting both illiquidity in the marketplace and concerns over future bank failures.  At September 30, 2012, both of these securities had ratings ranging from "CC" to "Ba1."  Despite the significant decline in market value and the duration of their impairment, management believed that the unrealized losses on these securities at September 30, 2012 were temporary, and that all contractual principal and interest payments were expected to be received by their respective contractual maturities.  In reaching this determination, management considered the following:

·
Based upon an internal review of the collateral backing the TRUPS portfolio, which accounted for current and prospective deferrals, both of the securities could reasonably be expected to continue making all contractual payments
·
The Company had the intent and ability to hold these securities until they fully recover their impairment, evidenced by the election to reclassify them as held-to-maturity in 2008
·
There were no cash or working capital requirements nor contractual or regulatory obligations that would compel the Company to sell either of these securities prior to their forecasted recovery or maturity
·
Each security has a pool of underlying issuers comprised primarily of banks
·
Each security featured 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

Private Issuer Pass Through MBS That Have Maintained an Unrealized Holding Loss for 12 or More Consecutive Months

At September 30, 2012, the Company owned one private issuer pass-through MBS that possessed unrealized losses for 12 or more consecutive months, with an amortized cost of $1,068 and an unrealized loss of $24. At September 30, 2012, the Company performed an analysis of likely potential defaults of the real estate loans underlying this security in the then existing economic environment, and determined that it could reasonably be expected to continue making all contractual payments.  The Company has no intent to sell this security and it is not likely that the Company will be required to sell it before the recovery of its remaining amortized cost.

23

The following summarizes the gross unrealized losses and fair value of investment securities and MBS as of December 31, 2011, 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 Unrecognized/
Unrealized Losses
   
Fair Value
   
Gross Unrecognized/
Unrealized Losses
   
Fair Value
   
Gross Unrecognized/
Unrealized Losses
 
Held-to-Maturity Securities:
 
   
   
   
   
   
 
TRUPS (1)
   
-
     
-
   
$
4,924
   
$
3,986
   
$
4,924
   
$
3,986
 
Available-for-Sale Securities:
                                               
Agency notes
 
$
114,885
   
$
90
     
-
     
-
     
114,885
     
90
 
Private issuer pass through MBS
   
-
     
-
     
1,505
     
109
     
1,505
     
109
 
   TOTAL
 
$
114,885
   
$
90
   
$
6,429
   
$
4,095
   
$
121,314
   
$
4,185
 
(1) At December 31, 2011, the recorded balance of these securities was $6,511.  This balance reflected both the remaining unrealized loss of $1,470 that was recognized in accumulated other comprehensive loss on September 1, 2008 (the day on which these securities were transferred from available-for-sale to held-to-maturity) for two TRUPS that have not been deemed OTTI, and an unrealized loss of $929 that has been recognized in accumulated other comprehensive loss that represents the non-credit component of impairment for six TRUPS that have been deemed OTTI.  In accordance with both ASC 320-10-35-17 and 320-10-65, these unrealized losses are currently being amortized over the remaining estimated life of these securities.

11.   FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value hierarchy established under ASC 820-10 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 – Significant unobservable inputs for the asset or liability.  Significant 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).  Significant 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 consolidated statements of financial condition at fair value as of the date indicated by level within the fair value hierarchy.  Financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
24


Assets Measured at Fair Value on a Recurring Basis at September 30, 2012
   
 
 
 
   
Fair Value Measurements Using
   
 
Description
 
Total
   
Level 1 Inputs
   
Level 2
Inputs
   
Level 3 Inputs
   
Losses for the
Three Months and Nine Months Ended
September 30, 2012
 
Trading securities (Registered Mutual Funds):
 
   
   
   
   
 
   Domestic Equity Mutual Funds
 
$
919
   
$
919
   
$
-
   
$
-
   
$
-
 
   International Equity Mutual Funds
   
121
     
121
     
-
     
-
     
-
 
   Fixed Income Mutual Funds
   
2,392
     
2,392
     
-
     
-
     
-
 
Investment securities available-for-sale:
                                   
-
 
   Agency notes
   
49,987
     
-
     
49,987
     
-
     
-
 
   Registered Mutual Funds:
                                       
      Domestic Equity Mutual Funds
   
3,563
     
3,563
     
-
     
-
     
-
 
      International Equity Mutual Funds
   
335
     
335
     
-
     
-
     
-
 
      Fixed Income Mutual Funds
   
1,141
     
1,141
     
-
     
-
     
-
 
MBS available-for-sale
   
81,792
     
-
     
81,792
     
-
     
-
 


Assets Measured at Fair Value on a Recurring Basis at December 31, 2011
   
 
 
 
   
Fair Value Measurements Using
   
 
Description
 
Total
   
Level 1 Inputs
   
Level 2 Inputs
   
Level 3 Inputs
   
Losses for the
Three Months and Nine Months Ended
September 30, 2011
 
Trading Securities (Registered Mutual Funds)
 
   
   
   
   
 
   Domestic Equity Mutual Funds
 
$
780
   
$
780
   
$
-
   
$
-
   
$
-
 
   International Equity Mutual Funds
   
108
     
108
     
-
     
-
     
-
 
   Fixed Income Mutual Funds
   
886
     
886
     
-
     
-
     
-
 
Investment securities available-for-sale:
                                       
   Agency notes
   
170,309
     
-
     
170,309
     
-
     
-
 
   Registered Mutual Funds:
                                       
      Domestic Equity Mutual Funds
   
3,162
     
3,162
     
-
     
-
     
-
 
      International Equity Mutual Funds
   
315
     
315