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| ROMA > SEC Filings for ROMA > Form 10-Q on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-2009
Quarterly Report
This Form 10-Q contains forward-looking statements, which can be identified by the use of words such as "believes," "expects," "anticipates," "estimates" or similar expressions. Forward - looking statements include:
• Statements of our goals, intentions and expectations;
• Statements regarding our business plans, prospects, growth and operating strategies;
• Statements regarding the quality of our loan and investment portfolios; and
• Estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:
• General economic conditions, either nationally or in our market area, that are worse than expected;
• Changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;
• Our ability to enter into new markets and/or expand product offerings successfully and take advantage of growth opportunities;
• Increased competitive pressures among financial services companies;
• Changes in consumer spending, borrowing and savings habits;
• Legislative or regulatory changes that adversely affect our business;
• Adverse changes in the securities markets;
• Our ability to successfully manage our growth; and
• Changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board.
Any of the forward-looking statements that we make in this report and in other public statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Consequently, no forward-looking statement can be guaranteed.
General
Total assets increased by $189.4 million to $1.3 billion at September 30, 2009, compared to $1.1 billion at December 31, 2008. Total liabilities increased $187.1 million to $1.1 billion at September 30, 2009, compared to $864.1 million at December 31, 2008. Total stockholders' equity increased $2.3 million to $215.3 million at September 30, 2009. The increase in assets was funded by deposit growth of $202.1 million which was utilized to fund investments of $168.0 million, and loans of $53.1 million.
Deposits
Total deposits increased $202.1 million to $966.4 million at September 30, 2009, compared to $764.2 million at December 31, 2008. Non-interest bearing demand deposits increased $3.1 million to $30.9 million at September 30, 2009, and interest bearing demand deposits increased $15.3 million to $115.1 million. Savings and club accounts increased $60.2 million to $264.2 million and certificates of deposit increased $123.6 million to $556.1 at September 30, 2009. Deposit growth, especially certificates of deposit, benefited from the opening of five branches in 2008 and the opening of RomAsia Bank in June 2008.
Investments (Including Mortgage-Backed Securities)
The investment portfolio increased $168.0 million to $561.0 million at September 30, 2009, compared to $393.0 million at December 31, 2008. Securities available for sale increased $13.1 million to $30.1 million at September 30, 2009, compared to $17.0 million at December 31, 2008 primarily due to investments made by RomAsia Bank. Investments held to maturity increased $193.7 million to $267.8 million at September 30, 2009, compared to $74.1 million at December 31, 2008. The increase was due to securities purchased during the period. Mortgage-backed securities decreased $38.9 million to $263.0 million at September 30, 2009, compared to $301.9 million at December 31, 2008. The decrease in mortgage backed securities was primarily due to principal payments and maturities that were reinvested in investments held to maturity.
Loans
Net loans increased by $53.1 million to $573.5 million at September 30, 2009, compared to $520.4 million at December 31, 2008. Commercial and multi-family real estate mortgages increased $37.2 million to $166.2 million at September 30, 2009, compared to $129.0 million at December 31, 2008. Gross construction loans decreased $4.5 million to $24.4 million at September 30, 2009, compared to $28.9 million at December 31, 2008. Residential loan demand increased in the first and second quarters of 2009, but slowed in the third quarter, as homeowners refinanced to take advantage of lower interest rates. Residential and consumer loans increased $14.7 million from December 31, 2008 to September 30, 2009. Commercial loan demand slowed considerably and remained influenced by rate competition.
Other Assets
All other asset categories, except cash and cash equivalents, increased by $1.7 million from December 31, 2008 to September 30, 2009. This increase was primarily caused by increases in bank owned life insurance of $727 thousand, and in accrued interest receivable of $2.1 million. These increases were partially offset by decreases of $474 thousand in Federal Home Loan Bank of New York stock, and a $567 thousand decrease in premises and equipment.
Borrowed Money
The $21.6 million decrease in advances from the FHLBNY during the nine months ended September 30, 2009 was due to scheduled principal payments and the repayment of a $20.2 million advance. At September 30, 2009, the outstanding FHLBNY balance was $25.4 million compared to $46.9 million at December 31, 2008. During August 2008, Roma Bank entered into a qualifying repurchase agreement which is treated as financing in the consolidated balance sheet.
Other Liabilities
All other liability categories increased $6.5 million to $19.4 million at September 30, 2009. The net increase was primarily due to $3.0 million in securities purchased and not settled at September 30, 2009, an increase in advance payments by borrowers for taxes and insurance of $230 thousand, an increase of $2.4 million in certified checks, and other smaller increases.
Stockholders' equity increased $2.3 million to $215.3 million at September 30, 2009 compared to $213.0 million at December 31, 2008. The net increase was primarily caused by net income of $2.5 million, the release of ESOP shares of $502 thousand, option and warrant costs of $911 thousand, and unrealized gains of $187 thousand on available for sale securities. Offsetting these increases were $1.8 million of dividends.
Comparison of Operating Results for the Three Months Ended September 30, 2009 and 2008
General
Net income increased $96 thousand to $1.1 million for the quarter ended September 30, 2009 compared to $1.0 million for the prior year period. The increase was primarily due to an increase of $1.6 million in net interest income, an increase of $147 thousand in non-interest income and a decrease in income taxes of $241 thousand. Theses increases were offset by a $1.1 million increase in the provision for loan losses and an increase of $ 230 thousand in our Federal Deposit Insurance Premium.
Interest Income
Interest income increased by $2.4 million to $14.4 million for the three months ended September 30, 2009, compared to $12.0 million for the prior year period. Interest income from loans increased $1.1 million to $8.1 million for the nine months ended September 30, 2009. Interest income from residential mortgage loans increased $96 thousand over the comparable quarter ended September 30, 2008, while interest income from equity loans decreased $97 thousand. The weighted average interest rates for mortgage and equity loans at September 30, 2009 were 5.52% and 5.56%, respectively, compared to 5.76% and 5.92%, respectively, in the prior year. Interest income from commercial and multifamily mortgage loans and commercial loans increased $1.0 million from period to period. During the same period the commercial loan portfolio increased $39.7 million. The weighted average interest rate for commercial and multi-family mortgage loans and commercial loans was 6.067% at September 30, 2009 and 6.37% at September 30, 2008. The reduction in the prime rate impacted interest income on commercial and equity adjustable rate loans.
Interest income from mortgage-backed securities increased $78 thousand over the comparable quarter in 2008. Interest income from investments held to maturity increased $1.4 million for the quarter ended September 30, 2009. This increase was primarily due to the increase in the portfolio between periods of $60.0 million. Interest income from securities available for sale increased $186 thousand from period to period, primarily due to interest rates and the increase in RomAsia's portfolio. Interest income from other interest earning assets decreased $316 thousand for the three months ended September 30, 2009, compared to the same period in 2008. This decrease was primarily due to a decrease in the average balance of overnight funds and by a significant decrease in overnight rates between the comparable periods.
Interest Expense
Interest expense increased $804 thousand for the three months period September 30, 2009 to $5.6 million, compared to $4.8 million for the three months ended September 30, 2008. The increase was primarily due to a $635 thousand increase in interest paid on deposits. Total deposits increased $235.8 million over the twelve month period ended September 30, 2009. The effect of the increased portfolio was offset by a decrease in the weighted average interest rate of 31 basis points to 2.05% at September 30, 2009. Interest expense on borrowings increased $169 thousand for the three months ended September 30, 2009, compared to 2008 due to the increase in the average borrowed funds during the 2009 period associated with the repurchase agreement entered into during the fourth quarter of 2008.
Provision for Loan Losses
The loan loss provision for the three months ended September 30, 2009 increased $1.1 million to $1.3 million compared to the prior year. The increase in the general reserve of $400 thousand is representative of the risk profile of the loan portfolio and loan growth in each period. The increase in the specific reserve of $700 thousand is primarily related to one commercial developer loan. Non-performing loans increased $7.2 million to $16.1 million at September 30, 2009 compared to $8.9 million at September 30, 2008. These loans remain well collateralized and no material losses are anticipated, except for those loans for which a specific reserve has been established.
Non-Interest Income
Non-interest income increased $147 thousand to $1.3 million for the three months ended September 30, 2009, compared to $1.2 million for the three months ended September 30, 2008. The net increase was chiefly derived from an increase in income from bank owned life insurance of $66 thousand, gains on sales of investments of $70 thousand, and commissions on the sale of title policies of $26 thousand.
Non-interest expense increased $782 thousand to $7.2 million for the three months ended September 30, 2009 compared to $6.4 million for the three months ended September 30, 2008. Salaries and employee benefits increased $432 thousand to $4.2 million for the three months ended September 30, 2009 compared to the same period in the prior year. This increase represents an increase in salaries and related benefits associated with the five new branches and the opening of RomAsia in 2008, and an increase in pension expense of $174 thousand. Other increases in non-interst expense primarily related to the opening of five new branches and RomAsia Bank were: net occupancy of premises, $41 thousand; and equipment costs of $16 thousand. Federal Deposit Insurance Premium expense increased $230 thousand due to increased deposit insurance rates. Other non-interest expenses increased minimally by $63 thousand to $1.0 million for the three months ended September 30, 2009 compared to $950 thousand for the same period in the prior year.
Provision for Income Taxes
Income tax expense decreased by $241 thousand to $524 thousand for the three months ended September 30, 2009, compared to $765 thousand for the three months ended September 30, 2008. Income tax expense, represented an effective rate of 32% for the three months ended September 30, 2009, compared to 43% in the prior year quarter. The decrease in the effective tax rate was primarily due to the higher percentage of tax free income to taxable income from period to period. The Company pays a state tax rate of 3.6% on the taxable income of our investment company and 9.0 % on the taxable income of the other entities.
Comparison of Operating Results for the Nine Months Ended September 30, 2009 and 2008
General
Net income decreased $893 thousand to $2.5 million for the nine months ended September 30, 2009, compared to $3.4 million for the prior year period. The decrease was primarily generated by an increase of $3.5 million in non-interest expense and a $1.5 million increase in the provision for loan losses. Increases in non-interest expenses were offset by an increase in net interest income of $3.0 million; an increase of $459 thousand in non-interest income; and a decrease in the provision for income taxes of $762 thousand. The increase in non-interest expense was primarily due to a $1.4 million increase in our Federal Deposit Insurance Premium.
Interest Income
Interest income increased by $5.0 million to $40.2 million for the nine months ended September 30, 2009 compared to $35.2 million for the prior year period. Interest income from loans increased $1.7 million to $23.0 million for the nine months ended September 30, 2009. The increase in interest income from loans was primarily due to an increase in the loan portfolio, offset to some degree by a decrease in the weighted average interest rate on loans. Interest income from residential mortgage loans increased $383 thousand over the comparable nine month period ended September 30, 2008, while interest income from equity loans decreased approximately $309 thousand. The weighted average interest rates for mortgage and equity loans at September 30, 2009 were 5.516% and 5.56%, respectively, compared to 5.76% and 5.92%, respectively, in the prior year. Interest income from commercial and multifamily mortgage loans and commercial loans increased $1.5 million from year to year. The weighted average interest rate for commercial and multi-family mortgage loans and commercial loans was 6.067% at September 30, 2009 and 6.37% at September 30, 2008. As mentioned previously, adjustable rate commercial and consumer loans were impacted by the reduction in the prime rate during the current nine month period.
Interest income from mortgage-backed securities increased $2.7 million over the comparable nine month period in 2008. Interest income from investments held to maturity increased $1.8 million for the nine months ended September 30, 2009 as compared to September 30, 2008. Interest income on securities available for sale increased $140 thousand from year to year. Interest income on other interest earning assets decreased $1.3 million for the nine months ended September 30, 2009 compared to the same period in 2008. This decrease was primarily due to a significant decrease in both the average balance of overnight funds from period to period, and by a significant decrease in overnight rates during the period.
Interest Expense
Interest expense increased $2.0 million for the nine month period ended September 30, 2009 to $16.5 million compared to $14.5 million for the nine months ended September 30, 2008. The increase was due to a $1.1 million increase in interest paid on deposits. The portfolio of interest bearing deposits increased $235.8 million from period to period. The weighted average interest rate on deposits decreased 31 basis points between September 30, 2008 and September 30, 2009 to 2.05%. Interest expense on borrowed money increased $859 thousand for the nine month period ended September 30, 2009, compared to 2008, due to an increase in average borrowed funds in 2009 over 2008.
The loan loss provision for the nine months ended September 30, 2009 increased $1.5 million to $2.0 million compared to the comparable prior year period. The increase is representative of the risk profile of the loan portfolio; loan growth from period to period; and an increase in the specific reserve. Non-performing loans increased $5.8 million at September 30, 2009 to $16.1 million, compared to $10.3 million at December 31, 2008. These loans remain well collateralized and no material losses are anticipated other than those loans for which a specific reserve has been established.
Non-Interest Income
Non-interest income increased $459 thousand to $3.7 million for the nine months ended September 30, 2009, compared to $3.2 million for the nine months ended September 30, 2008. The net increase was derived from fees and service charges on deposits which increased $220 thousand from period to period primarily due to an increase in NSF fees; an increase in bank owned life insurance income of $202 thousand, reflective of the purchase of additional insurance in December 2008; and an increase in ATM fees of $30 thousand; an increase of $112 thousand in commissions on sales of title policies; an increase on the sale of investments of $133 thousand; and an increase in the gain on sale of loans of $53 thousand. These increases were offset by a decrease of $285 thousand in fees and service charges on loans, primarily in commercial loan fees.
Non-Interest Expense
Non-interest expense increased $3.5 million to $21.8 million for the nine months ended September 30, 2009, compared to $18.3 million for the nine months ended September 30, 2008. Federal Deposit Insurance Premiums increased $1.4 million over the comparable nine month period. Salaries and employee benefits increased $1.6 million to $12.2 million for the nine months ended September 30, 2009 compared to the same period in the prior year. This increase reflects an increase in salaries and related benefits of five new branches and the opening of RomAsia in 2008; increases in pension expense of $517 thousand; an increase in compensation expense related to stock options granted in June 2008 of $577 thousand; and annual salary adjustments. Net occupancy of premises expense increased $285 thousand to $2.1 million for the nine month period ended September 30, 2009. The increase is primarily related to the costs for our new branches and the RomAsia property lease. Equipment costs increased $250 thousand to $1.9 million for the nine months ended September 30, 2009. This increase was primarily related to the costs for the new branches. All other non-interest expenses increased minimally by $63 thousand.
Provision for Income Taxes
Income tax expense decreased by $762 thousand to $1.1 million for the nine months ended September 30, 2009 compared to $1.9 million for the nine months ended September 30, 2008. Income tax expense, represented an effective rate of 30% for the nine months ended September 30, 2009, compared to 36% in the prior year. The decrease in the effective tax rate is primarily due to the higher percentage of tax free income to taxable income from period to period. The Company pays a state tax rate of 3.6% on the taxable income of its investment company and 9.0% on the taxable income of the other entities.
Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the most critical accounting policy upon which our financial condition and results of operation depend, and which involves the most complex subjective decisions or assessments, is the allowance for loan losses.
The allowance for loan losses is the amount estimated by management as necessary to cover credit losses in the loan portfolio both probable and reasonably estimable at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of our most critical. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.
As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans is critical in determining the amount of the allowance required for specific loans. Assumptions for appraisals are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans.
The evaluation has a specific and general component. The specific component relates to loans that are delinquent or otherwise identified as problem loans through the application of our loan review process. All such loans are evaluated individually, with principal consideration given to the value of the collateral securing the loan. Specific allowances are established as required by this analysis. The general component is determined by segregating the remaining loans by type of loan. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations.
Actual loan losses may be significantly more than the allowances we have established which could have a material negative effect on our financial results.
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. The Company considers the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change. A valuation allowance for deferred tax assets may be required if the amount of taxes recoverable through loss carry-back declines, or if the Company projects lower levels of future taxable income. Such a valuation allowance would be established through a charge to income tax expense, which would adversely affect the Company's operating results.
New Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4) which is now codified in FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. The guidance provides additional guidance on determining when the volume and level of activity for the asset or liability has significantly decreased. It also includes guidance on identifying circumstances when a transaction may not be considered orderly.
The guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value.
This guidance clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.
This guidance is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted the guidance for the quarter ended June 30, 2009. The adoption of the guidance had no impact on the Company's consolidated financial statements although additional disclosures were required and are included in Note G.
In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2), which is now codified in FASB ASC Topic 320, Investments-Debt and Equity Securities. The guidance clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.
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