Search the web
Welcome, Guest
[Sign Out, My Account]

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
DCOM > SEC Filings for DCOM > Form 10-Q on 5-Aug-2014All Recent SEC Filings




Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations


The Holding Company is a Delaware corporation and parent company of the Bank, a New York State chartered stock savings bank. The Bank maintains its headquarters in the Williamsburg section of Brooklyn, New York and operates twenty-five full service retail banking offices located in the 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 and mixed use loans, MBS, obligations of the U.S. government and GSEs, and corporate debt and equity securities. All of the Bank's lending occurs in the greater NYC metropolitan area.

Executive Summary

The Holding Company's primary business is the ownership of the Bank. The Company's consolidated results of operations are dependent primarily on net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. The Bank additionally generates non-interest income such as service charges and other fees, mortgage banking related income, and income associated with BOLI. Non-interest expense primarily consists of employee compensation and benefits, federal deposit insurance premiums, data processing costs, occupancy and equipment, marketing and other operating expenses. The Company's consolidated results of operations are also significantly affected by general economic and competitive conditions (particularly fluctuations in market interest rates), government policies, changes in accounting standards and actions of regulatory agencies.

The Bank's primary strategy is generally to seek to increase its product and service utilization for each individual depositor, and increase its household and deposit market shares in the communities that it serves. In addition, the Bank's primary strategy includes the origination of, and investment in, mortgage loans, with an emphasis on NYC multifamily residential and mixed-use real estate loans. The Company believes that multifamily residential and mixed-use loans in and around NYC provide several advantages as investment assets. Initially, they offer a higher yield than investment securities of comparable maturities or terms to repricing. In addition, origination and processing costs for the Bank's multifamily residential and mixed use loans are lower per thousand dollars of originations than comparable one-to four-family loan costs. Further, the Bank's market area has generally provided a stable flow of new and refinanced multifamily residential and mixed-use loan originations. In order to address the credit risk associated with multifamily residential and mixed use lending, the Bank has developed underwriting standards that it believes are reliable in order to maintain consistent credit quality for its loans.

The Bank also strives to provide a stable source of liquidity and earnings through the purchase of investment grade securities, seeks to maintain the asset quality of its loans and other investments, and uses portfolio and asset/liability management techniques in an effort to manage the effects of interest rate volatility on its profitability and capital.


Recent Regulatory Developments

New York State Tax Reforms

On March 31, 2014, New York State ("NYS") enacted several reforms (the "Tax Reform Package") to its tax structure, including changes to the franchise, sales, estate and personal income taxes. These changes are generally effective on January 1, 2015. The Tax Reform Package is intended to simplify the existing corporate tax code for NYS businesses while remaining relatively neutral in relation to corporate tax receipts.

Under the Tax Reform Package, the NYS corporate income tax rate drops, effective January 1, 2016, from 7.10% to 6.50%. Effective January 1, 2015, the metropolitan commuter transportation district surcharge ("MTA Tax") increases from 17.0% to 25.6% of the surcharge tax base. The MTA Tax rate for years beginning on or after January 1, 2016 will be adjusted based upon future Metropolitan Transit Authority budget projections.

Some of the most significant elements of the Tax Reform Package include the merger of the bank tax into the general corporate franchise tax, expanded application of economic nexus, adoption of water's-edge unitary reporting, and apportionment of source income solely by reference to customer location.

Merger of the Bank Tax into the Corporate Franchise Tax NYS has historically imposed a franchise tax on general business corporations, commonly referred to as the "Article 9-A Corporate Franchise Tax," and a separate franchise tax on banking corporations, commonly referred to as the "Article 32 Bank Tax." Under these statutes, NYS financial service companies and banks are taxed under different regimes.

The Tax Reform Package repeals the Article 32 Bank Tax, merging it into the Article 9-A Corporate Franchise Tax. It also makes several subtraction modifications to the Article 9-A Corporate Franchise Tax to accommodate the merger, most notably by providing a choice between three potential financial tax subtraction modifications: 1) a subtraction modification equal to 32% of NYS entire net income available to all thrifts and community banks with assets that do not exceed $8 billion; 2) a subtraction modification, available to both small thrifts and community banks with assets that do not exceed $8 billion, based upon 50% of the net interest income from loans multiplied by the fraction of interest received from loans secured by real estate located in NYS or small business loans made to NYS borrowers with a principal amount of $5 million or less divided by total interest income from loans; and 3) both small thrifts and community banks with assets that do not exceed $8 billion that owned a captive real estate investment trust ("REIT") as of April 1, 2014, may, for tax years beginning on or after January 1, 2015, subtract up to 160% of dividends received from the REIT in determining NYS taxable income. Small thrifts and community banks with assets that do not exceed $8 billion and that continue to maintain grandfathered REITs are prohibited from claiming the first two subtraction modifications described above. Consequently, under the revised Article 9-A Corporate Franchise Tax structure, for tax years beginning on or after January 1, 2015, the Bank will be required to claim the 160% subtraction for dividends received from its captive REIT subsidiary for any year the REIT remains in existence (in lieu of a dividends paid deduction to the REIT). If the REIT is no longer maintained, then the Bank will be entitled to choose on an annual basis between option 1) or 2) above.

Adoption of a Full Water's-Edge Unitary Combined Filing The Tax Reform Package requires all firms meeting an ownership test of 50% or more be deemed a unitary business and required to file a combined tax return. Substantial intercompany transactions are eliminated, and a domestic corporation without any assets or customers in NYS, but engaged in a unitary business with a related New York taxpayer, could become part of the NYS unitary group.

Source Income Solely by Reference to the Location of the Customer The Tax Reform Package requires business income to be apportioned to and taxed by NYS using a single receipts factor based on the customer's location. These provisions also contain favorable apportionment rules for asset-backed securities that will be beneficial to the Bank.

During the three-month and six-month periods ended June 30, 2014, the Company adjusted both its deferred tax asset and income tax expense to reflect the expected adjustment in its NYS tax rate resulting from the Tax Reform Package. Such adjustments were not material to its consolidated financial condition and results of operations. The Company is evaluating the impact of the Tax Reform Package upon its future consolidated financial condition and results of operations. The ultimate impact of the Tax Reform Package upon future tax expense and tax planning policies implemented by the Company will be influenced by several factors including, but not limited to, the election of NYC to conform its tax laws to the reformed NYS law.


                  Selected Financial Highlights and Other Data
                (Dollars in Thousands Except Per Share Amounts)

                                             At or For the Three Months        At or For the Six Months Ended
                                                   Ended June 30,                         June 30,
                                              2014                2013            2014                2013
Performance and Other Selected Ratios:
Return on Average Assets                          0.97 %              1.20 %          0.97 %              1.14 %
Return on Average Stockholders' Equity            9.36               11.93            9.24               11.29
Stockholders' Equity to Total Assets             10.43               10.35           10.43               10.35
Loans to Deposits at End of Period              149.83              138.32          149.83              138.32
Loans to Earning Assets at End of Period         96.82               96.60           96.82               96.60
Net Interest Spread                               2.77                3.34            2.81                3.28
Net Interest Margin                               2.96                3.55            3.01                3.49
Average Interest Earning Assets to
Average Interest Bearing Liabilities            116.48              116.89          116.16              116.34
Non-Interest Expense to Average Assets            1.42                1.53            1.47                1.59
Efficiency Ratio                                 47.66               43.24           48.06               45.55
Effective Tax Rate                               41.86               40.10           41.78               40.26
Dividend Payout Ratio                            48.28               41.18           49.12               43.08
Per Share Data:
Reported EPS (Diluted)                     $      0.29         $      0.34     $      0.57         $      0.65
Cash Dividends Paid Per Share                     0.14                0.14            0.28                0.28
Stated Book Value                                12.17               11.34           12.17               11.34
Asset Quality Summary:
Net (Recoveries) Charge-offs               $      (334 )       $        56     $      (329 )       $       232
Non-performing Loans                            12,305               9,507          12,305               9,507
Non-performing Loans/Total Loans                  0.31 %              0.26 %          0.31 %              0.26 %
Non-performing Assets                      $    13,224         $    10,987     $    13,224         $    10,987
Non-performing Assets/Total Assets                0.31 %              0.28 %          0.31 %              0.28 %
Allowance for Loan Loss/Total Loans               0.49                0.57            0.49                0.57
Allowance for Loan Loss/Non-performing
Loans                                           159.55              215.65          159.55              215.65
Earnings to Fixed Charges Ratios (1)
Including Interest on Deposits                    2.43 x              2.65 x          2.45 x              2.55 x
Excluding Interest on Deposits                    3.37                3.86            3.39                3.68

(1) Please refer to Exhibit 12.1 for further detail on the calculation of these ratios.

Critical Accounting Policies

The Company's policies with respect to (1) the methodologies it uses to determine the allowance for loan losses (including reserves for loan commitments), and (2) accounting for defined benefit plans, are its most critical accounting policies because they are important to the presentation of the Company's consolidated financial condition and results of operations, involve a significant degree of complexity and require management to make difficult and subjective judgments which often necessitate assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions or estimates could result in material variations in the Company's consolidated results of operations or financial condition.

The following are descriptions of the Company's critical accounting policies and explanations of the methods and assumptions underlying their application.

Allowance for Loan Losses and Reserve for Loan Commitments. The Bank's methods and assumptions utilized to periodically determine its allowance for loan losses are summarized in Note 9 to the Company's condensed consolidated financial statements.

Accounting for Defined Benefit Plans. Defined benefit plans are accounted for in accordance with ASC 715, which requires an employer sponsoring a single employer defined benefit plan to recognize the funded status of such benefit plan in its statements of financial condition, measured as the difference between plan assets at fair value (with limited


exceptions) and the benefit obligation. The Company utilizes the services of trained actuaries employed at an independent benefits plan administration entity in order to assist in measuring the funded status of its defined benefit plans.

Liquidity and Capital Resources

The Board of Directors of the Bank has approved a liquidity policy that it reviews and updates at least annually. Senior management is responsible for implementing the policy. The Bank's Asset Liability Committee ("ALCO") is responsible for general oversight and strategic implementation of the policy, and management of the appropriate departments are designated responsibility for implementing any strategies established by ALCO. On a daily basis, appropriate senior management receives a current cash position report and one-week forecast to ensure that all short-term obligations are timely satisfied and that adequate liquidity exists to fund future activities. On a monthly basis, reports detailing the Bank's liquidity reserves and forecasted cash flows are presented to both appropriate senior management and the Board of Directors. In addition on a monthly basis, a twelve-month liquidity forecast is presented to ALCO in order to assess potential future liquidity concerns. A forecast of cash flow data for the upcoming 12 months is presented to the Board of Directors on an annual basis.

During the six months ended June 30, 2014, the Company repurchased $221.9 million of loans it had previously sold to third parties and was servicing. The Company utilized a combination of borrowings, deposit growth and additional mortgagor escrow deposits to fund the repurchase. This was a non-recurring transaction for purposes of liquidity and capital resources.

The Bank's primary sources of funding for its lending and investment activities include deposits, loan and MBS payments, investment security principal and interest payments and advances from the FHLBNY. The Bank may also sell selected multifamily residential, or mixed use real estate loans to private sector secondary market purchasers, and has in the past sold such loans and one to four family residential loans to FNMA. The Company may additionally issue debt under appropriate circumstances. Although maturities and scheduled amortization of loans and investments are predictable sources of funds, deposit flows and prepayments on mortgage loans and MBS are influenced by interest rates, economic conditions and competition.

The Bank gathers deposits in direct competition with commercial banks, savings banks and brokerage firms, many among the largest in the nation. It must additionally compete for deposit monies against the stock and bond markets, especially during periods of strong performance in those arenas. The Bank's deposit flows are affected primarily by the pricing and marketing of its deposit products compared to its competitors, as well as the market performance of depositor investment alternatives such as the U.S. bond or equity markets. To the extent that the Bank is responsive to general market increases or declines in interest rates, its deposit flows should not be materially impacted. However, favorable performance of the equity or bond markets could adversely impact the Bank's deposit flows.

Retail branch and Internet banking deposits increased $145.9 million during the six months ended June 30, 2014, compared to an increase of $128.2 million during the six months ended June 30, 2013. Within deposits, core deposits (i.e., non-CDs) increased $107.3 million during the six months ended June 30, 2014 and $145.1 million during the six months ended June 30, 2013. These increases were due to successful gathering efforts tied to promotional money market offerings. CDs increased $38.6 million during the six months ended June 30, 2014 and declined by $16.9 million during the six months ended June 30, 2013. The increase during the six months ended June 30, 2014 resulted primarily from successful promotional activities related to 30-month and 5-year traditional CDs as well as Individual Retirement Account CDs. The reduction during the six months ended June 30, 2013 was due to the attrition of maturing CDs from prior period promotional activities, as CD promotional activities were de-emphasized during that period. Deposit gathering was given greater emphasis during the six months ended June 30, 2014 compared to the six months ended June 30, 2013, and thus resulted in increased deposit inflows during the six months ended June 30, 2014.

The Bank increased its outstanding FHLBNY advances by $108.2 million during the six months ended June 30, 2014, reflecting a need for additional borrowings in order to fund the $221.9 million of loan repurchases that occurred during the period. The Bank elected not to replace $105.0 million of FHLBNY advances that matured during the six months ended June 30, 2013, as it experienced only nominal balance sheet growth during that period and utilized cash balances liquidity or deposit inflows instead to fund its balance sheet growth.

During the six months ended June 30, 2014, principal repayments totaled $332.3 million on real estate loans (including refinanced loans) and $3.3 million on MBS. During the six months ended June 30, 2013, principal repayments totaled $496.7 million on real estate loans (including refinanced loans) and $10.8 million on MBS. The decrease in principal repayments on real estate loans reflected reduced loan refinancing activity during the six months ended June 30, 2014, as such levels were historically high during the six months ended June 30, 2013. The decline in principal repayments on MBS resulted from a reduction of $13.6 million in their average balance from the six months ended June 30, 2013 to the six months ended June 30, 2014.


In the event that the Bank should require funds beyond its ability or desire to generate them internally, an additional source of funds is available through its borrowing line at the FHLBNY. At June 30, 2014, the Bank had an additional potential borrowing capacity of $482.2 million through the FHLBNY, subject to customary minimum FHLBNY common stock ownership requirements (i.e., 4.5% of the Bank's outstanding FHLBNY borrowings).

The Bank is subject to minimum regulatory capital requirements imposed by its primary federal regulator. As a general matter, these capital requirements are based on the amount and composition of an institution's assets. At June 30, 2014, the Bank was in compliance with all applicable regulatory capital requirements and was considered "well-capitalized" for all regulatory purposes.

The Company generally utilizes its liquidity and capital resources primarily to fund the origination of real estate loans, the purchase of mortgage-backed and other securities, the repurchase of Holding Company common stock into treasury, the payment of quarterly cash dividends to holders of the Holding Company's common stock and the payment of quarterly interest to holders of its outstanding trust preferred debt. During the six months ended June 30, 2014 and 2013, real estate loan originations totaled $399.8 million and $570.0 million, respectively. The decrease from the six months ended June 30, 2013 to the six months ended June 30, 2014 reflected the Company's election to compete less aggressively for new loans during the six months ended June 30, 2014 as a result of the $221.9 million of loans repurchased during the period. Security purchases were de-emphasized during the six months ended both June 30, 2014 and 2013 due to their lack of beneficial yield above cash balances.

The Holding Company did not repurchase any shares of its common stock during the six months ended June 30, 2014 or 2013. As of June 30, 2014, up to 1,124,549 shares remained available for purchase under authorized share purchase programs. Based upon the $15.79 per share closing price of its common stock as of June 30, 2014, the Holding Company would utilize $17.8 million in order to purchase all of the remaining authorized shares.

The Holding Company paid $10.0 million in cash dividends on its common stock during the six months ended June 30, 2014, and $9.8 million during the six months ended June 30, 2013. The increase in payment resulted from a net increase of 803,743 shares outstanding from June 30, 2013 to June 30, 2014.

Contractual Obligations

The Bank is obligated for rental payments under leases on certain of its branches and equipment. In addition, the Bank generally has outstanding at any time significant borrowings in the form of FHLBNY advances, as well as customer CDs with fixed contractual interest rates. The Holding Company also has $70.7 million of callable trust preferred borrowings from third parties due to mature in April 2034, which became callable at any time commencing in April 2009. The Holding Company does not currently intend to call this debt. The facts and circumstances surrounding these obligations have not changed materially since December 31, 2013.

Off-Balance Sheet Arrangements

As part of its loan origination business, the Bank generally has outstanding commitments to extend credit to third parties, which are granted pursuant to its regular underwriting standards. Since these loan commitments may expire prior to funding, in whole or in part, the contract amounts are not estimates of future cash flows.


The following table presents off-balance sheet arrangements as of June 30, 2014:

  Add DCOM to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for DCOM - All Recent SEC Filings
Copyright © 2015 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.