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Section 1: 10-Q (10-Q)


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

FORM 10-Q

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

For the quarterly period ended March 31, 2019
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)

N/A
(Former name or former address, if changed since last report)

Delaware
 
11-3297463
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. employer identification number)
     
300 Cadman Plaza West, 8th Floor, Brooklyn, NY
 
11201
 (Address of principal executive offices)
 
(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 ☒   NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). YES ☒   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, or an emerging growth company.  See definitions of "large accelerated filer," "accelerated filer" "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

LARGE ACCELERATED FILER  ☐
ACCELERATED FILER 
NON -ACCELERATED FILER  ☐
SMALLER REPORTING COMPANY  ☐
 
EMERGING GROWTH COMPANY  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES    NO

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Title of each class
 
Trading
Symbol(s)
 
Name of each exchange on which registered
Common
 
DCOM
 
The NASDAQ Stock Market

Classes of Common Stock
 
Number of Shares Outstanding at May 10, 2019
$.01 Par Value
 
36,056,385



 

Page
 
PART I – FINANCIAL INFORMATION
 
Item 1.
Unaudited Condensed Consolidated Financial Statements
4
 
Consolidated Statements of Financial Condition at March 31, 2019 and December 31, 2018
4
 
Consolidated Statements of Income for the Three-Month Periods Ended March 31, 2019 and 2018
5
 
Consolidated Statements of Comprehensive Income for the Three-Month Periods Ended March 31, 2019 and 2018
6
 
Consolidated Statements of Changes in Stockholders' Equity for the Three-Month Periods Ended March 31, 2019 and 2018
7
 
Consolidated Statements of Cash Flows for the Three-month Periods Ended March 31, 2019 and 2018
8
 
Notes to Unaudited Condensed Consolidated Financial Statements
9
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
30
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
41
Item 4.
Controls and Procedures
42
 
PART II - OTHER INFORMATION
 
Item 1.
Legal Proceedings
43
Item 1A.
Risk Factors
43
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
43
Item 3.
Defaults Upon Senior Securities
43
Item 4.
Mine Safety Disclosures
43
Item 5.
Other Information
43
Item 6.
Exhibits
44
 
Signatures
45

2

Table of Contents
Cautionary Note Regarding Forward-Looking Statements

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 “annualized,” “anticipate,” “believe,” “continue,” “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. 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. Accordingly, you should not place undue reliance on such statements. These factors include, without limitation, the following:


there may be increases in competitive pressure among financial institutions or from non-financial institutions;

the net interest margin is subject to material short-term fluctuation based upon market rates;

changes in deposit flows, loan demand or real estate values may affect the business of Dime Community Bank (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 or results of operations;

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 different than the Company currently anticipates;

legislative, regulatory or policy changes may adversely affect the Company’s business or results of operations;

technological changes may be more difficult or expensive than the Company anticipates;

success or consummation of new business initiatives or the integration of any acquired entities 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" in our Annual Report on Form 10-K for the year ended December 31, 2018 as updated by our Quarterly Reports on Form 10-Q.

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

3

Table of Contents
Item 1.
Condensed Consolidated Financial Statements

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Dollars in thousands except share amounts)

   
March 31,
2019
   
December 31,
2018
 
ASSETS:
           
Cash and due from banks
 
$
143,473
   
$
147,256
 
Total cash and cash equivalents
   
143,473
     
147,256
 
Securities available-for-sale, at fair value
    511,623       502,885  
Marketable equity securities, at fair value
   
5,912
     
5,667
 
Loans:
               
Real estate
   
5,238,882
     
5,163,122
 
Commercial and industrial ("C&I") loans
   
266,415
     
229,504
 
Other loans
   
1,139
     
1,192
 
Less allowance for loan losses
   
(21,941
)
   
(21,782
)
Total loans, net
   
5,484,495
     
5,372,036
 
Premises and fixed assets, net
   
23,708
     
24,713
 
Loans held for sale
   
682
     
1,097
 
Federal Home Loan Bank of New York ("FHLBNY") capital stock
   
55,840
     
57,551
 
Bank Owned Life Insurance ("BOLI")
   
112,121
     
111,427
 
Goodwill
   
55,638
     
55,638
 
Operating lease assets
   
40,401
     
 
Other assets
   
41,408
     
42,308
 
Total Assets
 
$
6,475,301
   
$
6,320,578
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Liabilities:
               
Due to depositors:
               
Interest-bearing deposits
 
$
3,990,147
   
$
3,961,277
 
Non-interest-bearing deposits
   
417,475
     
395,477
 
Total deposits
   
4,407,622
     
4,356,754
 
Escrow and other deposits
   
137,116
     
85,234
 
FHLBNY advances
   
1,087,325
     
1,125,350
 
Subordinated debt, net
   
113,796
     
113,759
 
Other borrowings
   
45,000
     
 
Operating lease liabilities
   
46,868
     
 
Other liabilities
   
31,300
     
37,400
 
Total Liabilities
   
5,869,027
     
5,718,497
 
                 
Stockholders' Equity:
               
Preferred stock ($0.01 par, 9,000,000 shares authorized, none issued or outstanding at March 31, 2019 and December 31, 2018)
   
     
 
Common stock ($0.01 par, 125,000,000 shares authorized, 53,690,825 shares and 53,690,825 shares issued at March 31, 2019 and December 31, 2018, respectively, and 36,020,112 shares and 36,081,455 shares outstanding at March 31, 2019 and December 31, 2018, respectively)
   
537
     
537
 
Additional paid-in capital
   
278,358
     
277,512
 
Retained earnings
   
572,175
     
565,713
 
Accumulated other comprehensive loss, net of deferred taxes
   
(5,232
)
   
(6,500
)
Unearned Restricted Stock Award common stock
   
(6,068
)
   
(3,623
)
Common stock held by Benefit Maintenance Plan ("BMP")
   
(1,509
)
   
(1,509
)
Treasury stock, at cost (17,670,713 shares and 17,609,370 shares at March 31, 2019 and December 31, 2018, respectively)
   
(231,987
)
   
(230,049
)
Total Stockholders' Equity
   
606,274
     
602,081
 
Total Liabilities and Stockholders' Equity
 
$
6,475,301
   
$
6,320,578
 

See notes to unaudited consolidated financial statements.

4

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

   
Three Months Ended
March 31,
 
   
2019
   
2018
 
Interest income:
           
Loans secured by real estate
 
$
49,177
   
$
49,575
 
C&I loans
   
3,436
     
1,656
 
Other loans
   
18
     
19
 
Mortgage-backed securities (“MBS”) and Agency Collaterized Mortgage Obligation (“CMO”) securities
   
3,197
     
2,257
 
Marketable equity and investment securities
   
420
     
15
 
Other short-term investments
   
1,447
     
1,511
 
Total interest income
   
57,695
     
55,033
 
Interest expense:
               
Deposits and escrow
   
15,017
     
10,751
 
Borrowed funds
   
7,354
     
6,267
 
Total interest expense
   
22,371
     
17,018
 
Net interest income
   
35,324
     
38,015
 
Provision for loan losses
   
321
     
193
 
Net interest income after provision for loan losses
   
35,003
     
37,822
 
Non-interest income:
               
Service charges and other fees
   
1,099
     
911
 
Mortgage banking income, net
   
68
     
111
 
Net gain on securities and other assets(1)
   
192
     
1,366
 
Gain on sale of loans
   
255
     
90
 
Income from BOLI
   
694
     
712
 
Other
   
52
     
54
 
Total non-interest income
   
2,360
     
3,244
 
Non-interest expense:
               
Salaries and employee benefits
   
11,884
     
11,177
 
Stock benefit plan compensation expense
   
284
     
388
 
Occupancy and equipment
   
3,869
     
3,872
 
Data processing costs
   
2,066
     
1,754
 
Marketing
   
466
     
1,047
 
Federal deposit insurance premiums
   
454
     
665
 
Other
   
3,029
     
2,831
 
Total non-interest expense
   
22,052
     
21,734
 
Income before income taxes
   
15,311
     
19,332
 
Income tax expense
   
3,810
     
4,587
 
Net income
 
$
11,501
   
$
14,745
 
                 
Earnings per Share:
               
Basic
 
$
0.32
   
$
0.39
 
Diluted
 
$
0.32
   
$
0.39
 

(1)
Amount includes periodic valuation gains or losses on marketable equity securities.

See notes to unaudited financial statements.

5

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

   
Three Months Ended
March 31,
 
   
2019
   
2018
 
Net Income
 
$
11,501
   
$
14,745
 
Other comprehensive income (loss):
               
Change in holding gain (loss) on securities available-for-sale
   
4,687
     
(2,558
)
Change in pension and other postretirement obligations
   
492
     
155
 
Change in gain (loss) on derivative assets
   
(3,284
)
   
2,016
 
Other comprehensive gain (loss) before income taxes
   
1,895
     
(387
)
Deferred tax expense (benefit)
   
627
     
(112
)
Other comprehensive income (loss), net of tax
   
1,268
     
(275
)
Total comprehensive income
 
$
12,769
   
$
14,470
 

See notes to unaudited condensed consolidated financial statements.

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

   
Three Months Ended March 31, 2019
 
   
Number
of Shares
   
Common
Stock
   
Additional
Paid-in
Capital
   
Retained
Earnings
   
Accumulated Other
Comprehensive
Loss,
Net of Deferred
Taxes
   
Unearned
Stock Award
Common
Stock
   
Common
Stock
Held by
BMP
   
Treasury
Stock, at
cost
   
Total
Stockholders'
Equity
 
                                                       
Beginning balance as of January 1, 2019
   
36,081,455
   
$
537
   
$
277,512
   
$
565,713
   
$
(6,500
)
 
$
(3,623
)
 
$
(1,509
)
 
$
(230,049
)
 
$
602,081
 
Net Income
   
     
     
     
11,501
     
     
     
     
     
11,501
 
Other comprehensive income, net of tax
   
     
     
     
     
1,268
     
     
     
     
1,268
 
Release of shares, net of forfeitures
   
138,329
     
     
846
     
     
     
(2,729
)
   
     
1,883
     

Stock-based compensation
   
     
     
     
     
     
284
     
     
     
284
 
Payments related to tax withholding for stock-based compensation
    (418
)
   
     
     
     
     
     
      (7
)
    (7
)
Cash dividends declared and paid
   
     
     
     
(5,039
)
   
     
     
     
     
(5,039
)
Repurchase of shares of Common Stock
   
(199,254
)
   
     
     
     
     
     
     
(3,814
)
   
(3,814
)
Ending balance as of March 31, 2019
   
36,020,112
   
$
537
   
$
278,358
   
$
572,175
   
$
(5,232
)
 
$
(6,068
)
 
$
(1,509
)
 
$
(231,987
)
 
$
606,274
 


 
Three Months Ended March 31, 2018
 

 
Number
of Shares
   
Common
Stock
   
Additional
Paid-in
Capital
   
Retained
Earnings
   
Accumulated Other
Comprehensive
Loss,
Net of Deferred
Taxes
   
Unearned
Stock Award
Common
Stock
   
Common
Stock
Held by
BMP
   
Treasury
Stock, at
cost
   
Total
Stockholders'
Equity
 
                                                       
Beginning balance as of January 1, 2018
   
37,419,070
   
$
536
   
$
276,730
   
$
535,130
   
$
(3,641
)
 
$
(2,894
)
 
$
(2,736
)
 
$
(204,558
)
 
$
598,567
 
Reclassification of unrealized gains and losses on marketable equity securities
   
     
     
     
153
     
(153
)
   
     
     
     
 
Adjusted beginning balance as of January 1, 2018
   
37,419,070
     
536
     
276,730
     
535,283
     
(3,794
)
   
(2,894
)
   
(2,736
)
   
(204,558
)
   
598,567
 
Net Income
   
     
     
     
14,745
     
     
     
     
     
14,745
 
Other comprehensive loss, net of tax
   
     
     
     
     
(275
)
   
     
     
     
(275
)
Exercise of stock options, net
   
19,726
     
1
     
454
     
     
     
     
     
(165
)
   
290
 
Release of shares, net of forfeitures
   
73,019
     
     
426
     
     
     
(1,349
)
   
     
923
     
 
Stock-based compensation
   
     
     
     
     
     
388
     
     
     
388
 
Shares received to satisfy distribution of retirement benefits
   
(27,545
)
   
     
(540
)
   
     
     
     
540
     
(524
)
   
(524
)
Reclassification of tax effects on other comprehensive income (loss)
   
     
     
     
(32
)
   
32
     
     
     
     
 
Cash dividends declared and paid
   
     
     
     
(5,234
)
   
     
     
     
     
(5,234
)
Ending balance as of March 31, 2018
   
37,484,270
   
$
537
   
$
277,070
   
$
544,762
   
$
(4,037
)
 
$
(3,855
)
 
$
(2,196
)
 
$
(204,324
)
 
$
607,957
 

See notes to unaudited condensed consolidated financial statements.

7

Table of Contents
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)

   
Three Months Ended March 31,
 
   
2019
   
2018
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net Income
 
$
11,501
   
$
14,745
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Net (gain) loss on sales of securities available-for-sale
   
76
     
(1,370
)
Net (gain) loss recognized on marketable equity securities
   
(268
)
   
4
 
Net gain on sale of loans held for sale
   
(255
)
   
(90
)
Net depreciation, amortization and accretion
   
2,875
     
2,184
 
Cash paid for amounts included in the measurement of lease liabilities
   
(1,712
)
   
 
Stock plan compensation
   
284
     
388
 
Provision for loan losses
   
321
     
193
 
Originations of loans held for sale
   
(569
)
   
 
Proceeds from sale of loans originated for sale
    618      
 
Increase in cash surrender value of BOLI
   
(694
)
   
(712
)
Deferred income tax provision
   
(807
)
   
(1,728
)
Changes in assets and liabilities:
               
Decrease (Increase) in other assets
   
(262
)
   
3,204
 
Decrease in other liabilities
   
(923
)
   
(4,072
)
Net cash provided by Operating activities
   
10,185
     
12,746
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from sales securities available-for-sale
   
15,499
     
158,484
 
Proceeds from sales of marketable equity securities
   
137
     
393
 
Purchases of securities available-for-sale
   
(38,319
)
   
(189,874
)
Acquisition of marketable equity securities
   
(114
)
   
(109
)
Proceeds from calls and principal repayments of securities available-for-sale
   
18,530
     
25,958
 
Proceeds from sale of portfolio loans held for sale
    8,659
     
765
 
Net decrease (increase) in loans
   
(120,886
)
   
93,994
 
Purchases of fixed assets, net
   
(50
)
   
(1,879
)
Sale of FHLBNY capital stock, net
   
1,711
     
7,182
 
Net cash provided by (used in) Investing Activities
   
(114,833
)
   
94,914
 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Increase in due to depositors
   
50,868
     
26,994
 
Increase in escrow and other deposits
   
51,882
     
49,785
 
Repayments of FHLBNY advances
   
(1,030,150
)
   
(1,034,600
)
Proceeds from FHLBNY advances
   
992,125
     
875,000
 
Repayments of other borrowings
   
(571,000
)
   
 
Proceeds from other borrowings
   
616,000
     
 
Proceeds from exercise of stock options
   
     
290
 
Payments related to tax withholding for stock-based compensation
    (7
)
   
 
BMP ESOP shares received to satisfy distribution of retirement benefits
   
     
(524
)
Treasury shares repurchased
   
(3,814
)
   
 
Cash dividends paid to stockholders, net
   
(5,039
)
   
(5,234
)
Net cash provided by (used in) Financing Activities
   
100,865
     
(88,289
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
(3,783
)
   
19,371
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
147,256
     
169,455
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
143,473
   
$
188,826
 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Cash paid for income taxes
 
$
4,406
   
$
2,928
 
Cash paid for interest
   
24,013
     
15,323
 
Loans transferred to held for sale
   
2,329
     
675
 
Operating lease assets in exchange for operating lease liabilities
   
41,641
     
 

See notes to unaudited condensed consolidated financial statements.

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

1.
NATURE OF OPERATIONS

Dime Community Bancshares, Inc. (the "Holding Company" and together with its direct and indirect subsidiaries, the "Company") is a Delaware corporation organized by Dime Community Bank (the "Bank") for the purpose of acquiring all of the capital stock of the Bank issued in the Bank's conversion to stock ownership on June 26, 1996. On January 24, 2019, the Bank filed an application with the New York Department of Financial Services (“NYSDFS”) seeking approval to convert from a New York stock form savings bank to a New York commercial bank (the “Charter Conversion”).  Simultaneous with the Charter Conversion application to NYSDFS, the Company filed an application with the Federal Reserve Bank of Philadelphia to delist as a savings and loan holding company and elect to become a bank holding company.  Having received all applicable regulatory approvals, on April 25, 2019 the Bank completed the Charter Conversion, and began operating as a New York commercial bank. Simultaneously, the Company began operating as a bank holding company. At March 31, 2019 the significant assets of the Holding Company were the capital stock of the Bank and investments retained by the Holding Company.  The liabilities of the Holding Company were comprised primarily of $113,796 subordinated notes due in 2027, which become callable commencing in 2022.  The Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended.

The Bank was originally founded in 1864 as a New York State-chartered mutual savings bank, and operated as a New York State-chartered stock savings bank until April 2019.  Effective August 1, 2016, the Bank changed its name from The Dime Savings Bank of Williamsburgh to Dime Community Bank.  The new name more accurately reflected the Bank's evolving business model and emphasized its broader geographic and business reach while retaining the Bank's mission to be in and of the communities it served, including the virtual online community. 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, mixed use, and, to an increasing extent, commercial and industrial (“C&I”) loans, and one-to-four family residential real estate loans, as well as mortgage-backed securities, obligations of the U.S. government and government- sponsored enterprises (“GSEs”), and corporate debt and equity securities.

The Holding Company neither owns nor leases any property, but instead uses the back office of the Bank, located in the Brooklyn Heights section of the borough of Brooklyn, New York. The Bank maintains its principal office in the Williamsburg section of the borough of Brooklyn, New York. As of March 31, 2019, the Bank had twenty-nine retail banking offices located throughout the boroughs of Brooklyn, Queens, and the Bronx, and in Nassau County and Suffolk County, New York.

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 March 31, 2019 and December 31, 2018, the results of operations and statements of comprehensive income for the three-month periods ended March 31, 2019 and 2018, and the changes in stockholders' equity and cash flows for the three-month periods ended March 31, 2019 and 2018.  The results of operations for the three-month period ended March 31, 2019 is not necessarily indicative of the results of operations for the remainder of the year ending December 31, 2019.  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 condensed 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 unaudited condensed consolidated financial statements utilizing significant estimates.

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, 2018 and notes thereto contained in our Annual Report on Form 10-K.

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3.
RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") 2016-02, Leases (Topic 842). ASU 2016-02 requires companies that lease valuable assets to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases (Topic 842): Targeted Improvements.  The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. An entity may adopt the new guidance by either restating prior periods and recording a cumulative effect adjustment at the beginning of the earliest comparative period presented (the modified retrospective transition approach) or by recording a cumulative adjustment at the beginning of the period of adoption (the additional transition method).  The Company used the additional transition method approach.  Topic 842 includes a number of optional practical expedients that entities may elect to apply. The practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. The Company adopted these practical expedients: not reevaluating whether or not a contract contains a lease; retaining current lease classification; not reassessing initial direct costs for existing leases; and not reassessing existing land easements that were not previously accounted for as leases under current lease accounting rules. The Company did not utilize the practical expedient of hindsight in its lease assessments. An entity that elects to apply these practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP.  The adoption of ASU 2016-02 resulted in increases of $41,641 to the Company's assets and liabilities.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), which requires that the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current condition, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. This guidance also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For the Company, this guidance is effective for fiscal years and interim periods beginning after December 31, 2019. The Company has established a committee that has assessed system requirements, gathered data, and will evaluate the impact of ASU 2016-13 on its consolidated financial statements. The Company has engaged a third party software provider in order to evaluate the potential impact of ASU 2016-13, and is currently working through implementation of the software. The Company expects to recognize a one-time cumulative effect increase to the allowance for loan losses as of the beginning of the reporting period in which ASU 2016-13 takes effect, however, cannot yet determine the magnitude of the impact on the consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, however, early adoption is permitted. The adoption of ASU 2017-08 did not have a material impact on the Company’s consolidated financial statements.

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4.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity in accumulated other comprehensive income (loss), net of tax, was as follows:

   
Securities
Available-for-Sale
   
Defined
Benefit Plans
   
Derivative
Asset
   
Total
Accumulated Other
Comprehensive
Loss
 
Balance as of January 1, 2019
 
$
(1,957
)
 
$
(6,290
)
 
$
1,747
   
$
(6,500
)
Other comprehensive income (loss) before reclassifications
   
3,129
     
252
     
(2,007
)
   
1,374
 
Amounts reclassified from accumulated other comprehensive loss
   
51
     
82
     
(239
)
   
(106
)
Net other comprehensive income during the period
   
3,180
     
334
     
(2,246
)
   
1,268
 
Balance as of March 31, 2019
 
$
1,223
   
$
(5,956
)
 
$
(499
)
 
$
(5,232
)
                                 
Balance as of January 1, 2018
 
$
285
   
$
(6,633
)
 
$
2,707
   
$
(3,641
)
Reclassification for adoption of ASU 2016-01(1)
   
(153
)
   
     
     
(153
)
Adjusted balance as of January 1, 2018
   
132
     
(6,633
)
   
2,707
     
(3,794
)
Other comprehensive income (loss) before reclassifications
   
(786
)
   
(88
)
   
1,373
     
499
 
Amounts reclassified from accumulated other comprehensive loss
   
(922
)
   
192
     
(44
)
   
(774
)
Net other comprehensive income during the period
   
(1,708
)
   
104
     
1,329
     
(275
)
Reclassification of tax effects on other comprehensive income (2)
   
     
32
     
     
32
 
Balance as of March 31, 2018
 
$
(1,576
)
 
$
(6,497
)
 
$
4,036
   
$
(4,037
)

(1)
Represents the impact of adopting ASU 2016-01 allowing the reclassification of unrealized gains and losses on available-for-sale equity securities from accumulated other comprehensive income to retained earnings.
(2)
Represents the impact of adopting ASU 2018-02 allowing the reclassification of certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (the "Tax Act") from accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act (or portion thereof) is recorded. The amount of the reclassification is an adjustment for the difference between the historical corporate income tax rate (35%) and the newly enacted 21% corporate income tax rate.

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The before and after tax amounts allocated to each component of other comprehensive income (loss) are presented in the table below for the periods indicated.

   
Three Months Ended
March 31,
 
   
2019
   
2018
 
Change in holding gain (loss) on securities available-for-sale:
           
Change in net unrealized holding gain (loss) during the period
 
$
4,611
   
$
(1,188
)
Reclassification adjustment for net gains included in net gain on securities and other assets
   
76
     
(1,370
)
Net change
   
4,687
     
(2,558
)
Tax expense (benefit)
   
1,507
     
(850
)
Net change in holding gain (loss) on securities available-for-sale
   
3,180
     
(1,708
)
Change in pension and other postretirement obligations:
               
Reclassification adjustment for expense included in other expense
   
122
     
286
 
Change in the net actuarial gain or loss
   
370
     
(131
)
Net change
   
492
     
155
 
Tax expense
   
158
     
51
 
Net change in pension and other postretirement obligations
   
334
     
104
 
Change in gain (loss) on derivative assets:
               
Change in net unrealized gain (loss) during the period
   
(2,928
)
   
2,081
 
Reclassification adjustment for expense included in interest expense
   
(356
)
   
(65
)
Net change
   
(3,284
)
   
2,016
 
Tax expense (benefit)
   
(1,038
)
   
687
 
Net change in unrealized loss on derivative asset or liability
   
(2,246
)
   
1,329
 
Other comprehensive income (loss)
 
$
1,268
   
$
(275
)

5.
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, and if all likely aggregate Long-term Incentive Plan ("LTIP") and Sales Incentive Plan ("SIP") share are issued.  In determining the weighted average shares outstanding for basic and diluted EPS, treasury shares are excluded.  Vested restricted stock award ("RSA") shares are included in the calculation of the weighted average shares outstanding for basic and diluted EPS.  Unvested RSA and SIP shares not yet awarded are recognized as a special class of participating securities under ASC 260, and are included in the calculation of the weighted average shares outstanding for basic and diluted EPS.

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

   
Three Months Ended March
31,
 
   
2019
   
2018
 
Net income per the Consolidated Statements of Income
 
$
11,501
   
$
14,745
 
Less: Dividends paid and earnings allocated to participating securities
   
(37
)
   
(29
)
Income attributable to common stock
 
$
11,464
   
$
14,716
 
Weighted average common shares outstanding, including participating securities
   
36,000,140
     
37,495,317
 
Less: weighted average participating securities
   
(153,793
)
   
(145,725
)
Weighted average common shares outstanding
   
35,846,347
     
37,349,592
 
Basic EPS
 
$
0.32
   
$
0.39
 
Income attributable to common stock
 
$
11,464
   
$
14,716
 
Weighted average common shares outstanding
   
35,846,347
     
37,349,592
 
Weighted average common equivalent shares outstanding
   
130,568
     
115,133
 
Weighted average common and equivalent shares outstanding
   
35,976,915
     
37,464,725
 
Diluted EPS
 
$
0.32
   
$
0.39
 

Common and equivalent shares 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 common stock over the exercise price of outstanding in-the-money stock options during the period.

There were no "out-of-the-money" stock options during the three-month periods ended March 31, 2019 or 2018.

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For information about the calculation of expected aggregate LTIP and SIP share payouts, see Note 14.

6.
REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018. Under ASC 2014-09, an entity is required to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  ASU 2014-09 also requires disclosure of sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, as well as qualitative and quantitative disclosure related to contracts with certain customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.

In accordance with ASU 2014-09, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. The Company applies the following five steps to properly recognize revenue:


1.
Identify the contract with a customer


2.
Identify the performance obligations in the contract


3.
Determine the transaction price


4.
Allocate the transaction price to performance obligations in the contract


5
Recognize revenue when (or as) the Company satisfies a performance obligation

The Company's only in-scope revenue stream that is subject to the accounting standard is service fees on deposit accounts (including interchange fees), which is disclosed on the Consolidated Statements of Operations as "Service charges and other fees." For the three-month periods ended March 31, 2019 and 2018, service charges and other fees totaled $1,099 and $911, respectively.

Service Charges on Deposit Accounts. The Company earns fees from its deposits customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payments, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month, representing the period over which the Company satisfied the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.

Interchange Income. The Company earns interchange fees from debit cardholder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provide to the cardholder.

7.
INVESTMENT AND MORTGAGE-BACKED SECURITIES

The Company adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, on January 1, 2018. As a result of adoption all registered mutual funds were reclassified as marketable equity securities on the Consolidated Statement of Financial Condition and are recorded at fair value with changes in fair value recorded through the income statement. Additionally, $153 of unrealized gains, net of taxes, was reclassified from accumulated other comprehensive income to beginning retained earnings on January 1, 2018. Marketable equity securities are excluded from the tables below.

The following tables summarize the major categories of securities owned by the Company as of the dates indicated:

   
At March 31, 2019
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
Securities available-for-sale:
                       
Agency Notes
 
$
25,124
   
$
52
   
$
3
   
$
25,173
 
Corporate Securities
   
29,131
     
166
     
64
     
29,233
 
Pass-through MBS issued by Government-sponsored Enterprises ("GSEs")
   
346,338
     
2,829
     
560
     
348,607
 
Agency CMOs
   
109,244
     
142
     
776
     
108,610
 
Total securities available-for-sale
 
$
509,837
   
$
3,189
   
$
1,403
   
$
511,623
 

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At December 31, 2018
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
Securities available-for-sale:
                       
Agency Notes
 
$
25,110
   
$
45
   
$
10
   
$
25,145
 
Corporate Securities
   
11,167
     
0
     
32
     
11,135
 
Pass-through MBS issued by GSEs
   
356,039
     
574
     
2,000
     
354,613
 
Agency CMOs
   
113,470
     
157
     
1,635
     
111,992
 
Total securities available-for-sale
 
$
505,786
   
$
776
   
$
3,677
   
$
502,885
 

The carrying amount of securities pledged as collateral for the Bank's first loss guarantee was $23,786 and $27,248 at March 31, 2019 and December 31, 2018, respectively.

At March 31, 2019, the available-for-sale agency notes possessed a weighted average contractual maturity of 3.9 years.  At March 31, 2019, available-for-sale agency CMO and MBS securities possessed a weighted average contractual maturity of 12.9 years.  At March 31, 2019, the corporate securities possessed had a weighted average contractual maturity of 5.9 years.

   
For the Three Months
Ended March 31,
 
   
2019
   
2018
 
Pass through MBS issued by GSEs:
           
Proceeds
 
$
6,117
   
$
 
Gross gains
   
     
 
Tax expense on gain
   
     
 
Gross losses
   
174
     
 
Tax benefit on loss
   
(56
)
   
 
Agency CMOs:
               
Proceeds
   
9,382
     
158,484
 
Gross gains
   
98
     
1,370
 
Tax expense on gain
   
31
     
440
 
Gross losses
   
     
 
Tax benefit on loss
   
     
 

The Company holds marketable equity securities as the underlying mutual fund investments of the BMP, held in a rabbi trust. The Company may sell these securities on a periodic basis in order to pay retirement benefits to plan retirees. There are no gains or losses recognized from the sales of marketable equity securities.  A summary of the sales of marketable equity securities is listed below for the periods indicated:

   
For the Three Months
Ended March 31,
 
   
2019
   
2018
 
Proceeds:
           
Marketable equity securities
 
$
137
   
$
393
 

The remaining gain or loss on securities shown in the unaudited condensed consolidated statements of income was due to market valuation changes.  Net gains (losses) of $268 and $(4) were recognized on marketable equity securities for the three-month period ended March 31, 2019 and March 31, 2018, respectively.

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The following table summarizes the gross unrealized losses and fair value of investment securities aggregated by investment category and the length of time the securities were in a continuous unrealized loss position as of the dates indicated:

   
March 31, 2019
 
   
Less than 12
Consecutive Months
   
12 Consecutive
Months or Longer
   
Total
 
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
Securities available-for-sale:
                                   
Agency Notes
 
$
5,121
   
$
3
   
$
   
$
   
$
5,121
   
$
3
 
Corporate Securities
   
10,104
     
64
     
     
     
10,104
     
64
 
Pass through MBS issued by GSEs
   
     
     
81,834
     
560
     
81,834
     
560
 
Agency CMOs
   
86,626
     
716
     
4,583
     
60
     
91,209
     
776
 

   
December 31, 2018
 
   
Less than 12
Consecutive Months
   
12 Consecutive
Months or Longer
   
Total
 
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
Securities available-for-sale:
                                   
Agency Notes
 
$
5,100
   
$
10
   
$
   
$
   
$
5,100
   
$
10
 
Corporate Securities
   
11,135
     
32
     
     
     
11,135
     
32
 
Pass through MBS issued by GSEs
   
216,451
     
1,049
     
45,489
     
951
     
261,940
     
2,000
 
Agency CMOs
   
52,605
     
439
     
39,833
     
1,196
     
92,438
     
1,635
 

The issuers of securities available-for-sale are U.S. government-sponsored entities or agencies. The decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality. It is likely that the Company will not be required to sell the securities before their anticipated recovery, and as such, the Company does not consider these securities to be other-than-temporarily-impaired at March 31, 2019.

8.
LOANS RECEIVABLE AND CREDIT QUALITY

Loans are reported at the principal amount outstanding, net of unearned fees or costs.  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:

On a quarterly basis, 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 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 real estate (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 loans, acquisition, development, and construction ("ADC") loans (which includes land loans), C&I loans, as well as one-to-four family residential and cooperative and condominium apartment loans.

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.

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The Bank had no loans classified as doubtful as of March 31, 2019 or December 31, 2018. All real estate and C&I loans not classified as Special Mention or Substandard were deemed pass loans at both March 31, 2019 and December 31, 2018.

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

     
Balance at March 31, 2019
 
     
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
Real Estate:
                               
One-to-four family residential, including condominium and cooperative apartment
   
$
106,659
   
$
   
$
1,050
   
$
   
$
107,709
 
Multifamily residential and residential mixed-use
     
3,793,706
     
25,326
     
12,113
     
     
3,831,145
 
Commercial real estate and commercial mixed-use
     
1,230,111
     
6,110
     
9,585
     
     
1,245,806
 
ADC
     
54,222
     
     
     
     
54,222
 
Total real estate
     
5,184,698
     
31,436
     
22,748
     
     
5,238,882
 
C&I

   
265,521
     
49
     
845
     
     
266,415
 
Total Real Estate and C&I
   
$
5,450,219
   
$
31,485
   
$
23,593
   
$
   
$
5,505,297
 

     
Balance at December 31, 2018
 
     
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
Real Estate:
                               
One-to-four family residential, including condominium and cooperative apartment
   
$
95,782
   
$
   
$
1,065
   
$
   
$
96,847
 
Multifamily residential and residential mixed-use
     
3,829,643
     
32,682
     
4,463
     
     
3,866,788
 
Commercial real estate and commercial mixed-use
     
1,162,429
     
1,209
     
6,447
     
     
1,170,085
 
ADC
     
29,402
     
     
     
     
29,402
 
Total real estate
     
5,117,256
     
33,891
     
11,975
     
     
5,163,122
 
C&I

   
228,924
     
     
580
     
     
229,504
 
Total Real Estate and C&I
   
$
5,346,180
   
$
33,891
   
$
12,555
   
$
   
$
5,392,626
 

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

   
Balance at
 
Grade
 
March 31, 2019
   
December 31, 2018
 
Performing
 
$
1,133
   
$
1,189
 
Non-accrual
   
6
     
3
 
Total
 
$
1,139
   
$
1,192
 

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

     
At March 31, 2019
 
     
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, including condominium and cooperative apartment
   
$
133
   
$
8
   
$
   
$
706
   
$
847
   
$
106,862
   
$
107,709
 
Multifamily residential and residential mixed-use
     
145
     
     
768
     
276
     
1,189
     
3,829,956
     
3,831,145
 
Commercial real estate and commercial mixed-use
     
     
     
5,622
     
4,205
     
9,827
     
1,235,979
     
1,245,806
 
ADC
     
     
     
     
     
     
54,222
     
54,222
 
Total real estate
   
$
278
   
$
8
   
$
6,390
   
$
5,187
   
$
11,863
   
$
5,227,019
   
$
5,238,882
 
C&I

 
$
49
   
$
   
$
565
   
$
232
   
$
846
   
$
265,569
   
$
266,415
 
Consumer
   
$
3
   
$
1
   
$
   
$
6
   
$
10
   
$
1,129
   
$
1,139
 

(1)
Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of March 31, 2019.

     
At December 31, 2018
 
     
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, including condominium and cooperative apartment
   
$
312
   
$
   
$
   
$
712
   
$
1,024
   
$
95,823
   
$
96,847
 
Multifamily residential and residential mixed-use
     
     
     
100
     
280
     
380
     
3,866,408
     
3,866,788
 
Commercial real estate and commercial mixed-use
     
     
     
     
1,041
     
1,041
     
1,169,044
     
1,170,085
 
ADC
     
     
     
     
     
     
29,402
     
29,402
 
Total real estate
   
$
312
   
$
   
$
100
   
$
2,033
   
$
2,445
   
$
5,160,677
   
$
5,163,122
 
C&I

 
$
50
   
$
49
   
$
   
$
309
   
$
408
   
$
229,096
   
$
229,504
 
Consumer
   
$
12
   
$
1
   
$
   
$
3
   
$
16
   
$
1,176
   
$
1,192
 

(1)
Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2018.

Accruing Loans 90 Days or More Past Due

The Bank continued accruing interest on eleven loans with an aggregate outstanding balance of 6,955 at March 31, 2019, and one real estate loan with an aggregate outstanding balance of $100 at December 31, 2018, all of which were 90 days or more past due on their respective contractual maturity dates. These loans continued to make monthly payments consistent with their initial contractual amortization schedule exclusive of the balloon payments due at maturity.  These loans were well secured and were expected to be refinanced, and therefore remained on accrual status and were deemed performing assets at the dates indicated above.

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Table of Contents
Troubled Debt Restructurings ("TDRs")

A TDR has been created in the event that, for economic or legal reasons, any of the following concessions has been granted that would not have otherwise been considered to a debtor experiencing financial difficulties. The following criteria are considered concessions:


A reduction of interest rate has been made for the remaining term of the loan

The maturity date of the loan has been extended with a stated interest rate lower than the current market rate for new debt with similar risk

The outstanding principal amount and/or accrued interest have been reduced

In instances in which the interest rate has been reduced, management would not deem the modification a TDR in the event that the reduction in interest rate reflected either a general decline in market interest rates or an effort to maintain a relationship with a borrower who could readily obtain funds from other sources at the current market interest rate, and the terms of the restructured loan are comparable to the terms offered by the Bank to non-troubled debtors.  The following table summarizes outstanding TDRs by underlying collateral types as of the dates indicated:

   
As of March 31, 2019
   
As of December 31, 2018
 
   
No. of
Loans
   
Balance
   
No. of
Loans
   
Balance
 
One-to-four family residential, including condominium and cooperative apartment
   
1
   
$
12
     
1
   
$
14
 
Multifamily residential and residential mixed-use
   
2
     
261
     
2
     
271
 
Commercial real estate and commercial mixed-use
   
1
     
4,061
     
1
     
4,084
 
Total real estate
   
4
   
$
4,334
     
4
   
$
4,369
 

Accrual status for TDRs is determined separately for each TDR in accordance with the Bank's policies for determining accrual or non-accrual status.  At the time an agreement is entered into between the Bank and the borrower that results in the Bank's determination that a TDR has been created, the loan can be on either accrual or non-accrual status.  If a loan is on non-accrual status at the time it is restructured, it continues to be classified as non-accrual until the borrower has demonstrated compliance with the modified loan terms for a period of at least six months.  Conversely, if at the time of restructuring the loan is performing (and accruing), it will remain accruing throughout its restructured period, unless the loan subsequently meets any of the criteria for non-accrual status under the Bank's policy and agency regulations. There were no TDRs on non-accrual status at March 31, 2019 or at December 31, 2018.

The Company has not restructured any C&I or consumer loans, as these loan portfolios have not experienced any problem issues warranting restructuring. Therefore, all TDRs were collateralized by real estate at both March 31, 2019 and December 31, 2018.

There were no loans modified in a manner that met the criteria of a TDR during the three-month periods ended March 31, 2019 or 2018.

As of March 31, 2019 and December 31, 2018, the Bank had no loan commitments to borrowers with outstanding TDRs.

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.

There were no TDRs which defaulted within twelve months following the modification during the three-month periods ended March 31, 2019 or 2018 (thus no impact to the allowance for loan losses during those periods).

Impaired Loans

A loan is considered impaired when, based on then 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.

The Bank considers TDRs and all non-accrual loans, except one-to-four family loans equal to or less than the FNMA conforming loan limits for high-cost areas, such as the Bank's primary lending area, ("FNMA Limits") and consumer loans, to be impaired.  Non-accrual one-to-four family loans equal to or less than the FNMA Limits and all consumer loans, are considered homogeneous loan pools and are not required to be evaluated individually for impairment unless considered a TDR.

18

Table of Contents
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 to come from liquidation of the collateral; or 3) the present value of estimated future cash flows (using the loan's pre-modification rate for some of the performing TDRs).  If a TDR is substantially performing in accordance with its restructured terms, management will look to either the potential net liquidation proceeds of the underlying collateral or the present value of the expected cash flows from the debt service 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. Measured impairment is either charged off immediately or, in limited instances, recognized as an allocated reserve within the allowance for loan losses.

Please refer to Note 9 for tabular information related to impaired loans.

9.
ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses consists of specific and general components. At March 31, 2019, the Bank's periodic evaluation of its allowance for loan losses (specific or general) was comprised of two primary components: (1) impaired loans and (2) pass graded loans. Within these components, the Company has identified the following portfolio segments for purposes of assessing its allowance for loan losses: (1) real estate loans; (2) C&I loans; and (3) consumer loans.  Within these segments, the Bank analyzes the allowance for loan losses based upon the underlying collateral type (classes). Smaller balance homogeneous real estate loans, such as condominium or cooperative apartment and one-to-four family residential real estate loans with balances equal to or less than the FNMA Limits, and consumer loans are collectively evaluated for impairment, and accordingly, are not separately identified for impairment disclosures.

Impaired Loan Component

All loans that are deemed to meet the definition of impaired 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 to come from liquidation of the collateral; or (3) the present value of estimated future cash flows (using the loan's pre-modification rate in the case of certain performing TDRs).  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 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 are generally considered when measuring impairment.  While measured impairment is generally charged off immediately, impairment attributed to a reduction in the present value of expected cash flows of a performing TDR is generally reflected as an allocated reserve within the allowance for loan losses. At March 31, 2019 and December 31, 2018, there were no allocated reserves related to TDRs within the allowance for loan losses.

Non-Impaired Loan Component

The Bank initially looks to the underlying collateral type when determining the allowance for loan losses associated with non-impaired real estate loans.  The following underlying collateral types are analyzed separately: 1) one-to-four family residential and condominium or cooperative apartment; 2) multifamily residential and residential mixed-use; 3) commercial mixed-use real estate, 4) commercial real estate; 5) ADC; and 6) C&I.  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 non-impaired real estate loans:


(i)
Charge-off experience (including peer charge-off experience)

(ii)
Economic conditions

(iii)
Underwriting standards or experience

(iv)
Loan concentrations

(v)
Regulatory climate

(vi)
Nature and volume of the portfolio

(vii)
Changes in the quality and scope of the loan review function

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


(i)
Charge-off experience Loans within the non-impaired loan portfolio are segmented by significant common characteristics, against which historical loss rates are applied to reflect probable incurred loss percentages.  The Bank also reviews and considers the charge-off experience of peer banks in its lending marketplace in order to determine whether probable incurred losses that could take a longer period to flow through its allowance for loan losses possibly exist.

(ii)
Economic conditions The Bank assigned a loss allocation to its entire non-impaired 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.  Loss expectations associated with changes in the Bank's lending policies and practices, if any, are then incorporated into the methodology.

(iv)
Loan concentrations The Bank regularly reviews its loan concentrations (borrower, collateral type, location, etc.) 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)
Regulatory climate – Consideration is given to public statements made by the banking regulatory agencies that have a potential impact on the Bank's loan portfolio and allowance for loan losses.

(vi)
Nature and volume of the portfolio – The Bank considers any significant changes in the overall nature and volume of its loan portfolio.

(vii)
Changes in the quality and scope of the loan review function – The Bank considers the potential impact upon its allowance for loan losses of any adverse change in the quality and scope of the loan review function.

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 such loans.  Consumer loans in excess of 120 days delinquent are typically fully charged off against the allowance for loan losses.

Reserve for Loan Commitments

At both March 31, 2019 and December 31, 2018, respectively, the Bank maintained a reserve of $0.03 million associated with unfunded loan commitments accepted by the borrower.  This reserve is determined based upon the outstanding volume of loan commitments at each period end.  Any increases or reductions in this reserve are recognized in periodic non-interest expense.

The following tables present data regarding the allowance for loan losses activity for the periods indicated:

   
At or for the Three Months Ended March 31, 2019
 
   
Real Estate Loans
             
   
One-to-Four Family
Residential, Including
Condominium and
Cooperative
Apartment
   
Multifamily
Residential
and
Residential
Mixed-Use
   
Commercial
Real Estate
and
Commercial
Mixed-Use
   
ADC
   
Total
Real
Estate
     
C&I

 
Consumer
Loans
 
Beginning balance
 
$
198
   
$
13,446
   
$
3,777
   
$
397
   
$
17,818
   
$
3,946
   
$
18
 
Provision (credit) for loan losses
   
4
     
(453
)
   
250
     
246
     
47
     
273
     
1
 
Charge-offs
   
(1
)
   
(5
)
   
(5
)
   
     
(11
)
   
(150
)
   
(1
)
Recoveries
   
     
     
     
     
     
     
 
Ending balance
 
$
201
   
$
12,988
   
$
4,022
   
$
643
   
$
17,854
   
$
4,069
   
$
18
 

20

Table of Contents
   
At or for the Three Months Ended March 31, 2018
 
   
Real Estate Loans
             
   
One- to Four Family
Residential, Including
Condominium and
Cooperative
Apartment
   
Multifamily
Residential
and
Residential
Mixed-Use
   
Commercial
Real Estate
and
Commercial
Mixed-Use
   
ADC
   
Total
Real
Estate
     
C&I

 
Consumer
Loans
 
Beginning balance
 
$
116
   
$
15,219
   
$
3,535
   
$
123
   
$
18,993
   
$
2,021
   
$
19
 
Provision (credit) for loan losses
   
     
(223
)
   
(13
)
   
3
     
(233
)
   
424
     
2
 
Charge-offs
   
(15
)
   
     
(4
)
   
     
(19
)
   
     
(4
)
Recoveries
   
1
     
     
     
     
1
     
     
 
Ending balance
 
$
102
   
$
14,996
   
$
3,518
   
$
126
   
$
18,742
   
$
2,445
   
$
17
 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment evaluation method as of the dates indicated:

   
At March 31, 2019
 
   
Real Estate Loans
         
Consumer
Loans
 
   
One-to-Four Family
Residential, Including
Condominium and
Cooperative
Apartment
   
Multifamily
Residential
and
Residential
Mixed-Use
   
Commercial
Real Estate
and
Commercial
Mixed-Use
   
ADC
   
Total
Real Estate
     
C&I

Allowance for loan losses:
                                           
Individually evaluated for impairment
 
$
   
$
   
$
   
$
   
$
   
$
116
   
$
 
Collectively evaluated for impairment
   
201
     
12,988
     
4,022
     
643
     
17,854
     
3,953
     
18
 
Total ending allowance balance
 
$
201
   
$
12,988
   
$
4,022
   
$
643
   
$
17,854
   
$
4,069
   
$
18