f10q-033111_0375.htm

UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
_____________________________
FORM 10-Q
 
(Mark One)
       
 
X
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     
EXCHANGE ACT OF 1934
       
 
For the quarterly period ended
March 31, 2011
       
 
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  000-52000
       
       
 
ROMA FINANCIAL CORPORATION
 
(Exact name of registrant as specified in its charter)
       
       
 
UNITED STATES
 
51-0533946
 
(State or other jurisdiction of
 
(I.R.S. Employer
 
Incorporation or organization)
 
Identification Number)
       
 
2300 Route 33, Robbinsville, New Jersey
 
08691
 
(Address of principal executive offices)
 
(Zip Code)
       
 
Registrant’s telephone number, including area code:
(609) 223-8300
       
 
        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [ X  ]   No [ ]
 
 
        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit and post 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.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):     Large accelerated filer [   ]       Accelerated filer [ X ]
 
                Non-accelerated filer [   ]                        Smaller reporting company [   ]
 
   
 
        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [   ] No [X]
   
 
        The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date,
April 25, 2011:
       
 
$0.10 par value common stock  -  30,280,927  shares outstanding
 
 
 

 

ROMA FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX

   
Page
 
   
Number
 
PART I - FINANCIAL INFORMATION
     
       
  Item 1:
Financial Statements
     
         
 
Consolidated Statements of Financial Condition
 
2
 
 
at March 31, 2011 and December 31, 2010 (Unaudited)
     
         
 
Consolidated Statements of Income for the Three Months Ended
 
3
 
 
March 31, 2011 and 2010 (Unaudited)
     
         
 
Consolidated Statements of Changes in Stockholders’ Equity for the Three
 
4
 
 
Months Ended March 31, 2011 and 2010 (Unaudited)
     
         
 
Consolidated Statements of Cash Flows for the Three Months
 
5
 
 
Ended March 31, 2011 and 2010 (Unaudited)
     
         
 
Notes to Consolidated Financial Statements
 
7
 
         
  Item 2:
Management’s Discussion and Analysis of
 
37
 
 
Financial Condition and Results of Operations
     
       
  Item 3:
Quantitative and Qualitative Disclosure About Market Risk
 
46
 
       
  Item 4:
Controls and Procedures
 
46
 
       
       
PART II - OTHER INFORMATION
 
47
 
       
   Item 1:       Legal Proceedings
 
   Item 1A:    Risk Factors
 
   Item 2:       Unregistered Sales of Equity Securities and Use of Proceeds
 
   Item 3:       Defaults Upon Senior Securities
 
   Item 4:       (Reserved)
 
   Item 5:       Other Information
 
  Item 6:        Exhibits
 
 
 
 
SIGNATURES
 
48
 
       

 
 

 


ROMA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)

   
March 31,
   
December 31,
 
   
2011
   
2010
 
   
(In thousands, except for share data)
 
Assets
           
Cash and amounts due from depository institutions
  $ 19,121     $ 17,958  
Interest-bearing deposits in other banks
    44,539       44,220  
Money market funds
    29,920       27,409  
Cash and Cash Equivalents
    93,580       89,587  
Investment securities available for sale (“AFS”) at fair value
    47,205       52,513  
Investment securities held to maturity (“HTM”) at amortized cost (fair value of $ 241,352
     and  $238,785, respectively)
    247,135       244,421  
Mortgage-backed securities held to maturity at amortized cost (fair value of $ 438,840 
     and $425,462, respectively)
    434,942       421,114  
Loans receivable, net of allowance for loan losses $10,251 and $9,844, respectively
    911,729       893,842  
Real estate and other repossessed assets owned
    4,467       3,689  
Real estate held for sale
    1,164       1,164  
Real estate owned via equity investment
    3,961       3,979  
Premises and equipment, net
    47,530       47,355  
Federal Home Loan Bank of New York and ACBB stock
    4,870       4,789  
Accrued interest receivable
    7,439       8,030  
Bank owned life insurance
    28,090       28,073  
Goodwill
    1,826       1,826  
Deferred tax asset
    14,791       14,281  
Other assets
    4,472       4,491  
                Total Assets
  $ 1,853,201     $ 1,819,154  
                 
Liabilities And Stockholders' Equity
               
Liabilities
               
Deposits:
               
   Non-interest bearing
  $ 70,078     $ 64,778  
   Interest bearing
    1,475,747       1,438,782  
         Total deposits
    1,545,825       1,503,560  
Federal Home Loan Bank of New York advances
    33,494       35,000  
Securities sold under agreements to repurchase
    40,000       40,000  
Subordinated debentures
    1,907       1,904  
Securities purchased and not settled
    2,070       11,004  
Advance payments by borrowers for taxes and insurance
    3,005       2,776  
Accrued interest payable and other liabilities
    12,670       12,434  
Total Liabilities
    1,638,971       1,606,678  
Stockholders' Equity
               
Common stock, $0.10 par value, 45,000,000 shares authorized, 32,731,875 shares issued;
               
   and 30,280,927 and 30,280,927 shares outstanding, respectively
    3,274       3,274  
Paid-in capital
    99,895       99,585  
Retained earnings
    154,212       152,911  
Unearned shares held by Employee Stock Ownership Plan
    (5,548 )     (5,683 )
Treasury stock, 2,450,948 and 2,450,948, respectively outstanding
    (35,880 )     (35,880 )
Accumulated other comprehensive loss
    (3,473 )     (3,463 )
         Total Roma Financial Corporation stockholders’ equity
    212,480       210,744  
Noncontrolling interest
    1,750       1,732  
Total Stockholders’ Equity
    214,230       212,476  
Total Liabilities and Stockholders’ Equity
  $ 1,853,201     $ 1,819,154  
                 
                 
See notes to consolidated financial statements.

 
2

 
 
 
ROMA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
Three Months Ended
March 31,
 
2011
 
2010
 
(In thousands, except for share and
per share data)
 
Interest Income
 
Loans, including fees
  $ 11,721     $ 8,225  
Mortgage-backed securities held to maturity
    4,306       3,145  
Investment securities held to maturity
    2,232       3,266  
Securities available for sale
    268       146  
Other interest-earning assets
    93       95  
Total Interest Income
    18,620       14,877  

 
Interest Expense
Deposits
    4,604       4,201  
Borrowings
    689       600  
Total Interest Expense
    5,293       4,801  
                 
Net Interest Income
    13,327       10,076  
                  
  Provision for  loan losses
    800       1,272  
                 
Net Interest Income after Provision for Loan Losses
    12,527       8,804  

 
Non-Interest Income
 
Commissions on sales of title policies
    203       211  
Fees and service charges on deposits and loans
    395       407  
Income from bank owned life insurance
    305       277  
Net gain from sale of mortgage loans originated for sale
    77       55  
Net gain from sale of available for sale securities
    17       23  
Realized (loss) from real estate owned
    (70 )     -  
Other
    278       280  
                 
Total Non-Interest Income
    1,205       1,253  

 
Non-Interest Expense
 
Salaries and employee benefits
    6,068       4,382  
Net occupancy expense of premises
    1,268       708  
Equipment
    885       658  
Data processing fees
    566       417  
Advertising
    169       134  
Federal deposit insurance premiums
    598       301  
Other
    1,423       1,058  
                 
Total Non-Interest Expense
    10,977       7,658  
                 
Income Before Income Taxes
    2,755       2,399  
                 
  Income Taxes
    884       773  
                 
Net income
    1,871       1,626  
                 
Plus: net gain attributable to the noncontrolling interest
    (18 )     (28 )
                 
Net Income attributable to Roma Financial Corporation
  $ 1,853     $ 1,598  
                 
Net income attributable to Roma Financial Corporation per common share
               
       Basic and Diluted
  $ .06     $ .05  
     Dividends Declared Per Share
  $ .08     $ .08  
                 
Weighted Average Number of Common
        Shares Outstanding
               
                 
      Basic and Diluted
    30,137,145       30,733,344  

See notes to consolidated financial statements.

 
3

 

ROMA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)

   
 
 
 
Common Stock
   
 
 
 
Paid-In
   
 
 
 
 
Retained
   
 
Unearned
Shares Held
By
   
 
Accumulated
Other
Comprehensive
   
 
 
 
Treasury
   
 
 
 
Noncontrolling
   
 
 
 
 
Total
 
      Shares      Amount     Capital     Earnings     ESOP     Less     Stock     Interest     Total  
Balance December 31, 2009
    30,933     $ 3,274     $ 98,921     $ 150,131     $ (6,224 )   $ (2,313 )   $ (29,214 )   $ 1,645     $ 216,220  
Comprehensive income:
                                                                       
Net income for the three months
                                                                       
  ended March 31, 2010
    -       -       -       1,598       -       -       -       28       1,626  
Other comprehensive income
                                                                       
  net of  taxes:
                                                                       
    Unrealized loss on available for sale
                                                                       
       securities net of income
       taxes of $106
    -       -       -       -       -       145       -       -       145  
    Total comprehensive income
    -       -       -       -       -       -       -       -     $ 1,771  
Dividends declared and paid
    -       -       -       (603 )     -       -       -       -       (603 )
Purchase of treasury shares
    (26 )     -       -       -       -       -       (328 )     -       (328 )
Stock-based compensation
    -       -       309       -       -       -       -       -       309  
ESOP shares earned
    -       -       27       -       135       -       -       -       162  
Balance March 31, 2010
    30,907     $ 3,274     $ 99,257     $ 151,126     $ (6,089 )   $ (2,168 )   $ (29,542 )   $ 1,673     $ 217,531  
                                                                         
Balance December 31, 2010
    30,281     $ 3,274     $ 99,585     $ 152,911     $ (5,683 )   $ (3,463 )   $ (35,880 )   $ 1,732     $ 212,476  
Comprehensive income:
                                                                       
Net income for the three months
                                                                       
  ended March 31, 2011
    -       -       -       1,853       -       -       -       18       1,871  
Other comprehensive income net
of taxes:
                                                                       
    Unrealized loss on available for sale
       securities net of income taxes of $6
    -       -       -       -       -       (10 )     -       -       (10 )
    Total comprehensive income
    -       -       -       -       -       -       -       -     $ 1,861  
  Dividends declared and paid
    -       -       -       (552 )     -       -       -       -       (552 )
  Stock-based compensation
    -       -       303       -       -       -       -       -       303  
  ESOP shares earned
    -       -       7       -       135       -       -       -       142  
  Balance March 31, 2011
    30,281     $ 3,274     $ 99,895     $ 154,212     $ (5,548 )   $ (3,473 )   $ (35,880 )   $ 1,750     $ 214,230  
 
See notes to consolidated financial statements

 
4

 

ROMA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Three Months Ended
March 31,
 
 
2011
 
2010
 
 
(In thousands)
 
 
Cash Flows from Operating Activities
 
Net income
  $ 1,871     $ 1,626  
Adjustments to reconcile net income to net cash provided by operating activities:
               
          Depreciation and amortization
    598       501  
          Amortization of premiums and accretion of discounts on securities
    20       (71 )
          Accretion of deferred loan fees and discounts
    (23 )     (67 )
          Amortization of net premiums on loans
    245       -  
          Amortization of premiums on deposits
    (108 )     -  
          Gain on sale of securities available for sale
    (17 )     (23 )
          Net gain on sale of mortgage loans originated for sale
    (77 )     (55 )
          Mortgage loans originated for sale
    (4,060 )     (3,773 )
          Proceeds from sales of mortgage loans originated for sale
    4,137       3,828  
          Net realized loss from sales of real estate owned
    70       -  
          Provision for loan losses
    800       1,272  
          Stock-based compensation, including warrants
    303       309  
          ESOP shares earned
    142       162  
          (Increase) decrease in accrued interest receivable
    591       (1,303 )
          Increase in cash surrender value of bank owned life insurance
    (253 )     (231 )
          Decrease in other assets
    19       999  
          Decrease in accrued interest payable
    (164 )     (231 )
          Increase in deferred income taxes
    (504 )     (604 )
          Increase (decrease) in other liabilities
    403       (1,205 )
                 
       Net Cash Provided by Operating Activities     3,993       1,134  
 
 
Cash Flows from Investing Activities
 
             
Proceeds from maturities, calls and principal repayments of securities available for sale
    3,782       5,114  
Proceeds from sale of securities available for sale
    1,517       520  
Purchases of securities available for sale
    (1,037 )     (6,219 )
Proceeds from maturities, calls and principal repayments of investment securities held to maturity
    13,286       46,000  
Purchases of investment securities held to maturity
    (13,922 )     (21,975 )
Principal repayments on mortgage-backed securities held to maturity
    23,479       18,006  
Purchases of mortgage-backed securities held to maturity
    (47,292 )     (27,081 )
Net increase in loans receivable
    (20,847 )     (5,127 )
Purchase of bank owned life insurance
    -       (169 )
Proceeds from life insurance redemption
    236       -  
Additions to premises and equipment and real estate owned via equity investment
    (755 )     (578 )
Proceeds from sale of real estate owned
    1,090       -  
Purchases of Federal Home Loan Bank of New York and ACBB stock
    (81 )     (446 )
                 
       Net Cash (Used in) Provided by  Investing Activities     (40,544  )    
8,045
 
 
 
Cash Flows from Financing Activities
 
Net increase in deposits
    42,373       35,901  
Increase in advance payments by borrowers for taxes and insurance
    229       57  
Dividends paid to minority stockholders of Roma Financial Corp.
    (552 )     (603 )
Repayment of Federal Home Loan Bank of New York advances
    (5,006 )     (541 )
Proceeds from Federal Home Loan Bank of New York advances
    3,500       7,000  
Purchases of treasury stock
    -       (328 )
                 
Net Cash Provided by Financing Activities
    40,544       41,486  
                 
Net Increase in Cash and Cash Equivalents
    3,993       50,665  
                 
Cash and Cash Equivalents – Beginning
    89,587       50,895  
                 
Cash and Cash Equivalents – Ending
  $ 93,580     $ 101,560  

 
5

 

ROMA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont’d)
      (Unaudited)


  
Three Months Ended
March 31,
 
2011
 
2010
 
(In thousands)
 
 
Supplementary Cash Flows Information
 
    Income taxes paid, net
  $ 412     $ -  
                 
    Interest paid
  $ 5,129     $ 5,032  
    Securities purchased and not settled
  $ 2,070     $ 16,654  
    Loans receivable transferred to real estate owned
  $ 1,938     $ 511  




See notes to consolidated financial statements.

 
6

 

ROMA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE A – ORGANIZATION

Roma Financial Corporation (the “Company”) is a federally-chartered corporation organized in January 2005 for the purpose of acquiring all of the capital stock that Roma Bank issued in its mutual holding company reorganization.  Roma Financial Corporation’s principal executive offices are located at 2300 Route 33, Robbinsville, New Jersey 08691 and its telephone number at that address is (609) 223-8300.

Roma Financial Corporation, MHC is a federally-chartered mutual holding company that was formed in January 2005 in connection with the mutual holding company reorganization.  Roma Financial Corporation, MHC has not engaged in any significant business since its formation.  So long as Roma Financial Corporation MHC is in existence, it will at all times own a majority of the outstanding stock of Roma Financial Corporation.

Roma Bank is a federally-chartered stock savings bank.  It was originally founded in 1920 and received its federal charter in 1991.  Roma Bank’s deposits are federally insured by the Deposit Insurance Fund as administered by the Federal Deposit Insurance Corporation.  Roma Bank is regulated by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation.  The Office of Thrift Supervision also regulates Roma Financial Corporation, MHC and Roma Financial Corporation as savings and loan holding companies.

RomAsia Bank is a federally-chartered stock savings bank. RomAsia Bank received all regulatory approvals on June 23, 2008 to be a federal savings bank and began operations on that date. The Company invested $13.4 million in RomAsia Bank and currently holds a 89.55% ownership interest. RomAsia Bank is regulated by the Office of Thrift Supervision. Roma Bank and RomAsia Bank are collectively referred to as (the “Banks”).

The Banks offer traditional retail banking services, one-to four-family residential mortgage loans, multi-family and commercial mortgage loans, construction loans, commercial business loans and consumer loans, including home equity loans and lines of credit. Roma Bank operates from its main office in Robbinsville, New Jersey, and twenty-three branch offices located in Mercer, Burlington, Camden and Ocean Counties, New Jersey. RomAsia Bank operates from two locations in Monmouth Junction, New Jersey. As of March 31, 2011, the Banks had 319 full-time employees and 58 part-time employees.  Roma Bank maintains a website at www.romabank.com.

Throughout this document, references to “we,” “us,” or “our” refer to the Banks or the Company, or both, as the context indicates.

NOTE B - BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, Roma Bank and Roma Bank’s wholly-owned subsidiaries, Roma Capital Investment Corp. (the “Investment Co.”) and General Abstract and Title Agency (the “Title Co.”), and the Company’s majority owned investment of 89.55% in RomAsia Bank. The consolidated statements also include the Company’s 50% interest in 84 Hopewell, LLC (the “LLC”), a real estate investment which is consolidated according to the requirements of Accounting Standards Codification Topic 810, Variable Interest Entities.   All significant inter-company accounts and transactions have been eliminated in consolidation. These statements were prepared in accordance with instructions for Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not  include all information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles in the United States of America (“GAAP”).

 
7

 

NOTE B - BASIS OF PRESENTATION (Continued)

In the opinion of management, all adjustments which are necessary for a fair presentation of the consolidated financial statements have been made at and for the three months ended March 31, 2011 and 2010.  The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results which may be expected for the entire fiscal year or other interim periods.

The December 31, 2010 data in the consolidated statements of financial condition was derived from the Company’s audited consolidated financial statements for that date. That data, along with the interim financial information presented in the consolidated statements of financial condition, income, changes in stockholders’ equity and cash flows should be read in conjunction with the 2010 audited consolidated financial statements for the year ended December 31, 2010, including the notes thereto included in the Company’s Annual Report on Form 10-K.

The Investment Co. was incorporated in the State of New Jersey effective September 4, 2004, and began operations October 1, 2004.  The Investment Co. is subject to the investment company provisions of the New Jersey Corporation Business Tax Act.  The Title Co. was incorporated in the State of New Jersey effective March 7, 2005 and commenced operations April 1, 2005. The Company, together with two individuals, formed a limited liability company, 84 Hopewell, LLC. The LLC was formed to build a commercial office building in which is located the Company’s Hopewell branch, corporate offices for the other LLC members construction company and tenant space. The Company invested $370,000 in the LLC and provided a loan in the amount of $3.6 million to the LLC. The Company and the other 50% owner’s construction company both have signed lease commitments to the LLC.

The consolidated financial statements have been prepared in conformity with (“GAAP”).  In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and revenues and expenses for the periods then ended.  Actual results could differ significantly from those estimates.

A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.  The allowance for loan losses represents management’s best estimate of losses known and inherent in the portfolio that are both probable and reasonable to estimate.  While management uses the most current information available to estimate losses on loans, actual losses are dependent on future events and, as such, increases in the allowance for loan losses may be necessary.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks’ allowance for loan losses.  Such agencies may require the Banks to recognize additions to their allowance based on their judgments about information available to them at the time of their examinations.

In accordance with Accounting Standards Codification (“FASB ASC”) Topic 855, Subsequent Events, management has evaluated subsequent events until the date of issuance of this report, and concluded that no events occurred that were of a material nature.
 
NOTE C - CONTINGENCIES

The Company, from time to time, is a party to routine litigation that arises in the normal course of business.  In the opinion of management, the resolution of such litigation, if any, would not have a material adverse effect, as of March 31, 2011, on the Company’s consolidated financial position or results of operations.
 
NOTE D – EARNINGS PER SHARE

Basic earnings per share is based on the weighted average number of common shares actually outstanding adjusted for Employee Stock Ownership Plan (“ESOP”) shares not yet committed to be released. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of outstanding stock options and unvested stock awards, if dilutive, using the treasury stock method. Shares issued and reacquired during any period are weighted for the portion of the period they were outstanding.

Outstanding stock options and restricted stock grants for the three months ended March 31, 2011 were not considered in the calculation of diluted earnings per share because they were antidilutive.

NOTE E – ACQUISITION

On July 16, 2010, the Company completed its acquisition of Sterling Banks, Inc., the holding company for Sterling Bank.  The final consideration paid in the transaction to stockholders of Sterling Banks, Inc. consisted of $2.52 per share, or $14,725,000, in cash.

The Company accounted for the transaction using the acquisition method pursuant to FASB ASC 805 “Business Combinations”. Accordingly, the Company recorded merger and acquisition expenses totaling $924 thousand, in non-interest expense other, during the year ended December 31, 2010. The Company’s results of operations include Sterling Banks, Inc. and Sterling Bank from the date of
 
 
8

 
 
NOTE E – ACQUISITION (Continued)

acquisition. Additionally, ASC 805 “Business Combinations” requires an acquirer to recognize the assets acquired and the liabilities assumed at their fair values as of the acquisition date.

The Company acquired loans with a fair value of $272.3 million.  Included in this amount was $47.4 million of loans with evidence of deterioration of credit quality since origination for which it was probable, at the time of the acquisition, that the Company would be unable to collect all contractually required payments due. In accordance with the “Loans and Debt Securities Acquired with Deteriorating Credit Quality” section of FASB ASC 310 “Receivables,” the Company recorded a non accretable credit mark discount of $13.3 million, which is defined as the loans’ contractually required payments receivable in excess of the amount of their cash flows expected to be collected.  The Company considered factors such as payment history, collateral values, and accrual status when determining whether there was evidence of deterioration of a loan’s credit quality at the acquisition date.

We estimated the fair value for most loans acquired from Sterling Bank by utilizing a methodology wherein loans with comparable characteristics were aggregated by type of collateral, remaining maturity, and repricing terms. Cash flows for each pool were determined by estimating future credit losses and the rate of prepayments.  Projected cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. To estimate the fair value of the remaining loans, we analyzed the value of the underlying collateral of the loans, assuming the fair values of the loans were derived from the eventual sale of the collateral.  The value of the collateral was based on completed appraisals adjusted to the valuation date based on recognized industry indices. We discounted those values using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral.  There was no carryover of Sterling’s allowance for loan losses associated with the loans acquired as the loans were initially recorded at fair value.

Information about the acquired Sterling loan portfolio as of July 16, 2010 is as follows (in thousands):

Contractually required principal and
     interest at acquisition
  $ 285,506  
Contract cash flows not expected to
     be collected (nonaccretable discount)
    (15,647 )
Expected cash flows at acquisition
    269,859  
Interest component of expected cash
       
     flows (accretable premium)
    2,454  
Fair value of acquired loans
  $ 272,313  


Certificates of deposit accounts were valued by comparing the contractual cost of the portfolio to an identical portfolio bearing current market rates.  The projected cash flows from maturing certificates were calculated based on contractual rates.  The fair value of the certificates of deposit was calculated by discounting their contractual cash flows at a market rate for a certificate of deposit with a corresponding maturity.

The fair value of borrowings and subordinated debentures assumed was determined by estimating projected future cash outflows and discounting them at a market rate of interest.

The goodwill, which is not amortized for book purposes, was assigned to Roma Financial Corporation and is not deductible for tax purposes.
 
 
9

 
 
NOTE F – STOCK BASED COMPENSATION

Equity Incentive Plan

At the Annual Meeting held on April 23, 2008, stockholders of the Company approved the Roma Financial Corporation  2008 Equity Incentive Plan. On June 25, 2008, directors, senior officers and certain employees of the Company were granted, in the aggregate, 820,000 stock options and awarded 222,000 shares of restricted stock.

The 2008 Plan enables the Board of Directors to grant stock options to executives, other key employees and nonemployee directors. The options granted under the Plan may be either incentive stock options or non-qualified stock options. The Company has reserved 1,292,909 shares of common stock for issuance upon the exercise of options granted under the 2008 Plan and 517,164 shares for grants of restricted stock.  The Plan will terminate in ten years from the grant date.  Options will be granted with an exercise price not less than the Fair Market Value of a share of Common Stock on the date of the grant. Options may not be granted for a term greater than ten years.  Stock options granted under the Incentive Plan are subject to limitations under Section 422 of the Internal Revenue Code.  The number of shares available under the 2008 Plan, the number of shares subject to outstanding options and the exercise price of outstanding options will be adjusted to reflect any stock dividend, stock split, merger, reorganization or other event generally affecting the number of Company’s outstanding shares. At March 31, 2011 there were 495,709 shares available for option grants under the 2008 Plan and 301,164 shares available for grants of restricted stock.

The Company accounts for stock based compensation under FASB ASC Topic 718, “Compensation-Stock Compensation”.  ASC Topic 718 covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. ASC Topic 718 requires that compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is measured based on the fair value of the equity or liability instruments issued.

ASC Topic 718 also requires the Company to realize as a financing cash flow rather than an operating cash flow, as previously required, the benefits of realized tax deductions in excess of previously recognized tax benefits on compensation expense.  In accordance with SEC Staff Accounting Bulletin (“SAB”) No. 107, the Company classified share-based compensation for employees and outside directors within “salaries and employee benefits” in the consolidated statement of income to correspond with the same line item as the cash compensation paid.

The stock options will vest over a five year service period and are exercisable within ten years. Compensation expense for all option grants is recognized over the awards’ respective requisite service period.

Restricted shares, granted on June 25, 2008, vest over a five year service period. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period of the awards of five years. The number of shares granted and the grant date market price of the Company’s common stock determines the fair value of the restricted shares under the Company’s restricted stock plan.
 
 
10

 
 
NOTE F – STOCK BASED COMPENSATION (Continued)

The following is a summary of the status of the Company’s stock option activity and related information for the three months ended March 31, 2011:

   
 
Number of 
Stock Options
   
Weighted
Avg.
Exercise Price
 
Weighted Avg.
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
 
                     
Balance at January 1, 2008
    -     $ -          
                Granted
    820,000       13.67          
 
Balance at December 2008 and 2009
       820,000        13.67          
                Forfeited
    (22,800 )     13.67          
                         
Balance at March 31, 2011
    and December 31, 2010
    797,200     $ 13.67  
 
7.23 years
  $ 0.00  
                           
Exercisable at March 31, 2011
    349,600     $ 13.67            


The following is a summary of the status of the Company’s restricted shares as of March 31, 2011 and changes during the three months ended March 31, 2011:

   
Number of Restricted Shares
   
Weighted Average Grant Date Fair Value
 
             
 
Non-vested restricted shares at January 1, 2008
    -     $ -  
                Granted
    222,000       13.67  
Non-vested restricted shares at December 31, 2008
    222,000       13.67  
                Vested
    (44,400 )     13.67  
Non-vested restricted shares at December 31, 2009
    177,600       13.67  
                Forfeited
    (6,000 )     13.67  
                Vested
    (51,600 )     13.67  
Non-vested restricted shares at March 31, 2011 and
   December 31, 2010
    120,000     $ 13.67  


Stock option and stock award expenses included in compensation expense was $268,000 for the three months ended March 31, 2011 and $300,000 for three months ended March 31, 2010, with a related tax benefit of $107,000 and $118,000 respectively. At March 31, 2011, there was approximately $2.4 million of unrecognized cost, related to outstanding stock options and restricted shares, which will be recognized over a period of approximately 2.23 years.

Equity Incentive Plan – RomAsia Bank

The stockholders of RomAsia Bank approved an equity incentive plan in 2009. On January 6, 2010, directors, senior officers and certain employees of the RomAsia Bank were granted, in the aggregate, options to purchase 75,500 shares of RomAsia common stock.

The Plan enables the Board of Directors of RomAsia Bank to grant stock options to executives, other key employees and nonemployee directors. The options granted under the Plan may be either incentive stock options or non-qualified stock options. RomAsia has reserved 225,000 shares of it’s common stock for issuance upon the exercise of options granted under the Plan.  The Plan will terminate in ten years from the grant date.  Options will be granted with an exercise price not less than the Fair Market Value of a share of RomAsia’s Common Stock on the date of the grant. Options may not be granted for a term greater than ten years.  The stock options vest over a five year service period and are exercisable within ten years.  Stock options granted under the Incentive Plan are subject to limitations under Section 422 of the Internal Revenue Code.  The number of shares available under the Plan, the number of shares subject to outstanding options and the exercise price of outstanding options will be adjusted to reflect any stock dividend, stock split, merger, reorganization or other event
 
 
11

 

NOTE F – STOCK BASED COMPENSATION (Continued)


generally affecting the number of Company’s outstanding shares. At March 31, 2011, there were 155,000 shares available for option grants under the Plan.

The following is a summary of the status of the RomAsia’s stock option activity and related information for the three months ended March 31, 2011:

   
 
Number of
Stock Options
   
Weighted
Avg.
Exercise
Price
 
Weighted Avg.
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
 
                     
Balance at January 1, 2010
    -     $ -          
                Granted
    75,500       8.47          
Balance at January 1, 2011
    75,500       8.47          
                Forfeited
    (5,500 )     8.47          
                         
Balance at March 31, 2011
    70,000     $ 8.47  
8.77 years
  $ 0.00  
                           
Exercisable at March 31, 2011
    14,800                    


Stock option expense, related to the RomAsia plan included with compensation expense was $11,000 for the three months ended March 31, 2011, and $10,000 for three months ended March 31, 2010, with a related tax benefit of $5,000 and $4,000, respectively.  At March 31, 2011, approximately $149,000 unrecognized cost, related to outstanding stock options, will be recognized over a period of approximately 3.77 years.

Employee Stock Ownership Plan

Roma Bank has an Employee Stock Ownership Plan (“ESOP”) for the benefit of employees who meet the eligibility requirements defined in the plan.  The ESOP trust purchased 811,750 shares of common stock as part of the stock offering using proceeds from a loan from the Company.  The total cost of the shares purchased by the ESOP trust was $8.1 million, reflecting a cost of $10 per share.  Roma Bank makes cash contributions to the ESOP on a quarterly basis sufficient to enable the ESOP to make the required loan payments to the Company.  The loan bears an interest rate of 8.25% with principal and interest payable in equal quarterly installments over a fifteen year period.  The loan is secured by the shares of the stock purchased.

Shares purchased with the loan proceeds were initially pledged as collateral for the term loan and are held in a suspense account for future allocation among participants.  Contributions to the ESOP and shares released from the suspense account will be allocated among the participants on the basis of compensation,  as described by the Plan, in the year of allocation.  As shares are committed to be released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations.  Roma Bank made its first loan payment in October 2006.  As of March 31, 2011 there were 554,599 unearned shares. The Company’s ESOP compensation expense was $142 thousand and $162 thousand, respectively, for the three months ended March 31, 2011 and 2010.
 
 
12

 

NOTE G – STOCK  WARRANTS

RomAsia Bank issued warrants to purchase 150,500 shares of RomAsia Common Stock (the “warrants”), bearing an exercise price of $10.00 per share, to the Founding Stockholders who subscribed initially for 150,500 shares of RomAsia Common Stock and provided $1,505,000 to pay  RomAsia’s organizational expenses. The warrants were issued on June 23, 2008.
 
The warrants will become exercisable in three equal installments on the first, second and third anniversaries after their respective dates of issuance. Warrants will be convertible into one share of RomAsia Common Stock and will be transferable only in compliance with the Securities Act of 1933, as amended, and applicable state securities laws.  RomAsia may redeem the Warrants at a price of $1.00 per Warrant at any time after January 1, 2012 upon 60 days prior written notice to the holders thereof.

The Warrants provide that, in the event that RomAsia’s capital falls below certain minimum requirements, the FDIC or the OTS may require RomAsia to notify the holders of the Warrants that such holders must exercise the Warrants within 30 days of such notice, or such longer period as the FDIC or OTS may prescribe, or forfeit all rights to purchase shares of RomAsia Common Stock under the Warrants after the expiration of such period.

The Warrants expire ten years after being issued. In the event a holder fails to exercise the Warrants prior to their expiration, the Warrants will expire and the holder thereof will have no further rights with respect to the Warrants.

The Warrant expense for minority shareholders, (10.45% ownership), for the three month ended March 31, 2011and 2010, was $22,000, and $0, respectively, and related deferred taxes were recorded at $9,600, and $0, respectively. The warrant expense for the majority shareholder, Roma Financial Corporation, was eliminated in consolidation.

NOTE H- REAL ESTATE OWNED VIA EQUITY INVESTMENTS

In 2008, Roma Bank, together with two individuals, formed 84 Hopewell, LLC. The LLC was formed to build a commercial office building which includes Roma Bank’s Hopewell branch, corporate offices for the other 50% owners’ construction company and tenant space. Roma Bank made a cash investment of approximately $360,000 in the LLC and provided a loan to the LLC in the amount of $3.6 million. Roma Bank and the construction company both have signed lease commitments to the LLC. With the adoption of guidance in regards to variable interest entities now codified in FASB ASC Topic 810, “Consolidation”, the Company is required to perform an analysis to determine whether such an investment meets the criteria for consolidation into the Company’s financial statements.  As of March 31, 2011 and December 31, 2010, this variable interest entity met the requirements of ASC Topic 810 for consolidation based on Roma Bank being the primary financial beneficiary. This was determined based on the amount invested by the Bank compared to the other partners to the LLC and the lack of personal guarantees. As of March 31, 2011, the LLC had $4.0 million in fixed assets and a loan from Roma Bank for $3.4 million, which was eliminated in consolidation. The LLC had accrued interest payable to the Bank of $11 thousand at March 31, 2011 and during the three months then ended the Bank had paid $25 thousand in rent to the LLC.  Both of these amounts were eliminated in consolidation. Roma Bank’s 50% share of the LLC’s net income for the three months ended March 31, 2011 was $8 thousand.


 
13

 

NOTE I – INVESTMENT AND MORTGAGE-BACKED SECURITIES 

The following summarizes the amortized cost and estimated fair value of securities available for sale at March 31, 2011 and December 31, 2010 with gross unrealized gains and losses therein:


     March 31, 2011  
     
Amortized Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     
Fair Value
 
     (In Thousands)  
                         
Available for sale:
                       
     Mortgage-backed securities-U.S. Government Sponsored Enterprises (GSE’s)
  $ 22,648     $ 144     $ 379     $ 22,413  
     Obligations of state and political subdivisions
    7,986       77       75       7,988  
     U.S. Government (including agencies)
    13,368       -       416       12,952  
     Corporate bond
    1,000       3       10       993  
     Equity securities
    50       9       -       59  
     Mutual funds
    2,909       -       109       2,800  
                                 
    $ 47,961     $ 233     $ 989     $ 47,205  


 
                         
   
December 31, 2010
 
     
Amortized Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     
Fair Value
 
   
(In Thousands)
 
                         
Available for sale:
                       
     Mortgage-backed securities-U.S. Government Sponsored Enterprises (GSE’s)
  $ 24,180     $ 168     $ 349     $ 23,999  
     Obligations of state and political subdivisions
    8,761       50       151       8,660  
     U.S. Government (including agencies)
    16,384       17       382       16,019  
     Corporate bond
    1,000       -       12       988  
     Equity securities
    50       3       -       53  
     Mutual funds
    2,877       -       83       2,794  
                                 
    $ 53,252     $ 238     $ 977     $ 52,513  
 
 
14

 

NOTE I – INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)

 
The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related securities available for sale are as follows:
 
 
Less than 12 Months
 
More than 12 Months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In Thousands)

March 31, 2011:
                                   
     Mortgage-backed securities-GSE’s
  $ 15,960     $ 379     $ -     $ -     $ 15,960     $ 379  
     Obligations of state & political subdivisions
    1,863       63       1,327       12       3,190       75  
     U.S. Government, (including agencies)
    12,952       416       -       -       12,952       416  
     Corporate bond
    490       10       -       -       490       10  
     Mutual funds
    -       -       2,800       109       2,800       109  
                                                 
    $ 31,265     $ 868     $ 4,127     $ 121     $ 35,392     $ 989  

December 31, 2010:
                                   
     Mortgage-backed securities-GSE’s
  $ 17,061     $ 349     $ -     $ -     $ 17,061     $ 349  
     U.S. Government (including agencies)
    13,002       382       -       -       13,002       382  
     Obligations of state & political subdivisions
    4,114       151       -       -       4,114       151  
     Corporate bond
    988       12       -       -       988       12  
     Mutual funds
    -       -       2,793       83       2,793       83  
                                                 
    $ 35,165     $ 894     $ 2,793     $ 83     $ 37,958     $ 977  

 
The amortized cost and estimated fair value of securities available for sale at March 31, 2011 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties:
 
   
Amortized Cost
   
Fair Value
 
   
(in Thousands)
 
             
One year or less
  $ -     $ -  
After one to five years
    2,790       2,771  
After five to ten years
    9,978       9,794  
After ten years
    8,586       8,375  
     Total
    21,354       20,940  
Mortgage-backed securities
    22,648       22,413  
Equity securities
    50       59  
Mutual funds
    2,909       2,800  
Corporate bond
    1,000       993  
     Total
  $ 47,961     $ 47,205  

 
15

 

NOTE I – INVESTMENT AND MORTGAGE- BACKED SECURITIES (Continued)


The following summarizes the amortized cost and estimated fair value of securities held to maturity at March 31, 2011 and December 31, 2010 with gross unrealized gains and losses therein:
 
     March 31, 2011  
     
Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     
Fair Value
 
     (In Thousands)  
                         
Held to maturity:
                       
     U.S. Government (including agencies)
  $ 230,520     $ 175     $ 5,936     $ 224,759  
     Obligations of state and political subdivisions
    15,343       217       248       15,312  
     Corporate and other
    1,272       9       -       1,281  
                                 
    $ 247,135     $ 401     $ 6,184     $ 241,352  

 
   
December 31, 2010
 
     
Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     
Fair Value
 
     (In Thousands)  
                         
Held to maturity:
                       
     U.S. Government (including agencies)
  $ 227,522     $ 357     $ 5,890     $ 221,989  
     Obligations of state and political subdivisions
    15,628       190       303       15,515  
     Corporate and other
    1,271       10       -       1,281  
                                 
    $ 244,421     $ 557     $ 6,193     $ 238,785  

 
16

 

NOTE I – INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
 
The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related securities held to maturity are as follows:
 
     Less than 12 Months      More than 12 Months      Total  
    Fair
Value
    Unrealized
Losses
    Fair
Value
    Unrealized
Losses
    Fair
Value
    Unrealized
Losses
 
     (In Thousands)  
                                     
March 31, 2011
                                   
     U.S. Government (including agencies)
  $ 195,607     $ 5,936     $ -     $ -     $ 195,607     $ 5,936  
     Obligations of state &
          political subdivisions
    4,874       236       1,698       12       6,572       248  
    $ 200,481     $ 6,172     $ 1,698     $ 12     $ 202,179     $ 6,184  

December 31, 2010
                                   
     U.S. Government (including agencies)
  $ 169,833     $ 5,890     $ -     $ -     $ 169,833     $ 5,890  
     Obligations of state & political subdivisions
    6,582       273       1,680       30       8,262       303  
    $ 176,415     $ 6,163     $ 1,680     $ 30     $ 178,095     $ 6,193  

 
The amortized cost and estimated fair value of securities held to maturity at March 31, 2011 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties:
 
     
Amortized Cost
 
Fair Value
     
                 (In Thousands)

One year or less
  $ 102     $ 102  
After one to five years
    3,068       3,088  
After five to ten years
    102,622       101,203  
After ten  years
    141,343       136,959  
    Total
  $ 247,135     $ 241,352  


Proceeds from the sale of securities available for sale amounted to $1.5 million and $520 thousand for the three months ended March 31, 2011 and 2010, respectively, with a net realized gain of $17 thousand and $23 thousand, respectively.

Management evaluates securities for other-than-temporary-impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

In determining OTTI under the ASC Topic 320, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than amortized cost; (2) the financial condition and near term prospects of the issuer; (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.  The assessment of whether an other-than-temporary-impairment decline exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time.  An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.
 
 
17

 

NOTE I – INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
 
When OTTI for debt securities, occurs under the model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell or more likely than not will be required  to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date.  If any entity  does  not  intend to  sell  the security  and  it is not  more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors.  The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings.  The amount of the total OTTI related to other factors shall be recognized in other comprehensive income, net of applicable tax benefit.  The previous amortized cost basis less the OTTI recognized in earnings shall become the new amortized cost basis of the investment.

At March 31, 2011, the Company’s available for sale and held to maturity debt securities portfolio consisted of approximately 193 securities, of which 95 were in an unrealized loss position for less than twelve months and 6 were in a loss position for more than twelve months. No OTTI charges were recorded for the three months ended March 31, 2011. The Company does not intend to sell these securities and it is not more likely than not that we will be required to sell these securities. Unrealized losses primarily relate to interest rate fluctuations and not credit concerns.

The available for sale mutual funds consists of CRA investments and currently have an unrealized loss of approximately $109 thousand.  They have been in a loss position for the last two years with the greatest unrealized loss being approximately $184 thousand. Management does not believe the mutual fund securities available for sale are OTTI due to reasons of credit quality. The Company does not intend to sell these securities and it is not more likely than not that we will be required to sell these securities. Accordingly, as of March 31, 2011 management believes the impairments are temporary and no impairment loss has been realized in the Company’s consolidated income statement.

Approximately $51.4 million of securities held to maturity are pledged as collateral for Federal Home Loan Bank of New York (“FHLBNY”) advances, borrowings, and deposits at March 31, 2011.

The following tables set forth the composition of our mortgage- backed securities portfolio as of March 31, 2011 and December 31, 2010:

 
    March 31, 2011  
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
   
 Fair Value
 
    (In Thousands)  
                         
Government National Mortgage Association
  $ 9,301     $ 224     $ 145     $ 9,380  
Federal Home Loan Mortgage Corporation
    174,255       4,419       2,768       175,906  
Federal National Mortgage Association
    244,018       4,628       2,740       245,906  
Collateralized mortgage obligations-GSE’s
    7,368       280       -       7,648  
                                 
    $ 434,942     $ 9,551     $ 5,653     $ 438,840  

 
 
18

 

NOTE I – INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
 
 
     December 31, 2010
     
Carrying
Value
     
Gross
Unrealized
Gains
     
Gross
Unrealized
Losses
     
Estimated
Fair Value
 
     (In Thousands)  
                                 
Government National Mortgage Association
  $ 9,988     $ 204     $ 107     $ 10,085  
Federal Home Loan Mortgage Corporation
    172,969       4,188       2,782       174,375  
Federal National Mortgage Association
    229,951       5,206       2,629       232,529  
Collateralized mortgage obligations-GSE’s
    8,206       310       42       8,473  
                                 
    $ 421,114     $ 9,908     $ 5,560     $ 425,462  


The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related mortgage-backed securities held to maturity are as follows:
 
 
   
Less than 12 Months
     More than 12 Months    
Total
 
     Fair
Value
    Unrealized
Losses
    Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
 
     (In Thousands)  
                                     
March 31, 2011
                                   
    Government National Mortgage Association
  $ 3,840     $ 145     $ -     $ -     $ 3,840     $ 145  
     Federal Home Loan
   Mortgage  Corporation
    75,621       2,754       442       14       76,063       2,768  
     Federal National
   Mortgage Association
    73,391       2,730       2,433       10       75,824       2,740  
     Collateralized Mortgage Obligations-GSE’s
    -       -       -       -       -       -  
    $ 152,852     $ 5,629     $ 2,875     $ 24     $ 155,727     $ 5,653  
 
 
   
Less than 12 Months
     More than 12 Months    
Total
 
    Fair
Value
    Unrealized
Losses
    Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
 
     (In Thousands)  
                                     
December 31, 2010                                    
    Government National Mortgage Association
  $ 3,836     $ 107     $ -     $ -     $ 3,836     $ 107  
     Federal Home Loan
   Mortgage  Corporation
   
 
83,451
      2,781       19       1       83,470       2,782  
     Federal National
   Mortgage Association
   
 
83,252
      2,628       8       1       83,260       2,629  
     Collateralized Mortgage Obligations-GSE’s
    1,920       42       -       -       1,920       42  
    $ 172,459     $ 5,558     $ 27     $ 2     $ 172,486     $ 5,560  
 

 
19

 

NOTE I – INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
 
The amortized cost and estimated fair value of mortgage backed securities held to maturity at March 31, 2011 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties:
 
     
Amortized Cost
 
Fair Value
     
                 (In Thousands)

One year or less
  $ 706     $ 709  
After one to five years
    21,242       22,066  
After five to ten years
    51,506       52,568  
After ten  years
    361,488       363,497  
    Total
  $ 434,942     $ 438,840  

 
As of March 31, 2011, there were 5 Government National Mortgage Association securities, 37 Federal Home Loan Mortgage Corporation securities, and 16 Federal National Mortgage Association securities in unrealized loss positions. Management does not believe that any of the individual unrealized losses represent an other-than-temporary impairment.  The unrealized losses on mortgage-backed securities relate primarily to fixed interest rate and, to a lesser extent, adjustable interest rate securities.  Such losses are the result of changes in interest rates and not credit concerns. The Bank, the Investment Co. and RomAsia Bank do not intend to sell these securities and it is not more likely than not that they will be required to sell these securities, therefore, no OTTI is required.
 

NOTE J - LOANS RECEIVABLE, NET

Loans receivable, net at March 31, 2011 and December 31, 2010 were comprised of the following (in thousands):

   
March 31,
   
December 31,
 
   
2011
   
2010
 
Real estate mortgage loans:
           
  Residential mortgage
  $ 373,687     $ 358,503  
  Commercial real estate
    281,662       273,177  
      655,349       631,680  
Construction:
               
  Commercial real estate
    22,450       18,055  
  Residential
    15,268       19,142  
      37,718       37,197  
Consumer:
               
  Home equity
    204,724       202,926  
  Other
    1,635       1,760  
      206,359       204,686  
Commercial
    34,524       36,125  
                 
  Total loans
    933,950       909,688  
Less:
               
  Allowance for loan losses
    10,251       9,844  
  Deferred loan fees
    694       663  
  Loans in process
    11,276       5,339  
      22,221       15,846  
      Total loans receivable, net
  $ 911,729     $ 893,842  
 
 
20

 

NOTE J - LOANS RECEIVABLE, NET (Continued)

 
The following table presents nonaccrual loans by classes of the loan portfolio as of March 31, 2011 and December 31, 2010:
 
   
March 31,
 2011
   
December 31, 2010
 
   
(In thousands)
 
Commercial
  $ 2,022     $ 2,178  
Commercial real estate
    17,332       17,481  
Commercial real estate – construction
    4,396       4,870  
Residential mortgage
    4,922       5,515  
Residential construction
    10,170       9,246  
Home equity and other consumer
    693       1,120  
  Total
  $ 39,535     $ 40,410  

 
A loan is considered impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.  Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.  These concessions could include a reduction in the interest rate on the loans, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
 
The following table summarizes information in regards to impaired loans by loan portfolio class segregated by those for which a related allowance was required and those for which a related allowance was not necessary, as of March 31, 2011 and the three months then ended:
 
   
 
 
 Recorded
Investment
   
 
 Unpaid
Principal
Balance
   
 
Related
Allowance
    1/1/11 – 3/31/11
Average
Recorded
Investment
    1/1/11 – 3/31/11
Interest
Income
Recognized
 
   
(In Thousands)
 
With no related allowance recorded:
                             
  Commercial
  $ 1,282     $ 3,655     $ -     $ 502     $ 25  
  Commercial real estate
    28,986       32,244       -       29,041       183  
  Residential mortgage
    12,364       13,653       -       12,391       156  
  Residential construction
    14,640       18,620       -       14,707       145  
  Home equity and other consumer
    2,684       3,030       -       2,689       37  
 
    59,956       71,202       -       59,330       546  
With an allowance recorded:
                                       
  Commercial
    1,641       1,641       483       1,641       -  
  Commercial real estate
    11,850       11,850       3,570       11,860       23  
  Commercial real estate-construction
    4,396       4,396       1,300       4,396       -  
  Residential mortgage
    454       454       61       454       -  
  Home equity and other consumer
    217       217       176       217       -  
      18,558       18,558       5,590       18,568       23  
Total:
                                       
  Commercial
    2,923       5,296       483       2,143       25  
  Commercial real estate
    40,836       44,094       3,570       40,901       256  
  Commercial real estate-construction
    4,396       4,396       1,300       4,396       -  
  Residential mortgage
    12,818       14,107       61       12,845       156  
  Residential construction
    14,640       18,620       -       14,707       145  
  Home equity and other consumer
    2,901       3,247       176       2,906       37  
    $ 78,514     $ 89,760     $ 5,590     $ 77,898     $ 569  

 
21

 

NOTE J - LOANS RECEIVABLE, NET (Continued)

 
The following table summarizes information in regards to impaired loans by loan portfolio class segregated by those for which a related allowance was required and those for which a related allowance was not necessary, as of December 31, 2010 and the year then ended:
 
   
Recorded
Investment
    Unpaid
Principal
Balance
    Related
Allowance
    Average
Recorded
Investment
    Interest
Income
Recognized
 
   
(In Thousands)
 
With no related allowance recorded:
                             
  Commercial real estate
  $ 32,714     $ 38,586     $ -     $ 36,167     $ 1,159  
  Residential mortgage
    10,833       12,122       -       10,855       128  
  Residential construction
    15,702       20,500       -       16,572       186  
  Home equity and other consumer
    2,545       2,906       -       2,679       70  
 
    61,794       74,114       -       66,273       1,543  
With an allowance recorded:
                                       
  Commercial
    1,651       1,651       483       1,712       26  
  Commercial real estate
    6,810       6,810       2,965       4,656       78  
  Commercial real estate-construction
    4,870       4,870       1,555       4,935       101  
  Residential mortgage
    323       323       61       323       -  
  Home equity and other consumer
    226       226       192       189       3  
      13,880       13,880       5,256       11,815       208  
Total:
                                       
  Commercial
    1,651       1,651       483       1,712       26  
  Commercial real estate
    39,524       45,396       2,965       40,823       1,237  
  Commercial real estate-construction
    4,870       4,870       1,555       4,935       101  
  Residential mortgage
    11,156       12,445       61       11,178       128  
  Residential construction
    15,702       20,500       -       16,572       186  
  Home equity and other consumer
    2,771       3,132       192       2,868       73  
    $ 75,674     $ 87,994     $ 5,256     $ 78,088     $ 1,751  

 
At March 31, 2011, impaired loans included $37.6 million of loans, net of credit marks of $11.2 million, which were acquired in the merger. Loans totaling $29.6 million which are performing, are also included in this total and classified as impaired because they are a troubled debt restructure, have related loans that are non-performing, or which are considered impaired because at the merger date there was evidence of deterioration of credit quality, since origination, primarily collateral related.
 
At December 31, 2010, impaired loans included $38.7 million of loans, net of credit marks of $12.4 million, which were acquired in the merger. Loans totaling $30.8 million which were performing, were also included in this total and classified as impaired because they were a troubled debt restructure, have related loans that are non-performing, or which are considered impaired because at the merger date there was evidence of deterioration of credit quality, since origination, primarily collateral related.
 

 
22

 

NOTE J - LOANS RECEIVABLE, NET (Continued)

 
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable by the length of time a recorded payment is past due.  The following table presents the classes of the loan portfolio summarized by the past due status as of  March 31, 2011 (In thousands):
 
   
 
 30-59
Days Past
Due
   
 
 60-89
Days Past
Due
   
 
 
Greater
than
90 days
   
 
 
 Total Past
Due
   
 
 
 
 Current
   
 
 
 Total Loans Receivable
   
Loans
Receivable
>90 Days
and
Accruing
 
                                           
Commercial
  $ 39     $ -     $ 1,519     $ 1,558     $ 32,966     $ 34,524     $ -  
Commercial real
   estate
    4,204       6,049       22,666       32,919       248,743       281,662       4,832  
Commercial real
   estate – constr.
    -       -       4,396       4,396       18,054       22,450       -  
Residential
   mortgage
    3,874       433       8,379       12,686       361,001       373,687       1,698  
Residential
   construction
    1,500       236       8,745       10,481       4,787       15,268       -  
Home equity and
    other consumer
    728       595       1,315       2,638       203,721       206,359       55  
Total
  $ 10,345     $ 7,313     $ 47,020     $ 64,678     $ 869,272     $ 933,950     $ 6,585  
 
 
 
The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of March 31, 2011: (In thousands)
 
   
Pass
   
Special Mention
   
Substandard
   
Doubtful
   
Total
 
 
Commercial
  $ 30,101     $ 2,083     $ 2,340     $ -     $ 34,524  
Commercial real estate
    224,240       21,111       36,311       -       281,662  
Commercial real estate-
    construction
    18,054       -       4,396       -       22,450  
Residential mortgage
    360,778       463       12,446       -       373,687  
Residential construct.
    4,515       671       10,082       -       15,268  
Home equity and other consumer
    204,383       192       1,784       -       206,359  
Total
  $ 842,071     $ 24,520     $ 67,359     $ -     $ 933,950  
 
 
23

 
 
NOTE J - LOANS RECEIVABLE, NET (Continued)

 
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable by the length of time a recorded payment is past due.  The following table presents the classes of the loan portfolio summarized by the past due status as of December 31, 2010 (In thousands):
 
   
 
 30-59
Days Past
Due
   
 
 60-89
Days Past
Due
   
 
 
Greater
than
90 days
   
 
 
 Total Past
Due
   
 
 
 
 Current
   
 
 
 Total Loans Receivable
   
Loans
Receivable
 >90 Days
and
Accruing
 
                                           
Commercial
  $ 93     $ -     $ 1,579     $ 1,672     $ 34,453     $ 36,125     $ -  
Commercial real
   estate
    2,952       556       18,658       22,166       251,011       273,177       437  
Commercial real
   estate – constr.
    -       -       4,870       4,870       13,185       18,055       -  
Residential
   mortgage
    3,666       559       4,606       8,831       349,672       358,503       78  
Residential
   construction
    1,044       -       10,690       11,734       7,408       19,142       1,152  
Home equity and
    other consumer
    2,126       216       1,206       3,548       201,138       204,686       79  
Total
  $ 9,881     $ 1,331     $ 41,609     $ 52,821     $ 856,867     $ 909,688     $ 1,746  
 
 
 
The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of December 31, 2010: (In thousands)
 
   
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
 
Commercial
  $ 32,902     $ 1,141     $ 2,082     $ -     $ 36,125  
Commercial real estate
    217,609       22,039       33,529       -       273,177  
Commercial real estate
    (construction)
    11,605       1,580       4,870       -       18,055  
Residential mortgage
    350,771       786       6,946       -       358,503  
Residential construct.
    4,358       3,331       11,453       -       19,142  
Home equity and other consumer
    202,707       926       1,053       -       204,686  
Total
  $ 819,952     $ 29,803     $ 59,933     $ -     $ 909,688  
 
 
24

 
 
NOTE J - LOANS RECEIVABLE, NET (Continued)
 
Allowance for Credit Losses and Recorded Investment in Financing Receivables
At and For the Three Months Ended March 31, 2011

   
 
 
 
Commercial
   
 
 
Commercial
Real Estate
   
 
Commercial
Real Estate-Construction
   
 
 
Residential Mortgage
   
 
 
Residential Construction
   
 
Home Equity
and Other Consumer
   
 
 
 
Total
 
   
(In thousands)
 
Allowance for credit losses:
     
    Beginning balance
  $ 654     $ 4,922     $ 2,097     $ 1,799     $ -     $ 372     $ 9,844  
       Charge-offs
    -       -       (254 )     (126 )     -       (15 )     (395 )
       Recoveries
    -       -       -       -       -       2       2  
       Provisions
    (20 )     538       76       81       -       125       800  
    Ending Balance
  $ 634     $ 5,460     $ 1,919     $ 1,754     $ -     $ 484     $ 10,251  
    Ending Balance:
       individually
       valuated for
       impairment
  $   483     $    3,570     $    1,300     $    61     $    -     $    176     $   5,590  
    Ending Balance:
       collectively
       evaluated
       for impairment
  $  151     $  1,890     $  619     $  1,693     $  -     $  308     $  4,661  
    Ending Balance:
       loans acquired
       with deteriorate
       credit quality*
  $  -     $  5,630     $  -     $  1,289     $  3,980     $  346     $ 11,244  


*These amounts represent credit marks established on loans acquired in merger which are netted against loans and not included in allowance for loan loss


 
25

 

NOTE J - LOANS RECEIVABLE, NET (Continued)
 
Allowance for Credit Losses and Recorded Investment in Financing Receivables
At and For the Three Months Ended March 31, 2011

   
 
 
Commercial
   
 
Commercial Real Estate
   
Commercial Real Estate-Construction
   
 
Residential Mortgage
   
 
Residential Construction
   
Home Equity and Other Consumer
   
 
 
Total
 
                                           
Loans Receivable:
                                         
    Ending balance
  $ 34,524     $ 281,662     $ 22,450     $ 373,687     $ 15,268     $ 206,359     $ 933,950  
    Ending balance:
       individually
       evaluated
       for impairment
      2,923         28,236         4,396         4,276         -         1,117         40,948  
    Ending balance:
       legacy Roma
       collectively
       evaluated for
       impairment
      12,142        176,873         18,054         309,485         135         146,133         662,822  
    Ending balance:
       acquired loans
       collectively
       evaluated for
       impairment
      20,692         65,406         -         53,089         493         57,619         197,299  
    Ending balance:  
       loans acquired 
       with deteriorated
       credit quality
  $ -     $ 12,600     $ -     $ 8,542     $ 14,640     $ 1,784     $ 37,566  


 

 

 
26

 
 
NOTE J - LOANS RECEIVABLE, NET (Continued)
Allowance for Credit Losses and Recorded Investment in Financing Receivables
At and For the Year Ended December 31, 2010

   
 
 
 
Commercial
   
 
 
Commercial
Real Estate
   
 
Commercial
Real Estate-Construction
   
 
 
Residential Mortgage
   
 
 
Residential Construction
   
 
Home Equity
and Other Consumer
   
 
 
 
Total
 
   
(In thousands)
 
Allowance for credit losses:
     
    Beginning balance
  $ 306     $ 3,255     $ 1,207     $ 313     $ -     $ 162     $ 5,243  
       Charge-offs
    -       (2,217 )     -       -       -       (37 )     (2,254 )
       Recoveries
    -       -       -       -       -       -       -  
       Provisions
    348       3,884       890       1,486       -       247       6,855  
    Ending Balance
  $ 654     $ 4,922     $ 2,097     $ 1,799     $ -     $ 372     $ 9,844  
    Ending Balance:
       individually
       evaluated for
       impairment
  $   483     $    2,965     $    1,555     $    61     $    -     $    192     $   5,256  
    Ending Balance:
       collectively
       evaluated for
       impairment
  $  171     $  1,957     $  542     $  1,738     $  -     $  180     $  4,588  
    Ending Balance:
       loans acquired
       with deteriorate
       credit quality*
  $  -     $  5,872     $  -     $  1,289     $  4,798     $  361     $ 12,320  
 

*These amounts represent credit marks established on loans acquired in merger which are netted against loans and not included in allowance for loan loss
 
 
27

 
 
NOTE J - LOANS RECEIVABLE, NET (Continued)
Allowance for Credit Losses and Recorded Investment in Financing Receivables
At and For the Year Ended December 31, 2010


   
 
 
 
Commercial
   
 
 
Commercial
Real Estate
   
 
Commercial
Real Estate-Construction
   
 
 
Residential Mortgage
   
 
 
Residential Construction
   
 
Home Equity
and Other Consumer
   
 
 
 
Total
 
                                           
Loans Receivable:
                                         
Ending balance
  $ 36,125     $ 273,177     $ 18,055     $ 358,503     $ 19,142     $ 204,686     $ 909,688  
Ending balance:
        individually
        evaluated
        for impairment
      1,651         26,822         4,870         2,570         -         982         36,895  
Ending balance:
        legacy Roma
        collectively
        evaluated for
        impairment
      11,684        162,941         13,185         292,319         3,301         142,637         626,067  
Ending balance:
        acquire loans
        collectively
        evaluated for
        impairment
      22,790         70,713         -         55,028         139         59,278         207,948  
Ending balance:  
        loans acquired 
        with deteriorated
        credit quality
  $ -     $ 12,701     $ -     $ 8,586     $ 15,702     $ 1,789     $ 38,778  

 
 
28

 
 
NOTE K - DEPOSITS
 
A summary of deposits by type of account as of March 31, 2011 and December 31, 2010 is as follows (dollars in thousands):

   
March 31, 2011
   
December 31, 2010
 
         
Weighted
         
Weighted
 
         
Avg. Int.
         
Avg. Int.
 
   
Amount
   
Rate
   
Amount
   
Rate
 
Demand:
                       
  Non-interest bearing checking
  $ 70,078       0.00 %   $ 64,778       0.00 %
  Interest bearing checking
    162,882       0.28 %     177,317       0.30 %
      232,960       0.23 %     242,095       0.22 %
Savings and club
    476,846       0.80 %     439,037       0.79 %
Certificates of deposit
    836,019       1.78 %     822,428       1.83 %
      Total
  $ 1,545,825       1.24 %   $ 1,503,560       1.27 %


                At  March 31, 2011, the Company had contractual obligations for certificates of deposit that mature as follows (in thousands):

One year or less
  $ 515,741  
After one to three years
    251,866  
After three years
    68,412  
   Total
  $ 836,019  
 
 
                NOTE L – PREMISES AND EQUIPMENT
 
                Premises and equipment consisted of the following as of March 31, 2011 and December 31, 2010 (in thousands):

 
Estimated
Useful
   
March 31,
   
December 31,
 
 
Lives
   
2011
   
2010
 
Land for future development
  -     $ 1,054     $ 1,054  
Construction in progress
  -       156       153  
Land and land improvements
  -       5,428       5,428  
Buildings and improvements
20-50 yrs
      43,918       43,481  
Furnishings and equipment
3-10 yrs.
      12,076       11,761  
  Total premises and equipment
          62,632       61,877  
Accumulated depreciation
          15,102       14,522  
  Total
        $ 47,530     $ 47,355  


 
29

 
 

NOTE M – REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS
 
Real estate owned and other repossessed assets increased $.8 million to $4.5 million at March 31, 2011 compared to $3.7 million at December 31, 2010. Detailed below are the changes in real estate owned and other repossessed assets are as follows:
 


 

  March 31,
2011 
    December 31,
2010
 
  (In Thousands)  
           
 Beginning balance-January 1,
$ 3,689     $ 1,928  
Ass   Assets acquired in merger
  -       2,593  
Ass   Assets transferred in
  1,938       2,068  
Net   Net proceeds from sales
  (1,090 )     (2,323 )
Net   Net gain (loss) on sales
  (70 )     128  
mp    Impairment charge
  -       (705 )
  To    Total
$ 4,467     $ 3,689  

NOTE N – REAL ESTATE HELD FOR SALE

The Company acquired in the merger a former branch site and a loan center. At March 31, 2011 both of those locations were available for sale and carried at lower of cost or market.

NOTE O –FEDERAL HOME LOAN BANK ADVANCES AND SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE AND SUBORDINATED DEBENTURES
 
At March 31, 2011 and December 31, 2010, the Banks had outstanding amortizing Federal Home Bank of New York (FHLBNY) advances as follows (dollars in thousands):
 

   
March 31, 2011
   
December 31, 2010
 
         
Interest
         
Interest
 
   
Amount
   
Rate
   
Amount
   
Rate
 
                         
Maturing:
                       
  February 1, 2016
  $ 494       2.11 %   $ -       -  
  March 14, 2016
    1,000       1.79 %     -       -  
Total amortizing loans
  $ 1,494             $ -          


At March 31, 2011 and December 31, 2010, Roma Bank and RomAsia Bank also had outstanding FHLBNY advances totaling $32.0 million and $35.0 million, respectively. The borrowings are as follows (in thousands):

03/31/2011
 
12/31/2010
 
Interest Rate
 
Maturity Date
 
Call Date
                 
$ 23,000
 
$23,000
 
3.90%
 
10/29/2017
 
10/29/2010
-
 
1,500
 
0.90%
 
03/21/2011
 
-
750
 
-
 
0.60%
 
02/22/2012
 
-
3,500
 
3,500
 
1.47%
 
03/19/2012
 
-
750
 
-
 
1.17%
 
02/22/2013
 
-
1,500
 
1,500
 
2.09%
 
03/19/2013
 
-
500
 
500
 
1.52%
 
12/23/2013
 
-
500
 
-
 
1.73%
 
02/24/2014
 
-
500
 
500
 
2.08%
 
12/22/2014
 
-
500
 
500
 
2.61%
 
12/21/2015
 
-
500
 
500
 
3.08%
 
12/21/2016
 
-
-
 
3,500
 
0.33%
 
01/31/2011
 
-
$ 32,000
 
$ 35,000
           
 
 
 
30

 
 
NOTE O –FEDERAL HOME LOAN BANK ADVANCES AND SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE AND SUBORDINATED DEBENTURES (Continued)
 
Securities sold under agreements to repurchase are treated as financings and are reflected as a liability in the consolidated statements of financial condition. Securities sold under an agreement to repurchase amounted to $40.0 million at March 31, 2011 and December 31, 2010. The maturities and respective interest rates are as follows: $10.0 million maturing in 2015, at 3.22%; $20.0 million maturing in 2018, callable at 08/22/11, at 3.51%; and $10.0 million maturing in 2018, callable at 08/22/13, at 3.955%. The repurchase agreement is collateralized by securities described in the underlying agreement which are held in safekeeping by the FHLBNY. At March 31, 2011, the fair value of the mortgage-backed securities used as collateral under the repurchase agreement was approximately $52.7 million.

On May 1, 2007, Sterling Banks Capital Trust I, a Delaware statutory business trust and a wholly-owned subsidiary of the Company (the “Trust”), issued $6.2 million of variable rate capital trust pass-through securities (“capital securities”) to investors.  The variable interest rate reprices quarterly at the three month LIBOR plus 1.7%.  The Trust purchased $6.2 million of variable rate junior subordinated debentures from Sterling Banks, Inc.. The debentures are the sole asset of the Trust. The fair value of the subordinated debentures at acquisition of Sterling Banks, Inc. was $5.1 million. The terms of the junior subordinated debentures are the same as the terms of the capital securities.  The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities.  The capital securities are redeemable by the Company on or after May 1, 2012 at par, or earlier if the deduction of related interest for federal income taxes is prohibited, classification as Tier I Capital is no longer allowed, or certain other contingencies arise.  The capital securities must be redeemed upon final maturity of the subordinated debentures on May 1, 2037.  On October 22, 2010, the Company repurchased $4.0 million of these capital securities (with a market value of $3.2 million).

NOTE P –RETIREMENT PLANS

Components of net periodic pension cost for the three months ended March 31, 2011 and 2010 were as follows (in thousands):

   
Three Months Ended
March 31,
 
   
2011
   
2010
 
             
             
 Service cost
  $ 136     $ 96  
 Interest cost
    173       155  
 Expected return on plan assets
    (193 )     (144 )
 Amortization of unrecognized net loss
    86       61  
 Amortization of unrecognized past service liability
    4       4  
                 
Net periodic benefit expense
  $ 206     $ 172  

The Company expects to make contributions of approximately $791,000 during 2011.

NOTE Q – CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
 
In the normal course of business, the Company enters into off-balance sheet arrangements consisting of commitments to fund residential and commercial loans and lines of credit.  Outstanding loan commitments at March 31, 2011 were as follows (in thousands):
 
   
March 31,
 
   
2011
 
  Residential mortgage and equity loans
  $ 10,985  
  Commercial loans committed not closed
    16,111  
  Commercial lines of credit
    32,511  
  Consumer unused lines of credit
    24,933  
  Commercial letters of credit
    2,857  
    $ 87,397  

In the ordinary course of business to meet the financial needs of the Company’s customers, the Company is party to financial instruments with off-balance-sheet risk. These financial instruments include unused lines of credit and involve, to varying degrees, elements of credit
 
 
31

 



NOTE Q – CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS (Continued)
 
risk in excess of the amount recognized in the consolidated financial statements.  The contract or notional amounts of these instruments express the extent of involvement the Company has in each category of financial instruments.

The Company’s exposure to credit loss from nonperformance by the other party to the above-mentioned financial instruments is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.  The contract or notional amount of financial instruments which represent credit risk at March 31, 2011 and December 31, 2010 is as follows (in thousands):

             
   
March 31,
2011
   
December 31,
2010
 
   Standby by letters of credit
  $ 2,857     $ 3,400  
   Outstanding loan and credit line commitments
  $ 84,540     $ 85,159  
 
Standby letters of credit are conditional commitments issued by the Company which guarantee performance by a customer to a third party.  The credit risk and underwriting procedures involved in issuing letters of credit are essentially the same as that involved in extending loan facilities to customers.  These are irrevocable undertakings by the Company, as guarantor, to make payments in the event a specified third party fails to perform under a non-financial contractual obligation.  Most of the Company’s performance standby letters of credit arise in connection with lending relationships and have terms of one year or less.  The current amount of the liability related to guarantees under standby letters of credit issued is not material as of March 31, 2011.

Outstanding loan commitments represent the unused portion of loan commitments available to individuals and companies as long as there is no violation of any condition established in the contract.  Outstanding loan commitments generally have a fixed expiration date of one year or less, except for home equity loan commitments which generally have an expiration date of up to 15 years.  The Company evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral, if any, obtained, upon extension of credit is based upon management’s credit evaluation of the customer.  While various types of collateral may be held, property is primarily obtained as security. The credit risk involved in these financial instruments is essentially the same as that involved in extending loan facilities to customers.

The Banks have non-cancelable operating leases for branch offices. The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at March 31, 2011: (In thousands)
 
             Year Ended March 31:
     
       
2012
  $ 1,163  
2013
    1,124  
2014
    1,113  
2015
    832  
2016
    838  
Thereafter
    9,248  
             Total Minimum Payments Required
  $ 14,318  

Included in the total required minimum lease payments is $1,729,000 of payments to the LLC. The Company eliminates these payments in consolidation.

 
32

 

NOTE R – FAIR VALUE MEASUREMENTS AND DISCLOSURES
 
The Company follows the guidance on fair value measurements now codified as FASB ASC Topic 820, “Fair Value Measurements and Disclosures”.  Fair value measurements are not adjusted for transaction costs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated.  The estimated fair value amounts have been measured as of their respective period end and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The fair value measurement hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2011 were as follows:
 
Description     
(Level 1)
Quoted Prices in Active
Markets for Identical
Assets
   
(Level 2)
Significant
Other
Observable
Inputs
   
(Level 3)
Significant
Unobservable
Inputs
   
Total Fair Value
March 31, 2011
 
     (In Thousands)  
                            
Mo    Mortgage backed securities-
  U.S. Government 
  Sponsored Enterprises 
  (GSE’s)
  $ -   $ 22,413   $ -   $   22,413  
         Obligations of state and 
  political subdivisions
    -     7,988     -     7,988  
         U.S. Government (including agencies)
    -     12,952     -     12,952  
Co     Corporate bond
    -     993     -     993         
E       Equity securities
    -     59     -     59  
Mu    Mutual funds
    -     2,800     -     2,800  
         Securities available for sale
  $ -   $ 47,205   $ -   $ 47,205  


 
 
33

 

NOTE R – FAIR VALUE MEASUREMENTS AND DISCLOSURES (Continued)
 
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy, used at December 31, 2010 were as follows:
 
Description     
(Level 1)
Quoted Prices in Active
Markets for Identical
Assets
   
(Level 2)
Significant
Other
Observable
Inputs
   
(Level 3)
Significant
Unobservable
Inputs
   
Total Fair Value
March 31, 2011
 
     (In Thousands)  
                            
 Mo  Mortgage backed securities-
  U.S. Government 
  Sponsored Enterprises 
  (GSE’s)
  $ -   $ 23,999   $ -   $   23,999  
         Obligations of state and 
  political subdivisions
    -     8,660     -     8,660  
         U.S. Government (including agencies)
    -         16,019     -     16,019  
Co    Corporate bond
    -     988     -     988         
E       Equity securities
    -     53     -     53  
Mu   Mutual funds
    -     2,794     -     2,794  
         Securities available for sale
  $ -   $ 52,513   $ -   $ 52,513  

For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2011, were as follows:
 
Description     
(Level 1)
Quoted Prices in Active
Markets for Identical
Assets
   
(Level 2)
Significant
Other
Observable
Inputs
   
(Level 3)
Significant
Unobservable
Inputs
   
Total Fair Value
March 31, 2011
 
     (In Thousands)  
 Impaired loans    $      $ 12,968    12,968     
 Real estate and other assets owned     $      $ 4,467    $ 4,467   
 Real estate held for sale    $    $    $ 1,164    $ 1,164   
                           


 
34

 

NOTE R – FAIR VALUE MEASUREMENTS AND DISCLOSURES (Continued)
 
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2010, were as follows:
 
 Description     
(Level 1)
Quoted Prices in Active
Markets for Identical
Assets
   
(Level 2)
Significant
Other
Observable
Inputs
   
(Level 3)
Significant
Unobservable
Inputs
   
Total Fair Value
March 31, 2011
 
     (In Thousands)  
 Impaired loans    $      $ 8,624    8,624     
 Real estate and other assets owned     $      $ 3,689    $ 3,689   
 Real estate held for sale    $    $    $ 1,164    $ 1,164   
                           
Other Real Estate Owned
 
Real estate owned assets are adjusted to fair value, less estimated selling costs, upon transfer of the loans to real estate owned.  Subsequently, real estate owned assets are carried at the lower of carrying value or fair value.  Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral.  These assets are included as Level 3 fair values.
 
Real Estate Held for Sale
 
Real estate held for sale is adjusted to fair value less estimated selling costs upon transfer of the assets. Subsequently, real estate held for sale assets are carried at the lower of carrying value or fair value.  Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral.
 
 
These assets are included as Level 3 fair values. The following is management’s estimate of the fair value of all financial instruments whether carried at cost or fair value on the Company’s statement of financial condition.
 
The following information should not be interpreted as an estimate of the fair value of the Company since a fair value calculation is only provided for a limited portion of the Company assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company disclosures and those of other companies may not be meaningful.  The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at March 31, 2011 and December 31, 2010.
 
Cash and Cash Equivalents (Carried at Cost)
 
The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.
 
Securities
 
The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.
 
Loans Receivable (Carried at Cost)
 
The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.  Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.
 

 
35

 

NOTE R – FAIR VALUE MEASUREMENTS AND DISCLOSURES (Continued)

 
Impaired Loans (Generally Carried at Fair Value)
 
Impaired loans carried at fair value are those impaired loans in which the Company has measured impairment generally based on the fair value of the related loan’s collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds.  These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.  The fair value at March 31, 2011 consists of the loan balances of $18.6 million, net of a valuation allowance of $5.6 million. The fair value at December 31, 2010 consists of the loan balances of $13.9 million, net of a valuation allowance of $5.2 million.
 
Federal Home Loan Bank Stock and ACBB Stock (Carried at Cost)
 
The carrying amount of this restricted investment’s in bank stock approximates fair value, and considers the limited marketability of such securities.
 
Accrued Interest Receivable and Payable (Carried at Cost)
 
The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.
 
 Deposit Liabilities (Carried at Cost)
 
The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.
 
 Federal Home Loan Bank of New York Advances and Securities Sold Under Agreements to Repurchase (Carried at Cost)
 
Fair values of FHLB advances are determined by discounting the anticipated future cash payments by using the rates currently available to the Company for debt with similar terms and remaining maturities. Securities sold under agreements to repurchase are estimated using discounted cash flow analysis, based on quoted prices for available borrowings with similar credit risk characteristics, terms and remaining maturity.  These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.
 
Subordinated Debentures
 
The fair value estimate of subordinated debentures is determined by discounting future cash payments by using the rates currently available to the Company for debt with similar terms and remaining maturities.
 
Off-Balance Sheet Financial Instruments (Disclosed at Cost)
 
Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing. The fair value of these off-balance sheet financial instruments are not considered material as of March 31, 2011 and December 31, 2010.
 

 
36

 

NOTE R – FAIR VALUE MEASUREMENTS AND DISCLOSURES (CONTINUED)
 
The carrying amounts and estimated fair values of financial instruments are as follows:
 
 
       
    March 31, 2011     December 31, 2010  
          Estimated           Estimated  
    Carrying     Fair     Carrying     Fair  
    Value     Value     Value     Value  
    (In Thousands)  
Financial assets:
                       
  Cash and cash equivalents
  $ 93,580     $ 93,580     $ 89,587     $ 89,587  
          Securities available for sale
    47,205       47,205       52,513       52,513  
          Investment securities held to maturity
    247,135       241,352       244,421       238,785  
          Mortgage-backed securities held to maturity
    434,942       438,840       421,114       425,462  
          Loans receivable
    911,729       925,276       893,842       907,351  
          Federal Home Loan Bank of New York  and ACBB Stock
    4,870       4,870       4,789       4,789  
          Accrued interest receivable
    7,439       7,439       8,030       8,030  
                                           
F      Financial liabilities:
                               
          Deposits
    1,545,825       1,563,990       1,503,560       1,516,093  
                  Federal Home Loan Bank of New York Advances
    33,494       36,076       35,000       37,969  
                  Securities sold under agreements to repurchase
    40,000       42,714       40,000       43,311  
          Subordinated debentures
    1,907       1,907       1,904       1,904  
          Accrued interest payable
    665       665       830       830  
 
Limitations
 
The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments.  Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.
 
These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.  Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale.  This is due to the fact that no market exists for a sizable portion of the loan, deposit and off balance sheet instruments.
 
In addition, the fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments.  Other significant assets that are not considered financial assets include premises and equipment.  In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
 
Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments.  This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.




 
37

 

NOTE S –OTHER COMPREHENSIVE INCOME

Components of accumulated other comprehensive (loss) at March 31, 2011 and December 31, 2010 were as follows (in thousands):


    
March 31, 2011
 
December 31, 2010
 
   
(in Thousands)
 
             
Net unrealized (loss) on securities available
      for sale
  $ (756 )   $ (739 )
Tax effect
    319       312  
     Net of tax amount
    (437 )     (427 )
                 
Minimum pension liability
    (5,068 )     (5,068 )
Tax effect
    2,032       2,032  
     Net of tax amount
    (3,036 )     (3,036 )
                 
Accumulated other comprehensive loss
  $ (3,473 )   $ ( 3,463 )


The components of other comprehensive income for the three months ended March 31, 2011 and 2010 and their related tax effects are presented in the following table:


   
March 31, 2011
 
March 31, 2010
 
   
(in Thousands)
 
             
Unrealized holding gains on
     available for sale securities:
 
 
 
       
Unrealized holding gains (losses) arising
     during the period
  $ 34     $ 274  
Reclassification adjustment for
     Realized gains on sales
    (17 )     (23 )
     Net unrealized gains on securities
     available for sale
    17       251  
Tax effect
    (7 )     (106 )
                 
Other comprehensive income
  $ 10     $ 145  
                 
                 




 
38

 

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions.  Forward – looking statements include:

    · Statements of our goals, intentions and expectations;
    · Statements regarding our business plans, prospects, growth and operating strategies;
    · Statements regarding the quality of our loan and investment portfolios; and
    · Estimates of our risks and future costs and benefits.

These forward-looking statements are subject to significant risks and uncertainties.  Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

    · General economic conditions, either nationally or in our market area, that are worse than expected;
    · Changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;
    · Our ability to enter into new markets and/or expand product offerings successfully and take advantage of growth
       opportunities;
    · Increased competitive pressures among financial services companies;
    · Changes in consumer spending, borrowing and savings habits;
    · Legislative or regulatory changes that adversely affect our business;
    · Adverse changes in the securities markets;
    · Our ability to successfully manage our growth; and
    · Changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial
       Accounting Standards Board or the Public Company Accounting Oversight Board.

Any of the forward-looking statements that we make in this report and in other public statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee.  Consequently, no forward-looking statement can be guaranteed.

Comparison of Financial Condition at March 31, 2011 and December 31, 2010

General

Total assets increased by $34.0 million to $1.9 billion at March 31, 2011 compared to $1.8 billion at December 31, 2010. Total liabilities increased $32.3 million to $1.6 billion at March 31, 2011 compared to $1.6 billion at December 31, 2010.  Total stockholders’ equity increased $1.8 million to $214.2 million at March 31, 2011. The increase in assets was primarily funded by deposit growth of $42.3 million.

Deposits

Total deposits increased $42.3 million to $1.5 billion at March 31, 2011, compared to $1.5 billion at December 31, 2010. Non-interest bearing demand deposits increased $5.3 million to $70.1 million at March 31, 2011, and interest bearing demand deposits decreased $14.4 million to $162.9 million. Savings and club accounts increased $37.9 million to $476.8 million, and certificates of deposit increased $13.6 million to $836.0 million at March 31, 2011.

Investments (Including Mortgage-Backed Securities)

The investment portfolio increased $11.2 million to $729.3 million at March 31, 2011, compared to $718.0 million at December 31, 2010. Securities available for sale decreased $5.3 million to $47.2 million at March 31, 2011, compared to $52.5 million at December 31, 2010, primarily due to calls and principal repayments.   Investments held to maturity increased $2.7 million to $247.1 million at March 31, 2011, compared to $244.4 million at December 31, 2010. Mortgage-backed securities increased $13.8 million to $434.9 million at March 31, 2011, compared to $421.1 million at December 31, 2010.


 
39

 

Loans

Net loans increased by $17.9 million to $911.7 million at March 31, 2011, compared to $893.8 million at December 31, 2010.  Commercial and multi-family real estate mortgages increased $8.5 million to $281.7 million at March 31, 2011, compared to $273.2 million at December 31, 2010. Gross construction loans increased $521 thousand to $37.7 million at March 31, 2011, compared to $37.2 million at December 31, 2010. Residential and consumer loans increased $16.9 million from December 31, 2010 to March 31, 2011.

Other Assets

All other asset categories, except cash and cash equivalents, increased by $0.9 million from December 31, 2010 to March 31, 2011. This increase was primarily caused by an increase of $778 thousand in real estate owned, offset by other minimal increases and decreases.

Federal Home Loan Bank of New York Advances

The $1.5 million decrease in (FHLBNY) advances during the three months ended March 31, 2011 was due to repayments of FHLBNY advances by RomAsia Bank.  At March 31 2011, the outstanding FHLBNY advances were $33.5 million, compared to $35.0 million at December 31, 2010.

Other Liabilities

Other liabilities decreased $8.5 million to $19.7 million at March 31, 2011. The net decrease was primarily due to a decrease of $8.9 million in securities purchased and not settled at March 31, 2011.

Stockholders’ Equity

Stockholders’ equity increased $1.8 million to $214.2 million at March 31, 2011 compared to $212.5 million at December 31, 2010. The net increase was primarily caused by net income of $1.9 million, which was offset by $552 thousand in dividend payments.

Comparison of Operating Results for the Three Months Ended March 31, 2011 and 2010

General

Net income increased $255 thousand to $1.9 million for the quarter ended March 31, 2011, compared to $1.6 million and for the prior year period.  The increase was primarily due to an increase of $3.7 million in net interest income after provision for loan losses, reduced by an increase of $3.3 million in non-interest expense and an increase of $111 thousand in the provision for federal and state taxes.
 
Interest Income

Interest income increased by $3.7 million to $18.6 million for the three months ended March 31, 2011 compared to $14.9 million for the prior year period, as a result of the acquisition of Sterling in July 2010 and growth in the loan and investment portfolios.  Interest income from loans increased $3.5 million to $11.7  million for the three months ended March 31, 2011.  Interest income from residential mortgage loans increased $1.3 million over the comparable quarter ended March 31, 2010, while interest income from equity loans increased $670 thousand.  The weighted average interest rates for mortgage and equity loans at March 31, 2011 were 5.25% and 5.80%, respectively, compared to 5.42% and 5.47%, respectively, in the prior year.  Interest income from commercial and multifamily mortgage loans and commercial loans increased $1.6 million from period to period.  The weighted average interest rate for commercial and multi-family mortgage loans and commercial loans was 5.81% at March 31, 2011, and 6.15% at March 31, 2010.

Interest income from mortgage-backed securities increased $1.2 million over the comparable quarter in 2010. The increase was primarily due to the increase in the portfolio from year to year of $167.7 million.  Interest income from investments held to maturity decreased $1.0 million for the quarter ended March 31, 2011. This increase was primarily due to an decrease in the portfolio from year to year of $40.2 million.  Interest income on securities available for sale increased $122 thousand from period to period.  Interest income from other interest earning assets changed minimally from period to period.

Interest Expense

Interest expense increased $492 thousand for the three month period ended March 31, 2011 to $5.3 million compared to $4.8 million for the three months ended March 31, 2010. The increase was primarily due to a $403 thousand increase in interest paid on deposits. Total deposits increased $494.2 million over the twelve month period ended March 31, 2010, primarily as a result of the acquisition of Sterling in July 2010.  The effect of the increased portfolio was offset by a decrease in the weighted average interest rate of 32 basis points to 1.24% at

 
40

 

March 31, 2011, compared to 1.56% at March 31, 2010. Interest expense on borrowed funds increased $89 thousand to $689 thousand, primarily due to the increase in FHLBNY advances by RomAsia Bank.

Provision for Loan Losses

The loan loss provision for the three months ended March 31, 2011 decreased $472 thousand to $800 thousand. The provision for loan losses is calculated on the legacy Roma and RomAsia loans. Total non-performing loans were $39.5 million and $40.4 million at March 31, 2011 and December 31, 2010, respectively. The legacy Roma non-performing loans were $23.1 million and $22.5 million at March 31, 2011 and December 31, 2010, respectively. The allowance for loan losses to non-performing legacy Roma loans was 44.3% and 43.83% at March 31, 2011 and December 31, 2010, respectively, and the allowance for loan loss to total legacy Roma loans represented 1.5% and 1.5%, respectively, for the same periods of time.  Total loans included $13.9 million and $14.6 million of credit marks on the acquired loans at March 31, 2011 and December 31, 2010, respectively.  The total allowance for loan loss and credit marks were 2.58% and 2.66% of total gross loans at March 31, 2011 and December 31, 2010.

Management believes that the impaired loans remain well collateralized and where needed, appropriate specific reserves, or credit marks, have been established.  The Company is taking a proactive approach in identifying loans at an early stage that may be experiencing cash flow deterioration or collateral weakening even though the loan remains current.  The Company obtains new appraisals at least annually on substandard assets.

Non-Interest Income

Non-interest income decreased $48 thousand to $1.2 million for the three months ended March 31, 2011, compared to $1.3 million for the three months ended March 31, 2010.  The net decrease was chiefly derived from decreases in fees on deposits of $16 thousand, decreases in gains on sale of available for sale securities of $6 thousand, and an increase in the loss on sale of foreclosed assets of $70 thousand, offset by an increases of $28 thousand in income on bank owned life insurance and $22 thousand on the gain on sale of mortgage loans originated for sale.

Non-Interest Expense

All of the non-interest expense categories are impacted by the merger with Sterling in July 2010.  The merger increased overall costs and increased our branch network from fourteen to twenty four branches.

Non-interest expense increased $3.3 million to $11.0 million for the three months ended March 31, 2011 compared to $7.7 million for the three months ended March 31, 2010. Salaries and employee benefits increased $1.7 million to $6.1 million for the three months ended March 31, 2011 compared to the same period in the prior year. This increase represents an increase in overall FTE’s related to the merger and staffing for the ten branches acquired in the merger. Net occupancy of premises expense increased $560 thousand for the three month period ended March 31, 2011.  Other non-interest expenses increased by $365 thousand to $1.4 million for the three months ended March 31, 2011, compared to $1.1 million for the same period in the prior year.  Federal deposit insurance premiums increased $297 thousand primarily due to the increased deposits related to the merger, commercial and mortgage loan expense related to collection efforts increased $101 thousand, consulting fees increased $64 thousand, and operating supplies and telephone expense increased $98 thousand.

Provision for Income Taxes

Income tax expense increased by $111 thousand to $884 thousand for the three months ended March 31, 2011 compared to $773 thousand for the three months ended March 31, 2010 primarily as a result of higher pre-tax income. Income tax expense, represented an effective rate of ­ 32.1% for the three months ended March 31, 2011, compared to 32.2% in the prior year quarter. The Company pays a state tax rate of 3.6% on the taxable income of our investment company and 9.0 % on the taxable income of the other entities.

Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions.  We believe that the most critical accounting policy upon which our financial condition and results of operation depend, and which involves the most complex subjective decisions or assessments, is the allowance for loan losses.

Allowance for Loan Losses

The allowance for loan losses represents our best estimate of losses known and inherent in our loan portfolio that are both probable and reasonable to estimate. In determining the amount of the allowance for loan losses, we consider the losses inherent in our loan portfolio and changes in the nature and volume of our loan activities, along with general economic and real estate market conditions. We utilize a segmented approach which identifies: (1) impaired loans for which specific reserves are established; (2) classified loans for which a higher

 
41

 

allowance is established; and (3) performing loans for which a general valuation allowance is established. We maintain a loan review system which provides for a systematic review of the loan portfolios and the early identification of impaired loans. The review of residential real estate and home equity consumer loans, as well as other more complex loans, is triggered by identified evaluation factors, including delinquency status, size of loan, type of collateral and the financial condition of the borrower. All commercial loans are evaluated individually for impairment. Specific loan loss allowances are established for impaired loans based on a review of such information and/or appraisals of the underlying collateral. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management’s judgment.

Although specific and general loan loss allowances are established in accordance with management’s best estimate, actual losses are dependent upon future events, and as such, further provisions for loan losses may be necessary in order to increase the level of the allowance for loan losses. For example, our evaluation of the allowance includes consideration of current economic conditions, and a change in economic conditions could reduce the ability of borrowers to make timely repayments of their loans. This could result in increased delinquencies and increased non-performing loans, and thus a need to make increased provisions to the allowance for loan losses. Any such increase in provisions would result in a reduction to our earnings. A change in economic conditions could also adversely affect the value of properties collateralizing real estate loans, resulting in increased charges against the allowance and reduced recoveries, and require increased provisions to the allowance for loan losses. Furthermore, a change in the composition, or growth, of our loan portfolio’s could result in the need for additional provisions.

Acquired loans

Loans that we acquire in acquisitions subsequent to January 1, 2009, are recorded at fair value with no carryover of the related allowance for credit losses.  Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount or premium and is recognized into interest income over the remaining life of the loan. The difference between the contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non accretable discount. The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the loan.  Subsequent decreases to the expected cash flows require us to evaluate the need for an allowance for credit losses.  Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the nonaccretable discount which we then reclassify as accretable discount that is recognized into interest income over the remaining life of the loan using the interest method.  Our evaluation of the amount of future cash flows that we expect to collect is performed in a similar manner as that used to determine our allowance for credit losses.  Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable discount portion of the fair value adjustment.

New Accounting Pronouncements

In April 2011 the FASB issued Accounting Standards Update (ASU) No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, to clarify the accounting principles applied to loan modifications. ASU No. 2011-02 was issued to address the recording of an impairment loss in FASB ASC 310, Receivables. ASU No. 2011-02 adds text to the scope guidance Section 310-40-15 that is meant to help determine when a lender has granted a concession on their terms of a loan. The added material also provides criteria that should be used to help determine when the loan restructuring delays a payment by a length of time that is considered insignificant and when the borrower is having financial problems. For public companies the effective date is for fiscal quarters and years that start June 15, 2011, or later with retrospective application to the beginning of the fiscal year for loans that are restructured during the year in which the changes are adopted. The Company is in the process of evaluating the adoption of this update will have on their financial condition or statement of operations.

 
42

 

ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk

Asset and Liability Management

The majority of the Company’s assets and liabilities are monetary in nature.  Consequently, the Company’s most significant form of market risk is interest rate risk.  The Company’s assets, consisting primarily of mortgage loans, have generally longer maturities than the Company’s liabilities, consisting primarily of short-term deposits.  As a result, a principal part of the Company’s business strategy is to manage interest rate risk and reduce the exposure of its net interest income to changes in market interest rates. Management of the Company does not believe that there has been a material adverse change in market risk during the three months ended March 31, 2011.

Net Portfolio Value

The Company’s interest rate sensitivity is monitored by management through the use of the OTS model which estimates the change in the Company’s net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario.  The OTS produces its analysis based upon data submitted on the Company’s quarterly Thrift Financial Reports.  The following table sets forth Roma Bank’s NPV as of December 31, 2010, the most recent date the NPV was calculated by the OTS (in thousands):


December 31, 2010
 
Net Portfolio Value
   
Net Portfolio Value
as % of Present Value of Assets
 
 
Changes in rate
   
 
$ Amount
   
 
$ Change
   
 
% Change
   
Net Portfolio
 Value Ratio
   
Basis Point
Change
 
  +300 bp     87,950       -113,047       (56 )%     05.51 %     (607 ) bp
  +200 bp     129,919       -71,078       (35 )%     07.89 %     (368 ) bp
  +100 bp     168,144       -32,853       (16 )%     09.93 %     (165 ) bp
  0 bp     200,997       -       -       11.58 %     -  
  –100 bp     229,795       28,797       14 %     12.96 %     138 bp
   
(1) The -200bp and -300bp scenarios are not shown due to the low prevailing interest rate environment.
 
 
 
The following table presents RomAsia Bank’s net portfolio value as of December 31, 2010. The net portfolio values shown in this table were calculated by the Office of Thrift Supervision, based on information provided by the Bank (in thousands).

December 31, 2010
 
Net Portfolio Value
   
Net Portfolio Value
as % of Present Value of Assets
 
 
Changes in rate
   
 
$ Amount
   
 
$ Change
   
 
% Change
   
Net Portfolio
 Value Ratio
   
Basis Point
Change
 
  +300 bp     4,343       -11,500       (73 )%     3.74 %     (849 ) bp
  +200 bp     8,482       -7,361       (46 )%     7.02 %     (521 ) bp
  +100 bp     12,290       -3,553       (22 )%     9.81 %     (242 ) bp
  0 bp     15,843       -       -       12.23 %     -  
  –100 bp     19,120       3,277       21 %     14.35 %     212 bp
   
(1) The -200bp and -300bp scenarios are not shown due to the low prevailing interest rate environment.
 

Management of the Company believes that there has not been a material adverse change in the market risk during the    three months ended March 31, 2011.




 
43

 

 
ITEM 4 – Controls and Procedures
 
An evaluation was performed under the supervision, and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule l3a-l5(e) promulgated under the Securities Exchange Act of 1934, as amended) as of March 31, 2011.  Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of March 31, 2011.

No change in the Company’s internal controls over financial reporting (as defined in Rule l3a-l5(f) promulgated under the Securities Exchange Act of 1934, as amended) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
PART II – OTHER INFORMATION

ITEM 1 – Legal Proceedings

There were no material pending legal proceedings at March 31, 2011 to which the Company or its subsidiaries is a party other that ordinary routine litigation incidental to their respective businesses.

ITEM 1A – Risk Factors

Management does not believe there were any material changes to the risk factors presented in the Company’s Form 10-K for the year ended December 31, 2010 during the most recent quarter.
 
ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds

None

ITEM 3 – Defaults Upon Senior Securities

       None

ITEM 4 – (Reserved)

ITEM 5 – Other Information

       None

ITEM 6 – Exhibits

31.1        Certifications of the Chief Executive Officer pursuant to Rule 13a-14(a)

31.2        Certifications of the Chief Financial Officer pursuant to Rule 13a-14(a)
 
32           Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



 
44

 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





   
ROMA FINANCIAL CORPORATION
(Registrant)
 
 
 
Date:  May 6, 2011
 
By:
/s/ Peter A. Inverso
     
Peter A. Inverso
President and Chief Executive Officer
 
 
 
Date:  May 6, 2011
 
By:
/s/ Sharon L. Lamont
     
Sharon L. Lamont
Chief Financial Officer

 
45