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, 2007
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OR
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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
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ROMA FINANCIAL CORPORATION
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(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 is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange
Act (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
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, May 1, 2007:
$0.10 par value common stock - 32,731,875 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, 2007 and December 31, 2006 (Unaudited)
Consolidated Statements of Income for the Three Months Ended 3
March 31, 2007 and 2006 (Unaudited)
Consolidated Statements of Changes in Stockholders' Equity for the Three 4
Months Ended March 31, 2007 and 2006 (Unaudited)
Consolidated Statements of Cash Flows for the Three Months 5
Ended March 31, 2007 and 2006 (Unaudited)
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosure About Market Risk 16
Item 4: Controls and Procedures 17
PART II - OTHER INFORMATION 17
SIGNATURES 19
ROMA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Unaudited)
March 31, December 31,
2007 2006
--------- ------------
(In thousands, except for share and per share data)
ASSETS
------------------------------------------------------------------------------------------------------------------------
Cash and amounts due from depository institutions $ 6,183 $ 7,219
Interest-bearing deposits in other banks 22,405 26,521
Money market funds 50,530 30,961
--------- ---------
Cash and Cash Equivalents 79,118 64,701
Securities available for sale 19,948 19,331
Investment securities held to maturity 169,324 169,927
Mortgage-backed securities held to maturity 136,166 144,480
Loans receivable, net of allowance for loan losses $1,314
and $1,169, respectively 425,454 420,382
Premises and equipment 31,270 30,669
Federal Home Loan Bank of New York stock 1,416 1,432
Interest receivable 4,681 4,598
Bank owned life insurance 16,323 16,185
Other assets 4,206 4,376
--------- ---------
Total Assets $ 887,906 $ 876,081
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing 23,161 25,109
Interest bearing 610,675 600,863
--------- ---------
Total deposits 633,836 625,972
Federal Home Loan Bank of New York advances 7,390 7,863
Advance payments by borrowers for taxes and insurance 2,351 2,275
Other liabilities 7,176 5,317
--------- ---------
Total Liabilities 650,753 641,427
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $0.10 par value, 45,000,000 authorized, 32,731,875 issued and
outstanding 3,274 3,274
Paid-in capital 97,144 97,069
Retained earnings 144,887 143,068
Unearned shares held by Employee Stock Ownership Plan (7,712) (7,847)
Accumulated other comprehensive (loss) (440) (910)
--------- ---------
Total Stockholders' Equity 237,153 234,654
--------- ---------
Total Liabilities and Stockholders' Equity $ 887,906 $ 876,081
========= =========
See notes to consolidated financial statements.
2
ROMA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
Three Months Ended
March 31,
2007 2006
------------- ---------------
(In thousands, except for share
and per share data)
INTEREST INCOME
Loans $ 6,637 $ 5,684
Mortgage-backed securities held to maturity 1,741 1,767
Investment securities held to maturity 1,760 1,517
Securities available for sale 152 125
Other interest-earning assets 861 218
----------- -----------
Total Interest Income 11,151 9,311
----------- -----------
INTEREST EXPENSE
Deposits 4,077 3,445
Borrowings 85 106
----------- -----------
Total Interest Expense 4,162 3,551
----------- -----------
Net Interest Income 6,989 5,760
PROVISION FOR LOAN LOSSES 158 57
----------- -----------
Net Interest Income after Provision for Loan Losses 6,831 5,703
----------- -----------
NON-INTEREST INCOME
Commissions on sales of title policies 257 232
Fees and service charges on deposits 266 91
Fees and service charges on loans 29 47
Other 339 258
----------- -----------
Total Non-Interest Income 891 628
----------- -----------
NON-INTEREST EXPENSE
Salaries and employee benefits 2,893 2,441
Net occupancy expense 503 409
Equipment 386 359
Data processing fees 337 330
Advertising 187 210
Federal insurance premium 19 21
Other 593 504
----------- -----------
Total Non-Interest Expense 4,918 4,274
----------- -----------
Income Before Income Taxes 2,804 2,057
INCOME TAXES 985 697
----------- -----------
Net Income $ 1,819 $ 1,360
----------- -----------
Net income per common share
Basic $ .06 $ .06
----------- -----------
Diluted $ .06 $ .06
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic 31,951,843 22,584,994
=========== ===========
Diluted 31,951,843 22,584,994
=========== ===========
See notes to consolidated financial statements.
3
ROMA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(Unaudited)
Retained Accumulated
Earnings Unearned Other
Common Paid - In Substantially ESOP Comprehensive
Stock Capital Restricted Shares Income(Loss) Total
--------------------------------------------------------------------------------------
Balance December 31, 2005 $ 1 $ 799 $ 137,820 $ - $ 38 $ 138,658
---------
Net income for the three months
ended March 31, 2006 1,360 1,360
Other comprehensive loss, net
of taxes (42) (42)
---------
Total comprehensive income 1,318
--------------------------------------------------------------------------------------
Balance March 31, 2006 $ 1 $ 799 $ 139,180 $ - $ (4) $ 139,976
======================================================================================
Balance December 31, 2006 $ 3,274 $ 97,069 $ 143,068 $ (7,847) $ (910) $ 234,654
---------
Net income for the three months
ended March 31, 2007 1,819 1,819
Other comprehensive income, net of taxes:
Unrealized gain on available
for sale securities 450 450
Pension cost 20 20
---------
Total comprehensive income 2,289
---------
ESOP shares earned 75 135 210
--------------------------------------------------------------------------------------
Balance March 31, 2007 $ 3,274 $ 97,144 $ 144,887 $ (7,712) $ (440) $ 237,153
======================================================================================
See notes to consolidated financial statements.
4
ROMA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Three Months Ended
March 31,
--------------------
2007 2006
-------- --------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,819 $ 1,360
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 308 288
Amortization of premiums and accretion of discounts on securities (22) (11)
Accretion of deferred loan fees and discounts (41) (33)
Net gain on sale of mortgage loans originated for sale (1) (1)
Mortgage loans originated for sale (122) (149)
Proceeds from sales of mortgage loans originated for sale 123 150
Provision for loan losses 158 57
ESOP share earned 210 -
(Increase) in interest receivable (83) (118)
(Increase) in cash surrender value of bank owned life insurance (138) (129)
(Increase) decrease in other assets (84) 123
Increase (decrease) in interest payable 597 (290)
Increase in other liabilities 1,262 905
-------- --------
Net Cash Provided by Operating Activities 3,986 2,152
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities available for sale 133 34
Purchases of securities available for sale (26) (25)
Proceeds from maturities and calls of investment securities held to maturity 33,060 -
Purchases of investment securities held to maturity (32,460) (5,500)
Principal repayments on mortgage-backed securities held to maturity 8,339 5,849
Purchases of mortgage-backed securities held to maturity - (3,600)
Net increase in loans receivable (5,189) (4,923)
Additions to premises and equipment (909) (418)
Redemption of Federal Home Loan Bank of New York stock 16 13
-------- --------
Net Cash Provided by (Used in) Investing Activities 2,964 (8,570)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 7,864 (2,792)
Increase in advance payments by borrowers for taxes and insurance 76 64
Redemption of Federal Home Loan Bank of New York advances (473) (452)
-------- --------
Net Cash Provided by (Used in) Financing Activities 7,467 (3,180)
-------- --------
Net Increase (decrease) in Cash and Cash Equivalents 14,417 (9,598)
CASH AND CASH EQUIVALENTS - BEGINNING 64,701 28,089
-------- --------
CASH AND CASH EQUIVALENTS - ENDING $ 79,118 $ 18,491
======== ========
See notes to consolidated financial statements.
5
ROMA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
----------------------------------------------
(Unaudited)
Three Months Ended
March 31,
----------------------------------
2007 2006
---------------- ---------------
(In thousands)
SUPPLEMENTARY CASH FLOWS INFORMATION
Income taxes paid, net $ - $ -
======== ========
Interest paid $ 3,565 $ 3,841
======== ========
See notes to consolidated financial statements.
6
ROMA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - ORGANIZATION
Roma Financial Corporation 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.
Roma Bank offers 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 currently operates from its main
office in Robbinsville, New Jersey, and eight branch offices located in Mercer,
Burlington and Ocean Counties, New Jersey. Roma Bank maintains a website at
www.romabank.com.
A Registration Statement on Form S-1 (File No. 333-132415), as amended, was
filed by Roma Financial Corporation (the "Company") with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, relating
to the offering for sale of up to 8,538,750 shares (subject to increase to
9,819,652 shares) of its common stock. For a further discussion of the stock
offering, see the final prospectus as filed on May 23, 2006 with the Securities
and Exchange Commission pursuant to Rule 424 (b)(3) of the Rules and Regulations
of the Securities Act of 1933. The offering closed July 11, 2006 and the net
proceeds from the offering were approximately $96.1 million (gross proceeds of
$98.2 million for the issuance of 9,819,562 shares, less offering costs of
approximately $2.1 million). The Company also issued 22,584,995 shares to Roma
Financial Corporation, MHC and 327,318 shares to the Roma Bank Community
Foundation, Inc., resulting in a total of 32,731,875 shares issued and
outstanding after the completion of the offering. A portion of the proceeds were
loaned to the Roma Bank Employee Stock Ownership Plan (ESOP) to purchase 811,750
shares of the Company's stock at a cost of $8.1 million on July 11, 2006.
NOTE B - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Roma Financial
Corporation (the "Company"), its wholly-owned subsidiary, Roma Bank (the "Bank")
and the Bank's wholly-owned subsidiaries, Roma Capital Investment Co. (the
"Investment Co.") and General Abstract and Title Agency (the "Title Co."). 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
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.
In the opinion of management, all adjustments, consisting of only normal
recurring adjustments or accruals, which are necessary for a fair presentation
of the consolidated financial statements have been made at and for the three
month periods ended March 31, 2007 and 2006. The results of operations for the
three month periods ended March 31, 2007 and 2006 are not necessarily indicative
of the results which may be expected for an entire fiscal year or other interim
periods.
The data in the consolidated statements of financial condition for December 31,
2006 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 2006
audited consolidated financial statements for the year ended December 31, 2006,
including the notes thereto included in the Company's Annual Report on Form
10-K.
7
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 consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. 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 Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examinations.
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, 2007, 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 contracts or securities exercisable or which could be converted into
common stock, if dilutive, using the treasury stock method. During the periods
presented, diluted EPS did not differ from basic EPS as there were no existing
contracts or securities exercisable or convertible into common stock during
these periods. Shares issued and reacquired during any period are weighted for
the portion of the period they were outstanding. The 10,000 shares issued to
Roma Financial Corporation, MHC in connection with the Company's reorganization
in 2004 were "replaced" with 22,584,994 shares representing 69% of the shares
issued in the Company's initial public offering. This transaction is analogous
to a stock split or significant stock dividend, therefore, net income per common
share for those shares has been retroactively restated for all periods
presented.
NOTE E - STOCK BASED COMPENSATION
The Company had no stock-based compensation as of, or prior to, March 31, 2007,
except as described below.
The Company has an Employee Stock Ownership Plan ("ESOP") for the benefit of
employees who meet the eligibility requirements as defined in the plan. The ESOP
trust purchased 811,750 shares of common stock as part of the stock offering
using proceeds of a loan from Roma Financial Corporation. The total cost of
shares purchased by the ESOP trust was $8.1 million, reflecting a cost per share
of $10.00. The Bank will make cash contributions to the ESOP on a quarterly
basis sufficient to enable the ESOP to make the required loan payments to Roma
Financial Corporation. 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. The Company accounts for
its ESOP in accordance with Statement of Position ("SOP") 93-6, "Employer's
Accounting for Employee Stock Ownership Plans", issued by the Accounting
Standards Division of the American Institute of Certified Public Accountants
("AICPA"). 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. The
Company made its first loan payment in October 2006. As of
8
March 31, 2007 there were 771,163 shares. The Company's compensation expense for
the ESOP was $210 thousand for the three ended March 31, 2007.
NOTE F - INVESTMENT SECURITIES
The following tables set forth the composition of the securities portfolio as of
March 31, 2007 and December 31, 2006 (in thousands):
March 31, 2007 December 31, 2006
------------------------------ -------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- -------------- ------------- --------------
Available for sale:
Mortgage-backed securities $ 1,374 $ 1,397 $ 1,507 $ 1,524
Obligations of state and local political
subdivisions 10,015 10,145 10,015 10,155
US Government Obligations 2,000 1,986 2,000 1,979
Equity Shares 3,629 4,137 3,630 3,447
Mutual Fund Shares 2,394 2,283 2,368 2,226
-------- -------- -------- --------
Total $ 19,412 $ 19,948 $ 19,520 $ 19,331
======== ======== ======== ========
March 31, 2007 December 31, 2006
------------------------------ -------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- -------------- ------------- --------------
Investments securities held to maturity:
US Government Obligations $ 167,729 $ 163,274 $ 168,332 $ 166,303
Obligations of state and local political
subdivisions 1,595 1,631 1,595 1,631
--------- --------- --------- ---------
Total $ 169,324 $ 164,905 $ 169,927 $ 167,934
========= ========= ========= =========
March 31, 2007 December 31, 2006
------------------------------ -------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- -------------- ------------- --------------
Mortgage-backed securities held to maturity:
GNMA $ 5,270 $ 5,289 $ 5,630 $ 5,610
FHLMC 76,567 75,908 79,822 78,979
FNMA 49,442 48,944 53,880 53,190
CMO's 4,887 4,755 5,148 4,978
--------- --------- --------- ---------
Total $ 136,166 $ 134,896 $ 144,480 $ 142,757
========= ========= ========= =========
Securities held as available for sale have been adjusted to fair value at March
31, 2007 and December 31, 2006. Investment securities held to maturity and
mortgage-backed securities held to maturity are recorded at amortized cost. The
decline in fair values of these investments is due to interest rate changes, not
credit risk. The Company has the ability to, and intends to, hold the
investments until maturity. Therefore, no impairment has been recorded.
9
NOTE G - LOANS RECEIVABLE, NET
Loans receivable, net at March 31, 2007 and December 31, 2006 were comprised of
the following (in thousands):
March 31, December 31,
2007 2006
-------- --------
Real estate mortgage loans:
Conventional 1-4 family $208,503 $207,755
Commercial and multi-family 71,247 65,848
-------- --------
279,750 273,603
-------- --------
Construction 20,364 23,956
-------- --------
Consumer:
Equity and second mortgages 127,080 127,450
Other 1,250 1,347
-------- --------
128,330 128,797
-------- --------
Commercial 3,932 3,724
-------- --------
Total loans 432,376 430,380
-------- --------
Less:
Allowance for loan losses 1,314 1,169
Deferred loan fees 134 176
Loans in process 5,474 8,353
-------- --------
6,922 9,698
-------- --------
Total loans receivable, net $425,454 $420,382
======== ========
NOTE H - DEPOSITS
A summary of deposits by type of account as of March 31, 2007 and December 31,
2007 is as follows (dollars in thousands):
March 31, 2007 December 31, 2006
--------------------- ---------------------
Weighted Weighted
Avg. Int. Avg. Int.
Amount Rate Amount Rate
------ ---- ------ ----
Demand:
Non-interest bearing
checking $ 23,161 0.00% $ 25,109 0.00%
Interest bearing checking 98,234 0.53% 98,278 0.53%
--------- ---- --------- ----
121,395 0.42% 123,387 0.42%
Savings and club 186,020 0.93% 185,925 0.93%
Certificates of deposit 326,421 4.48% 316,660 4.30%
--------- ---- --------- ----
Total $ 633,836 2.66% $ 625,972 2.53%
========= ==== ========= ====
10
At March 31, 2007, the Company had contractual obligations for certificates of
deposit that mature as follows (in thousands):
One year or less $ 244,697
After one to three years 65,320
After three years 16,404
---------
Total $ 326,421
=========
NOTE I - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following as of March 31, 2007 and
December 31, 2006 (in thousands):
Estimated
Useful March 31, December 31,
Lives 2007 2006
--------- -------- -----------
Land -future development - $ 1,054 $ 1,054
Construction in progress - 574 2,598
Land and land improvements - 5,428 5,428
Buildings and improvements 20-50 yrs 25,321 22,611
Furnishings and equipment 3-10 yrs. 7,159 6,936
-------- --------
Total premises and equipment 39,536 38,627
Accumulated depreciation 8,266 7,958
-------- --------
Total $ 31,270 $ 30,669
======== ========
NOTE J - FEDERAL HOME LOAN BANK ADVANCES
At March 31, 2007 and December 31, 2006, the Bank had outstanding Federal Home
Bank of New York advances as follows (dollars in thousands):
March 31, 2007 December 31, 2006
-------------------- --------------------
Interest Interest
Amount Rate Amount Rate
------ ---- ------ ----
Maturing:
September 15, 2010 $ 7,390 4.49% $ 7,863 4.49%
======= ==== ======= ====
A schedule of principal payments is as follows (in thousands):
One year or less $ 1,839
More than one year through three years 3,934
More than three years through five years 1,617
-------
$ 7,390
=======
11
NOTE K - RETIREMENT PLANS
Components of net periodic pension cost for the three months ended March 31,
2007 and 2006 were as follows ( in thousands):
Three Months Ended
March 31,
-----------------------
2007 2006
----- -----
Service cost $ 85 $ 86
Interest cost 122 112
Expected return on plan assets (160) (149)
Amortization of unrecognized net loss 9 17
Amortization of unrecognized
past service liability 11 15
----- -----
Net periodic benefit expense $ 67 $ 81
===== =====
NOTE L - 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, 2007 were as
follows (in thousands):
March 31,
2007
--------
Residential mortgage and equity loans $ 6,364
Commercial loans committed not closed 12,461
Commercial lines of credit 6,877
Consumer unused lines of credit 33,394
Commercial letters of credit 3,620
--------
$ 62,716
========
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:
o Statements of our goals, intentions and expectations;
o Statements regarding our business plans, prospects, growth and
operating strategies;
o Statements regarding the quality of our loan and investment
portfolios; and
o 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:
o General economic conditions, either nationally or in our market area,
that are worse than expected;
o Changes in the interest rate environment that reduce our interest
margins or reduce the fair value of financial instruments;
o Our ability to enter into new markets and/or expand product offerings
successfully and take advantage of growth opportunities;
o Increased competitive pressures among financial services companies;
o Changes in consumer spending, borrowing and savings habits;
o Legislative or regulatory changes that adversely affect our business;
12
o Adverse changes in the securities markets;
o Our ability to successfully manage our growth; and
o 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.
No forward looking statement can be guaranteed and we specifically disclaim any
obligation to update such statements.
Comparison of Financial Condition at March 31, 2007 and December 31, 2006
Total assets increased by $11.8 million to $887.9 million at March 31, 2007
compared to $876.1 million at December 31, 2006. Total liabilities increased
$9.4 million during the quarter to $650.8 million at March 31, 2007 compared to
$641.4 million at December 31, 2006. Stockholders' equity increased $2.5 million
during the quarter to $237.2 million at March 31, 2007.
Deposits
Total deposits increased $7.8 million to $633.8 million at March 31, 2007
compared to $626.0 million at December 31, 2006. Non-interest bearing demand
deposits decreased $1.9 million to $23.2 million at March 31, 2007, while
interest bearing demand deposits decreased $44.0 thousand to $98.2 million.
Savings and club accounts increased $95.0 thousand to $186.0 million and
certificates of deposit increased $9.8 million to $326.4 at March 31, 2007. The
increase in certificates of deposit was primarily due to $8.4 million of
certificate deposits generated at our new branch in Plumsted Township, New
Jersey opened in January 2007.
Investments (Including Mortgage-Backed Securities)
The investment portfolio decreased $8.3 million to $325.4 million at March 31,
2007 compared to $333.7 million at December 31, 2006. Securities available for
sale experienced a minimal increase primarily due to an increase in market
values. Investments held to maturity decreased $.6 million to $169.3 million at
March 31, 2007 compared to $169.9 million at December 31, 2006. Mortgage-backed
securities decreased $8.3 million to $136.2 million at March 31, 2007 compared
to $144.5 million at December 31, 2006. The decrease in both investments held to
maturity and mortgage-backed securities was primarily due to principal payments
and maturities and calls that were not reinvested into long-term investment
positions. The persistence of the flat yield curve continued to make short-term
investments a more attractive option during the quarter.
Loans
Net loans increased by $5.1 million to $425.5 million at March 31, 2007 compared
to $420.4 million at December 31, 2006. The increase was primarily in commercial
and multi-family real estate mortgage loans which increased $5.4 million to
$71.2 at March 31, 2007 compared to $65.8 million at December 31, 2006.
Residential loan demand softened considerably during the period, prompting a
repeat of our March mortgage promotion program which had great success during
the quarter ended March 31, 2006. Commercial loan demand improved during the
quarter, however, it remains highly influenced by intense rate competition.
Other Assets
All other asset categories remained relatively stable with an increase of $.6
million from December 31, 2006 to March 31, 2007. This increase was primarily in
premises and equipment as a result of the completion of our Plumsted branch
which opened in January 2007.
Borrowed Money
The $.5 million decrease in advances from the Federal Home Loan Bank of New York
(FHLNBY) at March 31, 2007 as compared to December 31, 2006 is due to scheduled
principal payments. At March 31, 2007, the outstanding FHLBNY balance was $7.4
million.
Other Liabilities
Other liabilities increased $1.9 million to $7.2 million at March 31, 2007. The
increase was primarily due to an increase of $1.0 million in federal income
taxes payable, which was paid in April 2007, and an increase of $.6 million in
accrued interest payable.
13
Comparison of Operating Results for the Three Months Ended March 31, 2007 and
2006
General
Net income increased $459 thousand to $1.8 million for the quarter ended March
31, 2007 compared to $1.4 million for the quarter ended March 31, 2006. The
increase was primarily generated by an increase of $1.2 million in net interest
income and an increase of $.3 million in non-interest income, offset by
increases of $.6 million in non-interest expense, $.1 million in provision for
loan losses, and $.3 million in income taxes.
Interest Income
Interest income increased by $1.9 million to $11.2 million for the three months
ended March 31, 2007 compared to $9.3 million for the three months ended March
31, 2006. Interest income from loans increased $1.0 million to $6.6 million for
the three months ended March 31, 2007. Interest income from residential mortgage
loans increased $288.6 thousand, while interest income from equity loans
increased $208.2 thousand. The weighted average interest rates for mortgage and
equity loans at March 31, 2007 were 5.72% and 6.24%, respectively, compared to
5.69% and 5.97%, respectively, for the same period in 2006. Interest income from
commercial and multifamily mortgage loans and commercial loans increased $407.9
thousand from year to year. The weighted average interest rate for commercial
and multi-family mortgage loans and commercial loans were 7.68% at March 31,
2007 and 7.22% at March 31, 2006.
Interest income from mortgage-backed securities decreased minimally for the
comparable quarters despite a decrease in the average balance of the
mortgage-backed securities portfolio of $11.7 million between March 31, 2006 and
March 31, 2007. The securities that matured in this category primarily had
interest rates of less than 3.00%, and to the extent that the cash flows from
maturing securities were reinvested, we were able to reinvest at more favorable
rates. Interest income from investments held to maturity increased $243
thousand. Interest income on securities available for sale changed minimally.
Interest income on other interest earning assets increased $643.0 thousand for
the three months ended March 31, 2007 compared to the same period in 2006. This
increase was primarily due to the increase in average overnight funds.
Interest Expense
Interest expense increased $611 thousand for the three month period ended March
31, 2007 to $4.2 million compared to $3.6 million for the three months ended
March 31, 2006. The increase was primarily due to a $632 thousand increase in
interest paid on deposits. This increase was a result of higher interest rates,
offsetting a decrease in the average balance of deposits. The weighted average
interest rate on deposits was 49 basis points higher for the three months ended
March 31, 2007 as compared to the same period in 2006. Interest expense on
borrowed money decreased $21 thousand for the three months ended March 31, 2007
from the same three month period in 2006 reflecting a reduction in the average
outstanding loan balance.
Provision for Loan Losses
The loan loss provision for the three months ended March 31, 2007 was $158
thousand compared to $57 thousand for the same period in 2006. The increase is
reflective of the growth of $41.7 million in the total loan portfolio between
March 31, 2006 and March 31, 2007 and an increase in the ratio of non-performing
loans to total loans to .84% at March 31, 2007 compared to .44% at March 31,
2006.
Non-Interest Income
Non-interest income increased $263 thousand to $891 thousand for the three
months ended March 31, 2007 compared to $628 thousand for the three months ended
March 31, 2006. The net increase was chiefly derived from fees and service
charges on deposits which increased $175 thousand compared to the same period in
2006, primarily due to fees related to overdraft protection which was instituted
in August 2006.
Non-Interest Expense
Non-interest expense increased $644 thousand to $4.9 million for the three
months ended March 31, 2007 compared to $4.3 million for the three months ended
March 31, 2006. Salaries and employee benefits increased $452 thousand to $2.9
million for the three months ended March 31, 2007 compared to the same period in
2006. This increase represents $210 thousand of ESOP expense in the 2007 period
which we did have in the 2006 period, the additional cost of employees for our
Plumsted branch which opened in January of 2007, and annual salary adjustments.
Net occupancy of premises increased $94 thousand to $503 thousand for the three
month period ended March 31, 2007.
14
Approximately $34 thousand of the increase is related to the Plumsted branch.
The remaining portion of the increase is primarily due to higher snow and ice
removal costs in March 2007 and general increase in overall costs. Other
non-interest expenses increased $89 thousand to $593 thousand for the three
months ended March 31, 2007 compared to $504 thousand for the same period in the
prior year. This increase was primarily due to increases in accounting fees
related to compliance with Sarbanes Oxley, higher insurance premiums and costs
for the preparation of printing and mailing of our first annual report.
Income Taxes
Income tax expense increased by $288 thousand to $985 thousand for the three
months ended March 31, 2007 compared to $697 thousand for the three months ended
March 31, 2006. Income tax expense, represented a rate of 35.1% for the three
months ended March 31, 2007 compared to 33.9% for the same period in 2006. The
increase in the tax rate was primarily related to state tax. 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. For the three months ended March
31, 2007 approximately $630 thousand more of taxable income was taxed at the
9.0% rate causing the overall tax rate to increase 1.2%.
Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and could potentially result in
materially different results under different assumptions and conditions. We
believe that the most critical accounting policy upon which our financial
condition and results of operation depend, and which involves the most complex
subjective decisions or assessments, is the allowance for loan losses.
The allowance for loan losses is the amount estimated by management as necessary
to cover credit losses in the loan portfolio both probable and reasonably
estimable at the balance sheet date. The allowance is established through the
provision for loan losses which is charged against income. In determining the
allowance for loan losses, management makes significant estimates and has
identified this policy as one of our most critical. The methodology for
determining the allowance for loan losses is considered a critical accounting
policy by management due to the high degree of judgment involved, the
subjectivity of the assumptions utilized and the potential for changes in the
economic environment that could result in changes to the amount of the recorded
allowance for loan losses.
As a substantial amount of our loan portfolio is collateralized by real estate,
appraisals of the underlying value of property securing loans is critical in
determining the amount of the allowance required for specific loans. Assumptions
for appraisals are instrumental in determining the value of properties. Overly
optimistic assumptions or negative changes to assumptions could significantly
affect the valuation of a property securing a loan and the related allowance
determined. The assumptions supporting such appraisals are carefully reviewed by
management to determine that the resulting values reasonably reflect amounts
realizable on the related loans.
Management performs a monthly evaluation of the adequacy of the allowance for
loan losses. We consider a variety of factors in establishing this estimate
including, but not limited to, current economic conditions, delinquency
statistics, geographic and industry concentrations, the adequacy of the
underlying collateral, the financial strength of the borrower, results of
internal loan reviews and other relevant factors. This evaluation is inherently
subjective as it requires material estimates by management that may be
susceptible to significant change based on changes in economic and real estate
market conditions.
The evaluation has a specific and general component. The specific component
relates to loans that are delinquent or otherwise identified as problem loans
through the application of our loan review process. All such loans are evaluated
individually, with principal consideration given to the value of the collateral
securing the loan. Specific allowances are established as required by this
analysis. The general component is determined by segregating the remaining loans
by type of loan. We also analyze historical loss experience, delinquency trends,
general economic conditions and geographic and industry concentrations.
Actual loan losses may be significantly more than the allowances we have
established which could have a material negative effect on our financial
results.
The Company uses the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. If current
available information raises doubt as to the realization of the deferred tax
assets, a valuation allowance is established. The Company considers the
determination
15
of this valuation allowance to be a critical accounting policy because of the
need to exercise significant judgment including projections of future taxable
income. These judgments and estimates are reviewed on a continual basis as
regulatory and business factors change. A valuation allowance for deferred tax
assets may be required if the amount of taxes recoverable through loss
carry-back declines, or if the Company projects lower levels of future taxable
income. Such a valuation allowance would be established through a charge to
income tax expense, which would adversely affect the Company's operating
results.
New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an
interpretation of FASB Statement No. 109" (FIN 48), which clarifies the
accounting for uncertainty in tax positions. This Interpretation requires that
companies recognize in their financial statements the impact of a tax position,
if that position is more likely than not of being sustained on audit, based on
the technical merits of the position. The provisions of FIN 48 are effective for
fiscal years beginning after December 15, 2006, with the cumulative effect of
the change in accounting principle recorded as an adjustment to opening retained
earnings. The adoption of FIN 48 did not have a material effect on the financial
statements.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets -- An Amendment of FASB Statement No. 140" ("SFAS 156"). SFAS
156 requires that all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable. The statement
permits, but does not require, the subsequent measurement of servicing assets
and servicing liabilities at fair value. SFAS 156 is effective as of the
beginning of an entity's first fiscal year that begins after September 15, 2006,
which for the Company will be as of the beginning of fiscal 2007. The adoption
of SFAS 156 did not have a significant effect on the financial statements.
In September 2006, the FASB issued FASB Statement No. 157, Fair Value
Measurements, which defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosures about fair value measurements.
FASB Statement No. 157 applies to other accounting pronouncements that require
or permit fair value measurements. The new guidance is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and for
interim periods within those fiscal years. We are currently evaluating the
potential impact, if any, of the adoption of FASB Statement No. 157 on our
consolidated financial position, results of operations and cash flows.
In September of 2006, the SFAS issued FASB 158, "Employers' Accounting for
Defined Benefit Pension and other Postretirement Plans" which required that an
employer that sponsors one more single-employer defined benefit plans to
recognize the funded status of a benefit plan, measured as the difference
between plan assets at fair value and the benefit obligation in the statement of
financial position The statement also required the recognition as a component of
other comprehensive income, net of tax, the gains or losses and prior service
costs or credits as they arise. The statement is effective for fiscal years
ending after December 15, 2006. Accordingly, FASB 158 adjustments are reflected
in these financial statements.
In February of 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. SFAS No. 159 is
effective for our Company on January 1, 2008. The Company is evaluating the
impact that the adoption of SFAS No. 159 will have on our consolidated financial
statements.
In March 2007, the FASB ratified EITF Issue No. 06-11, "Accounting for Income
Tax Benefits of Dividends on Share-Based Payment Awards." EITF 06-11 requires
companies to recognize the income tax benefit realized from dividends or
dividend equivalents that are charged to retained earnings and paid to employees
for nonvested equity-classified employee share-based payment awards as an
increase to additional paid-in capital. EITF 06-11 is effective for fiscal years
beginning after September 15, 2007. The Company does not expect EITF 06-11 will
have a material impact on its financial position, results of operations or cash
flows.
In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10
"Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements"
(EITF 06-10). EITF 06-10 provides guidance for determining a liability for the
postretirement benefit obligation as well as recognition and measurement of the
associated asset on the basis of the terms of the collateral assignment
agreement. EITF 06-10 is effective for fiscal years beginning after December 15,
2007. The Company is currently assessing the impact of EITF 06-10 on its
consolidated financial position and results of operations.
16
On September 7, 2006, the Task Force reached a conclusion on EITF Issue No.
06-5, "Accounting for Purchases of Life Insurance - Determining the Amount That
Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4,
Accounting for Purchases of Life Insurance" ("EITF 06-5"). The scope of EITF
06-5 consists of six separate issues relating to accounting for life insurance
policies purchased by entities protecting against the loss of "key persons." The
six issues are clarifications of previously issued guidance on FASB Technical
Bulletin No. 85-4. EITF 06-5 is effective for fiscal years beginning after
December 15, 2006. The Company does not expect it to have a material impact on
the Company's consolidated financial statements.
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, 2007.
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 the Company's
NPV as of December 31, 2006, the most recent date the NPV was calculated by the
OTS (in thousands):
NPV as Percent
of Portfolio
NPV Value of Assets
Changes In ------------------------------------ ----------------------
Interest Rates Change in
In Basis Points Dollar Percent NPV Basis
(Rate Shock) Amount Change Change Ratio Points
---------------- ---------- --------- ------- ----- ---------
+300bp $ 170,998 $ (46,891) -22% 21.09% -406bp
+200bp 186,955 (30,934) -14% 22.54% -262bp
+100bp 202,521 (15,368) -7% 23.88% -127bp
0bp 217,889 - 0% 25.15% -
-100bp 228,407 10,518 +5% 25.96% +81bp
-200bp 237,056 19,167 +9% 26.59% +143bp
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, 2007.
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, 2007. 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, 2007.
17
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, 2007 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, 2006 during the most recent quarter.
ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable
ITEM 3 - Defaults Upon Senior Securities
None
ITEM 4 - Submission of Matters to a Vote of Security Holders
None
ITEM 5 - Other Information
None
ITEM 6 - Exhibits
31 Certifications of the Chief Executive Officer and 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
18
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 8, 2007 /s/Peter A. Inverso
-------------------------------------
Peter A. Inverso
President and Chief Executive Officer
Date: May 8, 2007 /s/Sharon L. Lamont
-------------------------------------
Sharon L. Lamont
Chief Financial Officer
19