Dime Community Bancshares, Inc. Reports 97% Year-Over-Year Increase in Business Banking Loan Portfolio

BROOKLYN, N.Y., Jan. 23, 2020 (GLOBE NEWSWIRE) -- Dime Community Bancshares, Inc. (NASDAQ: DCOM) (the “Company” or “Dime”), the parent company of Dime Community Bank (the “Bank”), today reported net income of $36.2 million for the fiscal year ended December 31, 2019, or $1.01 per diluted common share. For the quarter ended December 31, 2019, net income was $6.9 million, or $0.19 per diluted common share.

Excluding the impact of $3.8 million of pre-tax expenses related to the extinguishment of higher-cost Federal Home Loan Bank (“FHLB”) borrowings and $0.2 million of pre-tax expenses related to a branch consolidation, earnings and earnings per share (“EPS”) for the quarter ended December 31, 2019 would have been $9.6 million and $0.27, respectively, which represents increases of 105.8% and 107.7% versus earnings and EPS of $4.7 million and $0.13 for the quarter ended September 30, 2019. Included in the fourth quarter of 2019 results were $6.2 million of loan loss provisions, primarily attributable to a previously identified non-performing Commercial & Industrial (“C&I”) relationship (as disclosed in our third quarter 2019 earnings release). The Company is now fully reserved against this relationship. Additional detail on the loan loss provision can be found in the “Credit Quality” section of this press release.

Mr. Kenneth J. Mahon, President and Chief Executive Officer of the Company, stated, “Excluding the impact of the FHLB borrowings expense related to the extinguishment of debt and the loan loss provision on the previously identified relationship, core trends in our underlying business were extremely positive and we are on track with our business model transformation. Our net interest margin (“NIM”), excluding the impact of loan prepayment fees, has now expanded for five consecutive quarters. This increase has been fueled by our Business Banking division’s growth, which continues to be accretive to our overall NIM.” The table below provides a reconciliation of the reported NIM and the NIM excluding the impact of loan prepayment fees. 

The significant increase in linked quarter NIM was primarily driven by a 20 basis point linked quarter decrease in the cost of deposits. Mr. Mahon commented, “The significant decline in our cost of deposits was driven by proactive management of our deposit base and the transformation of our model towards more relationship-based customers.”

Highlights for the fourth quarter of 2019 included:

• Strong growth in checking account balances. Compared to the fourth quarter of 2018, the sum of average non-interest bearing checking account balances and average interest bearing checking account balances for the fourth quarter of 2019 increased by 20.4% to $604.5 million;
• The cost of deposits declined by 20 basis points on a linked quarter basis;
• The newly launched Municipal Banking division began operations and has boarded several deposit relationships already. Total municipal balances exceeded $20 million at December 31, 2019;
• The Business Banking division’s loan portfolio reached $1.28 billion (or 24% of total loans) at December 31, 2019, versus $647.7 million (or 12% of total loans) at December 31, 2018.
• Business Banking loan originations for the fourth quarter of 2019 were at significantly higher rates than the overall portfolio. The weighted average rate (“WAR”) on Business Banking real estate originations was 5.11% and the WAR on C&I originations was 5.78% for the quarter ended December 31, 2019, compared to the total real estate and C&I loan portfolio WAR of 4.04% for the quarter ended December 31, 2019;
• Total non-interest income grew to $3.6 million in the fourth quarter of 2019, driven by $0.4 million of customer-related loan level swap income and $0.3 million of gains from the sale of Small Business Administration (“SBA”) loans, versus $1.8 million for the fourth quarter of 2018;
• The Company repurchased 759,200 shares of its common stock, which represented approximately 2% of beginning period shares outstanding, in the fourth quarter of 2019 at a weighted average price of $20.23; and
• Consolidated Company commercial real estate (“CRE”) concentration ratio declined to 663% at December 31, 2019, versus 703% at December 31, 2018.             

Mr. Mahon commented, “Dime’s new business model is bearing fruit, and the results are becoming more apparent on our financial statements as each quarter passes, as evidenced by a higher quality deposit base, a more diversified relationship-based loan portfolio, increasing core margins and higher levels of non-interest income.”

Management’s Discussion of Fiscal Year 2019 Operating Results

Net Interest Income

Net interest income in 2019 was $147.4 million compared to $146.3 million in 2018. Included in the results were $5.2 million and $8.2 million of income from prepayment activity in 2019 and 2018, respectively. Excluding the impact of income from prepayment activity, net interest income for 2019 would have been $142.2 million compared to $138.1 million for 2018.

Balance Sheet

Total end of period assets at December 31, 2019 was $6.35 billion compared to $6.32 billion at December 31, 2018. Mr. Mahon commented, “We are pleased that our decision to contain asset growth for 2019 produced the desired results on core NIM. While the overall size of our balance sheet remained relatively steady, we were highly focused on creating a higher quality balance sheet with the goal of continuously growing linked quarter core NIM, which we have successfully accomplished. As mentioned previously, relationship-based Business Banking loans now comprise approximately 24% of our loan portfolio and we intend to continue growing this component of our balance sheet in 2020 and beyond.”

Total deposits decreased $74.1 million from 2018 to 2019. Mr. Mahon continued, “Total deposits declined on a year-over-year basis, primarily due to approximately $184 million of net outflows from our DimeDirect internet channel, as we did not seek to match the rates of online competitors. The current internet channel deposit portfolio is down to approximately $107 million at year-end 2019. Given the reduced aggregate balances in the DimeDirect portfolio, we expect the volume of dollar outflows to decline over time, resulting in less of a headwind to grow overall deposits over time. In addition, the conversion to a commercial bank charter (completed in April 2019) has provided the Bank with the additional business opportunity of accepting municipal deposits – this channel will serve as an important source of deposit growth in the years ahead. Most importantly, we improved the quality of our deposit base over the course of 2019, as evidenced by the non-interest-bearing deposits to total deposits ratio increasing by over 200 basis points on a year-over-year basis. We continue to manage our loan-to-deposit ratio in a range of approximately 125%, while pricing deposits so as to remain competitive within our local branch markets. This past year, the results have met our financial objectives.”

Non-Interest Income

Non-interest income was $12.2 million in 2019 compared to $9.5 million in 2018. Excluding gains and losses on equity securities and from sales of securities and other assets, non-interest income was $11.6 million in 2019 compared to $8.5 million in 2018.

Non-Interest Expense

Non-interest expense was $95.4 million in 2019 and $86.9 million during 2018. During 2019, the Company recognized $3.8 million of expenses related to the extinguishment of FHLB borrowings and $0.2 million of non-recurring expenses related to a branch consolidation in the fourth quarter of 2019. During 2018, the Company recognized $0.7 million of severance expense related to a reduction in the workforce in the fourth quarter of 2018.  Excluding these items, non-interest expense was $91.4 million in 2019 and $86.2 million in 2018. The year-over-year increase was primarily the result of increased salaries and employee benefits as the Company added relationship bankers and support staff as part of its Business Banking buildout.

The ratio of non-interest expense to average assets was 1.50% in 2019 compared to 1.38% in 2018. Excluding the non-recurring expenses mentioned above, the ratio was 1.44% for 2019 and 1.37% for 2018, respectively. The efficiency ratio was 60.0% in 2019, compared to 56.1% in 2018. Excluding the non-recurring expenses mentioned above, the efficiency ratio was 57.5% for 2019 and 55.7% for 2018, respectively.

Management’s Discussion of Quarterly Operating Results

Net Interest Income

Net interest income in the fourth quarter of 2019 was $39.4 million compared to $36.2 million for the third quarter of 2019 and $37.2 million for the fourth quarter of 2018. Included in the results were $2.0 million, $0.8 million, and $3.2 million of income from prepayment activity in the fourth quarter of 2019, the third quarter of 2019, and the fourth quarter of 2018, respectively. Excluding the impact of income from prepayment activity, net interest income for the fourth quarter of 2019 would have been $37.4 million, compared to $35.4 million for the third quarter of 2019 and $34.0 million for the fourth quarter of 2018.

NIM was 2.60% during the fourth quarter of 2019, compared to 2.34% in the third quarter of 2019, and 2.46% in the fourth quarter of 2018. Excluding the impact of income from prepayment activity, NIM would have been 2.47% for the fourth quarter of 2019, 2.29% for the third quarter of 2019 and 2.25% for the fourth quarter of 2018.

Average interest-earning assets were $6.06 billion for the fourth quarter of 2019, representing an 8.8% (annualized) decrease from $6.19 billion for the third quarter of 2019 and a 0.4% increase from $6.03 billion for the fourth quarter of 2018.

For the fourth quarter of 2019, the average yield on interest-earning assets was 3.99%, an increase of 10 basis points compared with the third quarter of 2019, and an increase of 14 basis points compared to the fourth quarter of 2018. 

The ending WAR on the total loan portfolio was 4.04% at December 31, 2019, which represents a 2 basis point increase versus the ending WAR on the total loan portfolio at September 30, 2019, and a 22 basis point increase versus the ending WAR on the total loan portfolio at December 31, 2018. Mr. Mahon commented, “Our business model transformation was the key contributor to the year-over-year 22 basis point increase in the ending loan WAR. As intended in our strategic plan, as the Business Banking portfolio comprises a larger percentage of our overall balance sheet, we anticipate that our overall loan yields to trend upwards.”

Loans

The real estate loan portfolio decreased by $169.7 million during the fourth quarter of 2019, primarily due to managed run-off in the Bank’s lower-yielding legacy multifamily business. Real estate loan originations were $149.9 million during the fourth quarter of 2019, at a weighted average interest rate of 4.66%. Real estate loan amortization and satisfactions totaled $310.5 million, or 24.5% (annualized) of the portfolio balance, at an average rate of 4.04%. The annualized real estate loan payoff rate of 24.5% for fourth quarter of 2019 was higher than both the third quarter of 2019 (15.1 %) and the fourth quarter of 2018 (20.7%).

Average real estate loans were $5.08 billion in the fourth quarter of 2019, a decrease of $106.8 million (8.2% annualized) from the third quarter of 2019 and a decrease of $97.6 million (1.9 %) from the fourth quarter of 2018.

Average C&I loans were $319.6 million in the fourth quarter of 2019, an increase of $7.1 million (9.1% annualized) from the third quarter of 2019, and an increase of $100.3 million (45.7%) from the fourth quarter of 2018.

Outlined below are the loan originations for the current quarter, linked quarter and year-ago quarter.

Deposits

The Company continues to focus on growing relationship-based business deposits sourced from its Business Banking division and its retail branches. The Business Banking division ended the fourth quarter of 2019 with approximately $175.2 million of low-cost relationship-based checking and leasehold deposits at an average rate of approximately 6 basis points and total deposits of $356.8 million at an average rate of 70 basis points.

The cost of total deposits declined by 20 basis points on a linked quarter basis. Mr. Mahon commented, “Importantly, we continue to improve the quality of our deposit base, as evidenced by the non-interest bearing deposits to total deposits ratio increasing to 11.2% at December 31, 2019, compared to 9.1% at December 31, 2018.”

Total deposits decreased by $108.8 million on a linked quarter basis to $4.28 billion at December 31, 2019. Mr. Mahon commented, “In the second half of the year, we pro-actively adjusted pricing on various deposit categories and we managed downward higher-cost, more rate sensitive deposit balances.” 

The loan-to-deposit ratio was 124.7% at December 31, 2019, compared to 124.9% at September 30, 2019 and 123.8% at December 31, 2018.

Borrowed Funds

Total borrowings, excluding subordinated debt securities, were $1.20 billion at December 31, 2019, compared to $1.12 billion at September 30, 2019 and $1.13 billion at December 31, 2018.

During the fourth quarter of 2019, the Company extinguished $206.5 million of FHLB borrowings that had a weighted average rate of 2.65%. The prepayment penalty expense associated with the extinguishment was $3.8 million, recognized as a loss on the extinguishment of debt. Mr. Mahon commented, “Given the opportunity to currently borrow at lower rates, and our overall asset-liability profile, we executed a restructuring of our FHLB borrowings portfolio over the course of the fourth quarter of 2019. The earn-back on the expenses related to the extinguishment of FHLB borrowings is expected to be approximately 2 years.” At December 31, 2019, 49.8% of the $1.20 billion borrowing portfolio consisted of bullet advances and unsecured borrowings that have a remaining term of less than a year, compared to 28.1% of the $1.12 billion borrowing portfolio at September 30, 2019.

The cost of borrowings for the fourth quarter of 2019 was 2.35%, compared to 2.39% for the third quarter of 2019.

Non-Interest Income

Non-interest income was $3.6 million during the fourth quarter of 2019 compared to $3.4 million for the third quarter of 2019 and $1.8 million for the fourth quarter of 2018. Excluding gains and losses on equity securities and from sales of securities and other assets, non-interest income was $3.4 million during the fourth quarter of 2019 compared to $3.3 million during the third quarter of 2019 and $2.2 million during the fourth quarter of 2018.

Mr. Mahon commented, “The significant growth in year-over-year fee income was broad based with increases in all major categories, including: customer-related swap fee income, non-interest income from our SBA lending division, gain on sale income from our Residential Lending division and service charges and other fees. A key component of our transformation towards a relationship-based business model is the generation of increased levels of commercial fee income and in this regard early results have been promising.” Mr. Mahon concluded, “We continue to gain significant traction with our commercial customers on our interest rate swap products (the program was established in the second quarter of 2019). In addition, our SBA lending division continues to leverage the power of Dime’s brand recognition and is obtaining meaningful referral activity from our branch network, which is located in a densely populated metropolitan area. Both these revenue streams are a potential source of fee income growth for us in the coming years.”

Non-Interest Expense

Non-interest expense was $28.3 million during the fourth quarter of 2019, $22.8 million during the third quarter of 2019, and $22.7 million during the fourth quarter of 2018. During the fourth quarter of 2019, the Company recognized $3.8 million of expenses related to the extinguishment of FHLB borrowings and $0.2 million of non-recurring expenses associated with a branch consolidation. During the fourth quarter of 2018, the Company recognized a non-recurring expense of $0.7 million for severance expense related to a reduction in the workforce. Excluding the non-recurring item in the fourth quarter of 2019, non-interest expense was $24.3 million and excluding the non-recurring item in the fourth quarter of 2018, non-interest expense was $22.0 million.

On a year-over-year basis, salaries and employee benefits expenses increased by $5.2 million as the Bank added relationship bankers and support staff as part of its Business Banking division buildout. The year-over-year increase in salaries and employee benefits expense was partially offset by lower FDIC insurance premiums. In the third quarter of 2019, the Bank received notice that the FDIC’s Deposit Insurance Fund Reserve Ratio reached a pre-determined threshold, and as a result, an assessment credit from the FDIC totaling $0.5 million was recorded. In addition, no FDIC insurance premium expense was recognized for the third quarter of 2019 and only $0.08 million was recognized for the fourth quarter of 2019. The FDIC insurance premium expense for the year-ago quarter was $0.4 million.

The ratio of non-interest expense to average assets was 1.80% during the fourth quarter of 2019, compared to 1.41% for the third quarter of 2019 and 1.46% for the fourth quarter of 2018. The efficiency ratio was 66.0% during the fourth quarter of 2019, compared to 57.7% during the linked quarter and 57.8% during the fourth quarter of 2018. Excluding the expenses related to the extinguishment of FHLB borrowings and the non-recurring branch consolidation expense, the ratio of non-interest expense to average assets was 1.55% and the efficiency ratio was 56.7% during the fourth quarter of 2019. Excluding the non-recurring severance expense related to a reduction in the workforce, the ratio of non-interest expense to average assets was 1.41% and the efficiency ratio was 55.9% during the fourth quarter of 2018.   

Income Tax Expense

The reported effective tax rate for the fourth quarter of 2019 was 18.5% versus 15.3% for the third quarter of 2019. The increase in the tax rate was primarily attributable to higher pre-tax earnings during the fourth quarter of 2019 compared to the third quarter of 2019.

Credit Quality

Non-performing loans at December 31, 2019 were $11.1 million, or 0.2% of total loans, a decrease from $16.4 million, or 0.3% of total loans, at September 30, 2019. A loan loss provision of $6.2 million was recorded during the fourth quarter of 2019, compared to a loan loss provision of $11.2 million during the third quarter of 2019, and a loan loss provision of $0.6 million during the fourth quarter of 2018. Net charge-offs were $5.1 million for both the fourth quarter and third quarter of 2019, compared to $0.2 million for the fourth quarter of 2018.

“This quarter’s credit costs resulted primarily from a $5.0 million charge-off and a $7.5 million specific reserve taken against a single C&I relationship that had been previously placed on non-performing status in the third quarter of 2019. With the actions taken this quarter, we are now fully reserved against the remaining charged-down loan balance ($10.0 million). Being fully reserved for this relationship is a prudent course of action given what increasingly appears to be a very protracted settlement process,” commented Mr. Mahon. “As mentioned in our third quarter earnings release, we believe there were factors which were unique to this particular relationship and consider it an isolated event,” concluded Mr. Mahon.

The allowance for loan losses was 0.53% of total loans at December 31, 2019 and 0.50% of total loans at September 30, 2019.

At December 31, 2019, non-performing assets represented 2.2% of the sum of tangible common equity plus the allowance for loan losses and reserve for contingent liabilities (this non-Generally Accepted Accounting Principle (“GAAP”) statistic is otherwise known as the "Texas Ratio") (see “Problem Assets as a Percentage of Tangible Capital and Reserves” table and “Non-GAAP Reconciliation” table at the end of this news release).

Capital Management

The Company’s consolidated Tier 1 capital to average assets (“leverage ratio”), which was 8.79% at December 31, 2019, was in excess of all applicable regulatory requirements.

The Bank’s regulatory capital ratios continued to be in excess of all applicable regulatory requirements. At December 31, 2019, the Bank’s leverage ratio was 10.15%, while Tier 1 capital to risk-weighted assets and Total capital to risk-weighted assets ratios were 12.85% and 13.44%, respectively.

Mr. Mahon commented, “As disclosed previously, the Company repurchased 2% of beginning period shares outstanding in the fourth quarter at a weighted average price of $20.23. Furthermore, the Company’s Board of Directors today approved our fourteenth stock repurchase program, which allows for the purchase of up to 2,636,598 shares, or 7.5% of outstanding common stock at December 31, 2019, upon completion of the previously authorized thirteenth stock repurchase program. We believe that the share repurchase program is consistent with the Company’s objectives to enhance long-term shareholder value.”

Diluted earnings per common share of $0.19 was greater than the quarterly $0.14 cash dividend per share during the fourth quarter of 2019, equating to a 73.7% dividend payout ratio.

Book value per share was $16.98 and tangible book value (common equity less goodwill divided by number of shares outstanding) per share was $15.39 at December 31, 2019 (see “Non-GAAP Reconciliation” tables at the end of this news release).

Earnings Call Information

The Company will conduct a conference call at 5:30 p.m. (ET) on January 23, 2020, during which President and Chief Executive Officer, Kenneth J. Mahon, will discuss the Company’s fourth quarter and fiscal year performance, with a Q&A session to follow. Dial-in information for the live call is 1-888-348-2672. Upon dialing in, request to be joined into Dime Community Bancshares, Inc. call with the conference operator.

The conference call will be simultaneously webcast (listen only), and archived for a period of one year, at https://services.choruscall.com/links/dcom200123.html. Dial-in information for the replay is 1-877-344-7529 using access code #10137882. Replay will be available January 23, 2020 (6:30 p.m.) through January 30, 2020 (11:59 p.m.).

ABOUT DIME COMMUNITY BANCSHARES, INC.

The Company had $6.35 billion in consolidated assets as of December 31, 2019. The Bank was founded in 1864, is headquartered in Brooklyn, New York, and currently has 28 retail branches located throughout Brooklyn, Queens, the Bronx, Nassau and Suffolk Counties, New York. More information on the Company and the Bank can be found on Dime's website at www.dime.com.

This news release contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements may be identified by use of words such as "anticipate," "believe," “continue,” "could," "estimate," "expect," "intend," “likely,” "may," "outlook," "plan," "potential," "predict," "project," "should," "will," "would" and similar terms and phrases, including references to assumptions.

Forward-looking statements are based upon various assumptions and analyses made by the Company in light of management's experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond the Company's control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Accordingly, you should not place undue reliance on such statements. Factors that could affect our results include, without limitation, the following: the timing and occurrence or non-occurrence of events may be subject to circumstances beyond the Company’s control; there may be increases in competitive pressure among financial institutions or from non-financial institutions; changes in the interest rate environment may reduce interest margins; changes in deposit flows, loan demand or real estate values may adversely affect the business of the Company and/or the Bank; unanticipated or significant increases in loan losses may negatively affect the Company’s financial condition or results of operations; changes in accounting principles, policies or guidelines may cause the Company’s financial condition to be perceived differently; changes in corporate and/or individual income tax laws may adversely affect the Company's financial condition or results of operations; general economic conditions, either nationally or locally in some or all areas in which the Company conducts business, or conditions in the securities markets or the banking industry may be less favorable than the Company currently anticipates; legislation or regulatory changes may adversely affect the Company’s business; technological changes may be more difficult or expensive than the Company anticipates; there may be failures or breaches of information technology security systems; success or consummation of new business initiatives may be more difficult or expensive than the Company anticipates; or litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer than the Company anticipates.

Contact: Avinash Reddy
Executive Vice President – Chief Financial Officer
718-782-6200 extension 5909