DIME COMMUNITY BANCSHARES REPORTS EARNINGS
Quarterly EPS of $0.34; Loan Pipeline Now at $415 Million.
Brooklyn, NY – October 25, 2012 - Dime Community Bancshares, Inc. (Nasdaq: DCOM) (the "Company" or "Dime"), the parent company of The Dime Savings Bank of Williamsburgh (the "Bank"), today reported financial results for the quarter ended September 30, 2012.
Consolidated net income for the quarter ended September 30, 2012 was $11.8 million, or 34 cents per diluted share, compared to $11.5 million, or 34 cents per diluted share, for the quarter ended June 30, 2012, and $11.2 million, or 33 cents per diluted share, for the quarter ended September 30, 2011.
Vincent F. Palagiano, Chairman and Chief Executive Officer of Dime, commented, "The most recent quarter's operating results reflected elevated loan refinance activity, and related prepayment fee income, which contributed approximately $0.05 to earnings per share. In addition, during the most recent quarter, Dime experienced reductions in both non-performing and delinquent loan balances, and net recoveries of previous charge-offs. As a result, meaningfully lower credit costs also boosted earnings per share. As of September 30, 2012, non-performing loans represented only 32 basis points of total loans, the allowance level approximated 200% of total non-performing loans, and our capital levels continued to grow."
Mr. Palagiano continued, "For those regular readers of our quarterly earnings releases, you know that we had been following a slow-growth strategy, with the expectation that the economy would improve and the Federal Reserve would move away from its low interest rate policy. In fact, the Fed has now pushed its horizon for maintaining low short-term interest rates out through the end of the year 2015. Against that backdrop, and with the Bank's expanding capital base and lower credit costs, the Company has re-entered the lending market in a significant way." The Company closed the September 2012 quarter with a loan commitment pipeline of $415 million, as well as nearly another $160 million of additional loan applications currently in process and expected to close in the fourth quarter of 2012.
Mr. Palagiano continued, "By year's end, over $1.1 billion of loans will have been originated, and the loan portfolio is expected to expand between 3% and 5% from December 31, 2011 to December 31, 2012. The Bank typically ranks among the top 5 multifamily lenders in its delineated lending market (primarily Manhattan, Brooklyn and Queens counties), and our expectation is that we will continue to be among the leaders again this year when the final results are reported. The revenue growth from an expanding balance sheet will also mitigate some of the pressure from a contracting net interest margin."
Significant Transactions (Post-Closing)
In October 2012, post quarter-end, the Bank repaid $155 million of borrowed funds ("securities sold under agreements to repurchase") with a weighted average cost of 4.6% and weighted term to maturity approximating 4 years. The after-tax prepayment fee on these borrowings amounted to $14.0 million, or $0.41 cents per diluted share, and will be reflected in the fourth quarter's reported earnings. Commenting on this transaction, Kenneth J. Mahon, First Executive Vice President and Chief Financial Officer, stated, "The negative carry associated with these borrowings has been a drag both on earnings and on net interest margin due to the fact that the securities pledged against the borrowings are short-term in nature. If there were any expectation that yields on short-term securities would rise over our planning horizon, we probably would not have taken this step. As it is, we are relying on the Federal Reserve's explicit stated intention to stay the course regarding short-term rates and quantitative easing through the year 2015. The short-term securities that were pledged against these borrowings have yields that have steadily declined over the past several years, and now average 0.5%. This transaction has a breakeven of 3.5 years, and will have a positive contribution to net interest margin of 18 basis points going forward, which will neutralize much of the negative impact on net interest margin of new and repricing loans over the next two quarters."
The Company also expects to record gains on property sales during either or both of the December 2012 and March 2013 quarters, which, if successful, will go a long way toward offsetting the capital charge associated with the prepayment transaction outlined above. Real estate values in New York City have climbed steadily over the past 15 years, and the Bank owns certain New York City properties with market values greatly exceeding their recorded book values. In October 2012 the Bank entered into a definitive agreement to sell one of these properties and management is in negotiations to sell two more, although the timing of these transactions is somewhat uncertain. Although negotiations are in process, there are no assurances that the sales will be completed. Mr. Mahon noted, "The attractiveness of these sales at this time, measured against the balance sheet restructuring, is that it enables the Company to use previously unrecognized off-balance sheet value in a way that both enhances earnings and meaningfully restores capital used in the prepayment transaction."
Through the first three fiscal quarters of 2012, the Bank has also recorded $10.9 million of loan prepayment fee income. In addition, the Company also sold an investment in a large capitalization U.S. equities mutual fund in October 2012, raising approximately $2.0 million in cash, and recognizing an after-tax gain of $477,000 on the sale.
OPERATING RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2012
Net Interest Margin
Net interest margin ("NIM") decreased 4 basis points from 3.63% to 3.59% on a linked quarter basis, due to a decline of 5 basis points in the yield on, and a reduction of $61.9 million in the average balance of, real estate loans (the Company's highest yielding and largest interest earning asset). The reduction in the average balance of real estate loans resulted from historically high portfolio refinance and amortization activities experienced during the first nine months of 2012. New loans in the pipeline will not be reflected on the balance sheet until the fourth quarter. The reduction in the average yield on real estate loans reflected both the portfolio refinance and amortization activities, and increased marketplace competition which produced tighter spreads on multifamily loans, as U.S. Treasury yields continue to hover at historically low levels.
Partially offsetting the adverse impact upon NIM from lower asset yields, was a reduction of 8 basis points linked quarter in the average cost of interest bearing liabilities, that reflected declines of 4 basis points in the average costs of both deposits and borrowings, as well as the benefit of continued growth in stockholders' equity.
NIM, excluding the effect of loan prepayment fees, declined slightly from 3.26% during the June 2012 quarter to 3.24% during the September 2012 quarter, reflecting a decline of 7 basis points in the average yield on interest earning assets that was partially offset by a decline of 8 basis points in the average cost of interest bearing liabilities.
During the September 2012 quarter, the Company experienced its third consecutive quarterly period in which loan amortization exceeded new originations. The Company also added approximately $63.5 million of deposits during the most recent quarter. As a result of these events, the Company's cash position rose to nearly $200 million as of September 30, 2012. A large portion of this cash was utilized to prepay the $155 million in higher cost borrowings in October 2012, and the Company currently expects to end 2012 with cash balances below the level that existed as of September 30, 2012.
Net Interest Income
Net interest income was $33.4 million in the quarter ended September 30, 2012, down $1.1 million from the June 2012 quarter and down $773,000 from the $34.2 million reported in the September 2011 quarter. Prepayment fee income totaled $3.3 million during the September 2012 quarter, compared to $3.5 million recognized in the June 2012 quarter and $1.3 million during the September 2011 quarter. Absent the impact of loan prepayment fee income, net interest income was $30.1 million during the September 30, 2012 quarter, down $944,000 from the June 2012 quarter and $2.8 million from the September 30, 2011 quarter. The decline in net interest income (absent the impact of loan prepayment fee income) from the September 2011 quarter resulted primarily from a decline of 48 basis points in the average yield earned on the Company's interest earning assets (excluding the impact of prepayment fee income), reflecting the ongoing low interest rate environment.
Interest Rate Risk Management Activities
At September 30, 2012, the Company had $335.0 million of callable borrowings outstanding, with a weighted average maturity of 4.3 years. As noted above, the Bank repaid $155.00 million of these borrowings in October 2012. Since the weighted average cost of the remaining $180.0 million of these borrowings is significantly above current market rates, they are not anticipated to be called in the near term.
Provision/Allowance For Loan Losses
At September 30, 2012, the allowance for loan losses as a percentage of total loans stood at 0.62%, up slightly from 0.60% at the close of the prior quarter. Non-performing loans held in portfolio declined from $13.3 million at June 30, 2012 to $10.7 million at September 30, 2012, and loans delinquent between 30 and 89 days totaled $4.3 million as of September 30, 2012, compared to $7.5 million as of June 30, 2012. The Company also recognized net recoveries of $325,000 on real estate loans during the most recent quarterly period. As a result, the Company determined that only a slight provision for loan losses of $126,000 was warranted during the September 2012 quarter, reflecting higher estimated losses on non-impaired loans. The allowance for loan losses increased $451,000 during the quarter ended September 30, 2012.
Non-Interest Income
Non-interest income was $2.6 million for the quarter ended September 30, 2012, a decline of $415,000 below the previous quarter, primarily due to a reduction of $836,000 in mortgage banking income. During the quarter ended June 30, 2012, the Company recognized a recovery of $967,000 to the liability for the first loss position on loans sold to Fannie Mae with recourse, which, even though the Fannie Mae recourse liability is subject to review quarterly, was significantly higher than normal. During the quarter ended September 30, 2012, the Company recognized a more normalized recovery of $141,000 to the liability for the first loss position on loans sold to Fannie Mae with recourse reflecting both ongoing reductions in the balance, and continued stabilization in the credit quality, of this portfolio. Partially offsetting the reduction in mortgage banking income was an increase of approximately $400,000 in fees recognized during the September 2012 quarter related to both increased loan application processing and seasonal loan servicing fees.
Non-Interest Expense
Non-interest expense was $15.8 million in the quarter ended September 30, 2012, up $95,000 from the prior quarter, and in line with the forecasted level of $16.0 million.
Non-interest expense was 1.62% of average assets during the most recent quarter, resulting in an efficiency ratio of 43.9%. This remains among the lowest efficiency ratios in the industry, and a longstanding hallmark of Dime.
Income Tax Expense
The effective tax rate approximated the 41% level forecasted in the Company's previous earnings release.
BALANCE SHEET
Total assets were $3.95 billion at September 30, 2012, up $74.4 million from June 30, 2012. Cash and due from banks increased by $105.1 million during the quarter ended September 30, 2012, and was partially offset by a reduction of $26.1 million in real estate loans. The decline in real estate loans reflected the historically high levels of prepayment and refinance activity experienced during the September 2012 quarter. The growth in cash balances reflected both deposit inflows of $63.5 million and net cash inflows from loans experienced during the September 2012 quarter.
Real Estate Loans
As stated above, real estate loans declined $26.1 million during the most recent quarter. Real estate loan originations were $257.6 million during the September 2012 quarter, at an average rate of 3.63%. Of this amount, $144.5 million represented loan refinances from the existing portfolio. Loan amortization and satisfactions, including refinances of existing loans, totaled $290.1 million during the quarter, or 34.8% of the average portfolio balance on an annualized basis. The average rate on amortized or satisfied loan balances during the most recent quarter was 5.90%. The loan commitment pipeline stood at $415.0 million at September 30, 2012, with a weighted average rate of 3.41%. The average yield on the loan portfolio (excluding prepayment fee income) during the quarter ended September 30, 2012 was 5.12%, compared to 5.16% during the June 2012 quarter and 5.61% during the September 2011 quarter.
Credit Summary
Non-performing loans (excluding held for sale loans) were $10.7 million, or 0.32% of total loans, at September 30, 2012, down from $13.3 million, or 0.40% of total loans, at June 30, 2012. The reduction resulted primarily from the disposal of five non-performing portfolio loans totaling $3.3 million during the September 2012 quarter. Loans delinquent between 30 and 89 days and accruing interest were $4.3 million, or approximately 0.13% of total loans, at September 30, 2012, compared to $7.5 million, or 0.22% of total loans, at June 30, 2012.
The sum of non-performing assets and accruing loans past due 90 days or more represented 2.7% of tangible capital plus the allowance for loan losses (a statistic otherwise known as the "Texas Ratio") at September 30, 2012 (see table on page 13). This number compares very favorably to both industry and regional averages.
Within the pool of serviced loans previously sold to Fannie Mae with recourse exposure, total loans delinquent 30 days or more approximated $2.0 million at both September 30, 2012 and June 30, 2012. The remaining pool of loans serviced for Fannie Mae totaled $279.8 million as of September 30, 2012, down from $291.7 million as of June 30, 2012. Due to both ongoing amortization and stabilization of problem loans within the Fannie Mae portfolio, the Company determined that its liability for the first loss position could be reduced by $141,000, which was recognized during the quarter ended September 30, 2012.
Deposits and Borrowed Funds
Deposits increased $63.5 million from June 30, 2012 to September 30, 2012, due primarily to net inflows of $84.0 million in money market deposits. At September 30, 2012, average deposit balances approximated $93.0 million per branch. The Bank remains selective in the products, rates and terms on which it competes for deposits, focusing on products that encourage long-term customer retention, and discouraging renewals of promotional deposits in cases where customer relationships have not proved durable.
During the September 2012 quarter, the Company reduced its FHLBNY advances by $10.0 million. The Company intends to continue the use of FHLBNY advances as funding needs arise.
Capital
The Company's total tangible common equity ratio grew this quarter as a result of retained earnings. Consolidated tangible capital was 8.76% of tangible assets at September 30, 2012, an increase of 13 basis points from June 30, 2012. The Company also had approximately $70.7 million of trust preferred securities that were issued as debt outstanding at September 30, 2012, which, when added to Tier 1 (tangible) capital, increased its consolidated Tier 1 (tangible) capital ratio to approximately 10.2%.
The Bank's tangible capital ratio was 9.83% at September 30, 2012, compared to 9.93% at June 30, 2012. The Bank's tier-one risk-based capital ratio was 13.56% at September 30, 2012, up from 13.10% at June 30, 2012, and its total risk-based capital ratio was 14.33% at September 30, 2012, compared to 13.83% at June 30, 2012.
Reported earnings per share exceeded the quarterly cash dividend rate per share by 143% during the most recent quarter, resulting in a 41% payout ratio. Tangible book value per share increased $0.25 sequentially during the most recent quarter, to $9.58 at September 30, 2012. This growth was fueled by a return of approximately 14.1% on average tangible equity during the most recent quarter.
OUTLOOK FOR THE QUARTER ENDING DECEMBER 31, 2012
At September 30, 2012, Dime had outstanding loan commitment agreements totaling $415.0 million (of which $82 million related to loan refinances from the current portfolio), plus approximately $160 million of additional loan applications currently in process (of which $69 million related to loan refinances from the current portfolio), all of which are likely to close during the quarter ending December 31, 2012. As a result, total loan originations for the final quarter of 2012 are expected to exceed $500 million, well in excess of the quarterly levels experienced during the first nine months of 2012. The average interest rate on the fourth quarter originations is expected to approximate 3.5%.
As discussed earlier in the release, rather than maintaining a static balance sheet, the Company is moving into a period of moderate loan portfolio and balance sheet growth, primarily to mitigate the effects of contracting margin. By the end of 2012, year-over-year balance sheet growth should be about 3.5%. For 2013, balance sheet growth is targeted for 5.0%, subject to change to reflect market conditions. Loan prepayments and amortization have slowed in recent weeks, leading us to conclude that the annualized pace of loan prepayments and amortization in the fourth quarter, and leading into the new year, may fall below full year 2012 levels of approximately 30%.
Satisfaction and amortization rates (including prepayments and loan refinancing activity), which approximated 34.8% on an annualized basis during the most recent quarter, are expected to moderate to 25% - 30% during the December 2012 quarter.
On the liability side, deposit funding costs are expected to remain near current historically low levels through the fourth quarter of 2012. The Bank has $125.1 million of CDs maturing at an average cost of 1.05% during the quarter ending December 31, 2012. Offering rates on 12-month term CDs currently approximate 50 basis points. The Company has no borrowings due to mature during the quarter ending December 31, 2012.
If current positive credit trends continue, as expected, loan loss provisioning will simply be a function of continued portfolio growth. The third quarter was positively impacted by lower levels of nonperforming loans. However, the fourth quarter's provision will be slightly higher due to the expected growth in the loan portfolio.
Absent any unforeseen items, non-interest expense is expected to approximate $15.5 million during the December 2012 quarter.
The real estate parcel under contract for sale is scheduled to close in the fourth quarter. The $0.41 per share borrowing prepayment charge could be partially offset by gains from any property sale occurring in the fourth quarter.
The Company projects that the consolidated effective tax rate will approximate 41.0% in the December 2012 quarter.
ABOUT DIME COMMUNITY BANCSHARES, INC.
The Company (Nasdaq: DCOM) had $3.95 billion in consolidated assets as of September 30, 2012, and is the parent company of the Bank. The Bank was founded in 1864, is headquartered in Brooklyn, New York, and currently has twenty-six branches located throughout Brooklyn, Queens, the Bronx and Nassau County, New York. More information on the Company and Dime can be found on the Dime's Internet 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," "could," "estimate," "expect," "intend," "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. These factors 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 Dime; 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; 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: | Kenneth Ceonzo |
| Director of Investor Relations |
| 718-782-6200 extension 8279 |
