DIME COMMUNITY BANCSHARES REPORTS EARNINGS
Net Income of $0.30 Per Diluted Share. Credit Quality Remains Solid.
Brooklyn, NY – October 28, 2013 - 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, 2013. Consolidated net income for the quarter was $10.6 million, or $0.30 per diluted share, compared to $12.0 million, or $0.34 per diluted share, for the quarter ended June 30, 2013, and $11.8 million, or $0.34 per diluted share, for the quarter ended September 30, 2012.
Vincent F. Palagiano, Chairman and Chief Executive Officer of Dime, commented, "We were pleased to post another solid quarter of earnings, as we continue to be impacted by the heavy refinancing activities in our lending marketplace. We closed $289.6 million of loans during the September 2013 quarter, and the annualized growth rate in the real estate loan portfolio has approximated 6% during the first nine months of 2013, putting the Company on track to meet its 2013 goal. Prepayment fees were $1.2 million lower in the third quarter compared to the second quarter, adversely impacting diluted earnings per share by $0.02. Net interest margin excluding prepayment fees declined 8 basis points to 2.98%, providing the bulk of the remaining decline in diluted earnings per share from the June 2013 quarter."
"More importantly," continued Mr. Palagiano, "interest rate offerings in the multifamily sector have turned up from their historic lows in this cycle, as the yield curve continues to steepen, albeit modestly. Should the present conditions persist, we anticipate net interest margin and the average loan portfolio yield hitting their cyclical bottom in the upcoming quarters."
Loan amortization and satisfactions, including refinances of existing loans, declined from a 33.2% annualized rate during the June 2013 quarter to 25.7% during the September 2013 quarter. Prepayment fee income, which is generally proportional to amortization levels, also fell from $4.6 million (or $0.08 per diluted share after-tax) during the June 2013 quarter to $3.4 million (or $0.06 per diluted share after tax) during the September 2013 quarter.
OPERATING RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2013
Net Interest Margin
Net interest margin ("NIM") was 3.35% during the quarter ended September 30, 2013 compared to 3.55% during the June 2013 quarter. For forecasting purposes, the "core" NIM, which excludes the effect of loan prepayment fees, decreased from 3.06% during the June 2013 quarter to 2.98% during the September 2013 quarter, reflecting a reduction of 10 basis points in the average yield on interest earning assets (primarily caused by a reduction of 16 basis points in the average yield on real estate loans exclusive of the effects of prepayment fee income), that was partially offset by a reduction of 5 basis points in the average cost of interest bearing liabilities.
A 5 basis point decline in the average cost of deposits helped to reduce the average cost of all interest bearing liabilities, as bank deposit rates (mainly short term) remained low in the Bank's market area.
The 16 basis point decline in the average yield on real estate loans (excluding the effects of prepayment fee income) on a linked quarter basis resulted from the cumulative effect of increased portfolio refinance and amortization activities during the period October 2012 through September 2013, as U.S. Treasury yields hovered at historically low levels, and loans repriced at lower rates. Throughout the summer, there was a slight uptick in the offering rate on new multifamily originations, so that the range of rates for a prime, low-loan-to-value 5 year repricing loan was in the 3.50 – 3.75% range.
Net Interest Income
Net interest income was $31.7 million in the quarter ended September 30, 2013, down $2.1 million from $33.8 million reported in the June 2013 quarter, and down $1.7 million from $33.4 million reported in the September 2012 quarter. Prepayment fee income on loans totaled $3.4 million during the September 2013 quarter, compared to $4.6 million recognized in the June 2013 quarter and $3.1 million during the September 2012 quarter. Absent the impact of loan prepayment fee income, net interest income was $28.2 million during the September 30, 2013 quarter, down $874,000 from the June 30, 2013 quarter and $1.9 million from the September 30, 2012 quarter. The decline in net interest income (excluding loan prepayment fee income) from the June 2013 quarter resulted primarily from a decline of 10 basis points in the average yield earned on the Company's interest earning assets, reflecting the ongoing loan refinancing activity.
Provision/Allowance For Loan Losses
The Company recognized net charge-offs of $202,000 and provisioned $240,000 for loan losses during the September 2013 quarter. This led to a net increase of $38,000 in the allowance for loan losses from June 30, 2013 to September 30, 2013. The quarterly loan loss provision, while increasing from $28,000 in the June
2013 quarter, remained relatively low during the September 2013 quarter, reflecting the continued stability of the Bank's credit quality.
At September 30, 2013, the allowance for loan losses as a percentage of total loans stood at 0.56%, down slightly from 0.57% at the close of the prior quarter, as a result of growth in the loan portfolio during the September 2013 quarter.
Non-Interest Income
Non-interest income was $2.0 million for the quarter ended September 30, 2013, an increase of $287,000 from the previous quarter. The valuation of equity mutual funds designated as trading for accounting purposes increased $121,000 from the June 2013 quarter. The remaining increase in non-interest income from the previous quarter resulted primarily from higher fees collected on portfolio loans.
Non-Interest Expense
Non-interest expense was $15.6 million in the quarter ended September 30, 2013, up $228,000 from the prior quarter, and slightly above the forecasted level of $15.5 million. The largest portion of the variance from forecast was due to a variable component of compensation and benefit expense which is linked to the performance of the equity markets, and the smaller portion due to occupancy costs, which are running just slightly above our budget.
Non-interest expense was 1.56% of average assets during the most recent quarter. The efficiency ratio approximated 46.4% during the same period.
Income Tax Expense
The effective tax rate approximated 40.4% during the most recent quarter, generally in line with the 40.0% forecasted level.
BALANCE SHEET
Total assets were $4.02 billion at September 30, 2013, up $64.1 million from June 30, 2013. Net loans increased by $62.2 million, comprising most of the asset growth during the period.
The Company added $35.0 million of Federal Home Loan Bank of New York ("FHLBNY") advances on a net basis during the September 2013 quarter to fund a portion of the asset growth during the period. The remaining asset growth was funded primarily through growth in both mortgagor escrow and money market deposits. Assets grew by approximately 3.8% on an annualized basis during the first nine months of 2013, and remain forecasted to grow approximately 5% during the year ending December 31, 2013.
Real Estate Loans
Real estate loan originations were $289.6 million during the September 2013 quarter, at a weighted average interest rate of 3.39%. Of this amount, $108.7 million represented loan refinances from the existing portfolio. Loan amortization and satisfactions, including the $108.7 million of refinances of existing loans, totaled $233.2 million during the quarter, or 25.7% of the average portfolio balance on an annualized basis. The average rate on amortized and satisfied loan balances during the most recent quarter was 5.30%. Total loan commitments stood at $146.9 million at September 30, 2013, with a weighted average rate of 3.75%. The average yield on the loan portfolio (excluding prepayment fee income) during the quarter ended September 30, 2013 was 4.28%, compared to 4.44% during the June 2013 quarter and 5.12% during the September 2012 quarter.
Credit Summary
Non-performing loans (excluding loans held for sale) were $8.8 million, or 0.24% of total loans, at September 30, 2013, down from $9.5 million, or 0.26% of total loans, at June 30, 2013. Loans delinquent between 30 and 89 days and accruing interest increased to $3.8 million, or approximately 0.10% of total loans, at September 30, 2013, compared to $159,000, or 0.004% of total loans, at June 30, 2013. There tends to be variability in the category "loans delinquent between 30 and 89 days," and this quarter's increase, while still very low as an absolute percentage of the portfolio, does not appear to reflect a negative credit quality trend.
At September 30, 2013, non-performing assets represented 2.6% of the sum of tangible capital plus the allowance for loan losses (this statistic is otherwise known as the "Texas Ratio") (see table on page 12). 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 $400,000 at September 30, 2013, down from approximately $700,000 at June 30, 2013. The remaining pool of loans serviced for Fannie Mae totaled $216.1 million as of September 30, 2013, down from $229.2 million as of June 30, 2013. Due to both ongoing amortization and the near absence of problem loans within the Fannie Mae portfolio, the Company determined that its liability for the first loss position could be reduced by $50,000, which was recognized during the quarter ended September 30, 2013. Deposits and Borrowed Funds
Retail deposits increased $1.5 million from June 30, 2013 to September 30, 2013, with net inflows of $24.0 million in core deposits offset by net outflows of $22.5 million in certificates of deposit during the period. The Bank did not implement any significant promotional deposit activities during the September 2013 quarter, and enacted slight reductions in rates that resulted in a reduction of 5 basis points in the average cost
of deposits during the September 2013 quarter. At September 30, 2013, average deposit balances approximated $100.4 million per branch.
The Company transacted $60.0 million of new fixed-rate FHLBNY borrowings during the quarter ended September 30, 2013, of which $25.0 million were utilized to replace borrowings that matured during the period. The $60.0 million of new borrowings had an average maturity of 3.75 years and an average cost of 1.31%, providing an element of NIM protection to offset the fixed rate loan portfolio, in the event of rising open market rates over the next four years. The Company intends to use FHLBNY advances to supplement deposit funding when deemed appropriate.
Capital
The Company's consolidated tangible common equity ratio (Tier 1 core leverage) grew during the most recent quarter as a result of both increased retained earnings and stock option exercise activity. Consolidated tangible capital was 9.51% of tangible assets at September 30, 2013, an increase of 20 basis points from June 30, 2013. The Company also had approximately $70.7 million of trust preferred debt securities outstanding at September 30, 2013, which, when added to Tier 1 (tangible) capital, increased its consolidated Tier 1 (tangible) capital ratio to approximately 11.2%.
The Bank's tangible capital ratio was 10.24% at September 30, 2013, down slightly from 10.27% at June 30, 2013, due to asset growth during the September 2013 quarter. The Bank's Total Risk-Based Capital Ratio was 14.07% at September 30, 2013, compared to 13.93% at June 30, 2013.
Reported diluted EPS exceeded the quarterly cash dividend rate per share by 114%, equating to a 47% payout ratio. Additions to capital from earnings and stock option exercises during the most recent quarterly period caused tangible book value per share to increase $0.24 sequentially during the most recent quarter, to $10.30 at September 30, 2013.
OUTLOOK FOR THE QUARTER ENDING DECEMBER 31, 2013
At September 30, 2013, Dime had outstanding loan commitments totaling $146.9 million (of which $38 million related to loan refinances from the existing portfolio), all of which are likely to close during the quarter ending December 31, 2013, at an average interest rate approximating 3.75%.
For the year ending December 31, 2013, balance sheet growth is targeted to approximate 5.0%, subject to change to reflect market conditions. Loan prepayments and amortization are currently anticipated to approximate 20% - 25% on an annualized basis during the December 2013 quarter. On the liability side, deposit funding costs are expected to remain near current historically low levels through the final quarter of 2013. The Bank has $134.6 million of certificates of deposit ("CDs") maturing at an average cost of 0.92% during the quarter ending December 31, 2013. Offering rates on 12-month term
CDs currently approximate 50 basis points. The Company has $88.5 million of borrowings due to mature during the quarter ending December 31, 2013 at an average cost of 2.46%. FHLBNY advance rates for 3-year, 4-year and 5-year borrowings were 1.06% and 1.55% and 1.94% respectively, as of October 22, 2013. In the coming quarter, management expects to utilize advances rather than deposits to fund growth as a long-term interest rate hedge against future higher rates.
Loan loss provisioning will likely continue to be a function of loan portfolio growth, incurred and anticipated losses and the overall credit quality of the loan portfolio.
Absent any unforeseen items, non-interest expense is expected to approximate $15.7 million during the December 2013 quarter.
The Company projects that the consolidated effective tax rate will approximate 40.0% in the December 2013 quarter.
ABOUT DIME COMMUNITY BANCSHARES, INC.
The Company (Nasdaq: DCOM) had $4.02 billion in consolidated assets as of September 30, 2013, 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 |
