DIME COMMUNITY BANCSHARES, INC. REPORTS EARNINGS
Quarterly EPS of $0.30; successful launch of Business Banking division with a growing loan pipeline
Brooklyn, NY – April 27, 2017 - Dime Community Bancshares, Inc. (NASDAQ: DCOM) (the “Company” or “Dime”), the parent company of Dime Community Bank (the “bank”), today reported net income of $11.2 million for the quarter ended March 31, 2017, or $0.30 per diluted common share, compared with net income of $732,000 for the quarter ended December 31, 2016, or $0.02 per diluted common share, and net income of $50.0 million for the quarter ended March 31, 2016, or $1.36 per diluted common share.
During the quarter ended December 31, 2016, the Company recognized a non-cash, non-tax deductible expense of $11.3 million, or $0.31 per diluted common share, on the prepayment of the Employee Stock Ownership Plan (“ESOP”) share acquisition loan. Excluding the prepayment of the ESOP share acquisition loan (“ESOP Charge”), net income was $12.1 million, or $0.33 per diluted common share. During the quarter ended March 31, 2016, the Company recognized an after tax gain on real estate sale of $37.5 million, or $1.02 per diluted common share. Excluding the after tax gain on real estate sale, net income was $12.6 million, or $0.34 per diluted common share.
Highlights for the first quarter of 2017 included:
| · | Real estate loans grew 6.3% (annualized) on a linked quarter basis and 13.2% over the first quarter of 2016; |
| · | The successful launch of our Business Banking division, with commercial and industrial (“C&I”) loans growing $28.1 million and direct-sourced commercial real estate (“CRE”) loans growing $7.1 million at March 31, 2017; |
| · | Deposits grew 10.3% (annualized) on a linked quarter basis and 31.1% over the first quarter of 2016, lowering the Loan-to-Deposit ratio to 127.6%; and |
| · | Continued strong credit quality, with nonperforming loans to total loans of seven (7) basis points and loans delinquent between 30-89 days of only $173,000. |
Kenneth J. Mahon, President and Chief Executive Officer of the Company, commented, “During this quarter, we were able to successfully launch our Business Banking division, and the initial results are positive, giving us a great deal of confidence in achieving the loan growth goals we have set for the full year. As importantly, the Business Banking division brought in approximately $14.0 million of new deposits at an average rate of four (4) basis points, which highlights the ability to source high quality, low cost deposits through the relationship-based nature of this business.”
“In addition, our existing multifamily lending business remains strong and builds on the momentum from last year, while credit quality continues to be a key strength. We will continue to execute on our strategic plan and remain steadfastly focused on building our lending and business banking relationships, as well as on the communities we serve.”
Mr. Mahon continued, “This quarter, Dime opened its two newest branches; one near Bedford Avenue and North 6th Street in the Williamsburg section of Brooklyn, and a second at the intersection of Fifth Avenue and Union Street in the Park Slope section of Brooklyn. In addition, the Business Banking division’s Long Island office is now open at 1 Huntington Quadrangle, Melville, and its midtown Manhattan office is scheduled to open soon.”
Management’s Discussion of Quarterly Operating Results
Net Interest Income
Net interest income in the first quarter of 2017 was $37.5 million, a decrease of $411,000 (-1.1%) from the fourth quarter of 2016 and an increase of $2.9 million (8.3%) over the first quarter of 2016. Net Interest Margin ("NIM") was 2.57% during the first quarter of 2017, compared to 2.67% during the fourth quarter of 2016, and 2.80% during the first quarter of 2016. The linked quarter decrease was due to lower income recognized from loan prepayment activity, which varies from quarter to quarter. For the first quarter 2017, income from prepayment activity totaled $1.4 million, benefiting NIM by 9 basis points, compared to $2.7 million, or 19 basis points, during the fourth quarter of 2016, and $2.6 million, or 22 basis points, during the first quarter of 2016. NIM, adjusted for the impact of prepayment activity, was 2.48% during the first quarter of 2017, consistent with the fourth quarter of 2016.
Average earning assets were $5.82 billion for the first quarter of 2017, a 9.7% (annualized) increase from $5.69 billion for the fourth quarter of 2016 and a 17.5% increase from $4.96 billion for the first quarter of 2016.
For the first quarter of 2017, the average yield on interest earning assets (excluding prepayment income) was 3.44%, 2 basis points lower than the 3.46% for the fourth quarter 2016 and 10 basis points lower than the 3.54% for first quarter 2016, while the average cost of funds was 1.13% for the first quarter of 2017, flat with fourth quarter 2016, and 1 basis point higher than the first quarter of 2016.
Loans
Real estate loan portfolio growth was $88.0 million (6.3% annualized) during the first quarter of 2017. Real estate loan originations were $240.5 million during the quarter (including $7.1 million from the Business Banking division), at a weighted average interest rate of 3.41%. Of this amount, $57.6 million represented loan refinances from the existing portfolio. Loan amortization and satisfactions totaled $153.4 million, or 10.8% (annualized) of the portfolio balance, at an average rate of 3.93%. The annualized loan payoff rate of 10.8% for first quarter 2017 was lower than both fourth quarter 2016 (15.1%) and first quarter 2016 (13.9%). The average yield on the real estate loan portfolio (excluding income recognized from prepayment activity) was 3.45% during the first quarter of 2017, down 1 basis point compared to 3.46% in the fourth quarter of 2016 and 12 basis points compared to 3.57% in the first quarter of 2016. Average real estate loans were $5.69 billion in the first quarter of 2017, an increase of $127.0 million (9.1% annualized) from the fourth quarter of 2016 and an increase of $869.9 million (18.1%) from the first quarter of 2016.
C&I loan portfolio growth was $28.1 million during the first quarter of 2017, with most of the closings occurring towards the end of the quarter, at a weighted average interest rate of 4.04%.
Deposits and Borrowed Funds
Deposit growth was $113.1 million (10.3% annualized) during the first quarter of 2017. The loan-to-deposit ratio fell to 127.6% at March 31, 2017, from 128.2% at December 31, 2016, and 147.0% at March 31, 2016. Core deposits increased to $3.54 billion during the first quarter of 2017, from $3.35 billion during the fourth quarter of 2016 and $2.46 billion during the first quarter of 2016. The average cost of deposits decreased one basis point on a linked quarter basis to 0.86%.
Total borrowings decreased $67.4 million during the first quarter of 2017 as compared to the fourth quarter of 2016, which reflected management’s desire to decrease reliance on borrowed funds and to grow both its number of customers and deposits.
Non-Interest Income
Non-interest income was $1.8 million during the first quarter of 2017, which was flat compared to the fourth quarter of 2016. Non-interest income was $69.7 million during the first quarter of 2016. Excluding the $68.2 million pre-tax gain on the sale of real estate recognized during the first quarter of 2016, non-interest income was $1.5 million, due primarily to lower administrative fees collected on portfolio loans in the prior year period.
Non-Interest Expense
Non-interest expense was $20.8 million during the first quarter of 2017. Non-interest expense, excluding the ESOP Charge, was $18.3 million during the fourth quarter of 2016, and $17.9 million during the first quarter of 2016. Non-interest expense was $2.5 million (13.4%) higher than the fourth quarter of 2016, mostly due to salaries and employee benefits given the build-out of the Business Banking division as well as occupancy and marketing expenses primarily related to the opening of two new branches, both of which occurred early in the quarter.
The ratio of non-interest expense to average assets was 1.38% during the first quarter of 2017, compared to 1.25% during the fourth quarter of 2016 excluding the ESOP Charge, and 1.38% during the first quarter of 2016. The efficiency ratio was 53.0% during the first quarter of 2017, higher than the 46.1% during the fourth quarter of 2016 excluding the ESOP Charge, and above the 49.5% during the first quarter of 2016. Both the efficiency ratio and the ratio of non-interest expense to average assets were impacted by the cost of the Business Banking division initial build-out and the fact that asset growth lags expense recognition. At current staffing and interest rate levels, breakeven on a direct cost basis for the division, is expected to occur by year end.
Income Tax Expense
The effective income tax rate was 38.2% during the March 2017 quarter.
Credit Quality
Non-performing loans were $3.8 million, or 0.07% of total loans, at March 31, 2017, a decrease of $436,000 from December 31, 2016. The allowance for loan losses was 0.36% of total loans at March 31, 2017, consistent with December 31, 2016. At March 31, 2017, non-performing assets represented 1.1% of the sum of tangible capital plus the allowance for loan losses (this statistic is otherwise known as the "Texas Ratio") (see table at the end of this news release). A loan loss provision of $450,000 was recorded during the first quarter of 2017, compared to a loan loss provision of $529,000 during the fourth quarter of 2016.
Capital Management
The Company’s consolidated Tier 1 capital to average assets (“leverage ratio”) was 9.91% at March 31, 2017, in excess of Basel III requirements, inclusive of the conservation buffer.
The bank’s regulatory capital ratios continued to be in excess of Basel III requirements as well, inclusive of conservation buffer amounts. At March 31, 2017, the bank’s leverage ratio was 8.88%, while Tier 1 capital to risk-weighted assets and Total capital to risk-weighted assets ratios were 11.25% and 11.70%, respectively.
Diluted earnings per common share exceeded the quarterly cash dividend per share by 114.3% during the first quarter of 2017, equating to a 46.7% payout ratio.
Tangible book value per share was $13.92 at March 31, 2017, a 5.6% increase from $13.18 at March 31, 2016.
Outlook for the Quarter Ending June 30, 2017
As of the date of this earnings release, the bank had outstanding real estate loan commitments totaling $155.3 million, at an average interest rate approximating 3.86% (including $35.9 million from the Business Banking division at an interest rate of 4.60%), all of which are likely to close during the quarter ending June 30, 2017. Loan prepayments and amortization are expected to fall within the projected annualized range of 10% - 15% during the June 2017 quarter. In addition, the bank’s C&I pipeline totaled $41.3 million as of the date of this earnings release, at an average interest rate of 4.54%.
The Company has a balance sheet growth objective of 10% for the year ending December 31, 2017, with a continued preference toward utilizing retail deposits for most of its funding needs.
Despite the recent policy actions of the Federal Open Market Committee, deposit and borrowing funding costs are expected to remain near current historically low levels through the June 2017 quarter. At March 31, 2017, the bank had $170.2 million of Certificates of Deposit at an average rate of 1.25%, and $165.0 million of borrowings, at an average rate of 2.10%, scheduled to mature during the June 2017 quarter. No significant increase or reduction in funding costs is anticipated from the rollover or re-positioning of these funds.
Loan loss provisions will be driven by loan portfolio growth (with C&I loans contributing to a large part of the incremental growth of the provision) in the June 2017 quarter, subject to management’s assessment of the adequacy of the allowance for loan losses.
Non‐interest expense is expected to approximate $20.5 million during the June 2017 quarter, reflecting several remaining hires and occupancy expense related to the new locations.
The sale of the Williamsburg branch office property is now expected to close during the third quarter of 2017, with the branch being relocated to a new nearby location by year end.
The Company projects that the consolidated effective tax rate will approximate 38.5% in the June 2017 quarter.
ABOUT DIME COMMUNITY BANCSHARES, INC.
The Company had $6.10 billion in consolidated assets as of March 31, 2017. The bank was founded in 1864, is headquartered in Brooklyn, New York, and currently has twenty-seven branches located throughout Brooklyn, Queens, the Bronx and Nassau County, 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," "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: Anthony J. Rose
Executive Vice President and Director of Investor Relations
718-782-6200 extension 5260
