CRE Concentration Ratio declines to 679%
BROOKLYN, NY, Oct. 24, 2019 (GLOBE NEWSWIRE) -- Dime Community Bancshares, Inc. (DCOM) (the “Company” or “Dime”), the parent company of Dime Community Bank (the “Bank”), today reported net income of $4.7 million for the quarter ended September 30, 2019, or $0.13 per diluted common share, compared with net income of $13.0 million for the quarter ended June 30, 2019, or $0.36 per diluted common share, and net income of $11.8 million for the quarter ended September 30, 2018, or $0.32 per diluted common share. Pre-tax income for the quarter ended September 30, 2019 was $5.6 million, compared to $17.5 million for the quarter ended June 30, 2019, and $15.3 million for the quarter ended September 30, 2018.
The decrease in pre-tax income was attributable to an increase in the loan loss provision ($11.2 million for the third quarter of 2019) due to a single Commercial & Industrial (“C&I”) 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 (“CEO”) of the Company, stated, “Excluding the impact of the increased loan loss provision, core trends in our underlying business remain on-track with our business model transformation. The Net Interest Margin (“NIM”), excluding the impact of prepayment fees, has now expanded for four consecutive quarters. Growth in our Business Banking division portfolio continues to be accretive to our overall NIM. Excluding the impact of prepayment fee income and loan loss provisions, pre-tax income for the quarter ended September 30, 2019 would have been $15.9 million, or 3% higher than the linked quarter pre-tax income of $15.4 million excluding prepayment fee income and loan loss provisions, and 11% higher than the year-ago pre-tax income of $14.3 million excluding prepayment fee income and loan loss provisions, on a comparative basis.”
Mr. Mahon continued, “After increasing for eight consecutive quarters (Q3 2017 to Q2 2019), the cost of deposits began to moderate in the third quarter of 2019. Deposit costs declined during the month of September and continued to trend lower in the month of October as well. This reduction bodes positively for our NIM on a go-forward basis.”
Highlights for the third quarter of 2019 included:
- Strong growth in checking account balances. Compared to the third quarter of 2018, the sum of average non-interest-bearing checking account balances and average interest-bearing checking account balances for the third quarter of 2019 increased by 16.2% to $554.9 million;
- The cost of deposits was flat on a linked quarter basis, versus a 9 basis points increase when comparing the second quarter of 2019 with the first quarter of 2019;
- Successfully launched the Municipal Banking division, which is actively engaged with prospective clients and expects to begin onboarding deposit relationships in the fourth quarter of 2019;
- Strong Business Banking originations of $152.8 million in the third quarter of 2019;
- Business Banking loan originations for the third quarter of 2019 were at significantly higher rates than the overall portfolio; the weighted average rate (“WAR”) on Business Banking real estate originations was 4.95% and the WAR on C&I originations was 6.07% for the quarter ended September 30, 2019, compared to the total real estate and C&I loan portfolio WAR of 4.02% for the quarter ended September 30, 2019;
- Total non-interest income was $3.4 million for the third quarter of 2019, driven by $0.2 million of customer-related loan level swap income, $0.3 million of gains from the sale of Small Business Administration (“SBA”) loans, and $1.8 million from service charges and other fees; and
- Consolidated Company commercial real estate (“CRE”) concentration ratio was 679% at September 30, 2019, versus 706% at September 30, 2018.
Management’s Discussion of Quarterly Operating Results
Net Interest Income
Net interest income in the third quarter of 2019 was $36.2 million, a decrease of $0.3 million (-0.8%) from the second quarter of 2019 and an increase of $1.2 million (+3.3%) from the third quarter of 2018.
NIM was 2.34% during the third quarter of 2019, compared to 2.38% in the second quarter of 2019, and 2.33% during the third quarter of 2018. For the third quarter of 2019, income from prepayment activity totaled $0.8 million, benefiting the NIM by 5 basis points, compared to $1.6 million, or 10 basis points, during the second quarter of 2019, and $1.3 million or 9 basis points during the third quarter of 2018.
Average interest-earning assets were $6.19 billion for the third quarter of 2019, a 3.7% (annualized) increase from $6.13 billion for the second quarter of 2019, and a 2.9% increase from $6.02 billion for the third quarter of 2018.
For the third quarter of 2019, the average yield on interest-earning assets was 3.89%, a decrease of 2 basis points compared with the second quarter of 2019, and an increase of 26 basis points compared to the third quarter of 2018. The linked quarter decrease in the yield on average interest-earning assets was driven primarily by lower prepayment penalty fee income, which was partially offset by originations of Business Banking loans at higher rates than the rates on loan amortizations and satisfactions.
The ending WAR on the total loan portfolio was 4.02% at September 30, 2019, which represents a 3 basis point increase versus the ending WAR on the total loan portfolio at June 30, 2019, and a 29 basis point increase versus the ending WAR on the total loan portfolio at September 30, 2018. Mr. Mahon commented, “Our business model transformation was the key contributor to the year-over-year 29 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 expect our overall loan yields to trend upwards.”
The average cost of borrowed funds (which primarily consists of Federal Home Loan Bank advances) was 2.39% for the third quarter of 2019, a decrease of 5 basis point versus the second quarter of 2019, and an increase of 14 basis points versus the third quarter of 2018.
The real estate loan portfolio decreased by $41.6 million (3.2% annualized) during the third quarter of 2019. Total real estate loan originations were $166.0 million during the third quarter of 2019, at a WAR of 4.93%. Real estate loan amortization and satisfactions totaled $195.9 million, or 15.1% (annualized) of the portfolio balance, at an average rate of 3.99%. The annualized real estate loan payoff rate of 15.1% for the third quarter of 2019 was lower than the second quarter of 2019 (20.6% annualized) and higher than the third quarter of 2018 (14.0% annualized).
Average real estate loans were $5.19 billion in the third quarter of 2019, a decrease of $12.4 million (-1.0% annualized) from the second quarter of 2019, and a decrease of $11.1 million (-0.2%) from the third quarter of 2018.
Average C&I loans were $312.5 million in the third quarter of 2019, an increase of $22.6 million (+31.2% annualized) from the second quarter of 2019, and an increase of $125.8 million (+67.4%) from the third quarter of 2018.
Outlined below are the loan originations for the current quarter, linked quarter and prior year quarter.
|($s in millions)||Originations/ Weighted Average Rate|
|Real Estate Originations||Q3 2019||Q2 2019||Q3 2018|
|Total Real Estate||$166.0/4.93%||$249.6/4.94%||$149.0/4.90%|
Deposits and Borrowed Funds
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 third quarter of 2019 with approximately $159.3 million of low-cost relationship-based checking and leasehold deposits at an average rate of approximately two basis points and total deposits of $292.8 million at an average rate of 68 basis points.
The cost of total deposits remained the same on a linked quarter basis, compared to a 9 basis point increase when comparing the second quarter of 2019 to the first quarter of 2019. 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 9.5% at September 30, 2019 compared to 8.4% at September 30, 2018. 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.”
Total deposits decreased by $44.1 million (4.0% annualized) on a linked quarter basis to $4.39 billion at September 30, 2019. The DimeDirect internet channel deposit portfolio was approximately $139.6 million at the end of the third quarter of 2019 compared to approximately $192.9 million at June 30, 2019. Mr. Mahon commented, “In the third quarter of 2019, net outflows in DimeDirect were approximately $53 million, versus approximately $41 million for the second quarter of 2019. The increased outflows in the third quarter of 2019 (versus the second quarter of 2019) were a result of certain pro-active downward pricing adjustments we made for this segment. Given the reduced aggregate balances in the DimeDirect portfolio, we anticipate the magnitude of dollar outflows from DimeDirect to decline over time, resulting in less of a headwind to grow overall deposits in the future.”
The loan-to-deposit ratio was 124.9% at September 30, 2019, compared to 124.7% at June 30, 2019 and 123.5% at September 30, 2018.
Total borrowings, excluding $113.9 million of subordinated debt, were $1.12 billion at September 30, 2019, compared to $1.17 billion at June 30, 2019, and $73.8 million higher than $1.04 billion at September 30, 2018.
Non-interest income was $3.4 million during the third quarter of 2019, $2.8 million during the second quarter of 2019, and $2.2 million during the third quarter of 2018. Excluding gains and losses on equity securities and from sales of securities and other assets, non-interest income was $3.3 million during the third quarter of 2019, $2.7 million during the second quarter of 2019, and $2.1 million during the third quarter of 2018.
Mr. Mahon commented, “Growth in fee income was broad-based with year-over-year 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. As our relationship-based Business Banking platform grows, we expect to generate higher levels of fee income. In the second quarter of 2019, we established the infrastructure to offer our commercial borrowers interest rate swaps, and we continue to gain traction on this new product offering. In addition, our SBA lending division continues to leverage the power of Dime’s brand recognition and branch network, which is located in a densely populated metropolitan area, and is expected to drive increased levels of non-interest income over time.”
Total non-interest expense was $22.8 million during the third quarter of 2019, $22.3 million during the second quarter of 2019, and $21.6 million during the third quarter of 2018. On a year-over-year basis, salaries and employee benefits expenses increased by $2.0 million as the Bank added relationship bankers and support staff as part of its Business Banking division buildout. The 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. The FDIC insurance premium expense for the year-ago quarter was $0.4 million.
The ratio of non-interest expense to average assets was 1.41% during the third quarter of 2019, 1.40% during the second quarter of 2019, and 1.39% during the third quarter of 2018.
The efficiency ratio was 57.7% during the third quarter of 2019, 56.8% during the second quarter of 2019, and 58.1% during the third quarter of 2018.
Income Tax Expense
The reported effective tax rate for the third quarter of 2019 was 15.3% versus 25.4% for the second quarter of 2019. The lower tax rate for the third quarter of 2019 is primarily the result of lower pre-tax income for the third quarter of 2019.
Non-performing loans at September 30, 2019 were $16.4 million, or 0.3% of total loans, an increase from $2.5 million, or 0.05% of total loans, at June 30, 2019. A loan loss provision of $11.2 million was recorded during the third quarter of 2019, compared to a loan loss credit of $0.4 million during the second quarter of 2019, and a loan loss provision of $0.3 million during the third quarter of 2018. Net charge-offs for the third quarter of 2019 were $5.1 million, compared to $0.4 million for the second quarter of 2019 and net recoveries of $0.01 million for the third quarter of 2018.
“This quarter’s elevated credit costs resulted primarily from a $5.0 million charge-off and a $7.5 million specific reserve taken against a single $20.0 million C&I relationship. The charged-down balance ($15.0 million) of the relationship has been placed on non-performing status. In analyzing the charge-off and specific reserve, we believe there were factors which were unique to this particular relationship. We consider the loss incurred as isolated and not indicative of any negative trends within either the borrowers’ industry (excluding the aforementioned relationship, our C&I portfolio has loan commitments of less than $5.0 million to the borrowers’ industry) or the Company’s overall credit profile,” commented Mr. Mahon.
The allowance for loan losses was 0.50% of total loans at September 30, 2019 and 0.38% of total loans at June 30, 2019.
At September 30, 2019, non-performing assets represented 2.9% 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).
The Company’s consolidated Tier 1 capital to average assets (“leverage ratio”), which was 8.76% at September 30, 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 September 30, 2019, the Bank’s leverage ratio was 9.81%, while Tier 1 capital to risk-weighted assets and Total capital to risk-weighted assets ratios were 11.86% and 12.38%, respectively.
Diluted earnings per common share of $0.13 was lower than the quarterly $0.14 cash dividend per share during the third quarter of 2019, equating to a 107.7% dividend payout ratio.
Book value per share was $16.94 and tangible book value per share (common equity less goodwill divided by number of shares outstanding) was $15.39 at September 30, 2019 (see “Non-GAAP Reconciliation” tables at the end of this news release).
Outlook for the Quarter Ending December 31, 2019
The Company continues to prioritize NIM growth and improving the quality of its balance sheet, over earning asset growth at lower margins.
The Company’s posted rack rates on multifamily loans continue to be above the rates offered by many competitors, thereby affecting the level of multifamily originations. As such, the multifamily portfolio is expected to continue trending lower for the remainder of the year. The Company has approximately $34 million of multifamily loans scheduled to reach their contractual repricing dates in the fourth quarter of 2019, and approximately $623 million of multifamily loans scheduled to reach their contractual repricing dates during fiscal year 2020.
Declines in the multifamily portfolio are expected to be offset by growth in the Business Banking portfolio and the Residential Lending portfolio.
The Business Banking division is projected to achieve full year 2019 net portfolio growth of $650 million to $700 million. Net portfolio growth for the Business Banking division for the first 9 months of 2019 was approximately $504 million.
Non‐interest expense for fiscal year 2019 is currently expected to be approximately between $89 million to $90 million. This estimate includes the cost of hiring new relationship bankers to meet the aforementioned portfolio growth target for the Business Banking division.
The Company projects that the consolidated effective tax rate for the fourth quarter of 2019 will be approximately 24%.
ABOUT DIME COMMUNITY BANCSHARES, INC.
The Company had $6.43 billion in consolidated assets as of September 30, 2019. The Bank was founded in 1864, is headquartered in Brooklyn, New York, and currently has 29 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
|DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES|
|UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION|
|(Dollars in thousands except share amounts)|
|September 30,||June 30,||December 31,|
|Cash and due from banks||$112,541||$172,418||$147,256|
|Mortgage-backed securities available-for-sale, at fair value||453,018||409,510||466,605|
|Investment securities available-for-sale, at fair value||66,590||67,004||36,280|
|Marketable equity securities, at fair value||5,835||5,953||5,667|
|Real Estate Loans:|
|One-to-four family and cooperative/condominium apartment||134,361||120,523||96,847|
|Multifamily residential and residential mixed-use (1)(2)||3,608,156||3,736,500||3,866,788|
|Commercial real estate and commercial mixed-use||1,333,763||1,279,188||1,170,085|
|Acquisition, development, and construction ("ADC")||95,767||77,479||29,402|
|Total real estate loans||5,172,047||5,213,690||5,163,122|
|Commercial and industrial ("C&I")||309,593||316,061||229,504|
|Allowance for loan losses||(27,294||)||(21,134||)||(21,782||)|
|Total loans, net||5,455,735||5,510,397||5,372,036|
|Premises and fixed assets, net||22,507||23,069||24,713|
|Loans held for sale||1,839||3,814||1,097|
|Federal Home Loan Bank of New York capital stock||54,421||57,051||57,551|
|Bank Owned Life Insurance ("BOLI")||113,551||112,828||111,427|
|Operating lease assets||38,856||40,113||-|
|LIABILITIES AND STOCKHOLDERS' EQUITY:|
|Certificates of deposit||1,650,688||1,654,169||1,410,037|
|Total Due to Depositors||4,391,406||4,435,536||4,356,754|
|Escrow and other deposits||110,233||85,811||85,234|
|Federal Home Loan Bank of New York advances||1,056,750||1,115,200||1,125,350|
|Subordinated Notes Payable, net||113,869||113,832||113,759|
|Operating lease liabilities||45,117||46,480||-|
|Common stock ($0.01 par, 125,000,000 shares authorized, 53,699,694 shares, 53,690,825 shares, and 53,690,825 shares issued at September 30, 2019, June 30, 2019, and December 31, 2018, respectively, and 35,951,652 shares, 35,887,395 shares, and 36,081,455 shares outstanding at September 30, 2019, June 30, 2019 and December 31, 2018, respectively)||537||537||537|
|Additional paid-in capital||279,768||279,327||277,512|
|Accumulated other comprehensive loss, net of deferred taxes||(6,308||)||(6,288||)||(6,500||)|
|Unearned equity award common stock||(8,892||)||(8,165||)||(3,623||)|
|Common stock held by the Benefit Maintenance Plan||(1,496||)||(1,509||)||(1,509||)|
|Treasury stock (17,748,042 shares, 17,812,299 shares, and 17,609,370 shares at September 30, 2019, June 30, 2019, and December 31, 2018, respectively)||(234,535||)||(235,360||)||(230,049||)|
|TOTAL STOCKHOLDERS' EQUITY||608,904||608,701||602,081|
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY||$6,425,335||$6,498,362||$6,320,578|
|(1) Includes loans underlying cooperatives.|
|(2) While the loans within this category are often considered "commercial real estate" in nature, multifamily and loans underlying cooperatives are here reported separately from commercial real estate loans in order to emphasize the residential nature of the collateral underlying this significant component of the total loan portfolio.|
|DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES|
|UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS|
|(Dollars in thousands except share and per share amounts)|
|For the Three Months Ended||For the Nine Months Ended|
|September 30,||June 30,||September 30,||September 30,||September 30,|
|Loans secured by real estate||$50,732||$50,811||$47,486||$150,720||$144,889|
|Commercial and industrial ("C&I") loans||4,442||4,134||2,729||12,012||6,541|
|Other short-term investments||1,488||1,457||1,480||4,392||4,537|
|Total interest income||60,279||59,951||54,624||177,925||163,660|
|Deposits and escrow||16,582||16,271||13,361||47,870||36,100|
|Total interest expense||24,083||23,447||19,596||69,901||54,484|
|Net interest income||36,196||36,504||35,028||108,024||109,176|
|Provision (credit) for loan losses||11,228||(449||)||335||11,100||1,641|
|Net interest income after provision for loan losses||24,968||36,953||34,693||96,924||107,535|
|Service charges and other fees||1,780||1,264||1,233||4,143||3,443|
|Mortgage banking income, net||77||61||79||206||292|
|Gain on equity securities||14||148||99||430||114|
|Gain (loss) on sale of securities and other assets||66||(57||)||-||(67||)||1,370|
|Gain on sale of loans||443||339||18||1,037||143|
|Income from BOLI||723||707||729||2,124||2,161|
|Loan level derivative income||197||291||-||488||-|
|Total non-interest income||3,361||2,820||2,221||8,541||7,702|
|Salaries and employee benefits||12,948||12,061||10,963||36,893||33,024|
|Stock benefit plan compensation expense||574||491||403||1,349||1,198|
|Occupancy and equipment||3,970||3,827||3,845||11,666||11,414|
|Data processing costs||1,803||1,908||1,823||5,777||5,374|
|Federal deposit insurance premiums||(506||)||586||382||534||1,521|
|Total non-interest expense||22,774||22,296||21,585||67,122||64,145|
|Income before taxes||5,555||17,477||15,329||38,343||51,092|
|Income tax expense||850||4,442||3,547||9,102||12,244|
|Earnings per Share ("EPS"):|
|Basic||$ 0.13||$ 0.36||$ 0.32||$ 0.81||$ 1.05|
|Diluted||$ 0.13||$ 0.36||$ 0.32||$ 0.81||$ 1.04|
|Average common shares outstanding for Diluted EPS||35,769,461||35,864,389||37,189,648||35,866,059||37,399,740|
|DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES|
|UNAUDITED SELECTED FINANCIAL HIGHLIGHTS|
|(Dollars in thousands except per share amounts)|
|At or For the Three Months Ended ||At or For the Nine Months Ended|
|September 30,||June 30,||September 30,||September 30,||September 30,|
|Per Share Data:|
|Reported EPS (Diluted)||$0.13||$0.36||$0.32||$0.81||$1.04|
|Cash dividends paid per share||0.14||0.14||0.14||0.42||0.42|
|Book value per share||16.94||16.96||16.49||16.94||16.49|
|Tangible book value per share (1)||15.39||15.41||14.97||15.39||14.97|
|Dividend payout ratio||107.69||%||38.89||%||43.75||%||51.85||%||40.38||%|
|Performance Ratios (Based upon Reported Net Income):|
|Return on average assets||0.29||%||0.82||%||0.76||%||0.61||%||0.82||%|
|Return on average common equity||3.08||%||8.59||%||7.71||%||6.42||%||8.51||%|
|Return on average tangible common equity (1)||3.39||%||9.45||%||8.49||%||7.07||%||9.37||%|
|Net interest spread||2.07||%||2.08||%||2.11||%||2.06||%||2.20||%|
|Net interest margin||2.34||%||2.38||%||2.33||%||2.34||%||2.40||%|
|Average interest-earning assets to average interest-bearing liabilities||118.38||%||119.47||%||117.46||%||118.70||%||117.06||%|
|Non-interest expense to average assets||1.41||%||1.40||%||1.39||%||1.40||%||1.36||%|
|Loan-to-deposit ratio at end of period||124.86||%||124.71||%||123.53||%||124.86||%||123.53||%|
|CRE consolidated concentration ratio (2)||678.9||%||697.3||%||706.1||%||678.9||%||706.1||%|
|Effective tax rate||15.30||%||25.42||%||23.14||%||23.74||%||23.96||%|
|Average Balance Data:|