Management’s Discussion of Quarterly Operating Results

 

Net Interest Income

 

Net interest income in the first quarter of 2020 was $40.5 million, an increase of $1.1 million (2.9%) from the fourth quarter of 2019 and an increase of $5.2 million (14.7%) from the first quarter of 2019. The table below provides a reconciliation of the reported NIM and the NIM excluding the impact of loan prepayment fees.

 

	($ in millions)	Q1 2020	Q4 2019	Q1 2019
	NIM	2.72%	2.60%	2.31%
	Net Interest Income	$40,524	$39,397	$35,324
	Income from Loan Prepayment Activity	$1,975	$1,979	$820
	Net Interest Income Excluding Prepayment Fee Income	$38,549	$37,418	$34,504
	NIM, Excluding Prepayment Fee	2.59%	2.47%	2.26%

Mr. Mahon commented, “Our NIM (excluding the impact of prepayment fees) has now increased for six consecutive quarters. As anticipated, our business model transformation is producing the desired results on NIM.”

 

Average interest-earning assets were $5.95 billion for the first quarter of 2020, a 7.0% (annualized) decrease from $6.06 billion for the fourth quarter of 2019, and a 2.6% decrease from $6.11 billion for the first quarter of 2019. For the first quarter of 2020, the average yield on interest-earning assets was 3.96%, a decrease of 3 basis points compared with the fourth quarter of 2019, and an increase of 18 basis points compared to the first quarter of 2019.

 

The ending weighted average rate (“WAR”) on the total loan portfolio was 4.00% at March 31, 2020, which represents a 4 basis point decrease, versus the ending WAR on the total loan portfolio at December 31, 2019, and a 10 basis point increase versus the ending WAR on the total loan portfolio at March 31, 2019. Commenting on the linked quarter decline in the WAR on the loan portfolio, Mr. Mahon said “As a result of the Federal Reserve rate cuts in March, the WAR on our loan portfolio declined modestly on a linked quarter basis. This decline in loan rates was more than offset by a 14 basis point linked quarter decline in the cost of deposits.”

 

The average cost of borrowed funds (which primarily consists of Federal Home Loan Bank advances) was 2.15% for the first quarter of 2020, a decrease of 20 basis points versus the fourth quarter of 2019, and a decrease of 28 basis points versus the first quarter of 2019.

 

Loans

 

The real estate loan portfolio decreased by $127.9 million (10.2% annualized) during the first quarter of 2020, primarily due to managed run-off in the Bank’s lower-yielding legacy multifamily business. Total real estate loan originations were $166.8 million during the first quarter of 2020, at a weighted average interest rate of 4.05%. Real estate loan amortization and satisfactions totaled $289.1 million, or 23.5% (annualized) of the portfolio balance, at an average rate of 3.86%. The annualized real estate loan payoff rate of 23.5% for the first quarter of 2020 was lower than the fourth quarter of 2019 (24.5% annualized) and higher than the first quarter of 2019 (11.6% annualized).

 

Average real estate loans were $4.95 billion in the first quarter of 2020, a decrease of $127.8 million (-10.1% annualized) from the fourth quarter of 2019, and a decrease of $241.6 million (-4.6%) from the first quarter of 2019.

 

Average C&I loans were $327.7 million in the first quarter of 2020, an increase of $8.1 million (10.1% annualized) from the fourth quarter of 2019, and an increase of $79.4 million (32.0%) from the first quarter of 2019.

 

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

 

Deposits and Borrowed Funds

 

The Company continues to focus on growing relationship-based business deposits sourced from its retail branches and its Business Banking division.  The Business Banking division ended the first quarter of 2020 with approximately $185.6 million of low-cost relationship-based checking and leasehold deposits at an average rate of approximately six basis points and total deposits of $386.1 million at an average rate of 49 basis points.

 

The cost of total deposits decreased 14 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 11.3% at March 31, 2020, compared to 9.5% at March 31, 2019.”

 

Total deposits decreased by $42.8 million on a linked quarter basis to $4.24 billion at March 31, 2020. Mr. Mahon commented, “We continue to proactively adjust pricing on various deposit categories and we managed downward higher-cost, more rate sensitive deposit balances.”

 

The loan-to-deposit ratio was 122.8% at March 31, 2020, compared to 124.7% at December 31, 2019 and 124.9% at March 31, 2019.

 

Total borrowings, excluding subordinated debt securities, was $1.11 billion at March 31, 2020, compared to $1.20 billion at the fourth quarter of 2019, and $1.13 billion at the first quarter of 2019.

 

Non-Interest Income

 

Non-interest income was $4.2 million during the first quarter of 2020, $3.6 million during the fourth quarter of 2019, and $2.4 million during the first quarter of 2019. Excluding gains and losses on equity securities and from sales of securities and other assets, and BOLI death benefit proceeds ($1.1 million of BOLI death benefit proceeds was recognized in the first quarter of 2020), non-interest income was $3.6 million during the first quarter of 2020 compared to $3.4 million during the fourth quarter of 2019 and $2.2 million during the first quarter of 2019.

 

Mr. Mahon commented, “We continue to gain traction with our commercial customers on our interest rate swap products. Fees associated with customer level swaps were $1.2 million for the first quarter of 2020 versus $0.4 million for the fourth quarter of 2019.”

 

Non-Interest Expense

 

Total non-interest expense was $26.0 million during the first quarter of 2020, $28.3 million during the fourth quarter of 2019, and $22.1 million during the first quarter of 2019. 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. Excluding the non-recurring item in the fourth quarter of 2019, non-interest expense was $24.3 million. The increase in the current quarter compared to the linked quarter, excluding the loss from the extinguishment of debt, was primarily due to a $1.6 million increase in salaries and benefits expense.

 

The ratio of non-interest expense to average assets was 1.68% during the first quarter of 2020, compared to 1.80% for the fourth quarter of 2019 and 1.39% for the first quarter of 2019. The efficiency ratio was 57.6% during the first quarter of 2020, compared to 66.0% during the linked quarter and 59.2% during the first quarter of 2019. 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.

 

Income Tax Expense

 

The reported effective tax rate for the first quarter of 2020 was 21.6% versus 18.5% for the fourth quarter of 2019, as a result of higher pre-tax income in 2020.

 

Credit Quality

 

Non-performing loans at March 31, 2020 were $18.2 million, or 0.4% of total loans, compared to $11.1 million, or 0.2% of total loans, at December 31, 2019. The increase in non-performing loans was due to a single real estate relationship, totaling $7.1 million with an LTV of 36%, that moved into non-performing status in the first quarter of 2020.  During April 2020, the Bank entered into a contract to sell the loan notes and does not anticipate any losses from the sale.

 

Under Section 4014 of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act), financial institutions had the option to delay the adoption of the Current Expected Credit Loss (“CECL”) framework until the earlier of December 31, 2020 or when the national emergency is lifted. The Bank elected to defer adoption of CECL and is still utilizing its existing incurred loss framework.

 

A loan loss provision of $8.0 million was recorded during the first quarter of 2020, compared to a loan loss provision of $6.2 million during the fourth quarter of 2019, and a loan loss provision of $0.3 million during the first quarter of 2019. The $8.0 million provision for the first quarter of 2020 was associated with an increase in the general loan loss reserve due to the adjustment of qualitative factors tied to the Bank’s existing incurred loss framework, to account for the effects of the COVID-19 pandemic and related economic disruption.

 

At March 31, 2020, non-performing assets represented 3.1% of the sum of tangible equity plus the allowance for loan losses and reserve for contingent liabilities (see “Problem Assets as a Percentage of Tangible Equity and Reserves” table and “Non-GAAP Reconciliation” table at the end of this news release).

 

Capital Management

 

The Company’s regulatory capital ratios continued to be in excess of all applicable regulatory requirements. At March 31, 2020, the Consolidated Tier 1 capital to average assets (“leverage ratio”) was 9.80%, while the Tier 1 capital to risk-weighted assets and Total capital to risk-weighted assets ratios were 12.15% and 15.21%, respectively.

 

The Bank’s regulatory capital ratios continued to be in excess of all applicable regulatory requirements.  At March 31, 2020, the Bank’s leverage ratio was 9.93%, while the Tier 1 capital to risk-weighted assets and Total capital to risk-weighted assets ratios were 12.72% and 13.47%, respectively.

 

Diluted earnings per common share of $0.24 exceeded the quarterly $0.14 cash dividend per share by 71% during the first quarter of 2020, equating to a 58.3% dividend payout ratio.

 

Book value per common share was $16.93 and tangible common book value per share (common equity less goodwill divided by number of shares outstanding) (see “Non-GAAP Reconciliation” tables at the end of this news release) was $15.29 at March 31, 2020.

 

Earnings Call Information

 

The Company will conduct a conference call at 8:30 a.m. (ET) on April 28, 2020, during which the President and Chief Executive Officer, Kenneth J. Mahon, will discuss the Company’s first quarter 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/dcom200428.html. Dial-in information for the replay is 1-877-344-7529 using access code #10142673. Replay will be available April 28, 2020 (9:30 a.m. (ET)) through May 5, 2020 (11:59 p.m. (ET)).

 

ABOUT DIME COMMUNITY BANCSHARES, INC.

The Company had $6.35 billion in consolidated assets as of March 31, 2020. 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. Further, given its ongoing and dynamic nature, it is difficult to predict what effects the COVID-19 pandemic will have on our business and results of operations. The pandemic and related local and national economic disruption may, among other effects, result in a decline in demand for our products and services; increased levels of loan delinquencies, problem assets and foreclosures; branch closures, work stoppages and unavailability of personnel; and increased cybersecurity risks, as employees increasingly work remotely.

 

Contact: Avinash Reddy

Senior Executive Vice President – Chief Financial Officer

718-782-6200 extension 5909

 

(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)