Dime Community Bancshares, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless otherwise noted. The company is a bank holding company operating Dime Community Bank, with 59 branches in Long Island and New York City.
Financial performance and position
| Metric | Q3 2022 | Comparable period / balance |
|---|---|---|
| Net interest income | $100.4 million | $94.8 million in Q3 2021 |
| Net income | $39.5 million | $38.4 million in Q3 2021 |
| Net income available to common shareholders | $37.7 million; diluted EPS $0.98 | $36.6 million; diluted EPS $0.89 in Q3 2021 |
| Net interest margin | 3.38% | 3.20% in Q3 2021 |
| Assets | $12.89 billion | $12.07 billion at December 31, 2021 |
| Loans held for investment, net | $10.04 billion | $9.16 billion at December 31, 2021 |
| Deposits | $10.49 billion | $10.46 billion at December 31, 2021 |
| Stockholders’ equity | $1.14 billion | $1.19 billion at December 31, 2021 |
- For the first nine months, net income was $112.5 million, versus $68.6 million in 2021; diluted EPS was $2.74 versus $1.62. Net interest income was $283.1 million versus $265.9 million, and net interest margin was 3.29% versus 3.15%.
- Q3 total interest income was $114.5 million and interest expense was $14.1 million. The rise in net interest income reflected higher loan yields and balances, partly offset by higher deposit and borrowing costs.
- Nine-month operating cash flow was $247.5 million; investing cash flow was negative $875.5 million and financing cash flow was positive $547.3 million. Cash and cash equivalents declined $80.7 million to $313.0 million.
- At quarter-end, FHLBNY advances were $620 million, compared with $25 million at year-end 2021; subordinated debt was $200.3 million. The company issued $160 million of subordinated notes in May and used proceeds in part to repay $155 million of older notes and debentures.
- The Bank reported regulatory capital ratios above applicable thresholds and was categorized as well capitalized. Its tier 1 common equity ratio was 12.0%; unused FHLBNY borrowing capacity was $2.48 billion.
Material changes and notable items
- Loans grew $874.2 million from year-end, driven primarily by real estate lending. The loan-to-deposit ratio increased to 96.5% from 87.0% in Q3 2021. Deposits were nearly flat versus year-end; core deposits declined $47.8 million during the first nine months, while certificates of deposit increased $77.5 million.
- Q3 provision for credit losses was $6.6 million, compared with a $5.2 million recovery in Q3 2021. Nine-month provision was $5.0 million versus $6.3 million in 2021. The current-period provision reflected forecasted macroeconomic conditions and loan growth, partly offset by releases of acquired-loan reserves.
- Nonperforming loans were $41.1 million, or 0.41% of loans, versus $34.0 million, or 0.37%, a year earlier. The allowance for credit losses was $81.9 million, 0.81% of loans, compared with 0.88% at year-end 2021. C&I loans represented $29.5 million of nonaccrual loans.
- Q3 non-interest expense fell to $48.3 million from $56.8 million, principally because Q3 2021 included merger and branch restructuring costs. Nine-month expense fell to $150.0 million from $194.5 million, with the prior-year period including $42.3 million of merger costs and $6.2 million of branch restructuring costs.
- Available-for-sale securities fell to $962.9 million from $1.56 billion at year-end; held-to-maturity securities rose to $591.4 million. The company transferred $372.2 million of securities to held-to-maturity. AFS securities had $125.6 million of gross unrealized losses and HTM securities had $80.3 million of unrecognized losses at quarter-end. Accumulated other comprehensive loss widened to $93.0 million from $6.2 million.
- Stockholders’ equity declined $51.8 million, primarily reflecting other comprehensive loss, common-share repurchases and dividends, partly offset by net income. The company repurchased $46.5 million of common stock in the first nine months.
Outlook, risks and contingencies
- The filing provides no specific earnings, growth, margin or credit-loss guidance. Management discusses liquidity monitoring and interest-rate risk management, but does not give a quantified operating outlook.
- Management identifies interest rates and inflation, deposit flows and loan demand, real estate values, portfolio credit quality, competition, economic conditions, regulation, cybersecurity, litigation, and COVID-19-related effects among key uncertainties. It cautions that forward-looking statements are not guarantees.
- Interest-rate simulations estimated that gradual +200 basis-point rate changes would affect net interest income by +0.1% in year one and +4.9% in year two; instantaneous +200 basis-point shocks were estimated at +1.3% and +7.0%, respectively. These are model estimates, not guidance.
- The Bank had $286.8 million in accepted firm loan commitments expected to close during the remainder of 2022. A loan-securitization reimbursement agreement has maximum exposure of $28.0 million, supported by pledged securities. Management said pending or threatened legal matters were not expected to have a material adverse effect; risk factors were unchanged from the 2021 Form 10-K.
- Unusual items included a $1.4 million Q3 gain on sale of a branch property, $2.2 million of nine-month BOLI income from a death claim, and a $740,000 debt-issuance-cost write-off related to the 2022 debt refinancing. No merger or branch restructuring expenses were recorded in the nine-month 2022 period.
Key facts for investors to verify
- Whether deposit pricing, core deposit trends and the increased use of FHLBNY advances affect funding costs and net interest margin.
- Credit quality in the sizable real estate and C&I portfolios, particularly the increase in nonperforming loans and the adequacy of the allowance under changing economic forecasts.
- The consequences of securities market-value declines, including the AFS unrealized loss, HTM unrecognized loss and the accounting effects of the securities transfer.
- Whether loan growth and the 96.5% loan-to-deposit ratio remain manageable alongside commitments and available borrowing capacity.
- How sustainable reported earnings are after considering prior-year merger-related expense comparisons and current-period unusual gains and BOLI income.