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TEXT-Fitch affirms Dime Community Bancshares ratings
August 21, 2012 / 2:37 PM / 5 years ago

TEXT-Fitch affirms Dime Community Bancshares ratings

Aug 21 - Fitch Ratings has affirmed Dime Community Bancshares, Inc.'s  
 (DCOM) and Dime Savings Bank of Williamsburgh's long- and short-term
Issuer Default Ratings (IDR) at 'BBB' and 'F2', respectively. 

The affirmation of DCOM's ratings reflects the institution's solid asset quality
and consistent profitability as well its concentrated loan portfolio and 
undiversified earnings profile. The Rating Outlook is Stable which embodies 
management's continued strategic focus on multifamily lending and consistent 
operating results.

Fitch believes DCOM's strategic focus on rent-regulated, multifamily lending has
been a driver of solid asset quality. Typically, rent-regulated units have low 
vacancy rates and therefore very steady cash flows. Net charge-offs totaled just
0.17% of total loans in 2011 and have remained very low throughout multiple 
credit cycles due to conservative underwriting standards (53% portfolio weighted
average loan to value) and a local market that is supported by favorable rent 
regulations. Fitch views DCOM's solid asset quality as a primary ratings driver 
for the institution.

Although higher than historical levels, nonperforming loans (including troubled 
debt restructurings), remain low relative to peer institutions at 1.7% of total 
loans. TDRs increased significantly in 2011, primarily due to a FASB accounting 
update clarifying when banks should classify a TDR. Fitch believes the level of 
risk in the portfolio is flat, despite the rise in reported TDRs.

Earnings are solid and remain at levels commensurate with similarly rated peers.
Return on average assets finished at 1.1% at the end of second quarter, which is
down 6bps from year-end 2011. However, Fitch believes it is unlikely that 
current operating results will persist in the current rate environment. DCOM's 
cost of funds has decreased significantly and is likely near the potential 
bottom, while multi-family loans continue to be refinanced into lower rates. 
Therefore, absent any large pre-payment fee income, margin pressure is expected 
in the current rate environment. 

Although multi-family loans have a strong history of performance, the size and 
geographic location poses significant concentration risk to the institution. 
Multifamily loans represent over 800% percent of capital, and the loan portfolio
is almost entirely located in New York City. Changes to rent regulations or a 
sharp downturn in economic conditions in the New York metro area can have 
significant negative impact on DCOM's loan portfolio.

DCOM is heavily reliant on real estate brokers for the majority of its new-loan 
originations which could become a concern if one of the larger brokers 
experiences problems or decides to direct business away from the company. While 
the broker model is predominant in the New York City real estate market, DCOM's 
size may put it at a disadvantage in relation to its larger competitors, 
especially as competition for multi-family loans has picked up.

Capital ratios continue to steadily improve since reaching a trough in 2008, as 
asset growth decelerated and stock repurchase activity was curtailed. Fitch 
views DCOM's capital ratios as adequate for the current ratings, particularly 
given the institutions loss history. Further, proposed capital rules leave risk 
weightings for multi-family loans unchanged, which relieves some regulatory 
capital uncertainty going forward.

Ratings Drivers and Sensitivities:

Fitch believes DCOM's rating is solidly situated at current levels. Further 
ratings improvement is unlikely given the meaningful concentrations in the loan 
portfolio and undiversified income stream. However, negative ratings pressure 
could occur if there were a significant change to rent regulations in New York, 
a sharp increase in problem loans or a significant loss of business from DCOM's 
primary broker. Additionally, although not anticipated, any significant changes 
in the mix of business, either by product type or geography, would be carefully 
considered by Fitch to determine any potential ratings impact. 

Fitch has affirmed the following ratings with a Stable Outlook: 

Dime Community Bancshares, Inc.
--Long-term IDR at 'BBB'; 
--Short-term IDR at 'F2';
--Viability rating at 'bbb';
--Support at '5';
--Support Floor at 'NF'. 

Dime Savings Bank of Williamsburgh
--Long-term IDR at 'BBB';
--Long-term Deposits at 'BBB+';
--Short-Term IDR at 'F2';
--Short-Term Deposits at 'F2';
--Viability rating at 'bbb'.
--Support at '5';
--Support Floor at 'NF'; 

Dime Community Capital Trust I
--Trust Preferred at 'BB-'.

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