Letter To Shareholders - 2020
As I write this letter to our shareholders, the words of which I am reminded are: hope for the best, prepare for the worst. No one can predict what our economy and our country will look like once the COVID‐19 pandemic passes. By this time next year, I sincerely hope it is all behind us.
In the meantime, management’s priority in the coming year will be to best position Dime Community Bank to serve our three core constituencies, as articulated in our Mission Statement: to be the bank of choice for customers, the employer of choice for our associates, and the investment of choice for investors.
The Bank of Choice for Customers
The Best Business Bank in New York
The pandemic should have made clear to everyone just how important small businesses are to ensure full employment and to support a well‐functioning economy. Over the past several years, we have taken numerous steps, including hiring personnel and adding new processes and systems, that have put the bank in a superb position to help our business customers, primarily small and mid‐size businesses (generally considered to be those with fewer than 500 employees). In a short span of time, Dime now has one of the most productive Small Business Administration (“SBA”) operations in the New York‐area. Per a report from the SBA dated February 29, 2020, Dime currently ranks among the top 10 SBA lenders (by dollars of originations) in the New York District.
We are deeply committed to being a source of capital to businesses in our footprint. Since the weekend of April 3, 2020, Dime has processed nearly 1,000 applications for the SBA’s Payroll Protection Plan (“PPP”). This initiative is a bank‐wide priority and important to me personally; many of our staff are working around the clock and over weekends to ensure we keep credit flowing to businesses. The PPP supplies lifeblood to small businesses and is expected to greatly speed the economy’s emergence from this period of distress – we are committed to helping in any way that we can.
When Dime serves small business owners, it also serves the individuals employed by those businesses. That’s why we include the word ‘Community’ in our name.
The creation of our SBA department was part of a full‐service commercial banking platform that was created at Dime three years ago. Commercial lending requires specific expertise and infrastructure. When management and the Board commenced that buildout, we added commercial bankers who had careers full of successful experience in the lending and deposit gathering business, over many credit cycles, in order to improve our margins while sustaining Dime’s reputation as a top performer. Now we have the products and services to serve both business and retail customers. To solidify the transformation, in April 2019 we converted our thrift charter to a commercial bank charter. Our associates make it our every day mission to be the best business bank in New York.
The commercial bank charter conversion has provided the Bank with the additional business opportunity of accepting municipal deposits. We now have a well‐respected team in place to serve municipalities across our footprint and expect to grow deposits from this channel given our reputation for service and balance sheet strength.
Our name, Dime, gives us a competitive advantage. In business in New York for over 150 years, the name Dime represents a unique, recognizable New York‐aligned brand. Through our various commercial bank initiatives, we have broadened our reach, and created a larger base of clientele to serve, all inside the same geography. The five boroughs and Long Island are among the most densely populated areas in the nation and we are proud to consider ourselves one of New York's iconic community banks.
The Employer of Choice for Our Associates
From the commencement of the pandemic, Dime management and the Board were first and foremost concerned about the well‐being of our staff members. Our years of business continuity planning enabled our staff to move quickly from their offices to a work‐from‐home environment. This shift occurred in early March. Extensive preparations for this move were made in the month of February, and as a result bank‐wide operations continued seamlessly and uninterrupted throughout. Using our internal intranet‐based bulletin board, “DimeConnect”, and an external communications platform, both of which were installed and tested well before the pandemic, our staff was able to continue the experience of being part of the great, team effort that goes on every day at Dime, even while working from home. Over 200 associates, 100% of our non‐branch staff, are using remote desktop software to re‐create their desktop environment at home.
Protecting our customer‐facing staff at our branches presented a unique challenge. Banking was designated by New York State as an essential business; our customers rightfully expected to have physical in person branch banking services available from Dime. Our experienced and selfless branch staff members made themselves available, and continued to conduct business at each branch where plexiglass barriers existed. The barriers help protect both staff and customers. Individual branches are being periodically taken offline and scrubbed down proactively, in order to take maximum precaution. Of course, in today’s age, mobile and digital banking are the medium of choice for many customers – another platform where Dime excels.
Our employees demonstrate every day that client satisfaction is uppermost in their approach to their jobs. While it may be true that “Quality is Free”, it takes respect for self and respect for others to make quality service a reality. Our team at Dime does that every day – and weekends too.
The Investment of Choice for Investors
Finally, building and maintaining a fortress‐like balance sheet, that can withstand economic storms, has always been a hallmark of Dime Community Bank.
Our asset diversification initiatives of the past several years have taken us into new commercial, business and residential lending asset classes. The largest segment within the loan portfolio (approximately 63% at December 31, 2019) remains in multifamily loans. New York City multifamily loans were by far the best performing credits during the financial crisis of 2008. Year after year, Dime had one of the lowest loss rates in the nation. Given the low LTV nature of our multifamily portfolio, we anticipate our track record to continue.
Due to the city’s limited geography,multifamily apartment buildings are the primary form of housing for our population. In addition, New York City will always continue to attract newcomers. Among the reasons are its value as a financial center, the rise of ‘silicon alley’ in its midst, its strategic location, the emergence of the entertainment industry, and often forgotten, it is also a college town. With people, comes the need for housing. And in New York City, that means multifamily housing. Dime has multifamily lending in its DNA. Our employees live here and grew up here. Our borrowers have been with Dime through intergenerational family ownership, across various economic cycles.
In addition, management has built a balance sheet with significant capital strength. We enter this uncertain economic period with an extremely strong capital base. Our Total Risk‐Based Capital Ratio is in excess of 15% and ranks amongst the highest of our peer group. Management began preparations for bolstering our capital base as early as December 2019 and successfully issued $75 million of Preferred Stock in early 2020. The Preferred Stock is a perpetual instrument – meaning that it is a form of permanent equity capital. It seems like a prescient move today, but it was simply the continuation of management’s focus on building a safe and sound institution for the long term.
I am very pleased to report that we are making progress on achieving our strategic plan goals. The level of noninterest bearing deposits, which were stagnant at Dime for many years at approximately 6% of total deposits, now exceed 11% of total deposits. The contribution from non‐interest revenue is improving. The small business and residential lending departments are maturing into vibrant, profitable divisions, and have strong synergies with our commercial borrowers and our vibrant branch network. We are optimistic that these trends will continue.
Dime has become a bank that, more than ever, is able to step forward and help our community navigate successfully through the health and economic crises in which we now find our nation and our communities.
I am extremely proud of the team we have put together at Dime. Their commitment to each other and to our customers has been very rewarding to watch.
Now let me share some of our 2019 highlights with you:
2019 Strategic Highlights
(1) Non‐Interest Bearing Deposits: In 2019, we had exceptionally strong growth in non‐interest bearing deposits. On a year‐over‐year basis, non‐interest bearing deposit balances grew by 21%.
(2) Low‐cost commercial‐banking deposits: In 2019, we made significant strides in increasing the contribution of business deposits to our overall deposit mix. Total commercial banking deposits from our Business Banking division, plus our legacy multifamily division, increased by 31% or approximately $133 million on a year‐over‐year basis. Commercial banking deposits comprised 13% of total deposits at December 31, 2019, as compared to approximately 10% of total deposits a year ago.
(3) Relationship‐Based Commercial Loans: The Business Banking division's loan portfolio crossed the $1 billion threshold at the end of the second quarter of 2019 and ended the year at $1.3 billion compared to $648 million at the end of 2018. This represents 97% year‐over‐year growth. At December 31, 2019, the Business Banking loan portfolio represented 24% of total loans.
(4) CRE Concentration Ratio: Our efforts to diversify the balance sheet resulted in the Consolidated regulatory CRE concentration ratio dropping to 663% at year‐end 2019 versus 703% the prior year.
(5) Non‐Interest Income: The Bank has made significant investments in our SBA business, in the development of an interest rate swap program for our commercial clients, and in commercial service fee income generation. We grew annual non‐interest income, excluding securities gains and losses, by over 37% on a year‐over‐year basis.
Dime made quantifiable progress on improving each of the aforementioned 5 “Key Foundational metrics”, upon which our Strategic Plan is built. Positive patterns and trends began to emerge in our financial statements. To conclude, 2019 was an extremely successful year.
Kenneth J. Mahon
Chief Executive Officer