Fitch Affirms Dime Community's Ratings at 'BBB'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the long- and short-term Issuer Default Ratings (IDRs) for Dime Community Bancshares, Inc. (DCOM) and its principal banking subsidiary, Dime Savings Bank of Williamsburgh at 'BBB'/'F2'. The Rating Outlook is Stable. A full list of ratings actions is provided at the end of this release.

Fitch reviewed DCOM as part of its Niche Bank Peer Review, which also includes Astoria Financial Corporation, Inc., Emigrant Bancorp, Inc., and New York Community Bancorp, Inc. Niche banks are defined by their narrow business models, limited deposit franchises and geographic concentrations. Fitch views these limitations as ratings constraints across the peer group. The group is composed of banks with total assets ranging from $4 billion to $49 billion that lend primarily in the New York City metropolitan residential real estate market.

KEY RATINGS DRIVERS - IDRs, VRs, AND SENIOR DEBT

The ratings are supported by DCOM's consistent execution, strong asset quality, and solid underwriting performance. Key rating constraints include DCOM's weak liquidity profile, narrow business model and volatility of earnings through rate cycles.

DCOM's conservative risk appetite and demonstrated ability to execute on its multifamily lending strategy through various cycles is its primary ratings strength. DCOM's asset quality remains very strong with non-performing asset levels well below peer averages. Fitch believes DCOM's asset quality is positively affected by favourable rent regulations in New York City, which generally keep building vacancies low and ultimately reduce the volatility of cash flows generated by regulated properties.

DCOM's ratings are also supported by very solid underwriting performance. DCOM experienced minimal losses through the latest credit cycle with net charge-offs averaging about only 10 bps over the last 10 years. Fitch observes that DCOM exhibited particular proficiency in its niche, experiencing lower credit costs than its multifamily real estate-focused peers during and after the financial crisis.

DCOM's earnings performance has been solid for a number of years with ROA over 1% for five consecutive years. However, DCOM's earnings profile is concentrated in spread income from primarily the multifamily asset class. Because earnings are concentrated in spread income, profitability can be highly variable through rate cycles. Given, DCOM's liability sensitive balance sheet, Fitch expects profitability will face headwinds if short-term rates rise.

Similar to its peer banks, DCOM's liquidity profile remains a constraint on the overall rating for the institution. DCOM's business strategy tends to be more transaction-oriented, and as a result, its funding profile does not benefit from a sizeable relationship-driven deposit base. As a result, DCOM operates with a high loan-to-deposit ratio. As of year-end 2014, DCOM's loan-to-deposit ratio was the highest in its four-bank peer group at 155%.

RATING SENSITIVITIES - IDRs, VRs, AND SENIOR DEBT

Fitch believes DCOM's ratings are solidly situated at current levels. Fitch sees limited upside in the company's ratings over the near term due to aforementioned concentrations in the loan portfolio, undiversified earnings profile, and relatively weak liquidity profile.

Negative ratings pressure could occur if there were a significant change to rent regulations in New York City. DCOM has historically benefitted from rent regulations on multifamily apartments in New York City.

DCOM's ratings are predicated on the company's adherence to its core competency, which is multifamily lending in the New York City metropolitan area. 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.

KEY RATINGS DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

DCOM's trust preferred issuances are rated four notches below DCOM's VR of 'bbb' in accordance with Fitch's assessment of the instruments' non-performance and loss severity risk profiles.

RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings of subordinated debt and other hybrid securities are sensitive to any change in the company's VR.

KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS

Dime Savings Bank of Williamsburgh's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. Fitch believes U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS

The ratings of long- and short-term deposits issued by Dime Savings Bank of Williamsburgh are primarily sensitive to any change in the company's IDR. Should the long-term IDR be downgraded, deposit ratings could be similarly impacted.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

The Support Rating of '5' and Support Ratings Floor of 'NF' reflect Fitch's view that Dime Community Bancshares and Dime Savings Bank of Williamsburgh are not considered systemically important and therefore, the probability of support is unlikely.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

DCOM's Support Rating and Support Rating Floor are sensitive to Fitch's assumption as to capacity to procure extraordinary support in case of need.

KEY RATING DRIVERS - HOLDING COMPANY

DCOM's IDR and VR are equalized with those of its bank subsidiary, Dime Savings Bank of Williamsburgh, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.

RATING SENSITIVITIES - HOLDING COMPANY

Should DCOM begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of Dime Savings Bank of Williamsburgh.

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 Rating at '5';

--Support Rating Floor at 'NF'.

Dime Savings Bank of Williamsburgh

--Long-term IDR at 'BBB';

--Short-term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-term Deposits at 'BBB+';

--Short-term Deposits at 'F2';

--Support Rating at '5';

--Support Rating Floor at 'NF'.

Dime Community Capital Trust I

--Trust Preferred at 'BB-'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research

--Global Bank Rating Criteria (Mar. 20, 2015)

--'U.S. Banking Quarterly comment: 4Q14' (Jan. 28, 2015);

--'U.S. Basel III and Dodd Frank Act Regulatory Guide' (Nov. 21, 2014);

--'2015 Outlook: U.S. Banks (Growth in a Challenging Rate Environment)' (Nov. 12, 2014);

--'U.S. Banks: Implications of an Interest Rate Shock Scenario' (Oct. 30, 2014)

--U.S. Banks: Liquidity and Deposit Funding (Aug. 08, 2013);

--U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) (June 18, 2013);

--U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? (July 11, 2013);

--'Fitch Fundamentals Index (4Q14)(Jan. 15, 2015);

--'Risk Radar Global 1Q15' (Mar. 30, 2015).

Applicable Criteria and Related Research:

Risk Radar Global 1Q15

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864073

U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710875

U.S. Banks: Liquidity and Deposit Funding

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714196

U.S. Banks: Implications of an Interest Rate Shock Scenario

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=800748

2015 Outlook: U.S. Banks (Growth in a Challenging Rate Environment)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=809228

U.S. Basel III and Dodd Frank Act Regulatory Guide (Applicability of New Bank Regulations in the U.S.)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=798848

U.S. Banking Quarterly Comment: 4Q14 (All Eyes on Oil Prices and Interest Rates)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=849388

Global Bank Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982538

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Contacts

Fitch Ratings
Primary Analyst
Jaymin Berg, CPA, +1-212-908-0368
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Doriana Gamboa, +1-212-908-0865
Senior Director
or
Committee Chairperson
Christopher Wolfe, +1-212-908-0771
Managing Director
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jaymin Berg, CPA, +1-212-908-0368
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Doriana Gamboa, +1-212-908-0865
Senior Director
or
Committee Chairperson
Christopher Wolfe, +1-212-908-0771
Managing Director
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com