For the first time in nearly a year, the top executives at Dime Community Bancshares Inc. in Brooklyn, N.Y., are talking about growth.
To protect its margins, Dime cooled its growth engine last spring, when the average yield on its multifamily apartment loans in the New York market dipped below 5%. But now, with rates seemingly on the upswing, the $3.4 billion-asset Dime says it is safe to ramp up production again, and it is beginning to look for deposits to fund the loans it plans to add to its books.
Among its options: Opening branches, something Dime has not done since 2002.
"We're revisiting our pricing strategy and at the same time actively considering de novo branch sites," Kenneth J. Mahon, Dime's chief financial officer, said Wednesday during a conference call with investors and analysts.
In a follow-up interview Friday, Mr. Mahon said it is looking especially for branch sites abandoned as a result of mergers and acquisitions. Dime would prefer commercial and multifamily real estate loan rates to rise even more before really opening the taps on loan growth, but it is comfortable taking an aggressive stance now on deposits, he said.
"It takes a little longer to get that train rolling," he said.
Kevin T. Timmons, who covers Dime for C.L. King & Associates Inc. in Albany, said the optimistic note Dime sounded about growth was almost certainly responsible for triggering the recent rally in its stock.
Dime shares, which closed at $13.96 on April 26, jumped nearly 4% Wednesday and continued to rise Thursday and Friday. They were trading at $14.97 late Monday.
Mr. Timmons cautioned, though, that the investor reaction might be overblown.
"Being optimistic today doesn't necessarily translate into increased earnings tomorrow," he said. "There is so much volatility in rates right now that it is tough to manage on a day-to-day basis."
Following Dime's conference call, the interest rate on the benchmark 10-year Treasury note dropped 6 basis points; such a drop foreshadows dip in loan rates.
Mr. Mahon said Dime's borrowers are very sensitive to the ups and downs of the 10-year Treasury rate. "I wouldn't be surprised if we got some calls from our borrowers" asking for lower rates.
Dime has long been known as one of the leading apartment house lenders in the New York metropolitan area. Over the past year it has been making more commercial real estate loans, which yield more than apartment credits, but 60% of its first-quarter origination volume was multifamily loans.
Over all, multifamily loans made up 76% of its $2.5 billion loan portfolio as of March 31.
Loan yields had been falling for some time before Dime went into its slowdown mode last year. For much of that period, though, funding costs were falling just as quickly as yields or faster.
Dime said that trend began to reverse itself midway through last year; with funding costs on the rise, it chose to halt its growth until interest rates began to climb, too.
The reluctance to bid for low-rate deals had an immediate effect on Dime's bottom line. Its loan production "pipeline," which totaled $246 million at the end of the second quarter of last year, had plunged to $86 million three months later. Consequently, loan originations - which reached $390 million at the peak of the mortgage boom in the third quarter of 2003 - fell to $108 million in the fourth quarter of last year and $115 million last quarter.
Since it was not making many loans, Dime did not need as much funding, so slowed its deposit-generating activities. Core deposits have dropped 10% since the second quarter of last year, to $1.2 billion as of March 31.
With fewer earning assets on the books, Dime's bottom line has also shrunk. Its first-quarter net income fell 12% from a year earlier, to $10.9 million.
One thing that the interest rate fluctuations have not affected has been Dime's credit quality, which remains one of the best in the business. On March 31 it had $2.7 million of nonperforming loans, or 0.11% of total loans.
Vincent F. Palagiano, Dime's chairman and chief executive officer, said that rates on five-year multifamily loans have risen about 100 basis points from their low point in second quarter of last year - enough of a boost to prompt Dime to loosen its underwriting standards somewhat and match most competitors' offers for what he called high-quality loans.
As a result, the production pipeline has begun to fill up again. It totaled $176 million on March 31.
However, Mr. Palagiano said Dime is still moving gingerly when it comes to lending.
"We lost a number of loans recently because lenders offered rates below 5%," he said during the conference call. "We have not made offers below 5% since last spring. It's for reasons like this that our loan originations have run below our peers over the past two or three quarters."
