Dime Community Bancshares Inc. said it sold nearly half of its $580 million investment portfolio to gird itself for further interest rate increases.
The $3.4 billion-asset Brooklyn, N.Y., thrift company said Wednesday that it sold $276 million of investment securities, longer-term mortgage-backed securities, and collateralized mortgage obligations, or 48% of its portfolio. In the near term it plans to put the proceeds into short-term securities and overnight funds rather than commercial loans.
The sale will force it to take a charge of $5.2 million, or 9 cents a share, for the second quarter, Dime said.
Kevin T. Timmons, an analyst at C.L. King & Associates Inc., called the divesture "large" when compared to the size of the portfolio.
Kenneth J. Mahon, Dime's chief financial officer, said in an interview Wednesday that it had mulled selling even more securities, but some of its securities are pledged against collateral, so they could not be sold.
"Growing assets at the wrong time, in a rising rate environment, just doesn't make sense to us," Mr. Mahon said.
Mr. Timmons said the sale was "the right thing to do," in Dime's case. "Their exposure to rising rates was pretty significant," though Dime still has some risk in its portfolio. The sale will shave 2 cents a share off Dime's full-year earnings, he said.
Instead of funneling the proceeds into commercial and multifamily real estate loans, its main business line, in the near term, Mr. Mahon said, Dime wants to wait to see what the Federal Reserve Board does with interest rates before increasing loan originations.
"The Fed's job is to control inflation. There hasn't been any indication that they are done doing that," he said.
It has been slowing its originations since last spring, when the average yield on multifamily apartment loans in New York fell below 5%.
At the end of the first quarter Dime's loan portfolio had shrunk 0.7% from a year earlier, to $2.46 billion. Core deposits fell 10%, to $1.2 billion, and Dime's first-quarter profits fell 12%, to $10.9 million.
However, Mr. Mahon said that Dime is interested in ramping up deposits to fund future loans, and it plans to add two branches to its network. (It currently has 20.)
The loan sale created overnight liquidity of about 10% of earning assets, and the new short-term investments will have an average yield of 3.1%, Dime said. Before the sale its investment portfolio had an average yield of 3.62% and an average duration of 2.4 years. Now the average yield is 3.81%, and the average duration is 2.3 years, Dime said.
Shares of Dime fell 0.4% Wednesday.
