OREANDA-NEWS. Fitch Ratings has affirmed the Long- and Short-Term Issuer Default Ratings (IDRs) for Dime Community Bancshares, Inc. (DCOM) and its principal banking subsidiary, The Dime Savings Bank of Williamsburgh at 'BBB/F2'. The Rating Outlook is Stable. A full list of ratings actions follows at the end of this release.

Fitch reviewed DCOM as part of its U.S. Niche Real Estate Bank Peer Review, which also includes Astoria Financial Corporation, Inc., Emigrant Bancorp, Inc., and New York Community Bancorp, Inc.

While the business models of the U.S. Niche Real Estate Banks vary, these banks are generally characterized by their limited deposit franchises and geographic concentrations when compared to larger U.S. banks. Fitch views these limitations as ratings constraints across the peer group. The group is composed of banks with total assets ranging from approximately $5 billion to approximately $50 billion that lend primarily in the New York City metropolitan residential real estate market.

KEY RATING 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 primary ratings strength is its demonstrated ability to execute on its multifamily lending strategy through various cycles. DCOM's asset quality remains very strong with non-performing asset levels well below those of 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.

Very solid underwriting performance also supports DCOM's ratings. DCOM experienced minimal losses through the latest credit cycle with net charge-offs averaging only 11 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.

Over the last two years, DCOM loan growth has exceeded historical rates. The CAGR in total loans between the beginning of 2014 and the end of 2015 was 13%. While in line with growth projections released by management and therefore consistent with DCOM's strategy, Fitch views this as a shift in DCOM's risk appetite. After-tax profit from the recent sale of certain real estate assets in Williamsburg, Brooklyn should boost capital to support DCOM's growth via new loan originations in 2016. However, Fitch expects moderate deterioration in DCOM's risk-based capital ratios over the rating horizon, albeit off a high base.

While DCOM's earnings performance remains solid, the ROAA dropped to 0.96% for the year ended Dec. 31, 2015. This is the first time in the last six years that the ROAA has dropped below 1%. DCOM's earnings profile is concentrated in spread income from primarily the multifamily asset class, and since 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 as rates normalize.

Similar to its U.S. Niche Real Estate Bank peers, 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 and is heavily dependent on wholesale funding. As of year-end 2015, DCOM's loan-to-deposit ratio was the highest in its four-bank peer group at 143%.

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 The Dime Savings Bank of Williamsburgh are not considered systemically important and therefore, the probability of support is unlikely.

KEY RATING 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.

KEY RATING DRIVERS - HOLDING COMPANY

DCOM's IDR and VR are equalized with those of its bank subsidiary, The 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 - IDRs, VRs AND SENIOR DEBT

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.

The ratings take into consideration the expected loan growth over the rating horizon. However, should this growth result in deterioration in DCOM's capital or liquidity position that is out of line with Fitch's expectations, negative ratings pressure could develop. Furthermore, negative ratings pressure could also develop if loan growth results in a significant decrease in the relative exposure to rent regulated properties.

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.

RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS

The ratings of long- and short-term deposits issued by The 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.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
The SR is potentially sensitive to any change in assumptions around the propensity or ability of DCOM to provide timely support to the bank.

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.

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 The 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'.

The 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-'.