Q3 2020 Dime Community Bancshares Inc Earnings Call

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Hello, and welcome to the Dod community Bancshares, Inc. third quarter Twentytwenty earnings Conference call.

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After todays presentation, there will be an opportunity to ask questions.

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Please note today's event is being recorded.

Knowledge, how to corporates are your hosts today can Matt <unk>. Please go ahead.

Thank you operator, and thank everyone for joining us this morning.

On the call with me today are President <unk>, Chief Financial Officer, Bobby ready and our Chief Accounting Officer Leslie goes Robby.

We posted a record earnings quarter in September with core EPS of 44 cents.

Which included $5.9 million addition to the general allowance for loan losses, which we determined to be appropriate levels for our portfolio in the current environment.

Its record he P.S. was aided by three components.

Net interest margin expansion year over year fee income growth and excellent expense control.

But now we are well into our build out of the commercial bank model and this year, especially we can see it bearing fruit.

The positive impact of that transformation is taking hold.

We're reaping the benefits of scaling the commercial loan portfolio, which enables us to generate significant positive operating leverage.

Excuse me.

Our principal and interest longer laterals, we're down to approximately 272 million at September thirtyth and represent 4.9% of total loans.

We're not surprised by the meaningful downward movement in deferrals unbelievable and we believe that compares favorably to other multifamily bank portfolio is concentrated in New York.

Bears repeating that for the six years between 2007 the 2013.

30 years, covering the financial crisis times cumulative net charge offs were only 130 basis points, starting loan balances of about $4 billion.

This was approximately five times lower than the overall bank index for charge offs.

Given the low LTV nature of our mortgage portfolio, which was on average 52% at September Thirtyth.

The multi generational nature of the ownership of the multifamily borrower base.

As well as our capital strength our earnings prospects I'm.

I'm confident that the outcome will be a soft landing once again.

Well the family borrowers understand the value inherent in the asset class of course, various economic cycles.

As long as borrowers are making good faith efforts to return to full payment.

I remain committed to helping them and their tenants for this government driven quarantine.

As you recall prior to the quarantine this was a fully performing portfolio.

There's value inherent in the housing collateral.

For those of you are leaning on the death of GAAP and got them theory.

Try traveling on the Beacon, we this week and you'll see for yourself the economic activity in New York is still robust.

The eventual distribution of the vaccine in any additional economic stimulus will certainly help.

But most importantly, the old low LTV nature of the portfolio and the significant ownership equity in these properties keep us optimistic about the portfolio's credit performance overtime.

In the meantime, we don't sit idly by we continually monitor and remain in touch with our borrowers.

As I mentioned earlier, we're still is on the call today is to move out and he'll stepping to answer any of your questions. The more granular fashion on deferrals during the Q and a.

[laughter].

Next I would like to touch briefly upon times involved in the paycheck to paycheck to Paycheck protection program.

The began accepting applications for forgiveness, a few weeks ago and have contracted with a reputable third party to assist us in the process.

Potential recognize income from processing. These loans is currently $7.8 million.

P.P.P. related deposits were processing approximately 67 million at September Thirtyth.

We continue to deepen the relationship with these customers many of whom are due to the bank.

This opportunity would not have been available pretty old time as a thrift.

Which did not participate in Sps lending.

Another sign of how management and the board have improved profitability of the franchise over the last five years.

This is a good time to pause and review our progress on the now five year olds strategic plan built upon improving five fundamental metrics.

Which are growing total checking account balances.

Increasing low cost business deposits.

Growing relationship based commercial loans.

Growing the sources of and contribution of non spread revenue.

And the combination of maintaining appropriate liquidity, we were reducing theory concentration and operating with strong capital ratios start.

Start first with the broken our checking account balances balances, which on a year over year basis.

Average non interest bearing and interest bearing checking accounts combined increased by 61% to $894 million.

Next to that of increasing low cost business deposits.

Total commercial bank deposits from the business Bank Division plus our legacy multifamily division increased by almost 19% on a year to date basis to approximately $1 billion.

We also grew our relationship based commercial loans the business banking Division portfolio currently has approximately $1.8 billion and that excludes the PPP balances.

This business continues to be accretive to our overall net interest margin has contributed to that to now to four years or eight consecutive quarters of NIM expansion.

A four targeted metrics is non spread revenue an area on which time historically been a laggard.

Non spread revenue at time, excluding securities gains and losses grew by approximately 80% on a year over year basis.

This was driven by an increase in our customer related swap fee income as well as income from our SBA and residential businesses.

[laughter].

Lastly, we are operating with very strong capital ratios as demonstrated by 10.22% tangible equity to tangible asset ratio. This ratio again excludes C. P. P. P line.

In summary, we continue to make quantifiable progress on all five long term strategic objectives.

For those of you who in 2017 Cogs would take about three years to turn the ship it appears you're right.

The most satisfying aspect of the transcript transformation for me it's been the progress made on the deposit side of the balance sheet.

Noninterest bearing deposits now comprising over 15% of our deposit base from 6% a commencement.

Improving the quality of our deposit base was the most important guiding tenet of our business model transformation.

Because that is what creates the moat around the community banks value.

There is also one of the areas in which our new partner BNP Bank historically excelled.

I can say confidently that our business model transformation, which began in 2017, there has been a success and the record EPS this quarter.

Tangible progress on the balance sheet transformation is playing for Walter Hill.

Finally, just a word on the announced merger with Bridge Bank Corp.

Our integration teams continue to make very good progress and we have built people working relationships with our soon to be colleagues I bridge across both organizations.

Just as an aside I've sat in the room with our new management team, Kevin O'connor. The C O still robo from time I'll be ready from time, John Mccaffery from from bridge banquet. Its a formidable team a really strong team going into the new 11 billion dollar plus bank this will be.

As you may have seen it be NBS earnings release, they continue to generate excellent core deposit growth was.

Which confirms our conviction that this partnership is highly complimentary.

We've made all the requisite requisite regulatory filings and expect to close the transaction in early 2021.

Together, we are very determined to create an elite regional bank competitor.

At this point I'd like to current turn the call over to our Chief Financial Officer, I'll be ready will provide some additional color on the first quarter results.

Thank you Ken and good morning, everybody included in this quarter's reported results was point Eightmillion of merger related expenses and point 2 million of securities gains as.

Excluding these non core items core EPS was 44 cents.

As Ken mentioned this is a record for a dime as a public company and we're proud of achieving such a result in the middle of the pandemic.

We continued to build our result, with a $5.9 million loan loss provision this quarter.

Excluding PPP launch ourself to loans at September Thirtyth would have been 92 basis points.

We ended the third quarter with an adjusted tangible equity ratio, excluding the impact of PPP loans from the numerator of 10.2%.

We strongly believe that our capital levels and loan loss reserve position is sufficient to withstand any disruption caused by the pandemic.

Excluding the merger related expenses and securities gains core pretax pre provision earnings for the third quarter of 2020 was 26.8 million, representing 9.5% linked quarter growth and 46.3% year over year growth.

Core PPNR to average assets for the third quarter was approximately 1.65%.

Importantly, we generated significant positive operating leverage this quarter with revenue growth far outpacing noninterest expense growth.

The core NIM, which excludes the impact of point Fivemillion of prepayment fees increased by 13 basis points on a linked quarter basis to 2.8%.

Driving a structurally higher NIM has been one of the key tenets of our business model transformation and we are again pleased with this quarter's results.

The increase in core NIM was driven by 20 basis points linked quarter decline in our cost of deposits.

The period end weighted average rate on our loan portfolio, excluding PPP loans remained steady on a linked quarter basis at 3.94%.

The presence of PPP loans, while additive to net interest income and the amount of approximately 2.2 million was dilutive to our third quarter margin core margin by approximately four to five basis points.

For the fourth quarter of 2020, we have approximately $483 million the Cds at a weighted average rate of 1.03% that are maturing.

Repricing. These Cds at lower rates provides us an opportunity to continue reducing our cost of deposits and maintaining the upward bias in our core NIM.

Our core efficiency ratio was 47 and a half the fun the core expense to asset ratio was 1.48% and it remained very well controlled compared to a commercial backfield.

A critical part of the business banking build out is the addition of non spread income.

This trend continued in the third quarter as we recognized a million and a half of customer related loan level swap income and our SBS business and residential businesses contribution 1.4 million of gain on sale income.

As you well know by now we don't provide quantitative NIM guidance.

I will say, though that we continue to drive our deposit cost lower and as mentioned previously we have a meaningful amount of Cds coming due in the fourth quarter.

Replacement rates on our CD Repricings are approximately 50 basis points lower than those coming due this.

This repricing opportunity should enable us to continue lowering the cost of deposits in the fourth quarter and growing the core NIM for the remainder of the order.

On a related note and as we mentioned on our prior earnings call more of a real estate borrowers are showing a propensity to wait until that reset period before refinancing or they are taking the FHLB plus 250 option at repricing rather than prepaying that loan is already.

Result, prepayment fee income declined over half a million dollars in the third quarter.

We don't expect prepayment fees to drop much lower than this half a million dollar quarterly figure in the neonatal.

We certainly don't mind, retaining these long for longer as they are solid credits at low ltvs with coupon rates that a failure attractive in the current low rate environment.

Finally, with respect to the effective tax rate for the remainder of 2020, we expected to be between 22% and 23%.

With that Keith we can turn the call over for questions.

Yes. Thank you well now begin the question and answer session to ask a question. Your press Star then one on your Touchtone phone.

If you're using a speaker phone please pick up your handset before pressing the keys to try your question. Please press Star then so.

Well pause momentarily to assemble the roster.

Once again pressing star and then one wall I used to be.

Great nice job.

And just one last time as a reminder, please press star and then one if you Oh well that's all for common to Ross's question.

All right. We do have a question from Collyn Gilbert with KBW.

Thanks, Good morning, everyone.

Stuart if you could just kind of go through sort of how you're seeing some of these deferrals playing playing out you know kind of as we move into the fourth quarter and then longer term and if you have a sense at all as to where you think maybe the risk of loss content is within that within that book.

Yes, so first of all obviously, we see significant migration.

June Thirtyth to September Thirtyth. They look at you Dirty theory 916 million were down to 335.

That includes some portion of about 60 million of which is interest paying interest in escrow.

Our next big Big period is.

At October.

Over 31, we have approximately $200 million in additional.

Loans coming off of where they are there.

There are three month forbearance period, there second or bags for it and we expect that number to dramatically reduce and migrate to full thing and that's been the trend so far.

And then you know the remainder as we get into the fourth quarter were looking at all of those individually, but will we are see is those.

Those that were paying.

That were principal on interest forbearance are moving toward.

At least an interest only.

Forbearance and.

And again the average ltvs are in the mid Fiftys.

We're not really seeing impairment issues at this point and we're not seeing any real change in delinquencies. So.

No at this point, we're fairly comfortable with the portfolio and.

And the resulting potential.

Exposure that we have.

And we think that these numbers are going to continue to work down we've been working with the borrowers Oh, we're down to a very manageable level.

And you know were very granular in our in our discussions and approvals.

And because we kept everything short in our initial timeframe and really work with the borrowers early on we've really been able to migrate or.

For bass more quickly I think that some of our peers out there he said.

Broader.

Approach to forbearance. So at this point, we're not seeing impairment and obviously potential risk of loss out there we do have very low LTV.

And some of these will take a longer period of time to come back to full payment, but again the equity the value is there and.

And these are these are borrowers, we know very well and have.

Significant history with.

Okay. That's helpful and just curious as to if we're looking at the kind of the mix either loans. What are what are these borrowers doing.

Just to kind of keep them payment current or you know satisfactory in there and their debt coverage.

Hey, Mike I mean businesses are I mean, because you know what we're seeing from you guys. This quarter, how the pretty positive message in terms of the deferral activity and behavior and then loan growth, which is about 20 minutes. So just curious what you're seeing from your borrowers.

Okay.

What's remaining in the mixed use multifamily mixed use portfolio. It is basically there look classic New York City streetscape with.

No.

Five six storey walk ups and you know for for retail.

I think what's what's happened over the last three months is you know there's been partial openings.

Businesses are coming back slowly.

Our tenants are getting partial payments and working Scooby landlords are getting partial payments and working with their commercial tenants.

The.

The multifamily residential piece of that.

Is is remaining fairly steady and stable in terms of payments and so there the real.

Change has been.

At improvement is in the far from payment or payment of.

Some of the commercial rights that were.

Worried they are not paying additionally, or.

Coming out of the gate when Cobot first you know he was in April and May.

There were no payments whatsoever to the city was close.

And commercial business was close so there's been a migration as as the city has opened up due to better pay no.

That said that clearly you know a stress area and we'll continue to monitor that.

In terms of as as we continue through the pandemic and and is it a recovery stage, but the landlords are working with their tenants.

And certainly the residential pieces is quite you know remains quite stable.

Okay. That's helpful. And then just to get a little more color on the on the loan growth that you saw this quarter because again that was really going strong how much of the growth with current customers versus new customers or maybe just talk about kind of the dynamic that you're seeing there in terms of loan demand yeah.

No.

We're seeing quite a bit of demand. Our teams are in place. You know this is kind of a building block scenario where over the last few years, we really built and brought in a loan teams that have relationships.

Elsewhere, and we've been able to really you know we had a significant pipeline moving into the pandemic.

And it's continued to.

She is to grow and even even in this environment, we're taking businesses from other commercial institutions and a lot of these relationships are our relationships that our team members our relationship managers and previous to that.

To their movies a dime.

So you know it's.

And what we're seeing today is.

A very strong pipeline still.

So we're taking business from other.

For bags.

And some of it is is as well I'd say it's a.

60%, new business, 40% existing customers.

Okay.

Okay. That's helpful. Okay. Thanks, I'll leave it there thanks guys.

Thank you.

And just one more time, please press star and then one if you would like to ask a question.

All right as there is nothing else at present I would like to return the conference over to Mr. Mann for any closing comments.

Sure Keith Thank you very much and thanks folks for joining us this morning I hope so.

Lack of questions means that the press release was a satisfactory to your need thank you very much.

Thank you. The conference has now concluded. Thank you for joining todays presentation you may now disconnect.

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