Q1 2021 Dime Community Bancshares Inc Earnings Call
[music].
Good morning, and welcome to the community.
The first quarter earnings call.
All participants will be in listen only mode. If you need assistance. Please signal conference specialist by pressing the Sparky followed by zero after.
After the presentation there'll be an opportunity to ask questions.
We felt that this line is being recorded.
I would like the turn the call over much of the Governor of Congress, the Olive Garden community. We go.
Thank you operator, welcome to Don community first quarter earnings call. We thank everyone for joining us this morning.
On the call today with me are stupid, though our president Chief operating officer, I'll be ready, our CFO, John Mccaffery, our chief risk Officer.
In my remarks, I'll make some enterprise wide comments about our recently completed merger.
Provide some key accomplishments and the progress made during the first quarter on the business.
All of them will then provide some details on the quarter some forward guidance and the charge offs were managing to.
All of the end of summer what I believe on the investment highlights of the new dime and lead time at the end for questions.
First let's start with the merger as you May recall, we announced the merger transaction on July one 2020.
Closed the transaction on February one this year on on April 17th successfully completed our core systems integration and conversion.
When we announced the merger several investors ask why now in the middle of the pandemic.
At the time my answer was given the tremendous opportunities to move all of organizations through the next level, we need if the strike now.
Our staff has proved me right. They worked countless hours throughout the pandemic GAAP the job done on schedule and flawlessly.
They force the new Dawn culture, putting aside the legacy issues and making the customer our number one priority.
This gives me tremendous confidence we are already in the mantle of New York Premier Community Bank.
On behalf of the board of Directors and management I again want to thank our staff many of whom on listening to this call for their tremendous dedication effort and the job well done.
Ultimately our business in the back growing clients and winning new relationships and throughout the integration process, we continue to see client growth.
First on the PPP funds.
We were again, the leading community bank on long island with approximately 575 million newly originated <unk> loans.
As we've outlined in the press release this provides us the approximately $24 million of deferred fees recognized.
I'd like to thank the <unk> 40 per share of Hayden book value.
In addition to our PGP success, we've been able to grow deposits by over $800 million since the closing of our merger on February one.
Our increased market share brand appeal and the coverage of the entire right of long island marketplace positions us to be bank of choice, the small and mid size businesses in our footprint.
And Stuart I put together a business plan for this year, one thing really resonated the clarity of thought and our mission.
We are of business focused community bank, driven to being responsive to our customers' needs.
One measure of the success is the progress we've made on improving the profile of our balance sheet.
When we announced our merger pro forma EBITDA was 22, 24% of deposits.
In the last nine plus months, we've grown the 232%.
And we're confident over a three year timeframe will drive that number to 40% of deposits.
Additionally, when we announced this transaction alone the deposit ratio was almost of 110% and today that stands at 84% excluding <unk>.
Yeah.
Our reported results for the first quarter was the net loss of $23 million.
Included within this loss were merger related charges, the impact of balance sheet restructuring and the diesel and related provision on the acquired loan portfolio.
Adjusting for these items core net income would have been of positive $32 million.
While our backlog, which was busy integrating systems, our frontline producers did not Miss a beat.
One of the key benefits of the merger was the minimal customer overlap between our franchises and our expanded capital base. This is allowing us to deepen relationships with our existing clients and to win new clients. In fact, our loan pipeline is approaching a $1 billion.
Moving to credit quality, our nonperforming loans, excluding PCI loans are only 26% from two 6% excuse me of total loans.
The merger due diligence integration and closing we have done several third party reviews of our portfolio and are comfortable with the strength of our credits and our loan loss coverage.
Our deferrals of lower than our geographic peers at only 60 basis points of total loans.
As the importance within COVID-19 sensitive industries of hotels restaurants, and offices, we have very limited deferrals.
As you would expect on crossing the 10 billion of hazard asset thresholds, we spend more time stress testing of our portfolios and the results of the stress testing indicates we have meaningful excess capital on the balance sheet, even under a severely adverse scenario.
In that regard I am pleased to announce the board of directors has approved the resumption of our share repurchase plan, where we have any.
On 800000 shares authorized.
At this point I'd like to turn the conference call over to our CFO Avi Reddy.
I will provide some additional color on our first quarter results.
Thank you Kevin included on this quarter's results were the following one time item module of expenses and transaction costs on the $8 million.
Balance sheet restructuring charges of approximately $18 million, which included the swap termination and extinguishment of debt.
And the provision for acquired non PCI loans of approximately $20 million.
We were able to migrate on cost of deposits low on to the tune of 25 basis points from the first of all.
Yes.
The current on debt.
Positive, even lower and we have an opportunity of the CD book to continue to reprice lower.
As outlined on the press release, we have approximately $550 million of Cds at a weighted average rate of 84 basis points, which on maturing in the second quarter of 2021 the <unk>.
The Cds at lower rates provides us confidence that we can maintain relative stability and on him.
The reported NIM for the quarter was three 1%.
While the adjusted NIM was 300000 tier.
To provide clarity for investors, we have provided details on the impact of purchase accounting and TTP. The presence of PPP loans plenty of additive to the interest income and the amount of approximately $5 million.
The leave that to our core NIM by approximately 17 basis points.
Purchase accounting accretion on loans contributed approximately five basis points of the margin.
We expect the $1 million of purchase accounting accretion on loans to be of any reasonable run rate for the next couple of quarters.
With respect the PPP, we of $4 million of remaining on debt from nice fees that are associated with 2020 of origination was balanced with the 885 million currency.
We expect these most of these forgiven of payoff.
And the income recognized between now and the middle of next year as these were effectively to yield maturity loans.
With respect of the tranche of loans originated in 2021, which has $20 million of unrecognized fees. We expect the amortization on the income on these loans to come in over the course of the five net on objected forgiveness and pay off of a chain.
We ended the first quarter with strong capital level.
Tangible equity to tangible assets ratio, excluding PPP was eight 8%.
Given our low risk profile of the simple business model, we are very comfortable operating the bank debt in the eastern half of the first tangible equity ratio excluding PPP.
As Kevin mentioned, we will be resuming our share repurchase plan the one of the Blackhawk.
We currently have approximately 800000 chance of meeting we expect to be in the market as soon as possible and complete the plan as quickly as we can we definitely see significant value non stop given our trading level earnings trajectory and balance sheet profile.
Given that our quarterly results included one month of the Standalone legacy value and two months of the combined we have also provided the haynesville and the earnings release with the two months ended March 31, combined pre provision net revenue, which on the on adjusted basis was $34 million.
This should provide a glimpse into the Gulf our earnings power of the company.
Next I will turn on the guidance and Todd.
And the well known by now we don't provide quantity in the quarterly NIM guidance.
I will say, though that we continue to drive on deposit costs, lower and expect to reduce our cost of deposits from 25 basis points to below 20 basis points of the alphabet.
This will allow us to maintain our core NIM in a range between $3 AMC earnings over the course of the next 12 months.
As you know, we just completed our core conversion in the second quarter with ancillary system conversions expected over the course of the ceiling.
As such by the fourth quarter of the we.
We are driving towards an annualized run rate on core cash noninterest expenses of approximately $195 million, which we expect the hold relatively flat.
'twenty two.
We expect the run rate annualized fee income will trend towards approximately 35, the 36 million.
This is inclusive of the full impact of the Durbin Amendment.
Given the current shape of the swap. So we are increasingly seeing customers the advocate away from swap product towards fixed rate loans and as such have incorporated that into the fee income guidance.
Next I'd like to touch briefly upon two enterprise Michaels.
First of all of us growing DDA, the approximately 40% at CER timeframe.
The second equally impossible is managing the back within an efficiency ratio range of 47% of 50% over the near to medium term.
All of our decisions on the enterprise level of centers around these two eagle.
Operating of these efficiency ratios and producing stable adjusted margins across the economic and interest rate cycle should result in an auto it over a 12 month time horizon of our prop.
Currently of 110 basis points.
On medium to longer term goal is to drive the ROE of eight 125, which is the net profitability profitability milestone in front of us.
Having just crossed the 10 billion assets threshold. We believe we have the infrastructure in place on a larger organization and as such any marginal growth in the coming years, both on an organic and inorganic basis will be accretive to our ROE Inc.
In terms of overall balance sheet growth.
We expect the drove co loans, excluding the PPP by approximately 6% on an annualized fees.
This is inclusive of piling the multifamily loan balance of the trend down overtime as we focus on only the most profitable of risk adjusted relationships.
Finally, with respect to the effective tax rate for the remainder of 2021, we expect it to be approximately 27%.
With that I'll turn the call back to Kevin.
Thank you Avi.
For the open the call to questions and since we haven't been on the road with investors given the merger and conversion.
Let me take a moment to remind you of what we believe makes our store in unique and compelling.
We believe we've created a bank with the number one market share among community banks, we have a strong brand appeal of highly desirable footprint in the market with significant wealth business density.
We are of significant scarcity value on.
<unk> created a bank debt Hasnt existed on long Island, North Fork was acquired the locally managed $13 billion bank with an excess in excess of $1 billion of capital.
Provides the scale of an opportunity to win credits were larger banks that you sort of response and the smaller banks of the size of capital products that deliver.
We have unique and best in class of deposit franchise with 32% DDA to grow to 40%.
We have of highly responsive simple customer focused business model as we demonstrated by our performance in PPP.
Finally, with the successful execution of the merger of equals transactions, we have validated the ability to get the job done and our credibility with the regulators.
The last point to note there have been two significant M&A transactions announced with the acquirers of non headquartered in our immediate book.
Steve and I, both believe over time this presents opportunities for the new dock.
We are open for business and ready to leverage these opportunities.
With that we can turn the call over for questions.
Yeah.
Well begin the question the answer session Basket of question Press Star then one on you touched on the phone.
Using a speakerphone please pick up of your handset before pressing the key.
Withdraw your question. Please press Star then two.
We will pause momentarily to assemble the roster.
First question from Mark Fitzgibbon Piper Sandler. Please go ahead.
Hey, guys good morning, and congrats on the deal in first quarter.
Good morning, Mark.
Just wanted to clarify a couple of points. You made did you say that for expenses, you expect sort of run rate expenses to be around 195 billion for this year exclude.
Excluding obviously charges.
So most of the guidance standard by the fourth quarter of the CR, we should be at $195 million run rate. Obviously, we disclosed the module module right now there's a few module charges that may come through in the second quarter as well, but the guidance of driving toward a $195 million annual run rate by the fourth quarter and expect the.
All of that pretty steady into 2022.
Okay, Great and then secondly, I know.
No. This is hard to answer because it depends upon loan growth.
And such but.
How do you think about sort of a normalized level of provisioning maybe in <unk>.
Sure. So right now on the provision knock on the result of it reflects everything that we know based on the economic conditions that are on hand, and so it really is going to be a function of all of the economic forecast changes going on obviously there was the big change in some of the Moody's unemployment rates from Jan.
Now obviously with some stability in those all cash coming in the severely be based on loan growth and the mix shift.
Overtime, we believe the development of around 112 basis points.
Excluding PPP very strong the dose levels compared to our peers, we feel pretty good given the loss on debt, we haven't got testing of the done.
So very comfortable on the results should just be based on the growth of the portfolio going forward.
Okay.
Yes.
And then can you kind of update us on the timing of the recognition of the cost synergies I know you just completed the systems conversion recently, but.
What is sort of the extraction of those synergies looked like this year.
Yes, so the $195 million Mark Thats of the full synergies by the fourth quarter of the if you remember when we announced the transaction. We had mentioned that we'd be seen standard in 2021 on.
Back at this point, obviously with the convergence of absolutely system conversions going on.
On the CR.
The expense base, but more of everything to be 100% net.
So do you sort of see of straight line down between now and then or is that sort of.
Yes, yes, I mean, what kind of get tier 195 by by the end of the sea on in terms of an annualized number and then but then finally, that's the number of for 2022.
Okay, and then Kevin I'm curious could you talk a little bit about the synergies that you are finding on the revenue side, where the opportunities are being created.
Were those.
Those might be coming from.
Well, obviously, we've had a lot of customers that we.
We didn't have the branch network the service as the branch networks expanding them to do that we've said in a number of loan committee meetings. Since we've been together were common relationships, we've been able to growth.
It has come from our Treasury management products basically have been sort of rolled out in some places that I think of created opportunities the.
SBA business that we were strong at dawn was strong at I think we've been able to continue to leverage that with customers.
The overall the.
Coordination between both of the teams has been incredibly gratifying.
And on we're actually backed out seeing customers and had been on joint calls with some people from the legacy <unk> group with some of our lenders so big.
This is really working.
One of the things I will just share with you two what's interesting is we've got a lot of people still working from home some of the frontline people as we try to figure out what the back to work things and in some ways. It's worked out better because the people in the building had been focused on sort of the integration and consolidation and the people that have been out at all.
There are separate from that and there are basically out there from a business. So it's worked out very well.
No.
The <unk> on February one, we really made a concerted effort to make sure.
The business is.
The customer facing businesses, we're really out and servicing the customers and in fact, where we EBIT.
No.
The close of conversion.
This to a single loan origination system.
Construction of our lending teams on on a retailer.
Organization on our private bank, so everyone really hit the ground volume as far as the concern.
The other thing kind of mentioned we have over $1 billion.
In the pipeline, but what we've also seen and as we've talked about FTE.
At the announcement was that we thought there would be quite of bit of opportunities to do more business with customers that we have.
That we book already as we were.
The unable to continue to grow that on the language of the cost of our capital side.
And what has happened in the future.
The short two to three months hour together.
The significant opportunities in both of the Lake.
Yeah.
Great and then last question it may be hard to kind of think about but when do you think you could potentially do another acquisition in one of the characteristics that you'd be looking for in future partners.
Thank you I mean, our systems are converted to day. So there is no really short of a few of the ancillary things as Bob you had mentioned so operationally I think we have a good chase people need to be made.
Got a couple of weekends off from that standpoint.
We'll continue to look at things that fit the profile. We're not we are a community bank, where commercial balance we'd be looking for things that fit the profile.
Thank you.
Sure.
Thank you and the next question comes from Christopher Keith of D. A Davidson. Please go ahead.
Hey, good morning, guys and congratulations again on the first quarter consolidated results.
Hey, guys good morning.
Good morning, Alright. So my first question is.
Related to the pay down of the <unk> borrowings.
Avi can you just give us an update on where your progress is and how much room you might have left.
So when all of that everything was done in the month of.
Equity in January.
Trying to prevent the clean balance sheet clean income statement going forward everything is done right now on the whole of that HIV portfolio is pretty shot the the only be weighted funding PPP loans. The press release, we mentioned that the.
The spot rate on the FY 17 volume isn't on 30 to 35 basis points.
At the end of March so everything.
Got it thank you and then.
Can you just remind us where we should expect the loan mix for dime to be specifically related the C&I, what we'd see that 9% contribution in C&I climbed through the next several quarters or do you have maybe a longer term target.
Yes, I think I think longer term.
We obviously have multifamily loans of 35.
Kind of the portfolio right now we would expect that over a two to three year timeframe kind of know the 2020 eight.
Yes.
C&I loans.
On the line utilization has been adding at the old for us across the industry. So at.
As the utilization picks up the NII growth will pick up whilst the.
Active in that market as it relates to grow that portfolio. The same on the owner occupied side on the commercial real estate team now.
Now we have no residential business that we can spread across all of our branches.
It's going to be a mix between C&I on a fully.
Commercial real estate with multifamily tightening down all the time.
Okay.
And then.
The deal seems to have created a more favorable liquidity position compared to the rest of the industry right now.
So I guess with that said do you feel the need to increase the contribution of the securities portfolio.
As a percent of earning assets.
No.
They can be between on the 85% to 95% loan to deposit back and.
Stuart as Kevin said, we have a tremendous pipeline of loans.
Over time the earnings power of the statute is going to be a PPP loans on off we're going to maintain the settlement relationship based loans.
And we are on module. So we're not we're not out there to make money with the wholesale average book.
Two of the three year timeframe, we prefer not to have any borrowings on the book as Kevin all of this as in the Apple.
Core funded balance sheet.
We're going to get that all of the closer to the field.
Got it and then and then just last question the $4 million on PPP income does that include interest and fee income and can you break out the just the total PPP fees recognized in the quarter.
So the total total interest in somewhat of TTP was around $5 million.
And around <unk> $5 million of that was from excess of loss from elimination of the forgiveness. If you'll remember the legacy bnb PPP fees with Vaccinating the spot of close of the accounting. So that's not in the interest income that will be part of the goodwill calculation. So on often happens on the <unk>.
The mental given us on a $5 million of income.
Got it alright, thank you so much.
Thank you and the next question might be brief Stephens Inc. Please go ahead.
Hey, good morning.
I wanted to go back to expenses kind of having a tough time here. So if I look at legacy dime and running at about $25 million in quarterly expenses and bridge was in and around the same or similar level.
And then take out the the cost saves that were outlined.
At the time of deal announcement, I feel like I get to like a 175 kind of 180 run rate versus the 195 were outlining by the end of the year. Today can you just help me understand whether there was less than expected cost saves or more than expected investment or or just help me kind of book.
Bridge, the gap here a little bit.
So from that none of them with the corner on the expense growth.
The impact of legacy Diamond in 2020, we were on $99 million of the core expenses. So that's excluding all of the one time items.
Any of us on the module charge from the other stuff the other than the legs.
Legacy brands was the $104 million for 2020, so your assets throughout the number of $203 million, we on board of growing.
Based on the legacy language on the bombing as hiring people the same.
With legacy bridge, so it take back towards 3 million you got it on a 5% growth rate either all of the teams on the other people. We are hiring you've got the $225 million and then the we had announced that there was going to be $30 million of cost savings. So that's exactly the $195 million. So.
We of course, we've put in in the $195 million we put in.
Teams that we're going to hire of building out on risk management practices. It's the full.
Of the base number we're at we're on.
We're on top of it and when they get the at the end of the scale.
Okay I appreciate that explanation.
Next one from me just on pipelines and loan growth could you just talk a little bit of about the different areas you are seeing strengths in the in the pipeline.
C&I commercial real estate.
And perhaps what does it tell you about kind of the local economy and where we are in the recovery process.
Yes.
Stu.
What we're seeing is a significant opportunity in commercial real estate.
Sure.
Some residential and multifamily construction.
Outside of the boroughs.
Long Island.
Northern New Jersey.
C&I.
Is the active but not as the out of the activity of some of the other sectors.
And do you see there's.
There is quite a bit of liquidity out there our customers have.
Quite a bit of cash.
At GBP.
Si and use that as liquidity pay down the line. So we see about.
12% reduction on the volume usage.
But even with that we're looking at a 6% year over year of growth.
From June to so no. There is there is a lot of activity.
Yes.
Particularly.
He's the man.
Michigan.
The economic growth.
And opportunity breadth and depth of <unk>.
Cash is very strong.
We're not only on new purchases and refinances overseeing the opportunity too.
The involving the small subdivision construction and permanent financing so.
No.
Just generally.
The stronger than getting on.
I appreciate that the other one I had was just just.
Now that the balance sheet has put together.
How do you look in terms of a interest rate shifts scenario of plus 100 basis points, plus 200 basis points could you give us a sense for the interest rate asset sensitive balance sheet neutral or liability sensitive and to what extent.
Yes.
The slightly modestly asset sensitive at this point Matt.
The last the Dnb balance sheet on December 30.
100 basis point of shift in the April.
Net interest income the assembly of 78% the legacy nine balance sheet, the suffering for the side effect prior to the restructuring of the borrowings that we had and so net net the air.
The Avenue film the force.
With.
In the stack from the.
It would be positive so again thats one of the reasons of the visits transaction to many of the two institutions together I think even though importantly, the ability of its about DD&A. So we went from 24 of the ability to move the plant debt facility can talking.
With that of media on the balance sheet kind of help you in any rate.
The environment.
The key number of debt.
I think on.
Okay then.
The last one from me just bigger picture, there's been now a ton of disruption in the long Island markets two big deals big players in the midst of partnerships how does it change the landscape for you does it does it change the day time frame in terms of.
Where you were willing to put resources to recruitment hiring.
You know now that you have two players that are tied up on deals.
You can make it.
Of course I think.
Both of our institutions of certainly bridge has been built was built on the disruption in the market and I think the transformation of dime took advantage of it also this will create lots of opportunities to talk to good bankers.
Most of the customers are a little afraid of on whats going to happen in the future. So that's why it's all it's very important for us to be on the ground.
I was doing are spending more time talking of prospective package of sometimes customers.
This this is the thing that.
We livable lift of the opportunities where customers are concerned we sometimes of the bankers. We think of you don't understand what it needs of a customer in the bank gets acquired they get concerned and that's an opportunity for us the have the dialogue to follow up on dialog that we might've had so yes. It is.
This is the chance and so we are that's.
That's why we wanted to make sure that we were done with the things that we need to do internal so the we can be looking externally.
I appreciate it very good that's all I had thank you.
Yeah.
It's gonna be able a question. Please press star then one.
Next question comes from William Wallace of Raymond James. Please go ahead.
Thanks, Good morning, guys.
Quick question just point of clarification, I think I heard of two different things that loan growth target of 6% does that exclude PPP.
With PPP.
Okay. Thanks.
The in the non PPP portfolio.
If you guys had combined at 12 31 would that core portfolio have grown this quarter.
And at the moment.
Sure.
I'm sorry.
So year to date the combined company.
About 400, the $450 million.
Do.
The commercial loan originations. So you started the quarter Europe pretty well in the quarter.
As Kevin said, we have.
The $1 billion pipeline, probably $250 million on underwriting and probably another sort of $50 million just waiting waiting to close.
We are excited about the show.
The opportunity and now we're really out of our all together systems per year.
We're really sort of.
Already operating on all cylinders.
Okay, great. Thanks, and then it sounds like there is some anticipation that the multifamily portfolio of well I'm assuming continued to decline.
So I guess.
If I'm, making that assumption and with the FHA will be pre prepay the commentary about the opportunity.
On repricing of some Cds, and then with the the loan balance or the loan mix shifting away from multifamily I guess I was surprised that the net interest margin guide was it maybe to have more bias for expansion. It seems like the guide is really anticipating kind of flattish margin give or take.
Is is is there really meaningful pricing pressure on the loan side debt.
To give you less optimism that that that margin couldn't expand from here.
Well in terms of the overall portfolio the weighted average rate of 380 on the on the overall portfolio right now.
Looking at non 300 <unk>.
The three and five eight ish, but then you also on a run off on the higher yielding piece of the portfolio. So even though the multifamily comes down you're going to have the higher yielding multifamily for the payoff over time.
So I think the result of that we're being conservative here of providing the range, but again my range. This morning in medium term range of where we want to be in the company.
The particular quarter, we maybe up or down, but we really think we should be able to operate the company at this range regardless of the interest rate environment. Most importantly, I think you'd see a lot of banks in our footprint.
The cost of deposits when rates come down the rates go up you know I think we're going to be the ones with the stable margin going forward.
Okay, and then I'll be I noticed you took the prepayment penalty.
Disclosure out of the release is that something that you. Just don't think we will we will have swings as much from quarter to quarter now with the bigger balance sheet.
Exactly volume was.
Of course closure of about four basis points a quarter of its pretty small.
It's probably 809 on the pre.
Prepayment fees that came in but now from the legacy Dime income statement of the mobile out of the.
The results of that on the 11 billion on the balance sheet and some of the buying assets, it's not a big number.
Okay.
And then the last question. This is just just kind of of maybe it may be a stupid question, but there's.
There is a line item on the expense base for curtailment that you backed out of the operating based on what what is that it makes it non operating.
Yes, that's just related to pension plan of quality of the way pension accounting works related to the transaction that was the culmination of sudden pension plans so that that won't continue going on.
Okay very helpful. Thank you very much appreciate the time.
Yes.
This concludes our question and answer session on.
I'd like to turn the call back over most of the Kevin O'connor for any closing remarks.
Well again, I appreciate everybody's patience and interest on our company.
As we have said I think multiple times today, we're excited about the prospects of the are really beginning to run this as one company.
And look forward to.
A number of the good conference calls as the year progresses, so have a great day.
Yes.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.