Q2 2021 Dime Community Bancshares Inc Earnings Call
Standards and low Ltvs.
During the second quarter, we also announced we would be combining 5 branches into existing branches.
Several of these branches already share common staff, and we expect minimal business impact.
Even with these closings we continue to believe.
<unk> existing footprint provides us a competitive advantage by having complete coverage and significant brand identity and the greater long island market.
Ultimately our goal is about growing clients, winning new business and operating with a high quality balance sheet.
We grew noninterest bearing deposits by 12.
<unk> percentage on an annualized basis this quarter, increasing the ratio to 33% of total deposits. In addition, we are now operating with a core funded balance sheet with virtually no wholesale liabilities.
As importantly, we originated 425 million of loans in the quarter at a weighted average rate of approximately 360.
As a result of the strong originations and despite a relatively high level of pay offs, we were able to grow core loans by 3% on an annualized basis.
Our loan pipeline continues to build and in fact, we have over $500 million of loans approved and waiting to close at a weighted average rate of 3.8%.
<unk>.
Again, we've converted our core systems and all of our lending teams on now more comfortable with our common loan origination fees.
And we expect loans, excluding PPP to grow by approximately 6% annualized over the coming quarters.
Our nonperforming loans declined by 20% on a linked quarter basis.
And as I have.
Before drew merger due diligence integration and closing we've done several third party reviews of our portfolio and are very comfortable with the strength of our credits and our loan loss coverage.
An offshoot of the PPP sale was a material increase in our capital ratios, our tangible equity increased by 46 basis points.
Mentioned book to 8% to 9%.
And I'd like to point out we have multiple levers to create shareholder value and during the quarter, we purchased approximately $14 million of common stock and expect to continuing managing our capital levels efficiently over time.
We definitely see significant value on our stock given our trading levels.
In the quarter trajectory and balance sheet profile.
To conclude my prepared remarks, we had a strong quarter with reported net income of $50 million. We managed expenses appropriately and are running the bank in a sub 50% efficiency ratio.
Our adjusted ROA was 129% and we grew tangible book.
Earnings by 4.5% or approximately $1 per share in the second quarter.
As we can as we begin planning for 2022 in the coming months I continue to believe we have a tremendous opportunity in front of US we have a clarity of mission to be a pure play community commercial bank focused on being responsive to our customers'.
Needs.
We will focus on growing demand deposits and continued developing loan relationships.
As you are all aware there have been several large merger transactions on our marketplace and we believe we are extremely well positioned and ready to capitalize on any disruption.
Within our footprint, we have a unique and best.
Value as deposit franchise with an industry leading level of DDA.
We have created a bank with the number 1 market share among community banks with strong brand appeal and scarcity value. We operate in a high density footprint with significant wealth and business opportunities.
We believe we are very well positioned for the day that federal reserve raises.
Interest rates, while currently producing strong metrics even in this low rate environment.
At this point I'd like to turn the conference call over to Avi, Our Chief Financial Officer, who will provide some additional color on our first quarter results.
Thank you Kevin our reported net income to common for the second quarter was $49.5 million.
Included in this quarter's results $20.7 million of gains associated with the sale of PPP loan.
Well, it's on related expenses declined meaningfully from the prior quarter and were only $1.8 million with.
With the majority of our systems conversions complete we don't expect to see much in this line item going forward.
Finally, we had 1 million interest costs related to 5 branch combinations in the second quarter and the.
Third quarter, we expect the remaining $4 million of costs related to these 5 branch combinations to be recorded this will be partially offset by sales of owned properties.
We have provided a team delivered on the earnings release with the 3 months ended June 30th.
Pre provision net revenue, which on an adjusted basis was $53 million.
This provides a clear glimpse into the go forward earnings power of the company and our ability to produce sustainable 1% plus ROE is regardless of the rate environment.
We were able to migrate our cost of deposits lower to the tune of 17 basis.
In the second quarter and the current spot rate today is even lower at approximately 14 basis points.
We believe we have an opportunity over the next several quarters to get the cost of deposits down to the low double digits most.
Most importantly, we believe we have removed a significant amount of rate sensitivity from our deposit base.
<unk>.
Actions, coupled with a higher percentage of DDA should result in on deposit beta is lagging the banks in our footprint when rates eventually rise.
The reported net interest margin was $3.1 2% as we did last quarter. We have provided details on the press release on the impact on purchase accounting and PPP. The adjusted NIM of 323.
Points and was within our previously telegraphed range.
I'll now make a couple of comments that should help with framing the NIM going forward.
Having said that 2021 PPP originations at the very end of the second quarter, we had approximately $600 million of liquidity tied to the PPP sale on the balance sheet at the end of the quarter.
3 puts the effective yield on the PPP loans that we sold were approximately $1.70.
As a result, we expect the reported margin, which as I mentioned with $3, 1.2% per Q2 to be impacted by approximately 7 to 8 basis points in the third quarter due to the PPP sales liquidity build clear.
Clearly as we.
Redeploy the cash into securities and Correlationship loans, we will be able to build back the margin over time just from a frame of reference that we are currently purchasing securities at a yield of approximately 125. So if we had hypothetically fully invested the $600 million immediately into purely securities the impact on NIM from the PPP sale it would drop from.
So 8 basis points to only 2 basis points.
Given where rates are at this point, we will be patient and prudent in our approach to deploying the excess cash into securities.
And as Kevin mentioned, we have a strong pipeline that will also help absorb the excess liquidity over time and help build the NIM from the <unk> sales.
7 accounting accretion on loans with approximately $1.9 million in the second quarter.
We expect this to be approximately 1 million per 1 million in the half for the next couple of quarters.
By early next year, we would have potentially done through most of the remaining net accretion remaining accretion will of course be a function of paydowns on loans some of which are <unk>.
Purchase and some on discounts.
Yeah.
With respect to the remaining 2020 originations on the balance sheet, which were approximately $460 million at quarter end, we have $2 million in remaining unrecognized PPP fees that I expect it to be recognized over the course of the next 12 months.
As Kevin mentioned.
Premium plan of loans waiting to close is approximately 3 <unk>, which is in line with our overall loan portfolio rate ex PPP.
This coupled with our ability to continue to lower deposit costs should lead to margin stability in the quarters ahead ex the impact of the temporary PPP sales liquidity that I have already outlined.
We ended the first quarter with strong capital levels.
Tangible equity to tangible assets ratio, excluding PPP was 860.
During the second quarter, we purchased 400000 of shares at $34 and do believe share repurchases continue to be very attractive to us given our trading levels and prospects.
We definitely.
We see significant value on our stock given our trading levels earnings trajectory and balance sheet profile and continue to be active on the buyback front in the month of July.
Moving to credit quality, our nonperforming loans, excluding acquired PCI loans as a percentage of total loans with only 20 basis points at June 30.
On.
Net charge offs for the quarter were only 4 basis points.
Our loan loss reserve ratio of 102 basis points, excluding the TTP.
<unk> PPP loans as a level, we're very comfortable with at this stage in the credit cycle.
We're comfortable with our guidance of operating by year end with an annualized run rate for core cash noninterest expense of approximately.
And $95 million, which we expect to hold relatively flat into 2022.
As we begin our 2022 budgeting process in the months ahead, we will certainly leave no stone unturned in terms of managing expenses appropriately within the confines of our return profiles and growth prospects.
Finally, I'd like.
100 easily by touching upon progress against the 2 enterprise wide goal that we had laid out previously.
Our first goal of growing DDA to approximately 40% in a 3 year timeframe in the second quarter, we grew DDA to 33, 3%, notably when we constructed our short term and long term incentive plan growing DDA to 40%.
To end featured prominently.
The second equally important role as managing bank within an efficiency ratio range of 47% to 50% over the near to medium term.
We're currently operating with a core efficiency ratio of 48%.
While the liquidity from the PPP sales may have on near term impact on the efficiency ratio on that.
Third quarter, we continue to expect to manage the bank within our stated efficiency ratio goals as we expect positive operating leverage and organic core loan growth in the coming quarters.
With that I'll turn the call back to Tom for questions.
We will now begin.
And an answer session to ask a question press Star then 1 on that touched on pump if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question Press Star then June at.
At this time, we will pause momentarily to assemble our roster.
Okay.
And the first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Hey, guys.
Good morning nice quarter.
Good morning from.
Just just to clarify a couple of quick things Avi you mentioned on on first on expenses did you say $4 million.
Benefit to expenses.
The question of 5 branches will be closed in the next quarter or is that annually.
No marks on my comment was in terms of the charge for combining the branches. We obviously have some leases associated with those branches. So in the second quarter, we took a $1 million.
Our first of a charge associated with the lease termination and then.
This from third quarter, we expect the remaining $4 million of lease termination to basic.
Basically hit in the fourth in the third quarter, but that will be partially offset by any sales.
Some of the properties off the 5 properties is a couple that we actually on so its actually talking about the charge in the third quarter associated with that given the accounting.
On the lease standards that we operate under.
Gotcha Okay.
And then on the margin so.
It sounds like 1 million 2 million fiber PPP income.
But the core margin is going to be sort of 3.4 to 305, So that's incremental.
Mike.
Reading the tea leaves the right way.
Yes, I mean, the easiest way to think per market. That's a reported margin was 312% right and so within that $3.12, we had $600 million of PPP that had a yield of 170 <unk>. If you just assume that goes to 10 basis points to 312 comes.
You'll find just feel streamed on interest rate, Matt and then.
Obviously, we're not going to keep the whole thing in cash so we're going to start reinvesting that into securities initially and with loan growth. So I just wanted to have you see the $3.12 non at 305, but then backup with the investing in securities and obviously with core loan growth and reducing our deposit cost.
Now on to Tonight on the fact that our loan pipelines are pretty strong in terms of current rate.
Okay, Great and then I guess I was curious on that loan sales that you did on $50 million of criticized loans.
Relative to par where did you sell these and are we likely to see more of these kinds of transactions in coming quarters.
Yes, Mark it's too yes.
Those deals were basically done at par.
2.2 loans that had seconds on them that we took a small hit.
About $300000.
But everything else is at par and and.
We're being quite aggressive in terms of.
Offloading.
Any multifamily deals that we think.
I was just going to take a little longer to turn around and so.
Looking at it weekly monthly et cetera, so they will progress.
<unk> be some more but.
The average LTV.
Is under 60% on the portfolio and we we see and have had no issues in terms of Offloading. These these notes so.
We're going to manage the portfolio on kind of move things.
On what stressed.
And continue to do that as we as we continue to originate new business.
And I just want to make mentioned, we're talking about loan growth in our pipeline.
We're very excited about the organic opportunity to grow loans, we have almost $2 billion.
His line.
At this point and just since June 30, we've <unk>.
We've increased our loan book by almost $100 million, so those loans that Kevin mentioned.
We're waiting to close that were approved.
Awaiting closings are beginning to show up on the balance sheet also for the quarter, we actually.
On the pipe, we actually closed $600 million.
And loans for the quarter loans and lines for the quarter. So there is 100.150 plus million dollars of line or not drawn yet and construction loans that are part of that so.
They're at very attractive rates Prime plus 1.
Thereabout so so.
So we actually have balance balances of loans closed for the quarter of about $450 million.
There is another 200 or so million in and lines that are yet to be drawn. So we're very comfortable with the trajectory in terms of our loan growth as we go forward in and.
Obviously, there is no there is no dearth of opportunity in terms of new business coming to the bank.
And Steve I'm, just curious is a lot of the pipeline coming from.
Other banks that are involved in acquisitions.
It's coming from all.
The usual players.
The larger institutions, we're able to as we as we said early on we were able to do more business with our existing customer base as well.
So we've seen some business from some of those institutions that are involved in.
Upcoming coming transactions and we think.
There's going to be quite a bit more in terms of opportunities with even the newest.
Transaction that occurred so.
We're excited about that we also are looking.
Looking at additional teams and personnel from those organizations, because we think there's a lot of opportunity there as well.
And then lastly, Kevin I'm curious given all the consolidation that's going on around GDP feel the need to do more transactions.
Or do you think you're better off sort of staying independent and.
Taking advantage of the consolidation around you.
I think the ladders or would go I think the organic growth opportunities are certainly.
There, although you can't close the door something comes in it's an opportunity and there is an opportunity to do something but.
We're on it we're in a very good position, having done the conversion being on 1 platform being the size and scale we are.
Still we said there is tremendous opportunity out there and I don't think it's really coming from those from those those locations.
Yet I think there is still sort of a wait and see but.
We certainly see opportunities there mark I'd just add to that.
Been very active on the buyback front I mean, we think there is significant value on our own stock today.
You saw we purchase on 400000 shares.
We've been active in July so given our balance sheet we.
Do feel investing in our stock right now is probably the best per ton of capital.
Given the low risk nature of our balance sheet.
Thank you.
Again, if you have a question Thats Star then 1 to join the queue.
The next question comes from Matthew Breese with Stephens incorporated. Please go ahead good morning.
Hey, Matt Hey, Matt commodity.
Few questions. So first on the $500 million approved pipeline could you just give us a sense for what the break down the segments are within that curious where youre seeing strength and then I couldnt.
Couldn't help but notice the.
The difference in origination yields this quarter $3.60 versus the pipeline yield of $3.80, we don't hear a lot about loan yields expanding in this environment very often I was hoping you could talk a little bit about that and where.
That's actually going on or there is some normal way kind of bouncing around on yields.
Yes, well.
<unk>.
First of all in terms of the makeup of the portfolio or the pipeline is about 20% to 25% C&I.
And.
And the remaining amount is.
It's probably split evenly between.
CRE owner occupied CRE investment in multifamily.
And so.
Well diversified.
And so we're pretty comfortable there obviously the C&I market is.
A little less robust than the CRE market, but we're still developing new relationships and booking new loans in terms of C&I.
Our line usage continues to be lower than historical levels.
And there is an opportunity there once once.
On that.
The economy normalizes and liquidity is somewhat flushed out, but borrowers are somewhat reticent to borrow under.
Our existing line so.
Or have a significant amount of cash.
In terms of yields.
<unk>.
In the.
In the quarter, we did have some significant amount of.
Swaps.
<unk> activity this quarter, although we don't see that.
Continuing throughout the rest of the year given the yield curve.
But that did drive down some of our yields for the quarter.
And.
And it just it just so happens debt this quarter or the pipeline does include a number of loans and lines and some construction deals that have.
The higher yielding.
Nature in terms of whats in the pipeline I will say that the overall, 1.8 billion on almost $2 billion of <unk>.
Loans in the total pipeline pipeline have a total yeah.
Yield of about $3.55, so.
I think this quarter whats out there for now is a bit of an anomaly, but were in the $3.55 to $3.60 range in terms of the the entire $2 billion pipeline.
Got it okay very helpful.
1 other question I had was could you remind us of what percentage of the loan portfolio.
Is is floating rate and if we if and when we do get a fed hike will re price immediately.
Yes sure sure on that.
25% of our portfolio is variable rate and then there's another 20, another 50% debt adjusted.
Adjustable rate off that floating rate portfolio, there's a 1.05.
Folio that floats immediately and is around $500 million with floors on them that with a 50 basis point rate hike would also replaced so call. It 50 basis point move there is a 1 billion favor floating rate stuff and then also we have 50% of our portfolio is adjustable rate, which obviously when they hit the maturity date the reset based on.
The treasury curve.
Okay perfect.
2 other ones from me. The first 1 is just the tax rate was a bit higher this quarter. You also had some noise.
Just curious if.
There was also from some changes to New York State taxes.
How much of that is ongoing and how much of that is just due to some of the.
Billions per quarter.
Yes, sure because it's a little bit of extra income this quarter map. The tax rate was higher there's also some discrete items in there in the press release, we've pointed out that 27% to half is a good rate to use for the rest of the year.
Okay.
Last 1 we've talked a lot about consolidation.
Noise I'm just curious.
Have you started to see the hiring opportunities emerge yet on the phone's been ringing have the conversations happen have you actually.
Brought anybody in.
From a from a sold institution.
Or gotten clients that were unhappy because of an acquisition could you just give a little bit of anecdote on as to what.
I think the.
I'll start with the.
The latter I mean, I think the client moves or still.
Yet to be seen.
As in most of these cases everyones kind.
<unk> is in a wait and see mode.
Their initial reaction there is nothing is going to change and.
And then things changed so we certainly expect opportunity there in terms of new.
New personnel, we have brought on.
Several relationship managers, we have.
Brought on a number of underwriters and support staff to 2.
To get through that.
You are seeing significant pipeline, we have and we have been able to 2.
To take folks from those institutions, we are talking about I will tell you I mean I got it.
4 calls yesterday from.
From the recently announced.
That deal so.
People are aware that we're out here and there is a real opportunity at our size and our capital levels.
I think theres going to be some real opportunity to take advantage of not only the personnel, but the disruption on the market.
Got it okay, maybe just a follow up.
Don't want to get to the card to front too far in front of the horse here, but as you do find new people.
That can also lead to new markets I wouldn't expect you to go terribly too far outside of Metro New York City, but might we see you enter.
Some of the more suburban areas around Metro New York City is focused on March.
Yes, and we are.
Our pipeline does include a fairly significant amount of business in <unk>.
Northern New Jersey marketplace.
I am very comfortable with that market by ran a couple of banks share we know the marketplace very well so yes.
We are moving.
Outside of long Island.
At this point in.
New Jersey is a fairly fertile market as far as we're concerned.
Very good I appreciate all the detail thanks. Thank.
Thank you.
The next question comes from William Wallace with Raymond James.
On Manhattan's go ahead.
Hi, Thanks.
I hopped on a little bit late so if my questions have already been cash just let me know on I can read the transcripts, but.
Yes.
You mentioned the buyback.
If you could could you remind us what's left on the buyback.
And.
As you as you look about how aggressive aggressive to be on that buyback what are the what are the capital.
Constraints that you look at whether it's leverage with all the preferred or if it's TCE, where are you comfortable on capital levels relative to using the buyback aggressively.
Yes.
Sure.
We havent on 800000 shares when we started off we purchased around 400000 shares in the second quarter. So does the remaining 400000 shares basically left.
In the buyback in terms of the authorization while in terms of capital levels, We're very comfortable where we are right now.
The risk profile of our company more importantly, the stress testing that we've done.
Staffing provider provides us.
What type of capital book, we have on what type of capital bond the peer.
<unk> group has and we generally screen around 150 to 200 basis points lower than them from a stress testing perspective, so I'd say we've.
Yes on a ball running the banking on between 7 and 7.5% TCE between 8 and 8.5% tangible equity I mean, we're over those levels at this point.
Got from PPP in there, which is going to come out of the balance sheet. So.
At these levels again, we bought back shares at 34, we feel with attractive than slightly lower than that we feel.
Even more attractive so we will continue to use use that judiciously as we go forward.
Okay. Thank you very much and and then.
Nobody's asked on the expense base or are there more cost saves to common.
If so.
What am I to comfort.
Comfortable run rate day.
Yes. So in my prepared remarks, I had mentioned and are comfortable with that core cash noninterest expense base of around $195 million.
By the fourth quarter on holding that in a very steady into.
2022, and I think we've laid out some guidelines for.
For efficiency ratios of 47% to 50.
50% until we know we're going to continue to drive that drive that down we're going to start a budgeting process going on in the next couple of months.
Not going to leave any stone on returned over there. So we have as Kevin mentioned upfront, we promised on efficiency ratio of 50% when we announced the transaction we're running the bank at 48%. So we want it we want to promise.
With that we're going to be between that 47% to 50% over time as we leverage some of this excess liquidity from the PPP getting back to the lower bound of that into 2022.
Okay. Thank you very much.
Yeah.
Okay.
Thank you. This concludes our question and answer session.
I would now like to turn the conference back over to Kevin O'connor for any closing remarks.
Well. Thank you everybody for participating have a great day, and a great weekend and look forward to chatting with you soon.
Okay.
This conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yes.
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