Dime Community Bancshares Inc. Q1 2023 Earnings Call
Yeah.
With respect to our positioning on lending our strategies is to ensure we continue to support our key clients through in any operating environment. At the same time, we continue to prudently grow loans and add franchise enhancing full service relationships are.
Our current expectation is to grow loans by approximately $100 million in the second quarter.
Our focus continues to be on growing solid business relationships, while keeping our multifamily portfolio relatively flat.
Obviously, we are keeping a watch on a loan to deposit deposit ratio should rates decline in future years 2024, and beyond we do expect prepayments in our multifamily portfolio and to pick up.
This will lead to a natural normalizing of the loan to deposit ratio overtime. In addition, as teams hired from Citrix is start to build their book of business, we expect additional momentum from our deposit gathering efforts.
With respect to specific CRE exposures as we have mentioned before our Manhattan portfolio is only $225 million or less than 1%.
7% of total assets.
The LTV on the Manhattan office portfolio of 52%, we are comfortable with the exposure and the operators of our office portfolio of very strong individuals.
Given that time undertook an effort in 2018 in 2019 timeframe to remix the loan portfolio and since the product generally we set out to five years, we do not have a significant amount of repricing loans for the remainder of 2023.
In fact, only $205 million of Investor Cree loans at a rate of 467% are set to reprice for the remaining nine months.
Thus far we have not seen any meaningful early warning indicators of credit deterioration, while we continue to be diligent around monitoring all parts of our loan portfolio as.
As mentioned, our overall asset quality remains strong and Mbas and 90 day past dues are down two 3%.
With that I will turn it over to Avi to provide some details on our results for this quarter.
Thank you still reported net income to common for the first quarter was $35 5 million.
Despite the unprecedented and voted interest rate environment earnings per share was up 12% on a year over year basis.
The NIM adjusted for purchase accounting was $2 76 for the first quarter compared to $3 14 for the prior quarter.
As you know, we don't provide quarterly quantitative NIM guidance.
Operating in a significantly inverted yield curve environment with intense competition on the deposit side, we do expect the NIM to have another couple of quarters of declines.
For reference the NIM for the month of March was approximately $2 61.
We continue to position the balance sheet for a scenario with falling rates dropped in 2024.
We have approximately $1 1 billion of <unk> borrowings that all mature by June of 2024 as mentioned previously while we had the ability in 2022 to borrow longer at a lower cost we intentionally did not extend the duration of borrowings.
Similar to how many companies kept excess cash during the pandemic and benefited from rising rates. We're following a similar strategy on the liability side, we are intentionally not going too long and hope to benefit from a full repricing, if and when rates do gapped out.
Core cash operating expenses for the first quarter of 2023 was approximately $47 million.
Our core efficiency ratio this quarter was 48, 9% and the core expense to asset ratio was 140.
Given the overall operating environment, we remain highly focused on expense discipline.
Pro forma for the signature teams, we have hired we expect to still be within our previous full year guidance for core cash operating expenses of approximately $260 million to $209 million that said, we remain focused on controlling the things we can and we will do everything in our power to beat the guide for the yellow and we continue to evaluate opportunities for <unk>.
Hence reductions while funding productive deposit teams.
Core noninterest income for the first quarter was approximately $10 4 million.
The increase in noninterest income was driven by strong swap related revenue.
We expect swap related revenue to be approximately one to one and half million dollars in the second quarter, given our current pipeline.
We had a $3 $6 million provision release this quarter as.
As mentioned in the press release, the release was tied to a reduction in acquired Port PCB loans.
This speaks to the improvement in credit quality and Conservative reserve, we had setup for PCB loans as part of our module of equal transaction importantly, the reserve for a non PCB non individually analysed loans remained steady versus the linked quarter and accounted for approximately $51 million of the overall total result.
Needless to say, we are very comfortable with the level of reserves on our balance sheet.
During the first quarter, our risk based regulatory capital ratios increased by approximately 15 basis points.
We do expect some improvement in the <unk> in the second and third quarters as multifamily loans originated in 2020 to teach that one year seasoning period and will qualify for 50% <unk> treatment.
With that I'll turn the call back to Lauren for question.
Thank you.
If you would like to ask a question. Please press star one on your telephone keypad.
If you change your mind, Please press Star fleet.
We're preparing to ask your questions. Please ensure that your finance on mute locally.
Our first question comes from Mark Fitzgibbon from Piper Sandler. Please go ahead.
Hey, guys, it's Greg <unk> filling in for Mark how are you guys doing.
Hey, Greg how are you doing.
Good I know you guys mentioned that there is a few more quarters of decline in the NIM.
But assuming the fed follows a forward curve when would you expect the NIM to bottom.
Yes, I think the comment there was a couple of more quarters of declines I think you can imply from that plant.
Plateaus after that and starts increasing after that it's obviously going to be a function of how quickly. They do cut rates I mean, obviously, we have this $1 billion $1 two of <unk>.
Which is all pretty shocked denim, we have around $750 million to $800 million and brokered on the balance sheet, which again is pretty short term all of the Cds, we have been putting on the balance sheet again.
Fairly short term 11 to 12 months so I.
I would say.
Next couple of quarters pressure on the NIM, maybe a quarter stabilization after that and then following the forward curve improvements in 2020 full for sure.
Okay.
Do you have a sense of how long until liquidity returns to a normal level.
I think it's going to be a function of the overall environment.
We're basically three weeks removed from a mini banking crisis.
Thank you.
Somewhat elevated in the near term.
Our deposits were up linked quarter, so we're not really.
Required to be holding more liquidity to meet.
Outflows, because we've not really had any but I think it's prudent for everybody to maintain a level of liquidity at this point in time and we're also going to be following what the industry does overall.
Overall Keith.
Keeping a watch on that.
Okay.
Lastly, if you could share with us your current loan pipeline and the rate attached to it.
Sure.
Our loan pipeline is approximately one.
1 billion won and the average so weighted average rate on that is 717.
Alright, Thank you guys so much.
Thanks, Craig.
Thank you.
Our next question comes from Steve <unk> from Raymond James. Please go ahead.
Okay.
Hey, everybody. This is Thomas on for Steve.
Hey.
Pay down.
I guess to start off.
Thanks.
I guess to start off.
What what drove the timing of the release on the acquired PCB wrong.
So we put the company together two years back Theres been two years seasoning on the loan portfolio, Tom and the risk ratings in that particular portfolio has remained stable or increase so the way the accounting works for that as you know at some point in time, you got to take into account.
Risk ratings and enough time has passed for these loans were moved to the general pool. So as I said in my prepared remarks, we put the two companies together in the middle of Covid times are pretty uncertain, then economic projections were all over the place.
We took our best estimate at that point, and we're conservative and we've obviously mark them appropriately and just seen good credit quality over time.
Given the passage of a couple of years and this was the time to move those loans.
Out of the.
<unk> <unk> into the general pool.
Yeah.
Okay. That's helpful.
And can you can you provide any additional color on the.
The new hires.
That are going to be working on the deposit initiatives.
Some of the associated I know, you said that opex growth of them.
Isn't going to increase.
Related to guidance from last quarter, but any other associated expenses that may be tied to that.
No I mean, we've taken that into account in terms of looking at the teams.
They are all relatively small teams two and three person teams.
Good.
Granular deposit bases.
We look at their insured versus uninsured.
And we looked at their total cost of funds and.
And we looked at their operational needs, we certainly could fit that within R. R.
Our current environment and our capacity so.
We have taken other efforts within the bank in terms of cost savings measures. We've got a hiring freeze we've done other things.
We're pretty comfortable that.
We will enhance our cost effectiveness and keep our cost in line, even as we hire these additional teams.
Okay. Okay. Thank you for that color.
My other questions were hit on so that's going to cover for me a nice job in a difficult environment.
Thanks.
Thank you.
Our next question comes from Manuel Nava with D. A Davidson. Please go ahead.
Hey, good morning.
Hey, Matthew good morning.
I just had.
What is driving the expectation for $100 million in loan growth is that what I did I hear that right for next quarter just kind of.
Yes.
What are some of the puts and takes with that expectation.
Yes, so we have we.
We have a pipeline as I mentioned, just earlier of about $1 billion.
Which.
It's spread out across all product lines, the average yield of 777.
The largest pipeline as our C&I pipeline.
<unk>.
Actually has a yield of 862.
And so we do expect that these are there are loans that are approved we do expect these to migrate to close.
They do particularly on the C&I side, our philosophy is to service our existing customers first secondly, a really focus on relationship.
Banking and making loans to customers, who are bringing significant deposits along with that with that loan and.
And we do have some very attractive deposit.
Opportunities are part of.
The loan pipeline that we have in place so we're pretty comfortable that we're going to be at.
At least $100 million growth just based on what we have in the pipeline.
Okay, I'm, sorry, so that was kind of like a minimum for the quarter.
No.
As our current base line for the quarter and at a minimum.
Okay.
Alright.
And then the.
The new teams.
Can you just clarify you said 1 billion was there prior book of business was that per team or for the 14th come back.
Combined.
Okay.
Any color why you guys are having such success in adding there hasnt been that many announcements.
Folks moving over.
And I think you called out that you have.
You're offering more management engagement, just just any color on your success with attracting these teams and the opportunities I think.
Yes, I think part of it is we already have the team concept in place we have our loan teams we have.
Those group concepts.
Base that are not dissimilar.
From what to assume the.
The signature model was.
And.
This has been a bank wide effort, we've all been engaged all senior management I've met with every team.
<unk> had discussions multiple discussions with with all the teams.
The ones, we've hired and the ones, we're still talking to them.
And I think there is a level of comfort.
In terms of the granular nature of how we operate and an attention to detail.
We spent some time going through our technology stack and going through our online and in our Treasury management systems and they found.
Roundly.
Indicated from from the teams that we've spoken to that we matched up very very well to the.
To what they had in place or see coming down the road. So I think all of those.
All of those.
Items contributed to our success.
And the level of importance, we are placing on on this on a bank wide basis I think it comes through.
Any color on kind of.
What's still out there in terms of talent you said.
You are talking to some folks but.
Im sure that its still up in here a bit but any extra color on the potential for more apps.
Yes, we are in serious conversations with several more teams, including some larger teams.
Yes.
Okay, that's great I appreciate that.
When we're looking at.
The negative provision this quarter.
How should I think about the provision going forward.
More closer to like what it was in the fourth quarter is that kind of the right level to think about.
As we proceed forward it seems like loan growth will be a little bit less so perhaps it could be even a little bit lower than that.
Yes, I think my nose fidelity going to be a function of.
The Moody's unemployment rate at the end of the day that I mean, thats kind of what where it <unk> mean that stayed pretty stable.
This quarter you know, what we've said historically.
For any real estate loan commercial real estate, we're probably 55% to 60 basis points is kind of what the reserve on that portfolio is.
C&I loans, it's between one and one in the quarter and then on the multifamily side just given.
Want to see that being zero, our resolve on that portfolio, probably between 20 and 25 basis points. So yeah short answer is a function of growth and the composition of that growth I think some of the.
Anomaly was this quarter was we had a lot of.
Pooled PCV loans that came out in that pool is right now down around $40 million. So it's not a big pool remaining so I don't think you should see any onetime items like happened. This particular quarter again, it's going to be a function of Moody's I mean, the unemployment rate goes up there'll be an increase in the result, but I think you're going to see that industry wide not just specific.
To us.
Okay. Thank you I'll step back into the queue I appreciate the color.
Thanks Lee.
Thank you.
Our next question comes from Christopher <unk> Christopher Please go ahead.
Hey, good morning.
Yes.
I know you guys confirmed.
The expense guidance holding.
Obviously, a little bit.
Shakeup in the NIM.
Coming out of this environment, but as far as the rest of 2023 guidance that you gave on.
On last quarter's call.
Is all of that still hold.
Well the only other guidance, we gave chris's on fee income so we.
We had 35% to $37 million on the last call. We obviously had earned $10 million quarter. This quarter with strong swap income so I would say in our trending towards the higher end of that range, but beyond.
Beyond expenses and fees, we don't give any other guidance.
Okay.
Tax rate, 28%. So good it seems like with the 100 million next quarter that loan growth still.
You should end up kind of in the mid single digit range.
Yes, I mean, I think our loan growth guidance last time around was only for the first half of the year until I think we're going to wait till we report earnings in the second quarter to provide guidance for.
In the second half I mean, obviously.
To the extent, we have good loan opportunities with associated deposits, we're going to be all over that I think on the tax rate probably closer to 27% is probably a better number obviously with a little bit less income the tax rate comes down a little bit given where the margin is I would probably budget on 27% on the tax rate.
Okay got it.
And third the excess liquidity build on balance sheet this quarter.
Cash is obviously right.
Quite a bit higher than that it has.
Sure.
In prior periods.
Do you guys intend to take that down kind of immediately over the course of.
<unk> was it just kind of a temporary measure given.
The.
Turmoil in the system.
In March or is it something that you will be holding on balance sheet for a few quarters.
Yes, I mean, I think it's <unk>.
The high point like you characterized it I think a lot of banks went into at the end of the quarter and made sure.
<unk> items like that so given where we are right now I don't expect it to be higher than that but I think we're just watching the environment overall and just want to do the right thing overall.
50, and soundness comes first so you want to make sure it's there.
Obviously, we have significant amount of collateral that we can pledge and borrowed whenever we need.
But I don't expect it to be higher than that given where conditions are favorable.
Got it.
And deposit flows.
The end of March.
You guys have any update on that.
That'd be great.
In particular.
And noninterest bearing and maybe how significant.
I think that mix shift will be going forward.
Yes, I mean in terms of the mix shift look we're going to be.
Pretty similar to other banks with the high level of DDA I think if you have a low level of DDA and I'm going to see a mix shift out because you don't have much to start with but now starting where we did there's obviously been a movement towards <unk>.
Treasuries and his money coming out of the system. So we would expect the number to decline over the course of the next couple of quarters, we normally don't provide intra quarter guidance on deposits and loans and not really sure. That's a good practice.
As we continue to open accounts.
Well our account opening over the last month has been far above what it was prior to the crisis a lot of that is not funded yet but the net new account opening is very positive and then with time with some of the signature teams that we've hired once they find their legs over here.
That's going to be the next leg of growth over here for deposits.
And we feel pretty comfortable overall in terms of funding the balance sheet.
And as I mentioned in my comments, we have significant amount of deposit opportunity in new customers that we're bringing on.
Our C&I business and.
And even in our commercial real estate business and we are seeing some opportunities from.
Former signature clients move.
Began to move their business to us as well so.
We're encouraged.
And somewhat optimistic in terms of deposit growth.
Not even taking into account the signature teams, we're bringing onboard.
Got it.
Im.
Okay.
And.
For capital levels, and the buyback any change in kind of capital level targets and do you guys expect to use a little bit of buyback this quarter.
Do you guys expect to continue to use that going forward take a pause.
Yes, yes.
Any thoughts on that.
So mainly kind of dialed a buyback down in the first quarter I mean, we obviously have a <unk> five plan out there and I would say just.
Just given the overall environment. This is probably not the right time to step in I would say valuations are very attractive but.
Keeping capital on the balance sheet supporting customizes important probably should see a little bit of build in the capital ratios going forward you start on the 15 basis points increase in risk based capital now I would say a stress.
Stress testing continues to be very favorable in terms of the performance.
<unk> had.
Very good performance very low charge off levels.
Our classified levels are down significantly on a year over year basis.
So nothing in our stress testing indicates we should be holding more capital, but given the current environment, probably makes sense to accrete capital here over the next couple of quarters.
Got it.
Yeah.
And.
We can.
The commentary around the margin I know you guys don't.
Guidance on that.
And any sense as to where deposits.
Kind of shake out.
<unk>.
But then in the next couple of quarter in terms of cost there or I guess, how much of your deposit base do you think you can keep.
I.
I kind of reasonably low rates or what percentage of that deposit base you guys consider kind of highly rate.
I mean look we're a relationship bank so we'd like to thank the whole basis relationship focused we do have a consumer portion of the deposit mix as Kevin said, which was around 32% of our base.
I would say on the commercial side.
Lot of those rate increases have already happened at this point in time and the customer that wanted to move have moved at the same time in our commercial clients' dual keeping cash in this environment some of them are.
Also looking at Treasury rates, but now treasury rates are going up and down a lot. So it's a little hard to predict over that I think what we're focused on more of us keeping relationships.
Got it.
Losing customers based on rate to some extent, especially in this environment, but I do think over time, there is an opportunity to reduce the cost of deposits when rates eventually do go down and I think.
There's been a lot of other peers in our marketing we can do that I would say the other piece of it.
Signature going away as you have a competitor in the market, who is paying very high rates on deposits not being around anymore, and so I think thats going to help all of us in our market.
In the medium to longer term is something thats out in the numbers right now but.
<unk> I think that should be a positive as well as the deposit costs and Metro New York.
Okay.
Great.
And just I know you guys have the expense guide.
Pretty specific but was there anything in particular.
Timing or something.
Season or.
On the compensation line this quarter.
I expect that will reverse a little bit next quarter.
No nothing seasonal just we have a fixed cost base and we have a variable cost base I mean I think.
Profitability for the industry overall, the ceiling is going to be below what it was last year and we.
Appropriately adjust our.
Compensation metrics overtime, so nothing seasonal.
Got it.
And then last one for me.
And a lot of articles and a lot of discussion kind of around.
<unk>.
No.
Commercial real estate market, particularly.
Some about New York.
Guys, just give us an update as to what Youre seeing and how you guys are feeling about the market overall.
I guess traditional CRE as well as kind of the multifamily market.
Yes.
As I mentioned in my comments, we have a very small office portfolio in Manhattan, only about $225 million and the average LTV is about 52% good debt service coverage all our current 30 loans the average loan size of about $7 million to $8 million.
So from that perspective.
We're not.
Real concern.
We're always looking at credit.
We have not been in that space.
In the last several years and we're not big into the retail space.
Either so.
At this point.
We're monitoring our portfolios, but we're not seeing any real weakness on the multifamily side and Theres been talk a lot of talk about repricing, but we haven't had one.
Sure.
Borrowers come to us after a restructure.
About 75% of what has.
Hit the re pricing.
Period has opted for the <unk>.
We have opted for the repriced.
The repricing and move their relationship.
And we haven't had to deal with the issue of right sizing or restructuring any loans. So.
At this point.
We're looking at monitoring it but.
We haven't seen any real.
Deterioration at this point and in credit and that shows in our delinquencies and our and our metrics as well.
Thank you.
Our final question comes from Adam <unk> with <unk> Suisse.
Please go ahead.
Hi, I have a question.
A little bit longer term.
And if you don't want to answer that's fine as well you look at the total interest expense and year over year, you ran effectively from about $5 million to $55 million.
<unk> I'm sure a year ago, nobody even considered that as a possibility.
Im looking forward and not next two quarters that year two years further out.
And you've got a normalization potentially of an interest rate environment catheter after an extended abnormal interest rate environment.
Could you share with us how you think structurally.
About the business model for <unk>.
Yes, Adam I'll take that I think we're a company that should have a margin between $3 25, 50, given our risk profile in a <unk>.
<unk> sloping positively in a rate environment.
Obviously last year, our margin got up to around $3 35 to $3 40. The issue is obviously the inverted curve right. So I think there's various scenarios that could play out, but if you play out the scenario the cover the flat or moderately upward sloping.
Is the level, we aim to achieve and get back to obviously the industry was operating with a level of DTA that we may not get back to that level, but adjusted for that there is no reason why we shouldnt be.
In the low to mid threes on margin, obviously the opportunity for us is to hire teams.
Very productive deposit teams and that's going to drive part of that I think what we've shown this quarter with our expense to asset management is sub $1 50 expense to asset bank.
<unk> $13 billion of assets and assuming marginal growth on the asset side.
Can continue to drive that so I think all in we when we set our medium to longer term plans, we want to be.
$1 15 to 130, <unk> bank across any environment, and we definitely believe thats achievable again over the next couple of years.
Adam.
If rates are stable and get back to a normal.
Normal curve. There is no reason that this bank can earn even at today's rates.
Those kind of margins I mean, as I said earlier, we're putting loans on today.
Low to mid Sevens.
And this isn't the first time in the history of banking that rates have been in the fours and fives.
It just takes time I had nine months of rate increases it takes time too.
Stable environment, or a modestly rising rate environments banks, usually do very well in this rate environment. So I would expect that to happen with us as well, particularly since we built out a very strong lending.
Engine and hired some very good teams so.
I think.
The future bodes well from that perspective, and particularly as we.
Kind of move away from the multifamily portfolio.
<unk>, which is the lowest yielding asset.
From a risk adjusted basis, very safe asset, but the lowest yielding asset in our and our product stack.
And so as we move away from that we're looking at a 100 basis points.
More rate in terms of the.
The new loans, we're putting on it and so I think that will help us as well.
Got it frankly, given the disruption it's pretty impressive how you guys are managing through it good luck.
Thank you Kevin.
Sure.
Thank you.
This is now the enter the Q&A session I'll now hand, you back over to Kevin Iconix for closing remarks.
Again, I want to thank everybody for participating.
As you can appreciate all the questions I think you can hear from US that we're excited about the opportunities that are out there in front of us obviously, a challenging environment short term, but believe we are certainly well positioned to take advantage and I think we're demonstrating that with the the opportunistic hires are doing so again appreciate the support appreciate the interest in the company and the very good dialogue.
Logging questions and have a great day.
Okay.
This concludes today's call. Thank you for joining you may now disconnect your lines.
[music].
Sure.
Yes.
[music].