Q1 2024 Dime Community Bancshares Inc Earnings Call

Participants

Stuart Lubow; President and CEO; Dime Community Bancshares, Inc.

Avi Reddy; Senior EVP and CFO; Dime Community Bancshares, Inc.

Steve Moss; Analyst; Raymond James Ltd.

Gregory Zingone; Analyst; Piper Sandler Companies

Manuel Navas; Analyst; D.A. Davidson & Company

Chris O'Connell; Analyst; Keefe, Bruyette & Woods, Inc.

Presentation

Operator

Good day and thank you for standing by, and welcome to the Dime Community Bancshares first-quarter earnings call. (Operator Instructions) Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your first speaker today, Stuart Lubow, President and CEO.

Stuart Lubow

Thank you, Marvin, and thank you all for joining us this morning for our first quarter earnings call with me today is Ivy Reddy, our CFO. Diamond has begun 2024 on solid footing and on a positive growth trajectory. In the first quarter, we grew core deposits by 19% on an annual basis, paid down our Federal Home Loan Bank borrowings by 41%, maintained solid asset quality increase. Our risk risk-based capital ratio was prudently managed expenses and importantly, saw our net interest margin expand in the month of March versus year end and January levels. We have been active on the hiring front and since the middle of March, we've added over 30, extremely talented revenue-producing bankers. I would like to provide some color on why these bankers joined time. As you know, the first group of bankers we hired in 2023 have been very strong advocates of dime and have gotten the word out a dime as the premier platinum platform for talented bankers.
They have seen firsthand how nimble we are as a bank, how our staff is aligned to make the customer experience outstanding and how flatter organizational structure is the bankers hired in 2023 have grown their deposit portfolios to approximately 600 million. Suffice to say, we have proved that our business model provides conducive environment for talented bankers to succeed. Secondly, our technology and treasury management systems are state-of-the-art and superior to all other local banks. We know this because all the groups that we recruited in 2020 for detailed detailed demos of our systems and to a person, they were all significantly impressed and our feedback from new customers has been outstanding.
Finally, guys, brand name and reputation are local market is second to none. We have 60 branches from Montauk to Manhattan. And our reputation has always been that of a strong community bank customers like work with strong community banks where they have access to decision makers and get things done quickly for the deposit groups that we hired are based in Brooklyn. One is based in the five towns area of Nassau County. We also very excited to enter Westchester County, specifically White Plains Westchester is a market we've looked at for a long time, and we finally found the right bank to lead our efforts there in the first quarter, we close the first healthcare loan or a new vertical.
Our healthcare team is actively in the market at the moment on our healthcare pipeline is robust at 150 million with a weighted average yield of 8.8%. We expect this vertical to contribute to our overall loan growth and aid in the diversification of our balance sheet. As I mentioned on our prior earnings call, this is an important component of our strategic plan. In summary, I am pleased that the investments that we've put into business into the business in 2023 are starting to pay off. And I'm very optimistic about the hires we have just announced. Dina has been navigating the macro environment well and we'll simultaneously whilst simultaneously planning strategic office offense and taking advantage of the opportunities in our market.
With that, I will turn it over to Avi.

Avi Reddy

Thank you. Stewart reported EPS was $0.41 per share, in line with our expectations than important in January and expanded to 23 in the month of March. The exit NIM would have been even higher by around three basis points. Had we not carried some excess liquidity in February and March as a precaution, given the disruption caused by a large regional bank in our footprint, we normalize our liquidity position towards the middle to the end of March. And as such, the second quarter should not have this liquidity related drag going forward. We are cognizant of the overall environment and continue to manage expenses prudently, our focus is on being as efficient as possible.
Core cash operating expenses for the first quarter, excluding intangible amortization and extinguishment of debt was $51.7 million or down 3% versus the prior quarter. Noninterest income for the first quarter was 10.5 million. This included a gain on the sale of a branch that we did a sale leaseback. We had a $5 million loan loss provision this quarter. The allowance to loans increased to 71 basis points in light of the overall environment. Our posture as it relates to the balance sheet is to build capital and methodically. This will entail and support our clients when they needed. Our common equity Tier one ratio improved to 10%, which is an optically important benchmark in our mind, our reported total capital ratio was 13.8%, incorporating the full impact of AOCI, it would have been 13%. As you know, the focus these days is on capital with the AOCI impact. And in this regard, compared to banks between 10 and 100 trillion of assets. Our total capital ratio, inclusive of AOCI of 13% would put us in the top third of our peers.
Next, I'll provide some updated thoughts on our expense guide for 2024. For those who follow them closely in 2023, we are able to absorb the cost of the new deposit-gathering groups into our organization along with the addition of various corporate staff to support them by rationalizing expenses across the organization.
As part of our 2023 efforts, we significantly expanded our treasury management and back-office staff and intentionally built the bank for future expansion. As a result, we don't expect any meaningful additional staffing in corporate support areas to support the new hires we have made in 2024. Said differently, any expense build in 2024 is primarily for revenue-generating staff that that is expected to pay for itself relatively quickly at the start of the year, we had guided to a range of 210 to $212 million of core noninterest expense ex intangible amortization.
We are now increasing the guide to a range of 214 to $216 million. This represents the cost of all the new groups hired to date and is net of the benefits of additional bank-wide efficiency initiatives we have planned for 2024 on a stand-alone gross basis. We expect the new group hires to begin generating pretax income by the third quarter and be cumulatively breakeven, inclusive of all the startup costs in the fourth quarter, starting in 2025, they will contribute to growth in earnings and book value per share versus our prior stand-alone numbers without the 2024 new hires with respect to our positioning on lending strategies to ensure we continue to support our key, our key clients and we continue to see growth in our business lending portfolio. Growth in the business portfolio will offset declines in multi-family increased. While we are still servicing existing relationships on an aggregate basis we expect loans year-over-year to be up in the low single digits.
With that, I'll turn the call back to Marvin, and we'll be happy to take your questions.

Question and Answer Session

Operator

(Operator Instructions) Steve Moss, Raymond James. Your line is now open.

Steve Moss

Good morning. Steve is do you have maybe just starting with the new hires here from Signature? Just curious if you could size up on the deposit potential and any special, especially with the group?

Avi Reddy

Steve, I'll take that to start with. I mean, the groups, as we said in our press release, when we put it out most recently, they managed several billion dollars of deposits and the group clearly fit with our existing business model, very plain-vanilla community commercial banking, up four of the groups are based in Brooklyn where we have an existing branch presence. One of them is based in the five towns area. And then the last one is in West Chester and the groups in general are slightly bigger than the groups we hired last year. So the teams are generally between four and six people, which is higher than what we had last year.
So I think we've laid out the group's last year at around 600 million of deposits in our expectations for these groups are to be higher than that, given their book of business as well as you know, given the size of the size of these groups as well as you know, some of the improvements that we made over the course of the year in terms of Unite technology, our platforms, our operations.
So they're really going to start hitting the ground running here in the first quarter onwards, just as some in terms of some context, last year, we the groups we hired had a bit of we're managing about 1.1 billion in deposits. And if you recall, I said at that time if we we got to 50%, I thought it would be a home run in terms of what they brought over and they're currently at 600 million. So we're excited about the new hires. I will say in the first three weeks of their coming onboard, we've opened up over 1,000 accounts for the groups in total and very active. We have people working weekends opening accounts. So we're excited by the opportunity, and we're very positive that this is going to accrue accrue greatly to our benefit.

Steve Moss

Okay. Appreciate that. And so just as we think about the deposits coming on here, I hear you guys in the press release highlighting that you've started to be core-funded here on this. Should we expect a similar type of cost of funds for the deposits come on like the LifeMasters groups?
Yes.

Avi Reddy

I mean, they pretty much had a very similar both in terms of, you know, very high percentage of our DDA. Obviously, the rate environment is even more competitive at this point given the Fed's posture. But our focus is really on core deposits, low-cost deposits and as you said, Steve, of the plan over the next six to 12 months is use that to continue to pay down FHLB and brokered deposits and really drives her name expansion through that going forward.

Steve Moss

Okay. And then just in terms of the loan pipeline here, hear on the healthcare vertical, but just in aggregate, just curious what's the size of the total pipeline and kind of how are you good about that.

Stuart Lubow

And so today, it's 1.1 billion with an weighted average yields of eight eight 14 in the C&I and owner-occupied CRE it's up, it's over $600 million up. And as I as I mentioned, the healthcare is approaching is actually today is a little higher, almost $180 million, but up and up. And then you know, the important thing is the other thing I want to mention is we have approximately 200 million, $206 million of approved waiting to close that we expect to close in the mix 30 and 90 days. So we think the next several months are going to be very busy in terms of new loan bookings. And so the pipeline is active. We are seeing some some nice new activity coming in. As we announced earlier this month. We did hire to middle market bankers from another institution. So we already have some deals in the pipeline as well, and they're primarily C&I lenders. So we are we are seeing demand pick up and activity pick up and our pipeline is pretty robust.

Avi Reddy

Okay.

Steve Moss

Appreciate that. And maybe just one last one here on. Just curious on the Guess the that the NPA looks like. Maybe just wondering again, AD&C, I'm just curious as to the dynamics of that property and any color you can give there.

Avi Reddy

Yes. TEST., we actually did a reappraisal on that and very, very well secured from a collateral perspective, a couple of tenants that are going to be moving in to that. So we don't expect any loss content at all. But just from an accounting standpoint, we conservatively move that into NPA. We hope to get resolved in the second quarter or third quarter, but I don't see any lost content there at all.

Stuart Lubow

Okay. Maybe just to clarify, is that just kind of like a timing issue with completion and we're not yet or the ability to complete 100% complete?
It's tenanted with a significant medical facility they're doing they're going to be doing their build-out. The rent starts, as you know, you know this month. So we've got an updated evaluation and we're pretty comfortable that this is going to be resolved in the second quarter.

Operator

Mark Fitzgibbon, Piper Sandler.

Gregory Zingone

Hey, guys, this is Greg Zingone, stepping in for Mark at the moment. The new expense guide, as you said, includes the new teams hired to date, but how many more hirings can we expect this year?

Stuart Lubow

So we're still talking to several teams of we probably expect an announcement of at least one more team relatively soon, and we'll continue to have conversations. And, you know, I take advantage of opportunities you know, the disruption in the marketplace has never been so great here in the New York metropolitan area, but you know, it takes time. We've interviewed a number of teams. So within that are available. And so I don't I don't expect at this point, you know, to double what we have per se, but there are still constant conversations happening and opportunities we believe we will have benefit us.

Gregory Zingone

So depending on how many teams you bring onboard the remainder of the year to that to 14 to $16 million in expenses kind of trickle up a little higher.

Avi Reddy

But Greg, I think the way to look at it is these groups are producing revenue rate. So that was my initial comment that on a cumulative basis, we expect the group to be breakeven in 2024. So when you're thinking about your model going forward, it's really accretive starting in 2025 with no and deterioration in 2024 from an EPS perspective, as I said, also, we're not really adding any we don't really need to add any additional support staff with them because we cannot build the Company out of our growth. So look, we're always judicious on expenses. We're telling you where we are right now based on who's joined the Company right now, and in the future, we always look to hire productive people. So we'll keep you updated as we go along.

Gregory Zingone

Okay. With all the people you're bringing on board and your expectation are for accelerated balance sheet growth. Do you envision needing additional capital in the near future?

Stuart Lubow

Yes.

Avi Reddy

Look, I mean, the plan right now is really to remix the balance sheet with what we have. We have around $700 million of FHLB on the balance sheet. Our broker deposits well in a lot lower than that than a lot of our local peers is probably around seven, 50 plus or minus. So we really have a pathway that remix the balance sheet by paying off. Some of these items, obviously are supporting our clients is the most important we said multiple times on the investor CRE and multifamily side. We expect those to pay down slowly over time. So you're going to get some cash flows out of that, and we're going to grow the business portfolio. So I think with the groups that we have right now, we know we're confident that we can remix the balance sheet and our capital is very strong at our common equity Tier one ratio of 10%. Like I said, our total capital ratio is 13.8, even with the impact of the associates 13. So we feel pretty good about the remixing story and supporting our clients with our existing capital base.

Operator

Manuel Navas, D.A. Davidson.

Manuel Navas

And good morning. Could you guys speak a little bit on your comfort around the reserve level, around 71 basis points.

Avi Reddy

Should we kind of expect a methodical build from here, but we're comfortable otherwise we won't be reporting earnings where we are so comfortable.
Okay.

Manuel Navas

How have repricings gone year to date across either multifamily or any other on CRE loan?

Avi Reddy

We've had no issues. The loans have repriced. I will say our criticized and classified is actually down 9% on a year-to-date basis, we're probably down around 5 to 10 million on the CRE and multifamily side and probably down around 30 to 35 million on the owner-occupied side.
So Al, I'd say though, overall it's business as usual. As we've always said in the past, we don't have a lot of final maturities and repricings in 2024 and 2025. And we're not really seeing anything unusual at this point.

Manuel Navas

Great. As you think about the balance sheet remixing and kind of shifting over to the NIM., it's seems to be inflecting on a monthly basis. Can that kind of improved pace continue near term in general?

Avi Reddy

Yes, I think the way to think about the name of a little bit is our scale. The month of February and March was probably the 1st month in the last 15 to 16 months that the deposit costs actually declined. So the spot deposit cost at the end of March was two 68. The cost of deposits for the full quarter was to 70. So we did see some competition in December and January and the January number was really a bottom in our mind as on a going-forward basis, especially with these new groups coming on you should see stability in the cost of deposits so that this is going to be a function of how quickly originations come onboard. And if you go back to the month of September of our the weighted average rate on the loan portfolio was around five 20 in December. That went up to five 29. That was based on around 200 million of originations for Q4. Q1 was a little bit slower in terms of originations, and that's the seasonal way you close a lot of loans at the end of the year. But because we did half the originations, the weighted average rate on the loans only increased by five basis points. So you go back to Stu's point about the pipeline, if you if you're going to assume around $200 million of originations every quarter, that should lead to an increase in the weighted average rate by around eight to 10 basis points on the loan side. So on an average basis, you're probably going to get a four to five basis point benefit on the margin there. So I think overall, we were thinking about the name with an upward bias going forward. And obviously the cost of deposits is the biggest piece of that. And we do believe that that's stabilized to a large extent that's great.

Operator

One moment for our next question. Again, as a reminder, to ask a question, you need to press star one one on your telephone.
Our next question comes from the line of Chris O'Connell of KBW. Your line is now open.

Chris O'Connell

On just on the you know, the deposit new deposit team adds and kind of that breakeven point that you're targeting to hit in Q4, what's the deposit level for them to hit breakeven?

Avi Reddy

Yes. So sorry to beat on an on an average basis, Chris, you probably should get to around We call it around 400 million in deposits plus or minus, I mean between three, 50 and 400, 400 million by that point for Q4, basically. So that when you look at that run rate that it starts becoming breakeven, do we know positive at that point?
Got it.

Chris O'Connell

And as far as the balance sheet movements in the quarter on an end-of-period basis, the borrowings are a lot lower than on the average basis. I mean, were those paid off pretty late in the quarter. Do you have any sense or sense of how that's going to impact the margin going into 2Q? I mean, was it included in the March to 23 margin? Or is there further benefit of that coming into the second quarter?

Avi Reddy

Yes. A little bit further benefit, Chris. So if you look at I mean, the easiest way to look at it is if you look at our the short-term investments that we had, it was around $300 million more this quarter than we had than we had last quarter. And so for the full quarter, the impact was more. But in my prepared remarks, what I tried to say was that in the month of March, we paid down the borrowings starting starting on March first, but we have probably done by around March 20th. So there's probably around a three basis point drag even for the month of March so that two 23 margin for March was probably more like 25 to 26 as an exit run rate going going forward into the second quarter. And that doesn't include the benefits of any further pay-downs that we'll have of borrowings and brokered deposits going forward once the non-deposit starts coming in.
Great.

Chris O'Connell

And I know you guys don't give short-term margin guidance. But based on that commentary, is it kind of safe to assume that you trend back up to close to the levels that you were at into Q4 of 23 and kind of migrate consistently upward for there as asset forever as kind of overall balance sheet repricing occurs going forward?

Avi Reddy

Yes, I think overall, the way we describe it is an upward bias in. I think last quarter our guidance was we know the margin will be within a few basis points. And I think without this liquidity build, it would have been within a few basis points and obviously a little bit down. But again, I think it's fair to say upward bias. The individual factors are the stabilization in the deposit cost which helps and not having a liquidity drag, which helps. And then just to find more originations on the loan side, which also help. And then, you know, as you see normal paydowns in the third quarter. We have some treasuries maturing. We probably have around 70, 75 million, I believe in the third quarter right now. The yield on those treasuries only 1%. So that's going to help as well. So you're going to you're going to see a little bit of that into Q3 and Q4. So I think I'll leave it as an upward bias and it will be a function of final closings on the loans.
Great.

Chris O'Connell

And then there is some changes announced impacting the overall New York multifamily, his space would put the budgeting being passed in the past week or so. And any thoughts or color as to how you guys think that will impact the market and if it will be significant at all.
And just any general, I guess, thoughts on the state of the New York multifamily market and how you expect to manage your exposure going forward?
Yes.

Stuart Lubow

So I mean, it's still a little early to tell to ascertain what the ultimate impact is going to be. They start to work out. The details of, you know, it's certainly better than that, what the what the advocates wanted, it's not necessarily where all the landlords wanted to be. So I mean, I still think that has to work through, I think on the on the on the margin, it's it's a it could have been worse and is probably a net positive overall. But it's still got to work through the through the process and we have to see how it actually affects the market.

Chris O'Connell

Got it. In any sense as to were there any rent-regulated multifamily maturities in the first quarter and and if there was where the new debt service coverage ratios were that re-price?

Avi Reddy

Yes, I don't have that off the top of my head of Christiana, but we had a very small amount in the first quarter, probably not $30 million plus or minus of multi-families.

Stuart Lubow

And most of them took took the option basically to reprice and we can follow up after the call with I mean, they're all paying a return of a relatively small small handful bonds are repriced during that period and they just repriced and, you know the way it works in our in our world is if you take the repricing, you have to pay a fee. So they paid the fee and the repricing in the middle current.

Chris O'Connell

Great. And in the near term outlook. I know there's zero multi-families on NPAs and zero, any loans on 90 days past due. And as you guys as I look through the maturities scheduled, which are fairly light over the next couple of quarters. Is there anything that concerns you in terms of credit quality after coverage after repricing on the rent regulated book?

Avi Reddy

No, not not. Especially of like, like I said, we monitor the criticized and classified very closely. The multifamily criticized classified was, I think, down four or $5 million. And so at this point, nothing stands out.
Great.

Chris O'Connell

Thanks for taking my questions.
Thank you.

Operator

I'm showing no further questions at this time are now I'll turn it back to Stuart Lobo for closing remarks.

Stuart Lubow

Thank you, Marvin. Once again, I'd like to thank all of our team members for their support during our significant growth initiatives. Our philosophy of a single point of contact and customer centric approach to our customers remains. First and foremost, foremost, both new and old customers are the mainstay of our organization, and our continued success will accrue not only to the benefit of our customers, but to the franchise value as well. We look forward to speaking with you all after second quarter.

Operator

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.