Dime Community Bancshares, Inc. (NASDAQ:DCOM) Q3 2023 Earnings Call Transcript

Dime Community Bancshares, Inc. (NASDAQ:DCOM) Q3 2023 Earnings Call Transcript October 19, 2023

Dime Community Bancshares, Inc. misses on earnings expectations. Reported EPS is $0.34 EPS, expectations were $0.55.

Operator: Hello, everyone, and welcome to the Dime Community Bancshares Third Quarter Earnings Call. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contained in any such statements, including and set forth in today’s press release and the company’s filings with the U.S. Securities and Exchange Commission, to which we refer you. During this call, references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance.

These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the U.S. GAAP. The information about these non-GAAP measures and for reconciliation to GAAP, please refer to today’s earnings release. I’ll now hand over to your host Stuart Lubow, President and CEO, to begin. Stuart, please go ahead when you’re ready.

Stuart Lubow: Good morning. Thank you, Carla, and thank you all for joining us this morning. I will first provide comments on key themes underlining our business. Avi will then provide additional details on the third quarter, and then we will open it up for questions. Dime continues to perform well in a year marked by the failure of three regional banks and unprecedented inverted yield curve and significant interest rate increases by the Fed. In the third quarter, we grew core deposits approximately $200 million. We reduced wholesale funding on our balance sheet. We increased our already strong risk-based capital, and we reduced our non-performing assets by 16%. As we have mentioned on our previous calls, we do not have any concentrations that got the failed banks and others in trouble.

These facts, coupled with our rock solid bulletproof multi-family portfolio, which represents 38% of our overall loan portfolio, gives us confidence that we will outperform in any potential recessionary environment. For the record, we have no loans on our entire multifamily portfolio that are delinquent greater than 60 days, and the LTV on that portfolio of 58%. We continue to be vigilant and diligent around monitoring all parts of our loan portfolio. Overall, asset quality remains strong, with NPAs and 90 days past due declining to only 17 basis points. As you would expect, we continue to closely monitor our investor office portfolio. As of September 30, we have no delinquencies greater than 60 days in the investor office portfolio. In fact, we only have one loan over 30 days at 9/30, which was only $1.9 million, and had an LTV less than 50%.

We provide some additional disclosures on this portfolio as it relates to properties and geography in our recent investor presentation. Our Manhattan investor office portfolio is only $200 million or less than 1.5% of total assets. The LTV on our Manhattan office portfolio is 50%. We are comfortable with the exposure and the operators of our office portfolio are very strong. Notably, we do not have significant amount of repricing or maturing office loans for the remainder of 2023 or 2024. Repricing and maturing office loans for the remainder of 2023 is only $20 million, and for 2024, only $39 million. We are cognizant of the challenging revenue environment and continue to manage expenses prudently. Our focus is on being as efficient as possible.

Core expenses, which included a full quarter’s impact of our private banking group hires were down on a linked-quarter basis. There are a number of projects that we are working on that will result in expense containment for future years. For example, we recently outsourced our data center. Importantly, on a linked-quarter basis, our non-interest-bearing deposits increased. This marks the first increase since the current rate tightening cycle began, and portends well for our future earnings potential. Avi will provide more details on the margin in his remarks. Dime has been very active on the hiring front in 2023, and the third quarter was no different. We were able to recruit a high caliber banker to lead our healthcare vertical. We continue to spend meaningful amount of time on the recruiting front, and believe we have the potential to add more talented bankers in the future.

We do believe there will be some more fallout from larger local institutions, as well as an opportunity to bring over individual clients who seek the locally managed relationship base bank with access to key decision makers at all times. That, coupled with our strong technology, makes us very attractive to new customers and new bankers. With respect to our positioning on lending, our strategy is to ensure we continue to support our key clients through any operating environment. We will continue to prudently add franchise enhancing full-service business relationship. The addition of the healthcare vertical is consistent with our strategy of growing business loans. Our loan pipelines, while down from a year ago, given the much higher rate environment, are intentionally heavily weighted toward business loans.

A business loan officer working with a client on a new loan agreement.

Approximately 60% of our loan pipeline is in business loans, with a weighted average rate on the entire loan pipeline of 7.9%. We expect loans to remain relatively stable between now and the end of the year, with growth in business loan offsetting planned declines in our investor CRE and multi-family portfolios. Since my appointment as CEO, and in my day-to-day meetings with customers, it’s apparent to me that Dime’s brand and reputation in the marketplace has never been stronger. Our technology platform is better and more agile than many larger local banks, and our customer service is second to none. Anecdotally, we are winning back some clients who left for biggest banks during the March madness, as they realized service and personal touch are important.

A big client win for our firm in the third quarter was New York Jets. Dime is now the official private bank of The Jets. The partnership is providing us tremendous visibility, and has been well received by our clients and employees across the board, and demonstrates that Dime can bank big brand name institutions. As I said on our last earnings call, my focus is on providing customers outstanding service that only locally managed community banks can provide. Growing our franchise value and delivering our shareholders strong returns. Managing expenses prudently and being a conservative underwriter of credit have always been hallmarks of Dime, and we’ll not stray from these two core guiding principles. I would like to thank all our outstanding employees for staying focused on these goals.

With that, I will turn the call over to Avi to provide some more detail on the quarter.

Avi Reddy: Thank you, Stu. Core EPS for the third quarter was $0.56 per share. Our results were marked by prudent non-interest expense management and stable asset quality. We grew core deposits by approximately $200 million on a spot basis, and importantly, non-interest-bearing deposits increased in the third quarter. At 29% of average total deposits, our non-interest-bearing deposit percentage remains a clear differentiator for Dime versus other community banks in our footprint. In a higher for longer environment, the value of these non-interest-bearing deposits will be paramount. The NIM was 234 for the third quarter compared to 250 for the prior quarter. As expected, the pace of NIM compression continued to slow in the third quarter.

As you know, we don’t provide quarterly quantitative NIM guidance. All else equal, we do expect the NIM to stabilize at the end of this year and see expansion in 2024. We’re currently in our budgeting process for 2024, and we’ll have more to add on our January earnings call. Given the growth in core deposits, we reduced our wholesale funding position and our loan to deposit ratio ticked down to 102%. Core cash operating expenses for the third quarter was approximately $51 million, and we are on track to beat our full year guidance for core cash operating expenses, even after absorbing the hires we made in the second and third quarters. We’ve been able to absorb the cost of these hires into our organization, along with the additions of various corporate staff to support them, by rationalizing expenses across the organization, using technology to automate manual processes, and promoting and filling open roles from our talented employee base.

Non-Interest income for the third quarter was $7.9 million. The decline on a linked-quarter basis was due to an expected decline in swap revenue, and additionally, we had a BOLI debt claim in the second quarter. We expect fourth quarter results for swap fees to generally be in line with the third quarter, and then to pick up in 2024, as we have more back-to-back swap loans in the pipeline expected to close in the new year. We had a $1.8 million loan loss provision this quarter. The allowance to NPLs increased to over 300% in the third quarter. I will point out that excluding multifamily, which we view as a risk-free asset class, our reserve to loans would be approximately 1%. We are cognizant of the fact that there’s been a lot of scrutiny on CRE concentration.

In this regard, Dime’s investor CRE concentration, excluding multifamily loans, which are really residential loans for five or more tenants, is only 260% of total capital. As we continue to focus our growth on business loans and building capital, we expect the CRE concentration to decline over time. In light of the overall environment, our posture as it relates to the balance sheet is to build capital methodically. This will in turn support our clients when they need it. This quarter, our risk-based capital ratios increased by approximately 25 basis points. As a reminder, we have a very short duration AFS portfolio, and the AOCI marks this quarter were fairly modest despite the increase in long rates. With that, I’ll turn the call back to Carla for questions.

Operator: [Operator Instructions] We’ll now take our first question, which comes from Steve Moss from Raymond James. Steve, your line is now open. Please go ahead.

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Q&A Session

Steve Moss: Good morning. Maybe just start in here, Stu – good morning, Stu. Maybe just start on the deposit growth you guys showed this quarter here, particularly non-interest-bearing. I realize that’s from the Signature hires. Just curious if you have any expectations or updated thoughts looking forward here into the fourth quarter.

Avi Reddy: Yes, I’ll, start, Steve. Part of the reason for the decline in non-interest-bearing deposits earlier in the year was really migration out of some consumer DDA. And the first half of the year, we were probably losing around $50 million to $100 million of consumer DDA. In the third quarter, we were down to only around $30 million. So, that’s kind of stabilizing to some extent. And obviously, the new private banking groups that we have, have added significant deposits. I think overall at the bank, business DDA is up. Municipal DDA is fairly stable. So, when we’re doing our projections, it’s pretty much stable to up from here on out. Obviously, any particular quarter could go up or down, but I think we’ve seen the bulk of declines in DDA at this point. And as I mentioned, and as Stu mentioned, having that 29% and north of that in terms of DDA is really going to be a key driver of NIM expansion in the future.

Steve Moss: Okay. And then on the expense front here, good expense controls. Avi, you previously provided guidance. I think the number was 206 to 209. Just looks like you’re running below that trend if we kind of hold flat into the fourth quarter. Just any updated thoughts on expenses?

Avi Reddy: Yes, typically we don’t really guide on expenses. I think my comment was, we’re just going to beat the full-year number. We’re really focused on keeping expenses as low as possible, and we’re going to use that as a base into next year. I think Stu said there’s a lot of opportunity to make new hires and revenue-generating deposit and people on the loan side. So, I think we’ll look at both over time, but we’re pretty comfortable in terms of beating that 206 number, and we’ll try to beat it as much as possible in the fourth quarter.

Steve Moss: Okay. And just one last one for me, just curious on where is loan pricing these days for you guys? And just it sounds like the business – C&I business side remains strong for the pipeline, while obviously some further declines in CRE.

Stuart Lubow: Yes. So, basically, our pipeline’s about $985 million. The weighted average rate on the entire portfolio is 790. But on the C&I side, the pipeline’s about $321 million and that – the yield or the weighted average rate on those loans is actually 8.97%. So, we have quite a bit in that pipeline, and then there’s about $300 million in owner-occupied CRE, which is in the sevens. And interestingly, we only have $22 million in multifamily in the pipeline. So, obviously, our focus is on C&I and owner-occupied CRE.

Steve Moss: All right, great. Thank you very much.

Operator: Thank you, Steve. Our next question is from Matthew Breese from Stephens, Inc. Matthew, your line is now open. Please go ahead.

Matthew Breese: Hey, good morning. I appreciate all the updates on the deposit side and certainly the inflection point this quarter was a welcomed one. What I’m curious about is on the opposite side of the balance sheet. Movement in loan yields hasn’t been as robust and a lot of it’s tied to the longer duration nature of CRE, resi, multifamily. I was curious when you expect to see a bigger pickup in loan yields. Provide some expectations around loan beta through the end of the year, early 2024, please.