Dime Community Bancshares, Inc. (NASDAQ:DCOM) Q1 2024 Earnings Call Transcript

Dime Community Bancshares, Inc. (NASDAQ:DCOM) Q1 2024 Earnings Call Transcript April 23, 2024

Dime Community Bancshares, Inc. beats earnings expectations. Reported EPS is $0.4624, expectations were $0.37. DCOM isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and thank you for standing by. Welcome to the Dime Community Bancshares First Quarter Earnings Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [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. Please go ahead.

Stuart Lubow: Thank you, Marvin. And thank you all for joining us this morning, for our first quarter earnings call. With me today is Avi Reddy, our CFO. Dime 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%, maintaining solid asset quality, increase our risk-based capital ratios, 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 Dime.

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 that Dime’s a premier 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 flat our 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 2024 – did detailed demos of our systems and to a person that were all significantly impressed, and our feedback from new customers has been outstanding.

Finally, Dime’s brand name and reputation in our 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 working with strong community banks, where they have access decision-makers and get things done quickly. Four of the deposit groups that, we hired are based in Brooklyn, one is based in the five towns area of Nassau County. We’re 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 closed the first healthcare loan in our new vertical. Our healthcare team, is actively in the market at the moment and our healthcare pipeline, is robust at $150 million with a weighted average yield of 8%.

We expect this vertical, to contribute to our overall loan growth, and aid in the diversification of our balance sheet. As I mentioned in our prior earnings call, this is an important component of our strategic plan. In summary, I am pleased that the investments that we put into the business in 2023, are starting to pay off. And I’m very optimistic about the hires we have just announced. Dime has been navigating the macro environment well and will simultaneously – while simultaneously playing strategic office – offense and taking advantage of the opportunities in our market. With that, I will turn it over to Avi.

Avinash Reddy: Thank you, Stu. Reported EPS was $0.41 per share in line with our expectations, the NIM bottomed in January and expanded to 2.23% 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 normalized 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.

Non-interest income for the first quarter was $10.5 million. This included a gain on the sale of a branch that we did a sale lease back on. 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 methodically. This will in turn, support our clients when they need it. Our common equity Tier 1 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 million and $100 million of assets, our total capital ratio inclusive of AOCI of 13%, would put us in the top one-third of our peers.

Next, I’ll provide some updated thoughts on our expense guide for 2024. For those who follow Dime closely, in 2023, we were 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 is expected to pay for itself relatively quickly.

At the start of the year, we had guided to a range of $210 million to $212 million of core non-interest expense ex intangible amortization. We are now increasing the guide to a range of $214 million 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 start-up 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, our strategy is to ensure we continue to support our key clients, and we continue to see growth in our business lending portfolio.

Growth in the business portfolio will offset declines in multifamily and CRE, where 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.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Steve Moss of Raymond James. Your line is now open.

Stephen Moss: Good morning.

Stuart Lubow: Hi Steve.

Stephen Moss: Hi Stu, maybe just starting with the new hires here from Signature. Just curious if you could size up the deposit potential and any specialties with the group?

Avinash Reddy: Yes, sure. Steve, I’ll take that to start with. I mean the group is – as we said in our press release when we put it out, most recently, they managed several billion dollars of deposits. The group’s really fit with our existing business model, very plain vanilla community commercial banking. Four of the groups are based in Brooklyn, where we have an existing branch presence. One of them is based on the Five Towns area. And then the last one is in Westchester. 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 groups last year at around $600 million of deposits.

Our expectations for these groups ought to be higher than that, given their book of business as well as given the size of these groups. As well as some of the improvements that we made over the course of the year, in terms of our technology, our platforms, our operations. So, they’re really going to start hitting the ground, running here in the first quarter onwards.

Stuart Lubow: Yes. Just in terms of some context, last year we – the groups we hired had about – 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 on board. 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 greatly, to our benefit.

Stephen 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 expect to be core funded here. Should we expect a similar type of cost of funds, for the deposits coming on like last year’s groups?

Avinash Reddy: Yes. I mean, they pretty much had a very similar book in terms of a very high percentage of 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 we said, Steve, the plan over the next six to 12 months is use that to continue to pay down FHLB and broker deposits, and really drive NIM expansion through that going forward.

Stephen Moss: Okay. And then just in terms of the loan pipeline here. I hear you on the healthcare vertical, but just in aggregate, just curious, what’s the size of the total pipeline and kind of how you’re thinking about that?

Stuart Lubow: Right. So today, it’s $1.1 billion with a weighted average yield of $814 million. In C&I and owner-occupied CRE, it’s over $600 million. And as I mentioned, the healthcare is approaching, is actually today is a little higher, almost $180 million. But – and then the important thing is – and the other thing I want to mention is we have approximately $200 million – $206 million approved waiting to close that, we expect to close in the next 30 to 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 nice new activity coming in. As we announced earlier this month, we did hire two middle market bankers from another institution, who already have some deals in the pipeline as well, and they’re primarily I think C&I lenders. So, we are seeing demand pick up and activity pick up, and our pipeline is pretty robust.

Stephen Moss: Okay. I appreciate that. And maybe just one last one here. Just curious on the – NPA, it looks like maybe just on NPA in AD&C. Just curious as to the dynamics of that property? And any color you can give there?

Avinash Reddy: Yes. Yes, Steve, 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 moved it into NPA. We hope to get it resolved in the second quarter, or third quarter. But don’t see any loss content there at all.

Stephen Moss: Okay. So maybe just to clarify, is it just kind of like a timing issue with completion and…?

Stuart Lubow: The building is 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 this month. So and we’ve got an update of valuation, and we’re pretty comfortable that this is going to be resolved in the second quarter.

Stephen Moss: Okay. Appreciate it. I’ll follow-up. I’ll step back. Thanks.

Avinash Reddy: Thanks Steve.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Mark Fitzgibbon of Piper Sandler. Your line is now open.

Gregory Zingone: Hi guys, this is Greg Zingone stepping in for Mark at the moment. How are you?

Stuart Lubow: Hi Greg, how are you?

Gregory Zingone: Thanks. The new expense guide, 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. We probably expect an announcement of at least one more team relatively soon. And we’ll continue to have conversations and take advantage of opportunities. The disruption in the marketplace has never been so great here in the New York metropolitan area. But it takes time. We’ve interviewed a number of teams so within – that are available. And so, I don’t expect at this point to double what we have per se, but there are still conversations happening and opportunities we believe will benefit us.