Good day, and welcome to the Dime Community Bancshares Incorporated Second Quarter Earnings Conference Call 2021. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kevin O'Connor.

Please go ahead..

Thank you, Tom, and thank you all for joining us this morning on our second earnings call as the new Dime. With me today is, Stu Lubow, our President and Chief Operating Officer; and Avi Reddy, our CFO..

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 loans. Merger-related expenses declined meaningfully from the prior quarter and were only $1.8 million.

With the majority of our systems conversions complete, we don't expect to see much in this line item going forward. Finally, we had a $1.8 million of costs related to five branch combinations in the second quarter. In the third quarter, we expect the remaining $4 million of costs related to these five branch combinations to be recorded.

This will be partially offset by sales of owned properties. We have provided a table in the earnings release with the three months ended June 30 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 ROAs, regardless of the rate environment. We were able to migrate our cost of deposits lower to the tune of 17 basis points 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 importantly, we believe we have removed a significant amount of rate sensitivity from our deposit base.

These actions coupled with a higher percentage of DDA should result in our deposit betas lagging the banks in our footprint when rates eventually rise. The reported net interest margin was 3.12%. As we did last quarter, we have provided details in the press release on the impact of purchase accounting and PPP.

The adjusted NIM of 3.23% was within our previously telegraphed range. I'll now make a couple of comments that should help with framing the NIM going forward. Having sold our 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.

The effective yield on the PPP loans that we sold were approximately $170 million. As a result, we expect the reported margin, which as I mentioned was 3.12% for Q2 to be impacted by approximately seven to eight basis points in the third quarter due to the PPP sale liquidity build.

Clearly, as we redeploy the cash into securities and core relationship loans, we will be able to build back the margin over time..

We will now begin the question and-answersession And the first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead..

Good morning. Nice quarter..

Good morning. Thank you..

Just to clarify couple of quick things.

Avi you mentioned on – first on expenses, did you say $4 million of benefit to expenses from the five branches that will be closed in the next quarter, or is that annually?.

No Mark. So 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 $1.8 million of a charge associated with the lease termination.

And then in the third quarter, we expect the remaining $4 million of lease termination to basically hit in the fourth – in the third quarter but that will be partially offset by any sales of some of the properties. Of the five properties there's a couple that we actually own.

So I was actually talking about the charge in the third quarter associated with that given the accounting lease standards that we operate under..

Got you. Okay. And then on the margin. So it sounds like $1 million to $1.5 million of PPP income but the core margin is going to be sort of 3.04% 3.05%. So that's incremental.

Am I reading the tea leaves the right way?.

Yes. I mean the easiest way to think about Mark is our reported margin was 3.12%, right? And so within that 3.12% we had $600 million of PPP that had a yield of 1.70%. If you just assume that goes to 10 basis points the 3.12% comes down to 3.05% just straight down it's a straight math.

And then obviously we're not going to keep the whole thing in cash..

Okay. Great. And then I guess I was curious on that loan sale that you did of the $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 Stu. Yes I mean those deals were basically done at par. There were two loans that had seconds on – that had – we took a small hit of about $300,000. But everything else is at par. And we're being quite aggressive in terms of offloading any multifamily deals that we think are just going to take a little longer to turn around.

And so, we're looking at it weekly, monthly, et cetera. So, there'll probably be some more. But the average LTV is under 60% on the portfolio. And we see and have had no issues in terms of offloading these notes.

So, we're going to manage the portfolio and kind of move things that are somewhat stressed and continue to do, that as we continue to originate new business. And I just want to make mention, we're talking about loan growth and our pipeline. We're very excited about the organic opportunity to grow loans.

We have almost $2 billion in the pipeline at this point. And just since June 30, we've increased our loan book by almost $100 million. So those loans that Kevin mentioned, that we're waiting to close, that were approved and awaiting closings, are beginning to show up on the balance sheet.

Also, for the quarter, we actually closed $600 million in loans for the quarter, loans and lines for the quarter. So there's $150 plus million of lines that are not drawn yet and construction loans that are part of that. So, that are at very attractive rates. prime plus one or thereabout.

So although, we actually the balances of loans closed for the quarter of about $450 million, there's another $200 or so million in 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. And honestly, there's -- there's an opportunity in terms of new business coming to the bank..

And Stu, 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 were able to -- as we said early on, we're able to do more business with our existing customer base as well.

And so, we've seen some business from some of those institutions that are involved in upcoming 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 by that.

We also are 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 you, do you feel, the need to do more transactions to -- or do you think, you're better off sort of staying independent and taking advantage of the consolidation around you?.

I think the latter is where we go. I think, the organic growth opportunities are certainly there. Although, you can't close the door if something comes and there's an opportunity to do something. But we're in a very good position having done the conversion being all in one platform, being the size and scale we are.

As Stu said, there's tremendous opportunity out there. And I don't think, it's really coming from those locations yet. I think, there's still sort of a wait and see, but we certainly see opportunities there..

Yes Mark, just to add to that, we've been very active on the buyback front. I mean, we think there's significant value in our own stock today. You saw we purchased around 400,000 shares in the quarter we've been active in July.

So, given our balance sheet, we do feel investing in our stock right now is probably the best return of capital, given the low-risk nature of our balance sheet..

Thank you..

The next question comes from Matthew Breese with Stephens Incorporated. Please go ahead..

Good morning..

Hi Matt..

Hi Matt. Good morning..

Few questions. So, first, on the $500 million approved pipeline, could you just give us a sense for what the breakdown of the segments are within that? Curious, where you're seeing strength. And then, I couldn't help but notice 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 whether that's actually going on or there's some normal way kind of bouncing around of yields?.

Yes. Well, first of all in terms of the makeup of the portfolio or the pipeline, it's about 20% to 25% C&I. And the remaining amount is probably split evenly between CRE -- owner occupied CRE investment and multifamily. And -- so, it's 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 that -- the economy normalizes and liquidity is somewhat flushed out, but borrowers are somewhat reticent to borrow under the existing lines, so -- or have significant amount of cash.

In terms of yields, I think that in the quarter, we did have some significant amount of swap 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 it just so happens that this quarter or the pipeline does include a number of loans and lines and some construction deals that have higher-yielding nature in terms of what's in the pipeline. I will say that, the overall $1.8 billion, almost $2 billion of loans in the total pipeline have a total yield of about 3.55%.

So, I think this quarter what's out there for now is a bit of an anomaly, but we're in the 3.55% to 3.60% range in terms of the entire $2 billion pipeline..

Got it. Okay. Very helpful.

One other question I had was, could you remind us of what percentage of the loan portfolio is floating rate? And if and when we do get a Fed hike we'll reprice immediately?.

Yes, sure Matt. So, 25% of our portfolio is variable rate and then there's another 20 -- another 50% that's adjustable rate. Of that floating rate portfolio, there's $1.05 billion that floats immediately and there's around $500 million with floors on them with a 50 basis point rate hike would also reprice.

So, call it for a 50-basis point move, there's $1.05 billion of floating rate stuff. And then, also we have 50% of our portfolio is adjustable rate, which, obviously, when they hit the maturity date, they reset based on a treasury curve..

Perfect. Two other ones for me. The first one is, just, the tax rate was a bit higher this quarter. You also had some noise. Just curious, if there was also 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 noise this quarter?.

Yes, sure. Because of little bit of the extra income this quarter Matt, the tax rate was higher. There's also some discrete items in there. In the press release we pointed out that 27.5% is a good rate to use for the rest of the year..

Okay. Last one, we've talked a lot about consolidation.

I'm just curious, have you started to see the hiring opportunities emerge yet? Have the phones been ring, have the conversations happened? Have you actually brought anybody in from a sold institution or gotten clients that were unhappy because of an acquisition? Could you just give a little bit of anecdote as to what you're seeing?.

I think the -- I'll start with the latter. I mean, I think, the client moves are still yet to be seen. As in most of these cases, everyone's kind of wait -- is in a wait and see mode. Their initial reaction is nothing is going to change and then things change. So we certainly expect opportunity there.

In terms of new personnel, we have brought on several relationship managers. We have brought on a number of underwriters and support staff to get through that significant pipeline we have and we have been able to take folks from those institutions we're talking about.

I will tell you, I mean, I got four calls yesterday from the recently announced deal. So people are aware that we're out here and there's a real opportunity. And at our size and capital levels, I think there's going to be some real opportunity to take advantage of not only the personnel, but the disruption in the market..

Got it. Okay. Maybe just a follow-up. I don't want to get the cart 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, as folks emerge?.

Yes. And we -- our pipeline does include a fairly significant amount of business in the Northern New Jersey marketplace. I'm very comfortable with that market. I ran a couple of banks there. We know the marketplace very well. So, yes, we are moving -- we're certainly outside of Long Island and Manhattan at this point.

And New Jersey is a fairly fertile market as far as we're concerned. .

Very good. I appreciate all the detail. Thanks..

Thank you..

The next question comes from William Wallace with Raymond James. Please go ahead..

Hi. Thanks. I hopped on a little bit late. So if my questions have already been asked, just let me know and I can read the transcript. But, Avi, you mentioned the buyback.

And if you could, could you remind us what's left on the buyback? And as you look about how aggressive to be on that buyback, 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. So we had around 800,000 shares when we started off. We purchased around 400,000 shares in the second quarter. So there's a remaining 400,000 shares basically left in the buyback, in terms of the authorization. Well, 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, stress testing provider provides us what type of capital burn we have and what type of capital burn the peer 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're comfortable running the bank between 7% 7.5% TCE, between 8% and 8.5% tangible equity. I mean, we're over those levels at this point. We got some PPP in that, which is going to come out of the balance sheet. So we're going to -- at these levels, again, we bought back shares at $34. We feel it was attractive then.

Slightly lower than that, we feel it's even more attractive. So we'll continue to use that judiciously as we go forward..

Okay. Thank you very much. And then, if nobody has asked on the expense base.

Are there more cost saves to come? And, if so, where might a comfortable run rate be?.

Yes. So we -- in my prepared remarks, I'd mentioned, we're comfortable with that core cash, non-interest expense base of around $195 million by the fourth quarter and holding that very steady into 2022. I think, we've laid out some guidelines for efficiency ratios of 47% to 50%. And so we're going to continue to drive that down.

We're going to start our budgeting process in the next couple of months. And we're not going to leave any stone unturned over there. So we've -- as Kevin mentioned upfront, we promised an efficiency ratio of 50% when we announced the transaction. We're running the bank at 48%.

So we want to promise 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..

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..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..