Dime Community Bancshares, Inc.

Hello and welcome to the Dime Community Bancshares, Inc. Fourth 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 statement, including as set forth in the company's filings of the U.S. Securities and Exchange Commission, to which we refer you. During this call, references will be made to non-GAAP financial measures and 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. For information about these non-GAAP measures, for information about these non-GAAP measures, and for reconciliation to the gap, please refer to the earnings release. As a reminder, this call is being recorded. I now pass the call over to CEO, Kevin O'Connor.

Good morning and thank you, Keith. And thank you all for joining us this morning on our fourth quarter earnings conference call. With me again are Stu Lubow, our president and chief operating officer, and Avi Reddy, our CFO. As we approach the one-year anniversary of our MOE, it is especially gratifying to discuss our fourth quarter results If you indulge me a bit, the accomplishments of the new Don team over the past 12 months. To begin, we had a strong quarter with reported net income of $33.5 million, or $0.83 per share. After adjusting for one-time expenses associated with the merger, branch closures, and asset sales, net income would have been $33.8 million, or $0.84 per share. This translates to an adjusted ROA of 1.15% and a return on tangible common equity of 14.7%. Most importantly, we continue to operate the bank at a sub-50% efficiency ratio and have delivered on all of our stated merger goals. As we look back on 2021, our employees spent a tremendous amount of time and effort building our new organization. Success of this is evidence in our organic growth metrics. We are ahead of schedule in enhancing the quality of our deposit base and have grown non-interest-bearing deposits to 37.5% of total deposits. This is the highest percentage of any bank in our footprint. In the fourth quarter, we had record loan originations of over $500 million, or an annualized run rate of over $2 billion. The velocity of originations has increased almost 10% each quarter since we've merged the banks. If you recall, second quarter originations were $425 million, the third quarters were $465, and again, in the fourth quarter, it was $505 million at a weighted average rate of 3.52%. Despite continued high payoff levels this quarter, especially on the multifamily front, where they're in excess of 35%, our increased production resulted in core net loan growth for the quarter. Our loan pipeline remains strong. As each quarter goes by, our lending teams become more familiar with each other, the process, and the new origination system we implemented, and are truly firing on all cylinders. As interest rates rise over the course of the year, we expect payoff rates across the loan portfolio to moderate. These lower payoffs, coupled with a two-plus billion in origination capacity, will lead to stronger loan growth over the course of 2022. While we have produced strong return metrics in a low rate environment, our high level of DDA and core funded balance sheet positions us well for rising rates. Relative to other Metro banks, New York banks, we believe the value of our deposit franchise will shine through in this expected rising rate environment. I'll leave it to Avi to dive into more detail on this and the impact of rising rates on the loan portfolio in NIMS. As you're all aware, there have been several large merger transactions in our marketplace. none of which have closed yet, but we believe these transactions will provide us a chance to add talented bankers and create potential from a business perspective. We believe DIME is extremely well-positioned to capitalize on this disruption and leverage these opportunities to grow our customer-centric banking business. Our non-performing loans remain at low levels and loan deferrals have been reduced substantially. Capital ratios remain strong and we ended the third quarter with a tangible equity ratio of 8.64%. A low-risk balance sheet performance favorably in stress testing relative to the industry has afforded us the opportunity to be very active on the capital return front. During the fourth quarter, we stepped up the pace of repurchases and bought back $29 million of common stock. As we told you last quarter, we believed there was significant value in our stock and given our trading levels and earnings trajectory and balance sheet profiles, We doubled the level of our capital return to shareholders in the fall quarter. We have approximately 1 million shares left in the current authorization and expect to continue managing our capital levels efficiently over time. To conclude my prepared remarks, we had a strong quarter with improved margins, record loan originations, and continued improvement in our deposit franchise. Taking a step back, 2021 was an outstanding year for Dyn. We successfully integrated our merger transaction, and we delivered on all of our stated merger goals. We are again a leading provider of PPP loans, making over 2,000 loans totaling 600 million. And importantly, we organically grew DDA by over 950 million since the closing of our transactions. As we look forward to 2022, I and the board continue to believe in the tremendous opportunity in front of us. We are a pure play community commercial bank, highly focused on being responsive to our customers' needs, and in a position to benefit from expected higher rates. At this point, I'd like to turn the conference call over to Avi, who will provide some additional color on our quarterly results as well as our expectations for 2022.

Thank you, Kevin. Our reported net income to common for the fourth quarter was $33.5 million. Included in this quarter's results were approximately half a million dollars in aggregate one-time items associated with merger-related expenses. Branch Closures, and Gain on Sale of Assets. If you recall, when we announced our merger transaction, we had committed to delivering an ROA of 110 in a 12-month time horizon after closing, and in this regard, we were happy to deliver an adjusted ROA of 115 for the fourth quarter. We lowered our cost of deposits in the fourth quarter by another two basis points to 11 basis points. The spot rate on deposits at year-end was even lower at approximately nine basis points. As outlined in the press release, we still have some opportunities on the CD front to lower deposit costs. In total, we have approximately $700 million of CDs at a cost of approximately 50 basis points coming due in 2022. Importantly, we believe we have removed a significant amount of rate sensitivity from our deposit base as we have not retained rate-sensitive accounts. These actions, coupled with a higher percentage of non-interest-bearing deposits than our Metro New York peers, should result in our deposit betas lagging other banks in our footprint. The reported net interest margin was 314. As we've done previously, we've provided details in the press release on the impact of purchase accounting and PPP. The sum of purchase accounting accretion on acquired loans and PPP income was effectively negative $86,000 for the fourth quarter. This compares to a positive $5 million contribution from these line items in the third quarter. As we've mentioned previously, as part of purchase accounting, some loans were acquired at gross premiums and some at gross discounts. And this quarter, we had more loans that were at a premium that paid off. The net accretion balance from purchase accounting currently stands at approximately 1.85 million and is actually higher than the 1.2 million we had at the end of the third quarter due to payoff of loans that were at a premium. As mentioned previously, there will be some lingering impact from purchase accounting on the income statement in 2022 depending on payoff activity. Excluding the impact of PPP and purchase accounting, the adjusted NIM of 317 was seven basis points above the third quarter adjusted NIM of 310. We were pleased with the seven basis points expansion as we continued to hold the line on loan pricing. We benefited from reductions in the cost of deposits and we also reduced our average cash position in the quarter coinciding with not retaining CD balances. Importantly, our average non-interest-bearing deposits for the fourth quarter surpassed the $4 billion mark and were up approximately $300 million versus the linked quarter. Core cash operating expenses, excluding merger-related items, branch restructuring, and intangible amortization for the fourth quarter came in at $48.7 million, which was slightly below the previously telegraphed amount for expenses for the fourth quarter of $49 million. Importantly, we have operated the company consistently at a sub-50% efficiency ratio. Non-interest income for the fourth quarter included approximately $900,000 of gain on sale on the assets, primarily related to the sale of an owned branch property. Backing out this item, run rate non-interest income would have been closer to $9 million. Moving on to credit quality, we had a negative provision in the quarter of $132,000. All else equal and assuming no major changes in macroeconomic conditions, we expect provisioning levels in the future to be driven by trends and growth in our loan portfolio. Our existing allowance for credit losses of 91 basis points is still above the historical combined levels of the legacy institutions. We feel very comfortable with our current reserve levels based on current economic conditions. During the fourth quarter, we ramped up our share repurchase equity and bought back over 850,000 shares at $34.44. We believe share repurchases continue to be attractive given our trading levels, our organic growth prospects, and strong balance sheets that performs favorably in the stress testing. We will continue to manage our balance sheet efficiently, and with a tangible equity ratio of 864, which is above our comfort zone of 8% to 8.5, we will continue to be active on the share repurchase front in 2022. Our tax rate of 30.9% for the fourth quarter was higher than normal due to non-deductible expenses. Now let's turn over to guidance and targets for 2022. We expect loan growth for 2022 excluding PPP of approximately 4% to 6%. We've clearly demonstrated strong loan originations with sequential growth every quarter. We look forward to building upon our existing $2 billion annualized run rate of loan originations in 2022 and believe that once loan paydowns moderate, loan growth will pick up in the back half of 2022. As you know, we don't provide quarterly quantitative NIM guidance. We did want to provide you some directional perspectives. Our internal forecasts assume four rate hikes in 2022 and three more in 2023 with curve flattening wherein the spread between the six-month and five-year compresses to approximately 15 basis points by the middle of next year. In this scenario, we see NIM gradually improving and reaching a level of approximately 330 by the middle of 2024. Expansion will be more pronounced in 2023 and 2024 as the impact of rate increases work their way through our loan portfolio, and we reprice into a higher rate environment for originations. Underlying these assumptions are cumulative total deposit betas of between 20% to 25% for the entire tightening cycle, with the total deposit beta for the first 100 basis points of rate hikes being less than 20%. As a reminder, approximately 25% of our $9 billion loan portfolio is floating rates, of which approximately $1.2 billion will replace immediately with a single rate hike, and an additional $900 million, which have flows that are currently in the money, will reprice with 100 basis points of rate hikes. We expect core cash non-interest expenses excluding intangible amortization to be between $197 million and $199 million for 2022. The expense guidance takes into account wage inflation that you have all no doubt seen. We remain committed to operating the company with a sub-50% efficiency ratio. We expect non-interest income to be within a range of $33 million to $34 million. This guidance takes into account adjustments we have made to NSF and overdraft fees, as well as the impact of the Durbin Amendment, which will kick in for us in the middle of 2022. We expect to manage our capital ratios efficiently and are very comfortable operating the company at an 8.5% tangible equity ratio, which translates to 7.5% on the TCE ratio. As such, we expect to be active on the share buyback front throughout 2022, keeping these capital ratios in mind. Finally, with respect to the tax rate for 2022, we expect it to be between 28.5% and 29%. With respect to medium-term goals, it's our intention to drive our return on assets to the 120 to 125 area by the back half of 2024 and operate with a DDA ratio in excess of 40%. Having just crossed the 10 billion asset threshold, we believe we have the infrastructure in place for larger organizations and as such, growth in the coming years will be accretive to our ROE. With that, I'll turn the call back to the operator for questions.