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spk07: Hello, everyone, and welcome to the Zion Community Bank Shares 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 provision of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainty, and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in today's press release, and the company's filings with the US 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. For information about these non-GAAP measures and for reconciliation to GAAP, please refer to today's earnings release. I will now hand over to your host, Stuart Lubrow, President and CEO, to begin. Stuart, please go ahead when you're ready.
spk01: Good morning. Thank you, Carla. And thank you all for joining us this morning. I will first provide comments on key themes underlying 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 multifamily 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 is 58 percent. 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 30th, we have no delinquencies greater than 60 days in the investor office portfolio. In fact, we only have one loan over 30 days at 930, 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 23 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 link quarter basis. There are a number of projects that we are working on that result in expense containment. for future years. For example, we recently outsourced our data center. Importantly, on a linked quarter basis, our non-interest sparing 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 a locally managed relationship based bank with access to key decision makers at all time. 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. Approximately 60% of our loan pipeline is in business loans, with an 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 CREE and multifamily portfolios. Since my appointment as CEO and in my day-to-day meetings with customers, it's apparent to me that Dinah'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 our biggest banks during the March Madness as they realize service and personal touch are important. A big client went 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 earning 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 will 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.
spk08: Thank you, Stu. Core EPS for the third quarter was 56 cents 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 death 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-free 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.
spk07: Thank you. If you'd like to ask a question, you may do so by pressing Start followed by 1 on your telephone keypad. When preparing for your question, please ensure your device is unmuted locally. And if you wish to revoke your question, please press Start followed by 2. We will now take our first question, which comes from Steve Moss from Raymond James. Steve, your line is now open. Please go ahead.
spk05: Good morning. Maybe just start in here, Stu. Good morning, Stu. Maybe just start on the, you know, deposit growth you guys showed this quarter here, particularly non-sparing. I realize that's from the signature hires. Just curious to give any expectations or updated thoughts looking forward here into the fourth quarter.
spk08: Yeah, I'll start, Steve. You know, part of the reason for the decline in Non-interest bearing deposits earlier in the year was really, you know, migration out of some consumer DDA. And, you know, the first half of the year, we were probably losing around 50 to 100 million of consumer DDA. In the third quarter, we were down to only around 30 million. So that's kind of. You know, you know, stabilizing to some extent, and obviously the new private banking groups that we have have added significant deposits. I think overall at the bank, you know, business is up municipal is fairly stable. So. you know, when we're doing our projections, you know, 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, you know, declines in DDA at this point. And as I mentioned, and as Stu mentioned, you know, having that 29% and not of that in terms of DDA is really going to be a key driver of NIM expansion in the future.
spk05: Okay. And then, Michael Williams- On on the expense front here, you know, the good expense controls, you know, obviously previously tried guidance. I think the numbers 206 to 209 Michael Williams- Just, you know, looks like looks like you're running below that trend if we kind of hold flat into the fourth quarter, just any updated thoughts on expenses.
spk08: Yeah, typically we don't, you know, read guide on expenses. I think my comment was, we're just going to beat the full year number. You know, we're really focused on keeping expenses as low as possible. And we're going to use that as a base, you know, into in the next year. Uh, you know, I think Stu said there's there's. lot of you know opportunity to make new hires and you know revenue generating deposit and you know people on the loan side so I think we'll look at both over time but you know 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 okay and just one last one for me just curious on you know where is going pricing these days for you guys and you know just
spk05: You know, it sounds like the business, CNI business side remains strong for the pipeline, you know, while, you know, obviously some further declines in CRE.
spk01: Yeah, so, you know, basically our pipeline is about $985 million. You know, the weighted average rate on the entire portfolio is $790. But on the CNI side, the pipeline is about $321 million, and that pipeline the yield or the weighted average rate on those loans is actually 8.97%. So, you know, we have, you know, quite a bit in that pipeline. And then there's about $300 million in owner-occupied CRE, which is, you know, in the sevens. And, you know, interestingly, we only have $22 million in multifamily in the pipeline. So, obviously, our focus is on CNI and owner-occupied CRE.
spk05: All right, great. Thank you very much.
spk08: Thanks, Steve.
spk07: Thank you, Steve. Our next question is from Matthew Breeze from Stephen Zink. Matthew, your line is now open. Please go ahead.
spk02: Hey, good morning. I appreciate all the updates on the deposit side and certainly the inflection point this quarter was a welcomed one. know 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 multi-family i was curious when you expect to see a a bigger pickup in in loan yields you know provide provide some expectations around loan beta through the end of the year early 2024 please
spk08: Yeah, sure. So, Matt, you know, we've mentioned in the past, you know, we have a slide in our investor presentation due about, you know, the next couple of years in terms of repricings and maturities off the, you know, real estate book. We obviously were not big originators back in 2017 and 2018, and typically those come due five years afterwards, right? So, it's going to be a steady progression up. I think what's going to make the difference is The originations now are really focused on the owner-occupied and C&A side. This quarter, we had a large construction loan payoff, which was a good thing. The rate on that was, you know, pretty high. So, you know, I think if you're replacing, you know, Loans that are coming off at five, five and a half at, you know, eight and a half to nine percent. You're going to see that uptake over time. And our portfolio is also, you know, gearing more towards floating rate loans going forward. So I think it's going to be a steady build. We have outlined in our investor presentation too that there's a big slug of multifamily loans that are coming to you in 2026 and 2027. Obviously with current rates where they are, those are probably not going to prepay at this point in time. However, If you follow the forward curve and rates do drop at some point in 2024 and 2025, you could see some of that come in, and we've outlined, you know, that's around 30 basis points to the margin once all those reprice. So I'd say in the near term, you know, we're following the cash flows, and it's going to be based on yields. In the medium to longer term, it's going to be based on the multifamily coming due.
spk01: Yeah, and I do think we'll see a pickup in the CNI business. You know, I'm looking, you know, Right now, I expect, you know, between $100 and $150 million of C&I business to close in the quarter. We've got our first two healthcare deals that will either close late in the year or early 2024, and the yields on those are about 9%, 905, and, you know, that's about $50 million. So we're starting to see real traction on the C&I side at this point. Got it. Okay.
spk02: And then Avi, I know you don't provide, you know, quarterly NIM guidance, but historically you have kind of discussed for this institution, what the appropriate NIM should migrate to over time. And I'm curious in this kind of yield curve environment, what that migration point, that point of gravity is.
spk08: Yeah. So, I mean, so for example, in terms of the, the newer term NIMMAT, I probably didn't mention my prepared remarks, the, The spot name in the month of September was around 235. So it kind of stabilized in September. We want to wait and have a couple more months of stability before officially calling the bottom for sure. So that was the near-term thought process around that. Look, when we do our medium to longer term projections, obviously, with the long end being up, that's a good thing for us, right? Because you're going to be replacing into a higher rate environment as your deposit costs have stabilized. So I think getting back to that 3%, 325 area is the right medium to longer term opportunity for us. And if the curve stays as if it's less inverted as it is now, and if the five-year continues to stay where it is with 30% DDA, I mean, there's the probability that we can get higher than 325 in the long run. In the short term, it's obviously going to be methodical every quarter expansion in 2024. Got it.
spk02: Okay. Last couple questions. Understanding historically multifamily, particularly rent and regular multifamily, has been a risk-free asset, but Does the combination of the 2019 rent law change with the still very tenant-friendly rent guidelines board, higher expenses, higher loan yields, and then the more recent Supreme Court decision, does that change the risk-free nature, particularly of the rent-regulated portfolio?
spk01: Yeah, Matt, not really. I mean, we took that into account in terms of our underwriting as we went originated from 2019 on, and at DIME, Legacy DIME, we changed our underwriting guidance to take that into account. You have to remember, we really never did any repositioning multifamily. We underwrite very stringently. We raised our underwriting criteria, and we always had a very low LTV. And so, you know, what we're seeing is that, you know, we haven't had any, you know, pressure in terms of, you know, the credit quality on the multifamily at all. And, in fact, we had a significant amount repriced this year where we haven't been asked for modifications. They just moved into a higher rate, which was obviously a positive. We're not seeing the pressure that others have, but when you have a 58% average LTV, there's a lot of equity in those buildings. These are generational owners that were not looking for quick hits and repositioning of loans. I think from our perspective, we still feel very comfortable. are delinquency and non-performing numbers bear that out?
spk08: Yeah, Matt, the only other thing I'd add is we really weren't in the multifamily market in 2017 and 2018. If you remember, that's when Stu got to diamond, we pivoted our balance sheet. So for example, we only have $100 million of multifamily loans that were made in 2018. So a lot of our production is post-2019 and taking this into account already.
spk02: Got it. Okay. I mean, just, just industry sources are starting to point to, you know, new transaction values down, showing valuations down 30 to 45% in its asset class. And it gets you close to kind of your average LTB at 58%. I guess that's my, my bottom line point. And then I guess I'd be curious, obviously multifamily can bucket both the market rate and the rent regulated. How much rent regulated multifamily, exposure do you have today?
spk08: Yeah, it's around the third, Matt, of our portfolio. Free market's around two-thirds. The rent regulator is around the third, basically. Look, I mean, at the end of the day, we can only tell you what we're seeing in our portfolio. We're really not seeing any signs at this point in time. So we'll leave it at that.
spk02: Totally understood. Okay. Thank you for taking my questions. I'll leave it there. Appreciate it. Thanks, Matt.
spk07: Thank you, Matt. Our next question comes from Mark Fitzgibbon from Piper Sandler. Mark, your line is now open. Please go ahead.
spk03: Hey, guys. Good morning. I guess I was curious, first, what does the pipeline and new private client teams look like today? And of the private client teams you've hired recently, can you give us a sense for how much they've already brought in in terms of deposits and loans?
spk01: You know, they've opened up about 2,000 accounts at this point and, you know, about 1,000 separate customers. Not all of that has funded yet. I'd say there's probably, you know, 500 to 600 accounts that haven't funded yet. I mean, at this point, they brought in about $250 million, and about 50% of that is DDA. Okay.
spk03: In the pipeline of teams, Stu, would you say? Still quite a few out there?
spk01: Yeah, I mean, it's growing really steadily every week. We get reports twice a week, and basically we're seeing steady growth every week.
spk03: Okay. And then, Avi, I wonder if you could share with us your thoughts on maybe restructuring some of the Available for Sales Securities book, given, as you said, that it's relatively short in duration. And, you know, rates may be stuck up here for a little bit. Is that something you're contemplating?
spk08: Yeah, I think at this point, probably not in in honest mark, I think, you know, just having a little more stability in the banking industry in general is is important. I think we're focused on building capital optically. We're doing that 10 to 20 basis points every quarter. So it's pretty short. It's going to run off your pretty quickly. So I'd say in the near to medium term, probably not, but, you know, something we evaluate and, you know, update our analysis constantly.
spk03: Okay. And then lastly, what are your thoughts around share buybacks, you know, given the depressed level of the stock price? You know, are capital levels, you know, an impediment to doing buybacks here?
spk08: not not really mark you know i think you know from a corporate finance perspective it's screaming out to do buybacks i think that said in the current operating environment you know i think clients value you know banks with capital and strong liquidity and uh you know you don't know how long the fed's going to stay at these levels don't know you know what's going to happen uh you know if they raise rates more so i think at this point we're keeping the capital to support our clients there'll come a time and place for buybacks. And as we've been very active on that front since the merger, and when the time's right, we'll do it. But like a lot of our peers, I think right now we're waiting and watching to see what happens over the course of the next three months or so.
spk03: Thank you.
spk07: Thank you, Mark. Our next question comes from Chris O'Connell from KBW. Chris, your line is now open. Please go ahead.
spk04: Hey, good morning. Yeah, start off on the credit for this quarter. You know, I noticed the reserve, you know, came down a little bit and that charted us a bit higher, you know, but MPAs came down. Just any commentary around the movement this quarter and whether there was something charged off that was maybe fully reserved for?
spk08: Yeah, that's exactly right, Chris. So, you know, we had a loan that was, you know, fully resolved. You know, we took a charge on that. But, I mean, again, at 18 basis points, you know, it's pretty minimal overall. Our pool reserve, you know, it stayed pretty constant. So, within our 70-odd million of reserves, there's around $53 million, you know, for the general pool, and that really didn't change much. So, the overall pool stayed consistent.
spk04: Got it. And any color you could provide on the type of credit and any details around the one that was charged off?
spk01: Yeah, it was a line of credit to an individual who was heavily involved in the hotel industry and never really recovered from the COVID pandemic and been working with him for a while. We did get a significant pay down, but we thought at this point we do have a We do have a judgment and, you know, we expect recovery, but at this point we thought it was prudent to take the charge and any funds we get in return will take us to recovery.
spk03: Great.
spk04: Just regarding your commentary about, you know, the expenses going forward and, you know, the potential to drive, you know, some efficiencies and things that you're looking at on a go forward basis. Just any color around, you know, where you guys are looking at, you know, to drive those efficiencies and what the potential, you know, magnitude of those efficiencies could be as we get into 2024?
spk01: Yeah, I mean, look, we've been pretty active in looking at efficiency throughout the year. We had a reduction of force in June. You know, it's a constant state of affairs in terms of trying to, you know, to look at opportunities across the board. Obviously, I mentioned we just outsourced our data center. That's gonna save personnel costs and equipment costs and whatnot. And that's gonna register in the fourth quarter. And we're looking, we're in our budget process now, so we're looking across the board in terms of opportunities to become more efficient. On the other hand, we want to take advantage of opportunities, and we've done that so far in terms of hiring the signature teams and our recent hire in terms of a healthcare vertical. I think it's important that we don't want to just play defense. We want to play offense and take advantage of the opportunities that are out there, and I think we've been able to do that. We're one of the few banks that were able to hire a significant amount of teams from signature and obviously it's it's paid dividends to us already and we've been able to do that while keeping our expenses you know below our guidance so you know we're going to continue to explore a number of opportunities we are looking at certain certain areas that I think there's more expense savings available but you know again we've been we've been doing that on a fairly regular basis. And, you know, I don't think we're going to do any significant major initiatives. I think it's going to be, you know, very granular in terms of how we manage our expenses.
spk04: Got it. And just on, you know, on the loan growth, appreciate all, you know, the color around the pipeline and the rates there. As you're looking into the fourth quarter here, in the amount of, you know, CRE and multifamily, you know, that might pay down or run off, how are you thinking about kind of net overall loan growth for next quarter?
spk08: Yeah, I think, Chris, in our prepared remarks, we said the balance sheet should be pretty stable, runoff in multifamily and CRE offset by CNA and owner-occupied.
spk07: Thank you, Chris. As a reminder, if you'd like to ask a question, please press Start followed by 1 on your telephone keypad. Our next question is from Moshe Fredy from DA Davidson. Your line is now open. Please go ahead.
spk06: Hey, good morning. Anfur Manuel here. Most of my questions have been asked, but could you talk about your loan-to-deposit ratio? and how it's going to settle in by the end of the year. Just some color on that would be great.
spk08: Yeah, we're obviously down this quarter to 102. Obviously, you know, if we keep loans flat and we grow deposits, it's going to continue to go Further down, I think at the start of the year, you know, we had said we'd set a hard line and said, you know, we don't want to go above 107 and a half. And that was when, you know, there was a banking crisis and deposits were in flux. I mean, at this point in time, we'd like to get to 100% as quickly as possible and then, you know, continue to move that ratio down, you know, as deposits keep coming in.
spk06: Great. Just have one more. In terms of the technology rollouts that you did last quarter, could you just provide some color on what the progress is in terms of the new business-focused accounts? And sorry if I missed that, but just some color on that would be great.
spk01: Yeah, so we rolled out our online banking, digital online account opening process for retail. We're rolling out the digital online for commercial as we speak. And, you know, we're very happy with that. It kind of completes the package in terms of our digital capabilities. And, you know, our new bankers, our new private bankers and whatnot are using that. We're certainly going to continue to enhance that. Our online, our new escrow management system has been very successful, and we're very happy with that. And so, you know, we're pleased with all the changes we made, and, you know, it just adds to the suite of products for our customers.
spk06: All right, fantastic.
spk00: Thanks for taking my questions.
spk07: Thank you, Moshe. As a reminder, to ask a question, you may do so by pressing Start followed by 1 on your telephone keypad. We have no further questions registered today. So with that, I will hand back to your host, Stuart Lubrow, for final remarks.
spk01: Thank you, Carla. Again, I would like to thank all of our employees for their diligence and hard work, as well as our shareholders for all their support. And we look forward to speaking to you all again at the end of January.
spk07: This concludes today's call. Thank you for your participation. You may now disconnect your lines. Have a great day.
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