U.S. Markets closed

Edited Transcript of DCOM earnings conference call or presentation 23-Jan-20 10:30pm GMT

Q4 2019 Dime Community Bancshares Inc Earnings Call

Brooklyn Jan 31, 2020 (Thomson StreetEvents) -- Edited Transcript of Dime Community Bancshares Inc earnings conference call or presentation Thursday, January 23, 2020 at 10:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Avinash Reddy

Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR

* Kenneth J. Mahon

Dime Community Bancshares, Inc. - President, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Collyn Bement Gilbert

Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst

* Mark Thomas Fitzgibbon

Piper Sandler & Co., Research Division - MD & Head of FSG Research

* Matthew M. Breese

Stephens Inc., Research Division - MD & Analyst

* William Jefferson Wallace

Raymond James & Associates, Inc., Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the Dime Community Bancshares' Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Ken Mahon, President and CEO. Please go ahead.

--------------------------------------------------------------------------------

Kenneth J. Mahon, Dime Community Bancshares, Inc. - President, CEO & Director [2]

--------------------------------------------------------------------------------

Thank you, Sean. Thank you, everyone, for joining us this evening. On the call with me today are Chief Financial Officer, Avi Reddy; and Chief Accounting Officer, Leslie Veluswamy.

In our prepared remarks, we'll pick up some of the broad themes that underlie the earnings release and then add our outlook for fiscal year 2020. Opening remarks will be brief, so we can take some questions at the end.

Three years ago, at the beginning of 2017, we took steps to reformulate our business model from that of a broker-driven multifamily thrift model into a full-service commercial bank. This effort culminated in the adoption of a commercial bank charter in the spring of 2019.

Our primary impetus for the change was that it was clear to us that the community commercial bank model enabled the possibility of a more diversified balance sheet and better returns for shareholders in the future, reflected in the form of structurally higher net interest margin, return on equity and, ultimately, to better trading multiples, both to book value and to earnings.

To that end, Dime's strategic plan is built upon improving 5 fundamental metrics: one, grow our total checking account balances; two, increase low-cost business deposits; three, grow relationship-based commercial loans that have better risk-adjusted returns than multifamily loans; four, reduce our regulatory CRE concentration ratio; and five, diversify the sources of nonspread revenue, while increasing the contribution of nonspread revenue to total revenue.

Of those 5 metrics, how did we perform in 2019? Starting first with growing our checking account balances. On a year-over-year basis, average noninterest-bearing and low interest-bearing checking accounts increased by 20.4% to $605 million. Every dollar of low-cost deposits that we raise increases the franchise value of our company. From every member of our executive team on down to our entire customer-facing staff, our compensation plans are highly focused on incenting low-cost deposit gathering.

The second metric is increasing low-cost business deposits. Total commercial banking deposits from our Business Banking division, plus our legacy multifamily division increased by almost 31% or approximately $133 million on a year-over-year basis.

Commercial deposits now comprise 13% of total deposits as compared to approximately 10% of total deposits a year ago.

Our third financial metric is the growth of relationship-based commercial loans. The Business Banking division's portfolio crossed the $1 billion threshold at the end of the second quarter of 2019 and ended the year at $1.28 billion compared to $648 million at the end of 2018.

This represents year-over-year growth of 97%. The Business Banking portfolio now after 3 years represents 24% of total loans. To provide some historical context, we initially started this business build-out in early 2017. And in the first year, we achieved approximately $240 million of net portfolio growth; in 2018, $410 million of net portfolio growth; and now in the third year, $632 million of net portfolio growth, well within striking distance of the net growth target we established for our bank at the start of the year.

Importantly, we continue to attract high-quality commercial bankers to our staff. From a standing start in 2017, the Business Banking group has now grown to 64 bankers, including approximately 17 of whom are front line business producers.

Our fourth targeted metric is the lowering of the commercial real estate concentration ratio, which not long ago was Dime's Achilles heel. We've now reduced our consolidated regulatory CRE concentration ratio to 663% at year-end 2019. As many of you remember, Dime was well over 900% only a few years ago. This is not an insignificant achievement and has reduced the headline risk associated with the legacy multifamily Dime model significantly, in my opinion.

Final metric as it relates to nonspread revenue, we have invested in our SBA business, developed a commercial swap program for our loan clients and improved our commercial service fee income generation capability. We grew annual nonspread revenue, excluding securities gains and losses by over 37% on a year-over-year basis.

To summarize, we've made quantifiable progress on all 5 fronts, and you can start to see some positive patterns and trends emerging. We plan to make even more progress in the years ahead. And I'm confident with the existing team in place and the new hires we continue to attract, Dime is on a path to be one of New York's preeminent community commercial banks.

In fact, I've challenged the staff with the following goal for 2020. I want Dime to be the best business bank in New York. Our brand name already resonates in our local markets. Now we increasingly have the people and the products to achieve that goal.

As we have mentioned before, the build-out of the Business Banking division was a very timely strategic decision for Dime. We now have in place a robust and growing platform to generate high-quality loans -- high-quality commercial loans with good risk-adjusted profitability. We are no longer reliant on transaction and refinance volume activity in the New York City multifamily market. Those volumes appear to have been impacted by the rent-regulated rule changes, but Dime is no longer a significant player in that market.

Turning to deposits. In the span of just 3 years, our Business Banking group now manages a bigger deposit portfolio of about $357 million at the end of the year than that of the legacy multifamily business. Deposits to loans for the Business Banking division are running at approximately 27% of that loan portfolio compared to approximately 5% for the legacy multifamily business. Therein lies a tremendous opportunity for Dime as we remix our balance sheet and as the contribution of Business Banking grows over time.

The Business Banking division build-out has had an important ancillary benefit on how we operate our legacy multifamily business as well.

Historically, Dime had only the multifamily business to achieve balance sheet growth. We basically took what the market gave us in terms of rates. Now we have the flexibility to look for multifamily transactions that meet our return hurdles, while keeping in mind our goal to improve the quality and composition of the balance sheet.

But I am very proud of the work done by our multifamily team as they've adapted to our new mission of focusing on important relationships and prioritizing solid margins and returns above chasing balance sheet growth.

For those of you who have seen our investor slide deck, my favorite page and what I point to all the time is the page comparing our loan yields and our deposit cost to 13 individual peer institutions in our New York market. As of the quarter ended September 30, which is the most recent period that we have peer information -- for which we have peer information available, Dime lagged the median loan yield of the peer group by about 37 basis points in total. The peer group of the median at September was 4.3%. By comparison, in the fourth quarter, the weighted average rate on our total Business Banking originations, both real estate and C&I, was 5.39%, 101 basis points higher than the peer group median portfolio yield. That shows the earning power of the new model. I'm confident that now we have the infrastructure in place to close the gap with the peer group yield in due time.

On the other side of the balance sheet, our progress on the deposit front has likewise been commendable. If we go back to the fourth quarter of 2016, just prior to the onset of our transformation, Dime very nearly had the highest cost of deposits when compared to those 13 peer banks. Now our cost of deposits has moved meaningfully lower than many of those same competitors. And with the recent decline in cost of deposits we experienced in the fourth quarter of 2019, we are fast approaching the peer median of cost of deposits. Avi will provide more detail on the cost of deposits in his remarks. Our team is certainly confident that we can continue to do better in terms of improving our noninterest-bearing deposit percentages on our way to becoming not only a high-performing commercial bank, but in fact, the best business bank in New York.

On a year-over-year basis, we grew the noninterest-bearing deposit ratio by approximately 210 basis points. Our goal is to get to 20% noninterest-bearing deposits as quickly as possible.

Now I'd like to turn the conference call to Avi, who will provide some color on the fourth quarter results and the outlook for 2020. Avi?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [3]

--------------------------------------------------------------------------------

Thank you, Ken. I'll first start with our fourth quarter results.

Core EPS was $0.27 this quarter compared to $0.13 for the linked quarter. Included in this quarter's results was a $7.5 million provision related to a previously identified C&I relationship that had already been placed on nonaccrual status. As mentioned in the press release being fully reserved against this relationship is a prudent course of action given what appears to be a very protracted settlement process.

We want to share a few details on the credit. The borrower was a subcontractor, which had performed significant work on municipal projects and private projects in the Metro New York area for over 20 years. The borrower filed for bankruptcy in the third quarter prior to which they were current on all payments. Dime had extended $20 million of credit to this borrower. We're currently working with the bankruptcy trustee to maximize returns for ourselves and other unsecured creditors.

From all accounts we have received to date, this appears to be a highly unique situation where the subcontractor was pressured to complete a major public works project on an accelerated time frame, which led to bankruptcy. The charge-down balance of the loan is $10 million, of which all of it is nonaccrual. As mentioned previously, it was fully reserved for this $10 million exposure. Beyond that information, we will not be providing any more commentary on this individual credit in the Q&A as the loan is still in the workout process. I'm sure you can all respect that position.

Our stock price suffered in late October after our third quarter earnings release, likely as a result of the aforementioned nonaccrual announcement. We took that as an opportunity to repurchase shares at attractive levels, given the confidence we have in our business plan and the underlying fundamentals.

As such, we ramped up our repurchases of stock in the fourth quarter and purchased over 750,000 shares for a total cash outlay of approximately $15 million.

The repurchases in the fourth quarter represented approximately 2% of shares outstanding. In addition, our Chief Banking Officer purchased approximately $125,000 worth of stock in the fourth quarter. This morning, our Board authorized a 14th share repurchase plan that will allow us to repurchase up to 7.5% of year-end shares outstanding, following completion of the previously authorized 13th share repurchase plan.

Importantly, core pretax pre-provision income, excluding the FHLB extinguishment expense and expenses associated with the branch consolidation was approximately $18.7 million for the fourth quarter of 2019 compared to $16.8 million for the linked quarter and $16.9 million for the year-ago quarter. That represents 11% year-over-year growth in pretax pre-provision income.

The net interest margin, excluding loan prepayment fee income, increased by 18 basis points on a linked-quarter basis to 2.47%. As Ken mentioned, driving a structurally higher NIM is one of the key tenets of our business model transformation, and we were pleased with this quarter's results. The increase in core NIM was driven by a 20 basis points decline in our cost of deposits as well as holding our loan yields fairly steady. In fact, the weighted average rate on our total loan portfolio, which excludes prepayment fees and deferred fees and costs, increased by 2 basis points on a linked-quarter basis.

Based on the earnings releases we've seen so far, we believe this decline in cost of deposits could be amongst -- the most significant amongst our peers. The continued uptrend in the weighted average rate on loans is due to the Business Banking portfolio becoming a larger percentage of the overall balance sheet.

During the fourth quarter, and as previously disclosed in our third quarter 10-Q filing, we restructured a portion of FHLB borrowings. In total, we repaid $207 million of borrowings with a weighted average rate of 2.65%, and the realized expenses associated with the extinguishment was approximately $3.8 million. The borrowings were prepaid over the course of the quarter, starting in late October and continuing till year-end, and as such, the full run rate benefit was not fully realized this quarter.

Within the 18 basis points of core NIM expansion, I discussed, only approximately 1 basis point was related to the benefit of the lower cost new borrowings that we put on. Next quarter, we should get an additional basis point of expansion from the restructuring.

Adjusted for noncore items, our efficiency ratio is 57%, and the expense-to-assets ratio remained relatively well controlled at 1.55%, and this compares well with other community commercial banks.

Apart from improving the quality of our balance sheet and risk-adjusted margins, a critical part of the Business Banking build-out is the addition of nonspread income.

In 2019, we definitely saw promising early signs of increasing nonspread revenue. In the fourth quarter, we recognized approximately $400,000 of customer-related loan level swap income. Developing an interest rate swap program for our commercial customers was the next natural step in our commercial bank evolution. And we are happy to note that we are now able to provide the service to all of our commercial clients.

In addition, our SBA team has been gelling very nicely with our branch network and produced approximately $300,000 in gain on sale income in the fourth quarter. Our SBA team has impressed us with their professionalism and size and growth of their pipeline, and we expect them to be a major contributor to fee income in 2020.

Nonperforming assets and loans 90 days or more past due dropped by 25% versus the linked quarter to $12.6 million and represent only 20 basis points of total assets. We ended the year with a tangible common ratio of 8.59%, and the risk-based capital ratios grew on a linked-quarter basis, with the common equity Tier 1 ratio ending up at a very healthy 11.15%.

Now I'll move on to the outlook for fiscal year 2020.

We expect net portfolio growth for the Business Banking division of approximately $600 million for FY 2020. This accounts for amortization and payoffs in the existing portfolio that is seasoning as time passes. We are seeing growing demand for a responsive customer-focused platform, as we demonstrate longevity and commitment to the commercial bank model, we have provided -- we have been provided more opportunities to add high-quality individuals from our competitors. Our charter conversion from a thrift to a commercial bank, which became effective in April 2019, following all applicable regulatory approvals, is a testament of the fact that the Board and management team are fully invested in our business model transformation.

Our 2020 ending total asset figure will be a function of future payoffs in the multifamily business. Ultimately, we are most focused on improving the quality and remixing of our balance sheet. We refer to this internally as building a new balance sheet inside the old balance sheet.

In terms of the actual balance sheet size, we will manage it based on the growth opportunities at hand and return capital to our shareholders as circumstances present themselves. In this regard and based on all the stress testing we have completed, we expect to run the company with a Tier 1 ratio in excess of 10.5% and a tangible ratio of approximately 8.25% to 8.50% during FY 2020.

As we demonstrated in the fourth quarter, we don't have to grow the balance sheet in order to grow our core earnings power per share. We can grow EPS by improving our margins and using the excess capital generated to buy back shares. Buying back our shares continues to represent an attractive investment with a TBV earn back of approximately 4 years.

As you well know by now, we don't provide quantitative NIM guidance. I want to provide our rationale for taking this contrary approach. We are a business model in transition, and we do not want to manage the balance sheet by chasing quarterly earnings targets. We're truly trying to build the business for the medium- to long-term and this quarter's NIM expansion was validation of our thesis.

Inherently, the direction of the NIM depends on a number of extraneous factors that are outside of our control, including future actions from the Fed, the shape of the curve and the competitive pricing environment for deposits. What we can say on the NIM is this: The weighted average rate on the $1.3 billion Business Banking portfolio was approximately 4.95% at the end of 2020, and it was accompanied by $356 million of self-funding deposits at a weighted average cost of 69 basis points. This leads to an implied Business Banking portfolio NIM in excess of 3.75%, which is far above the NIM on our overall balance sheet today.

While there are various factors that will affect the changes in NIM on a quarter-to-quarter basis, the medium- to long-term trajectory of our NIM is clearly upwards, as the Business Banking portfolio becomes a larger percentage of the balance sheet over time.

We have approximately $515 million of multifamily loans, with a weighted average coupon of approximately 3.32%, which are scheduled to reach their contractual repricing date in 2020. Clearly, replacing these legacy loans with business banking loans, which have much higher yields and more associated deposits will aid with the continued upward trajectory of our NIM.

We're projecting noninterest expenses for fiscal year 2020 of approximately $98 million. While this may seem like a higher expense growth rate than some of our peers, I would like to point out 2 key important points: First, we are highly confident in our business model transformation and the early returns have been on track and very promising. So it makes sense for us to continue to invest in productive lending capacity. As such, we want to continue to reinvest in the business and support staff to aid in our continued transformation.

Second, our expense-to-assets ratio of 1.55% continues to compare favorably to commercial bank peers. As we grow the business over time, the revenue side of the equation will catch up with some of the expenses, and this will help with the efficiency ratio over time.

I will point out again that we still have over 70% of our balance sheet in lower-yielding legacy broker-driven loans, which remains a drag on the revenue side of the equation. As time progresses, I'm confident this -- we will be able to transform the NIM with having more of our balance sheet in business banking loans.

As it relates to noninterest income, we had very positive progress on the SBA front this year. After a somewhat slow start in 2017, we hired a new leadership team in late 2018 and they made very good progress this year. Our short-term goal is to have the SBA business reach at $2.5 million-plus annual fee income run rate as soon as possible. We continue to gain significant traction with our clients on a commercial swap program.

We expect this business to be over $1 million-plus revenue for us -- revenue plus business for us in 2020 from effectively no contribution up to the second quarter of 2019. We continue to optimize our core technology platform to help drive commercial banking fees. As we acquire and onboard more clients, this fee source will grow as well.

Finally, with respect to the effective tax rate for 2020, we expect it to be approximately 22.5% to 23%.

With that, we can turn the call over for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions)

Our first question today will come from Mark Fitzgibbon with Piper Sandler.

--------------------------------------------------------------------------------

Mark Thomas Fitzgibbon, Piper Sandler & Co., Research Division - MD & Head of FSG Research [2]

--------------------------------------------------------------------------------

As you grow your C&I originations, I'm curious, are there any areas or industries that you're focusing on? And also, who are you taking share from? Is it from the larger banks? Or is it other community banks?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [3]

--------------------------------------------------------------------------------

Mark, I think, just to answer the second question, yes, the larger banks out there. We've said in the past, we really have a unique opportunity here because we're really the only bank that has a $600 million capital base that's highly focused on this with a brand name that resonates. So that's kind of where the opportunity is at this point in time. I think right now, there's no specific industries that we're significantly focusing on. We've provided some details on our portfolio in our last investor presentation, but it's typical cookie-cutter community commercial bank type credits.

--------------------------------------------------------------------------------

Mark Thomas Fitzgibbon, Piper Sandler & Co., Research Division - MD & Head of FSG Research [4]

--------------------------------------------------------------------------------

Okay. And then prepayment penalty income was strong this quarter. I assume you think that, that will decline a bit in coming quarters?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [5]

--------------------------------------------------------------------------------

Mark, typically, what we're seeing with that, I guess, with our portfolio is Q2 and Q4 are typically fairly strong quarters for us and then Q1 and Q3 seem to be less. It could be just with the borrowers trying to get that stuff done by mid-year or at end of the year. So that's hard to predict. I think, in general, loans are staying on a little longer. They're getting closer to their reset dates before prepaying, but I think with the size of the portfolio that we have, I think, for the full year, it's hard to see us having less than $4 million, $5 million of prepayment revenue in there for a full year, which is kind of $1 million per quarter-ish. This quarter, obviously, we had a little bit more than that. But I think given the fact that we still have a portfolio that's over $3 billion, you probably should see $1 million-plus of prepayment fees, but any individual quarter can go up and down.

--------------------------------------------------------------------------------

Mark Thomas Fitzgibbon, Piper Sandler & Co., Research Division - MD & Head of FSG Research [6]

--------------------------------------------------------------------------------

Okay. And then I know that you all are deemphasizing multifamily, and there haven't been a lot of multifamily sales recently in the Metro New York market, but what's your best guess as to how much values have gone down in the last year on buildings that have rent controlled, rent stabilized stuff in places like Brooklyn and Queens?

--------------------------------------------------------------------------------

Kenneth J. Mahon, Dime Community Bancshares, Inc. - President, CEO & Director [7]

--------------------------------------------------------------------------------

Well, cap rates really have stayed low, Mark, so that's part of what that drives the value calculation. And then Dime's never really done loans based on pro forma rents or anything. So I mean, clearly, it's impacting the transaction volume, but it's hard to estimate what that's done. I do think the cap rates have been a big help. The low cap rates have been a big help to that, Mark. We're not really seeing too much disturbance in that marketplace.

--------------------------------------------------------------------------------

Mark Thomas Fitzgibbon, Piper Sandler & Co., Research Division - MD & Head of FSG Research [8]

--------------------------------------------------------------------------------

And then, lastly, I know it's small numbers, but the construction portfolio is like $118 million now, but it's been growing pretty fast. I guess, I'm curious what kind of construction projects are you doing? And what are your largest construction loans in terms of size?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [9]

--------------------------------------------------------------------------------

Mark, just to -- it's a pretty cookie-cutter construction portfolio. Typically, what happens with construction loans, you make them and then it takes a while for them to fund. I mean we obviously have internal limits on those. And at less than 5% of our loan portfolio, it's very manageable, but it's just a standard. No different than any other community commercial bank is doing.

--------------------------------------------------------------------------------

Mark Thomas Fitzgibbon, Piper Sandler & Co., Research Division - MD & Head of FSG Research [10]

--------------------------------------------------------------------------------

And how big a loans are we talking about? I know they're not all drawn right away, but...

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [11]

--------------------------------------------------------------------------------

Yes, I mean probably if all being drawn, less than $10 million of size. I mean that's kind of the size, less than that.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Our next question will come from Collyn Gilbert with KBW.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [13]

--------------------------------------------------------------------------------

Just want to dig in a little bit to the loan book. And just starting with the multifamily, I know, Avi, you had said that you had -- it was $500 million or some odd million that was contractually due to mature in 2020. And I think that number was like $600 million or something like that last quarter, but you guys saw paydowns, I think, that were higher than what you would have anticipated in the fourth quarter because I think you were thinking that maybe that the paydowns in multi would be matched with the growth in the business and that balances would hold flat. So just trying to get a sense of where the behavior you kind of expect on the multifamily side? And maybe do you anticipate paydowns to sort of accelerate? Or how we should sort of think about the rate of paydowns within that book?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [14]

--------------------------------------------------------------------------------

Collyn, again, it's seasonal, right? I think in the first half of the year, paydowns were a little bit slower as people were waiting for the rent regulated rule changes to go into effect. And then we have the seasonal Q4 where payoffs pick up, so it's hard to predict with that portfolio. But I think a way to think of our -- we have capital, we have a balance sheet. If we have more payoffs, this thing is going to be -- the balance sheet is going to be slightly smaller, but we're going to return that capital to shareholders, managing around the capital ratio constraints I described. So our story is not really about a balance sheet growth story, it's about a remixing story. And if the payoffs are higher than what we think, we'll return that capital to shareholders over time.

--------------------------------------------------------------------------------

Kenneth J. Mahon, Dime Community Bancshares, Inc. - President, CEO & Director [15]

--------------------------------------------------------------------------------

But, really, in the multifamily portfolio, a lot of the loans that are there are raised that borrowers could get today. So there's no incentive for them to rush in to refinance. And there's really -- going back to Mark's question a little bit earlier, there's nothing -- there used to be a lot of juice in those values. They come and take more money out. Those days seem to have passed us by.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [16]

--------------------------------------------------------------------------------

So then within that, Ken, would you -- then these loans could see their contractual maturities versus pay -- prepay ahead?

--------------------------------------------------------------------------------

Kenneth J. Mahon, Dime Community Bancshares, Inc. - President, CEO & Director [17]

--------------------------------------------------------------------------------

Either they're -- yes, it's correct. Either they're refinancing (inaudible) or their maturities, correct, right.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [18]

--------------------------------------------------------------------------------

Okay, okay, okay. And then just -- I hear you on all the moving parts in the NIM and unwillingness to give NIM guidance, but just wanting to understand sort of the strategic direction of how aggressive you guys want to be in pushing out some of the higher cost deposits, specifically kind of in that online channel. It seems like that part you do have some control over, so just wanted to kind of get a sense for how you're thinking about pushing through these lower deposit rates and pushing out some of these higher cost accounts?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [19]

--------------------------------------------------------------------------------

So Collyn, on the [interest] side, the DimeDirect piece that we referenced, we're down to around $100 million on that. So I mean our rates are below our peers. It's not a big portfolio at this point. I think when you think about deposit costs, we do have CDs maturing over the next 3 months. There's around $330 million of CDs, and the rate on those CDs are anywhere between 2.10% to 2.20%. And right now, we're retaining probably 70% to 80% of that at a rate that's around, call it, 40 to 50 basis points more than that.

So I think the next leg in the cost of deposits decline is going to be driven by a decline in our CD book. I mean we've made a lot of changes on the multifamily -- on the money market side, and we'll continue to tweak that on the margin. But I think on the CD side, there should be some declaims as a lot of our competitors have dropped rates too.

I think, overall, it's -- we're trying to manage client expectations and also in our competitive environment. So there's not any 1 area I would point to, but the CD piece is probably one that, naturally, you have a level of retention than we're seeing around 75% to 80% there with much lower rates.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [20]

--------------------------------------------------------------------------------

Okay, okay. That's helpful. And then I just want to make sure I heard you correctly on the expense guide. Did you say $98 million for 2020?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [21]

--------------------------------------------------------------------------------

That's correct, yes.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [22]

--------------------------------------------------------------------------------

Okay. And then just curious, so the FDIC -- how we should be thinking about the FDIC expense within that? Will that come back up to normalized levels, kind of similar to what you posted in 1, 2Q of last year?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [23]

--------------------------------------------------------------------------------

Yes. I mean, it's just -- again, they do the calculation. And I mean we're not going to get any more credits going forward, and that's all in the run rate of $98 million.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [24]

--------------------------------------------------------------------------------

Okay. And then just on the credit, I just want to make sure I understand the steps that you guys have taken to date. So you started -- if you can just walk through that with me again, you started with the $20 million of outstandings, you took a $5 million charge-off in the third quarter, another $5 million, if I read that right, charge-off in this quarter, but then you had had a specific reserve. And I'm just trying to get the math there as to how you now feel like you're fully reserved on that $10 million that's left?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [25]

--------------------------------------------------------------------------------

Collyn, we started off with $20 million, we charged off $5 million, and we made an adjustment to the reserve associated with that. So there's only a $15 million loan at September 30. At September 30, we took another $7.5 million specific at that point, so we were only not reserved for $7.5 million of that loan. We charged the balance of the loan down now to $10 million. And we took another reserve right now of 7.5 million, so we've taken the full reserve. There's no more income statement volatility on this reserve. It's just how the accounting works. You probably have to think about it a little bit more.

But from our perspective, we've taken the full $20 million of provision on the loan, both on a specific reserve and general reserves that we've taken against it. So there will be no more income statement volatility on it because we've taken the full $20 million. Anything that we collect on the loan, it will, obviously, be in recoveries going forward.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [26]

--------------------------------------------------------------------------------

Okay, okay. That's helpful. And then did you -- have you offered -- or can you give us any updates on CECL?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [27]

--------------------------------------------------------------------------------

So we'll have a range in our 10-K, Collyn. I -- all I'd say right now is, we don't have a big consumer portfolio, we don't have any long duration portfolios. We have a very small residential book. So I think when you look at the guidance that a lot of the other people have out there, you can draw some conclusions to that. But when we file our 10-K, there will be a range in there.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [28]

--------------------------------------------------------------------------------

Okay, okay. Okay, that's helpful. And then finally, just one quick thing on the borrowing repay. So you paid down -- just wanted to go -- so you paid down at 2.65% and you refinanced at what rate?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [29]

--------------------------------------------------------------------------------

I mean there's a mix of overnight, 2-year, 3-year, 5-year, the curve is pretty flat all across. So it's probably like 1.75-ish. So you're really making up 90 basis points over there on $200 million. So that's like $1.8 million basically per year of annual run rate that we're saving. The actual $1.8 million to $1.9 million, the charge was around $3.8 million. So that's why we've got the 2-year on back on that.

--------------------------------------------------------------------------------

Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [30]

--------------------------------------------------------------------------------

Okay. And that was laddered throughout the quarter? I mean I know you had indicated 1 basis point of NIM benefit happening in the first quarter tied to that, but just the timing on when you started?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [31]

--------------------------------------------------------------------------------

I mentioned in my prepared remarks, Collyn, we started the transactions at the end of October and then it went from October all the way till the end of the year. So that's why if we've done it throughout the quarter, it would have been a half quarter impact, but it really only started on October 30-ish, that time frame. So -- and I gave the guidance that it helped this quarter by 1. It's going to help by an additional 1 next quarter.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

Our next question will come from Matthew Breese with Stephens.

--------------------------------------------------------------------------------

Matthew M. Breese, Stephens Inc., Research Division - MD & Analyst [33]

--------------------------------------------------------------------------------

Just thinking about the municipal deposit effort, I know it's in its infancy right now, but as you think long term, perhaps over the next 2 to 5 years, what portion of the overall deposit book, do you want that to take up? And then just as a follow-up there, just curious about the on-boarding cost of those deposits and how they react to moves in Fed funds?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [34]

--------------------------------------------------------------------------------

Matt, I think what we said in the past is a lot of our peers have between 10% and 15% of their deposit base in municipals. I think there's no reason why Dime can't get to that stage. It's obviously a long-term target for us. So if you think about deposit base shifting across [$4.5 billion], $500 million of that should have been municipal if we had the capability to take it. Obviously, we're new to the business, but we have people who have been in the business a long time with significant established books of business. We ended the year with around $20 million of deposits. We're already up to over $50 million as of today. The rates in that right now are probably between [1 75] and [1 95]. That's obviously when you onboard a new client, it's obviously giving them a rate that's able to lure them away from some of their -- some of our competitors as well. But I think over time, we should be no different than some of our peers over there. And what it's really done is it allows us not to focus on promotional deposits on the consumer side. And, obviously, on the consumer side, when you raise deposits, it's not just the promotions, it's taking up time from people in the branches, it's advertising, it's all of that.

Here, with a much leaner infrastructure, we're able to raise those deposits. So in fact, at the start of the year, we have checking accounts as well associated with that. So that $50 million of deposits, there's probably $5 million to $6 million of checking accounts associated with that. So again, it's a huge opportunity for us, and one of the key things management team and Board looked at when we thought about the charter change.

--------------------------------------------------------------------------------

Matthew M. Breese, Stephens Inc., Research Division - MD & Analyst [35]

--------------------------------------------------------------------------------

Okay. Understood. And then, going back to the multifamily question, I understand you have $515 million set to hit their contractual reset this year, but we've been in the business banking -- that, that [niche] has been off the ground for some time now. You've adjusted your multifamily prices for some time now. As you've gone through the quarters and a number of multifamily loans have hit their contractual reset, even though your pricing is a little bit out of the market, what's the recapture rate? Like how much of that $515 million, if we were to apply what you've done historically, do you expect to maintain and keep?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [36]

--------------------------------------------------------------------------------

Mark, it really depends on the rate because there's competitors out there who are pricing a lot below us. And so it depends on where it's at. I think we're keeping customers with us who've been with us a long time and who don't want to move to another bank. But if somebody is just going straight after the rates, a lot of those accounts would go elsewhere.

--------------------------------------------------------------------------------

Matthew M. Breese, Stephens Inc., Research Division - MD & Analyst [37]

--------------------------------------------------------------------------------

Can you give us an idea of where you are rate wise versus the market right now?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [38]

--------------------------------------------------------------------------------

Yes, we're probably in the high 3s to low 4s on the multifamily side. Again, a lot of the customers with us have been with us a long period of time, and they're okay paying slightly above market rate, but that's kind of where we're at high 3s to low 4s.

--------------------------------------------------------------------------------

Matthew M. Breese, Stephens Inc., Research Division - MD & Analyst [39]

--------------------------------------------------------------------------------

And with the adjusted pricing, on a quarterly basis, could you give us an average of how much of that product you're actually able to originate?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [40]

--------------------------------------------------------------------------------

Yes. We had a -- there's a table in our press release, which has a breakdown of it. So what we've started doing is on the origination side, we break it out between business banking and non-business banking. And so for business banking, we've done -- we did around $85 million real estate loans at 5.11%. All other loans were around $65 million at 4.08%. Within that $65 million, there's around $30 million of residential originations at a rate of around 3.75%. The remainder is probably multifamily, which is around $30 million of multifamily at a rate slightly north of 4%.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

(Operator Instructions)

Our next question will come from William Wallace with Raymond James.

--------------------------------------------------------------------------------

William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [42]

--------------------------------------------------------------------------------

Avi, in your prepared remarks, you said, you've got $515 million, I believe, of multifamily that's reaching its contractual repricing date in 2020. Is that correct?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [43]

--------------------------------------------------------------------------------

Yes, I said $513 million, I believe.

--------------------------------------------------------------------------------

William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [44]

--------------------------------------------------------------------------------

$513 million, okay. And then what did you say that weighted average yield was?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [45]

--------------------------------------------------------------------------------

3.32%.

--------------------------------------------------------------------------------

William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [46]

--------------------------------------------------------------------------------

And if it reprices rather than prepays, what are the characteristics of those loans? How much will they price up?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [47]

--------------------------------------------------------------------------------

I mean, generally, they're FHLB plus 250, Wally, but in reality, I mean, our customers have been a very good, solid customers. I mean they can get a rate somewhere else that's a lot lower than that.

--------------------------------------------------------------------------------

William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [48]

--------------------------------------------------------------------------------

Yes. So they're more likely to leave?

--------------------------------------------------------------------------------

Avinash Reddy, Dime Community Bancshares, Inc. - Executive VP, CFO & Head of IR [49]

--------------------------------------------------------------------------------

Right. I mean some of them would stay on. I mean the ones that have been with us, for a significant amount of time, but then, they're not going to reset at the FHLB plus 250. We're going to find something in between that works for both of us.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

This will conclude today's question-and-answer session. I would now like to turn the conference back over to Mr. Mahon for any closing remarks.

--------------------------------------------------------------------------------

Kenneth J. Mahon, Dime Community Bancshares, Inc. - President, CEO & Director [51]

--------------------------------------------------------------------------------

Well, thanks, folks, for tuning in. We were pleased with the -- some of the fundamentals in the financials this quarter because we're focused on the foundational things that are going to move the stock price and the earnings over time. So I appreciate the questions and look forward to talking to you on the next earnings release. Thanks.

--------------------------------------------------------------------------------

Operator [52]

--------------------------------------------------------------------------------

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.