Bridge Bancorp, Inc. (DCOM) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Bridge Bancorp and Dime Community merger announcement. [Operator Instructions] Please note that today's event is being recorded. [Operator Instructions] At this time, I'd like to turn the conference call over to Ken Mahon, CEO. Sir, please go ahead.

Jamie, thank you, and thanks, everyone, for joining us this morning. I'm Ken Mahon, I'm the CEO of Dime Community Bancshares. I'm joined this morning by my Dime colleagues, Stu Lubow, who's the President of Dime; Avi Reddy, who is our CFO; and my soon to be colleagues, our incoming CEO, Kevin O'Connor, who is currently President and CEO of Bridge Bancorp; and John McCaffery, the CFO of Bridge Bancorp. We're here this morning to talk about the merger of equals between Bridge and Dime, two New York community-based banks. Together, I'm confident we are creating the best business bank in New York. Kevin and I began our conversations in November of last year. Over the course of 7 months, we've gotten to know each other and our respective companies well, and our teams have spent a significant amount of time analyzing each other's prospects in a pre- and post-COVID world. And we and our Boards have come to the conclusion that together, we will be financially stronger for our customers, our employees and our shareholders. This is a true merger of equals transaction. We will have equal representation from Dime and Bridge on the Board of Directors as well as the management team. I will serve as the Executive Chairman of the pro forma companies. This year marks my 40th anniversary with Dime, and I am extremely gratified to pass the baton on day-to-day management to the next-generation of leaders for the company. In Kevin O'Connor, Dime gains a well-respected and proven commercial banker, together with Stu Lubow, who was recently promoted to President of Dime, along with John McCaffery and Avi Reddy. I truly believe we have among the best management teams in the Metro New York area, and I'm confident they will drive top-tier financial and shareholder returns. This combination was very attractive to Dime for a number of reasons, chief among which the advancement of Dime's stand-alone strategic plans. In terms of improved targeted financial metrics, we leapfrog in our strategic plan by about 3 or 4 years to numbers that we expected to reach and surpass. In addition, we will have coverage of the entire greater Long Island marketplace with the #1 market share among community banks. We believe we have significantly increased the optionality of the pro forma company, be it through organic growth and in-market acquisitions, but also increasing our franchise's scarcity value. I truly believe that the strategic logic of the combination takes on even more weight and relevance in the pandemic and post pandemic world. With a larger capital base and improved pretax pre-provision earnings power from cost savings, we will be able to weather the current conditions better than either company stand-alone. The iconic Dime brand will also serve us well in our quest to create the biggest and best business bank in New York. In a banking environment, where size is an advantage, our company will breach the $10 billion mark, with a bigger capital base, enhanced infrastructure, additional talent. We believe we can target 1.25% to 1.35% ROA and a more normalized credit environment within a 3 to 4-year time frame. In summary, I'm excited about the announcement of what I believe will be the premier Community commercial Bank on Long Island. 66 commercial bank branches stretching from Montauk to Manhattan, and we will be doing it with 2 of the strongest commercial bank leaders in the New York market with Kevin and Stu. And with that, I'd like to turn it over to our new CEO, Kevin.

Well, good morning, Ken. Thank you. This is -- I've listened to your comments, and I feel like I don't need to go through the rest of the presentation. I think you've hit on a lot of what -- the reasons we've done that. But as Ken said, this has been a long process. Ken and I have known each other really for a number of years. But we got to spend a lot of time over the last 7 months or I would say, the 4 and missed each other over the phone for 3 months. Stu and I obviously have a lot of familiarity through the Community National acquisition. And candidly, I think, the execution on Community National for us and the value we've created for shareholders is really a testament to what Stu brought to the table there. So I'm excited about the next version of this. I think this brings tremendous benefits to Bridge. It moves our franchise westwards, which has been really a big part of our strategic plan. So as Ken said, this leapfrogs his, I think, it leapfrogs us and now we truly -- we have used Montauk to Manhattan and along the way, we probably were missing Brooklyn and Queens, and this fills that in. So we're excited about it. I think as we go through the transaction, I'm going to cover some of the issues and then Stu will grab some things, and then Avi will take you through some of the numbers. If we turn to Page 7. Obviously, we think it's strategically compelling. It's a partnership that does create the premier community bank with over $11 billion in assets, increased size and scale cannot be scoffed at. I think there is minimal customer overlap. We'd be able to use the scale to invest in some revenue-generating areas, treasury management, allow us to deepen our existing relationships. I think Stu and I would both say that even at the size we were at, we were tapping some of the caps limits what we could do with some of the existing customers we had. Great opportunity to continue to recruit talent. And the Dime brand is certainly iconic and a great addition to the Bridge team. So the earnings profile will certainly be enhanced. We'll get into the cost saves a little bit, but certainly achievable. And again, improving the pre-provision earnings power. Stu will cover, but we have done a conservative mark, I think, on the balance sheet. It is amazing what you can do remotely today. And I'm sure, Stu will let that -- cover that. On an interest rate risk profile, certainly, this complements Dime being liability-sensitive, we being asset-sensitive, creates a more neutral balance sheet, well positioned for all types of interest rate environments. As crossing the $10 billion threshold the transaction, it's both accretive to tangible book value out of the gate in EPS from year one, while maintaining strong risk-adjusted capital ratios. Taking some of the housekeeping. It's a fixed exchange at 0.648 Bridge shares for every one at Dime. We'll maintain our current dividend level of $0.24 a share. So that will be the combined dividend of the combined pro forma company. And using Street estimates for 2021, there'll be accretion to earnings from the transactions and Bridge's pro forma rate payout ratio actually reduces from 33% to 30%. And if we go down, we -- Stu's covered the -- excuse me, Ken's covered the management team. The Board of Directors has been split with Ken taking on the role of Chief Executive Officer -- excuse me, Freudian slip, Executive Chairman of the Board. Headquarters will be in Hauppauge. We'll have a corporate office in New York City. The combined company will be listed on the NASDAQ under DCOM. And we anticipate closing in this in first quarter of 2021. If we turn to the map, I think, it's somewhat self-explanatory. The organization certainly now covers the breadth of Long Island, with our headquarters located centrally in the middle of the island. I'm excited since that the cost saves again at 15% are certainly conservative and achievable. They'll come from the overlap in the back office, support staff, IT, vendors and certain other efficiencies. And I think the way to look at this, the pro forma efficiency ratio that we presented at 50% is very reasonable, given a company our size operating in this footprint. So again, I think, the improvement in our pre-provision earnings power is an important metric in this current environment. We look at our market, and it's interesting. And I know that as both of us go out and sell our company to investors over the years, we've talked about the strength of the Long Island market, certainly, and a lot of this information certainly presented by way of sort of the affluence, the median household income and what's important to see is that, for us, is really the locally based, locally owned, locally managed bank, we have market share of 22%. Enviable and great opportunities, again, to continue to leverage what we've done. Management team. Stu and I have known each other for a long time. I think the relationship that we forged, I think, as we both go through this and we sit here in the due diligence, we have many employees that have worked for both of us on both companies. So we're excited to do this. I think the -- again, the success that we've had at Bridge and sort of leveraging what Stu has done at Community National, I'm excited to take that to the next level. I think as crossing $10 billion, creating the Chief Risk Officer at this level with John McCaffery will certainly make our organization stronger. And I've gotten to really know Avi Reddy in this process, and he's certainly a valuable key part of this organization going forward. On the Board side, this is really where it comes together. The Board is certainly behind this, strongly behind it. I look forward to working with Ken. Congratulations on the 40th anniversary. He certainly has institutional knowledge, knowledge of marketplaces that we're new to. Working with Marcia and the rest of the Board. One of the things that, as part of this process, everybody is aware, Matthew Lindenbaum of Basswood is on our Board. He's become a real partner and an advocate for our organization, his relationship with Stu going forward and his support of this transaction was getting it done. And we're excited that he's excited to move forward as part of this. I think this slide sort of takes in -- we talk about ownership percentage is the 52%, 48%. As you go through this slide, I think, you can see how that sort of gets arrived at. We obviously bring different things to the table than they do. Maybe more earnings, greater DDA. They bring greater opportunities, again, to sort of convert some of their balance sheet to what Stu has started to do, more capital. But this is truly a merger of equals. We have looked at this, and I will say this, Ken and I -- going back to November when we sat down, sort of, with a yellow pad over a couple of dinners and went through the opportunities that existed here and sort of his excitement about being really the most successful thrift making the conversion to a commercial bank that I know exists and the ability to partner with us. We looked at his balance sheet and the things that they're doing that we don't do and really do find that this will be truly a combined entity with a lot of exciting things to go forward. I know this is obviously a challenging time, and we can go through lots of the things that as our organizations did to survive and get through COVID. I know for everybody on the phone that's part of our organizations or investors, you've heard us make presentations about how we've all moved our workforce remotely, how we've all figured out, how to operate in the new normal. And I will say this, even trying to do this due diligence, sometimes you could think it'd be challenging, but, quite honestly, I think, the ability where so much -- so many things are electronic, the due diligence on the loans was done remotely, and Stu will take you through all that. I think the ability of the organizations to both thrive during this challenge is what gave us sort of the rationale to continue to move forward. And I think for us, and we have lots of things to be proud of at BNB, one of the things that I think most proud of is our ability on the PPP program. We did close to $1 billion of that with all of our employees working remotely. So that is the evidence of the success. And so we don't take this lightly of what's gone on in the economy. But I think, and I'll let Stu, sort of, handle it in a minute, the work that was done in due diligence and understanding what our balance sheet looks like, we obviously did a reverse to them. And feel very good that at this point in time, it's really time to move on with this transaction. So Stu, with that, you want to take us through?

Sure. Thanks, Kevin. As Kevin said, both companies are very familiar with each other. And at the executive level, at the employee level, at the customer level, we're particularly familiar with each other's pristine credit culture, and that was borne out in our due diligence. As part of the due diligence, we hired a third -- nationally recognized third-party firm to review each other's portfolio. And it was basically done in 2 phases. The first phase, we did -- and in both phases, we did a granular loan level review of the credits. In Phase 1, we covered about 60% of each other's portfolio and became very, very comfortable in terms of the credit quality on both sides. Secondarily, post-COVID, we did a post-COVID review, did another deep dive, granular look at a significant portion of the portfolio, particularly focusing on watch, criticized classified forbearance loans and any sector that was impacted by the COVID situation. Layered on top of that, we -- the company did a significant, very conservative stress scenario on the COVID-impacted sectors. And from that arrived at what we consider as a very conservative, somewhat draconian mark relative to the portfolio -- to the Bridge portfolio. So we're very comfortable with the portfolio as it stands. We've taken a very conservative look in terms of the portfolio in the post-COVID world. And given the uncertainty in the environment today, we believe, it's appropriate at this time. Moving on to the portfolio. On a combined basis, as you can see, it -- and Kevin mentioned, it does diversify the portfolio even further. It neutralizes our asset liability issues on both sides. If you notice at the bottom are -- it does reduce, obviously, the Dime CRE concentration level at 556%. It increases Bridge. We're looking to run this company in the low 400s, and we expect post close to target that and get to that relatively quickly. In terms of credit quality, through the cycles, on Slide 17, you can see my comments are borne out by the numbers. Both of us have operated in a very good manner as we went through various credit cycles from 2007 to 2013 and certainly 2013 to '19. So again, pristine credit and a credit culture that we believe is settling down on both sides. On the deposit side, Slide 18, you see Bridge has a terrific deposit base, second to none in the area. Dime was striving to get to that. In the last 3 years, we have increased noninterest-bearing DDA from 6% to 11%. With this transaction, we think, we can jump-start and accelerate that growth, particularly in the Brooklyn, Queens and Manhattan neighborhoods, where Dime is today and move that DDA number of 24% on a combined basis, back up into the 30s, as we close this transaction. In terms of loan to deposits, clearly, it reduces the Dime side, increases Bridge. Again, we're targeting the 90s in terms of loan to deposit as we move to closing this transaction and consolidating and building out the consolidated new Dime. Avi?

Thank you, Stu, and good morning, everybody. I'll now briefly walk you through the key merger assumptions on Page 19. We've used median consensus estimates for both Dime and Bridge for the remainder of 2020 and 2021. The cost savings are 15% of the combined base, which, we believe, is eminently achievable. We expect the merger to close early in 2021. That said, we've been very deliberative with the cost savings assumption for 2021 and have only assumed a 2/3 phase-in for the first year. To be conservative with the model, we've not assumed any revenue synergies in the projections. Our estimated restructuring charge of $60 million equates to 1.875x, the fully phased-in cost savings. In modeling the capital ratios, we have accounted for the full $60 million at close. Our day 1 loan mark is $77.6 million. As Stu mentioned, this is a very conservative mark, and it currently represents approximately 2x Bridge's existing reserves. In addition to the $77.6 million at close, we have a post close day 2 CECL non-PCD double count of $27 million. So an effect in calculating the capital ratios, at close, we have accounted for $105 million worth of marks. While Bridge is the entity issuing stock, given that Dime has slightly greater than 50% ownership, we will be marking Bridge's book from an accounting perspective. Neither company has significant interchange fee income, and as such, the impact of the Durbin amendment from crossing $10 billion is fairly modest for us from a fee income give up. Both companies have REIT subsidiaries, which will lose their tax benefits once we crossed $8 billion of assets. As such, we have modeled an 3% increase in the effective tax rate from an income statement perspective, which equals to $3 million to $4 million per year. We would note that the stand-alone EPS projections for Bridge have about $38 million of provisions for the remainder of 2020 through 2022. Given that we've already taken a $77 million mark on the portfolio, we assumed a portion of the aforementioned $38 million of provisions from the stand-alone forward forecast finds its way back into earnings over time. Again, we've chosen to be conservative here and only assume $15 million of that $38 million forecast comes back into earnings. The transaction EPS is accretive to both sets of shareholders, notably in the first year itself with only partial cost savings. As Kevin pointed out, the transaction is immediately accretive to Bridge's tangible book value, fully accounting for all of the marks. Our capital ratio should be viewed [ fundament ] that almost half of the book has been conservatively marked from an M&A perspective. We'll have a very strong Tier-1 ratio in excess of 11% at close. We expect to generate around 40 to 50 basis points of tangible capital in the first year and expect TCE to end 2021 at approximately 8%, which, we believe, is very, very healthy for a bank with a half mark balance sheet and the other half underpinned by a low LTV, New York City multifamily portfolio. Our total capital ratio is 14% at close, and this is already in line with almost all of our peers. Finally, I would reiterate Ken's initial comments. The pretax pre-provision earnings power of both of our franchise will increase from the transaction, and we believe, this is a tremendous benefit for all parties involved. With that, I'll turn the call back to Kevin.

Avi, thank you. Every time I see the presentation and hear it I get more excited about the prospects, whether it be from a strategic standpoint of the things that we can do going forward and the partnerships we forged or as we dive into the numbers and just, obviously, the slide showing here the increased combined value just with cost saves. But as we sort of bring this to a close, so we can answer what the questions that are on there. It is certainly strategically compelling. It really does create a bank that doesn't exist. I'm a veteran of North Fork. I was there when we were $600 million, and got to $60 billion, I was excited by it. This is really -- this is something that hasn't existed on Long Island since that's been gone. And I know that we can do that. I look at what we have done at BNB from the standpoint of DDA creation and branch-based community banking, and I'm excited to see and do and work with the branches that existed at the Dime to continue to do that. I think it's important to note that what we have created at BNB has been organic. While we have done some acquisitions, it has really been one customer at a time, and I'm excited to work with Stu and his team to really do that. The complementary strengths that we've highlighted here are true. They're real. I think the market share will allow us to take advantage of it. The size and scale will allow us to invest in the things that need to happen. I think we are both organizations accelerating the shareholder value that we are independently creating. This is a strong financial transaction with strong cultural compatibility between the organizations. This management team, and I'll say it, right now, it's a management team right now, will begin working toward getting this all done. We're excited. It always comes at the same point in time, we're all getting ready back to go back to work. And so as we get back to work, this is really will be our job to deliver on this. So I'm excited. I don't want to continue to go on because I know there's lots of questions here and I feel like we want to get to them. So I do thank you for your time, and look forward to hearing for what you have to say.

Thank you, Kevin. With that, we will start to take questions. I would say that when Kevin and I sat down, one of obstacles in merger of equals is things that happen at the social issues and some of the other matters that -- this came together very quickly by the time we had our second meeting here and even on a major point. So I hope you can hear in some of the comments you heard today that we feel good about the transaction. So on that note. Jamie, you want to take it?

[Operator Instructions] And our first question today comes from Alex Twerdahl from Piper Sandler.

First off, I think, you mentioned in your prepared remarks that the cost saves are conservative and achievable. I was wondering if you could expand on exactly what is contemplated in the cost save assumptions and what's not being contemplated?

Sure, I'll take that. There's significant overlap in the back office. Think about IT-related functions, risk management, processing, servicing, items like that. So around 70% of the cost savings are from employee-related savings. We also have other IT-related savings, which make up around 15% to 20% of that. And then in addition to that, we have consulting, insurance and other items that go with -- we've not assumed any significant branch closures. If you look at the map, we have a really complementary branch footprint over there. I think both companies at all times evaluate their networks, but really nothing on the branch side. But just a tremendous potential here. Given that both companies really have the same systems, we have the same auditors, for example, we have the same stress testing provider. We have the same systems for information security. We have the same loan origination system. So really a lot of duplicative systems and functions over here at the bank. And we, again, spent a significant amount of time refining that number. We feel it's conservative. And we're confident we're going to be able to hit it. I think the most important point is Kevin's point about $11.5 billion bank in our footprint, with a tight footprint, really should operate at a 50% efficiency ratio, and that's kind of how we feel we're going to operate this company going forward.

Alex, I appreciate -- as I said to Avi, the 50% in tests is the smell tests.

Great. And then just with the pro forma capital levels and tangible book value, does that -- is that inclusive of the fees that you guys expect to generate from the PPP program?

So Alex, we've used the Street estimates, and I believe all The Street estimates for Bridge doing -- do assume that most of the PPP fees are recognized this year. I know your estimate probably has a little bit rolling over into next year. But again, we've used Street estimates, and we've gone with what The Street has, and most of it's in there between now and close.

Okay. Great. And then just final question. In the prepared remarks, I think, Stu, you mentioned that the aim is to get the CRE to risk-based capital ratio down into the 400s. How do you plan to get there? Does that contemplate any balance sheet restructuring or is that just through capital generation?

Really through capital generation and continued change in the mix in terms of loan originations. We were -- we had moved down on the Dime side from the high 900s 3 years ago to the 500s. And we think with the continued origination capability of the combined entity, the runoff of legacy multifamily and CRE low-yielding multifamily and CRE, that we can achieve that both on -- through the origination side and capital growth.

Our next question comes from Dave Bishop from D.A. Davidson.

Congratulations on the deal. Just curious, I think, there's been a lot of questions maybe this morning just in terms of the timing of the deal. I'm just curious maybe just to hear both your perspectives, Ken, Stu and Kevin, maybe just, as you noted, both of you guys have been progressing pretty nicely through this pandemic. PPP participation, especially for you, Kevin, on the Bridge side was strong. You're sort of both thriving. I guess the question, why now, why not fight it out through the pandemic and stay independent? What sort of drove the process to come together in this environment?

I'll speak for our side, and I think Ken echoes it. I mean this conversation started pre-pandemic, because we both -- for all the reasons we've shown in this presentation, there's a compelling reason for these 2 organizations to get together. As I said, Ken wants to jump-start what he was trying to do, and we want to jump-start for moving further West. I mean our strategic plans have basically dovetailed. And so this conversation started pre-pandemic. Obviously, we get to a stage where we're not sure what it's going to look like tomorrow, and we stop. I think the last 3 months have said, there is some light on the other side. And so all the reasons that existed in November and December still exist today. And I think that, for us, we feel comfortable. If we're able to get comfortable -- excuse me, if they're able to get comfortable on our loans and I think we are comfortable on theirs, we put that off to the side and say, why should we stop now. Why should we not create the value we think that's here? Why should we not take advantage of the restart of the economy and really move this new organization to the next level. This is a tremendous opportunity that can't be taken lightly. And when you had the sort of compelling nature of the transaction, and the -- as Ken said, we -- investment banks would tell you, a lot of these transactions die in the social issues. And as Ken said, we dealt with them upfront. And I think you can hopefully tell from the way we're dealing with each other in the room here. We're excited and the management team that's been put together is truly, and it will go down in the organization as a merger of equals. This is a way for us to basically deliver the shareholders' value, and we should strike now.

I would add to that, that banks in New York state were considered an essential business. So we've had to operate through the pandemic all along anyway. And the pretax pre-provision is -- was really a powerful incentive to have the transaction done. At some point, hopefully, at some point, we will expect to come out of this quarantine period and get back to normal. I think we'll -- as Kevin pointed out, we'll have a jump-start on that.

Got it. And then maybe a follow-up in terms of, maybe, a question more on loan side. Clearly, you guys are going to have a much bigger balance sheet capital base to use here. It sounds like, as Stu said, you're going to be continuing to remix the Dime portfolio. Are there any areas or segments where you think you can use the bigger size to take advantage of and grow into some opportunities? Loan segments that maybe you passed on before didn't have the capital to service, but think you could can offer a good growth opportunity moving forward.

I think we're -- both of us are community commercial banks, we're kind of nuts and bolts lending. We look at the relationship. I don't see us getting into any segment in a big way and doing anything differently. It just gives us -- it certainly gives us a lot more capability to service our existing customers. We both have customers that we have difficulty continuing to service, given our current size. And this is going to give us an opportunity to enhance those relationships and then attract a whole slew of new middle market customers within the metropolitan area that currently are at other institutions that now we can really service in an exemplary way. And with our systems, our cash management systems, et cetera, we believe that, that will get us to the next level. The other thing is we really believe that we have a significant opportunity to enhance our presence in Manhattan. We both have offices in Manhattan. But we think there's a tremendous opportunity to grow our presence in Manhattan as well. So I think the new Dime will stretch its wings a little bit into the city.

Just to pick up on the theme. I think that Stu and I are both conservative by nature, and we're not sitting here thinking as part of a bigger organization. We're going to jump into things that we haven't done before. The nature of what Stu has done on the commercial banking side, what we've done on the commercial banking side, is very similar. The opportunities on the greater Long Island marketplace are huge. And while we have bragged about our market shares on the deposit side, it's still relatively small. There are still lots of opportunities to grow within the footprint we're in doing what we do every day. That's the -- this is an opportunity to take the organization's successes we've had and build on without jumping into things that we're not comfortable doing.

Our next question comes from Erik Zwick from Boenning and Scattergood.

In the prepared remarks, you mentioned kind of an impact from Durbin of crossing the $10 billion regulatory threshold. I'm curious from the expense side, are there any investments in technology or systems and personnel that will be made between now and close?

Well, certainly, we understand that crossing $10 billion threshold comes with enhanced regulatory oversight. Both Dime and Bridge back when they were regulated by the OCC built out pretty extensive risk management infrastructures and have continued to enhance those infrastructures and continued to enhance those infrastructures through the present day. So again, I think, we both have strong risk management cultures. We both have very good teams. So as they come together, I'm sure there will be some marginal investments in systems as we try just to get better data to deal with the enhanced oversight that we're going to have. But nothing significant. We have, again, as was mentioned, complementary systems already on the stress testing side. We had very strong fraud systems and BSA systems. So again, I think that there will be some marginal investment in some systems and people going forward, but it won't be 1 plus 1 equals 3.

And as both being identified as CRE banks, we've been subject to scrutiny above and beyond what you would think for our size. So managing in a more -- $10 billion environment won't be new to us.

And finally, part of our modeling going forward is some additional expense related to risk and crossing the $10 billion level as well. So we've accounted for that in our model.

And then on one of the slides, you mentioned 1 of the strategic priorities will be prioritizing NIM and quality of balance sheet growth -- or balance sheet -- kind of quality of balance sheet over rapid growth. Just kind of curious how you view that if you could provide a little bit more color and some of the potential growth being held in check as you remix the loan portfolio? And just kind of what your outlook would be for growth for the pro forma company outside of COVID, assuming kind of a more normal growth scenario as well?

Yes. We've assumed in our modeling here, the Dime's asset base grows around 3%, which is consistent with the Street estimates and the same for Bridge, around 5%. And as Kevin and Stu mentioned, we're going to have a significantly larger capital base that's going to allow us to support more customers. And for example, right now, if we're at limits with certain customers, we'll be able to do more with them. So we're not really assuming tremendous growth. I think, as both Kevin and Ken said upfront, it's really about producing returns for the company. And our targets are really to get to 1.25% to 1.35% ROA over time. I think we're confident we can get there. I think Dime assured that it could produce earnings growth without growing the balance sheet. Bridge has grown the balance sheet organically, too, over time. And I think it's important to come back to Kevin's point, we have multiple ways to create value over here over time, especially on the organic side.

And one of the things that as a stand-alone company we have been talking about, as part of the PPP success that I'd say we had, was that we wound up with 1,000 new customers as part of that. And so that has been a focus of our organization really beginning 1.5 months ago. And so this just enhances it, because, honestly, some of those 1,000 customers would have had difficulty banking with us maybe because we don't have the branch location that we may now have. So it just, again, dovetail why a reason to do this and why now.

Yes. And just to follow-up on that, on the Dime side, Dime didn't have the C&I portfolio and the level of commercial customers as we're so young in the transformation. So of the 2,500 or so and $360 million in PPP, we originated -- 32% were actually customers. The remaining 68% were non-customers. And we've -- we're really going after those new relationships as well.

Our next question comes from Collyn Gilbert from KBW.

So maybe if we could start, Avi, sorry, I'm just -- I'm struggling a little bit on the accounting of this. So if you could just help to clarify. I guess, if we look at the Slides -- on 24, right, the reference is earnings accretion to Dime, then you're marking Bridge's book and then -- and you're only referencing the tangible book value impact to Bridge. And then, Kevin, you mentioned in your opening comments Bridge's payout ratio. So I'm just -- I was under the impression Dime was be accounting acquirer, but then trying to understand the tangible book value impact here. So Avi, if you could just help clarify that, that would be great.

Yes. Sure, Collyn. So Bridge is the entity issuing the shares in the transaction. So on a pro forma basis, we're going to have -- let's just say, Bridge has around 20 million shares. Bridge will be issuing 0.684 shares for every Dime share. So the pro forma company will have around $41 million to $42 million worth of shares. The way to think about it is on a pro forma basis, if Bridge's tangible book value per share is around $19.50 right now, the transaction is accretive to that book and so the pro forma book value for Bridge will be close to $20 per share. You could take that number and multiply it by the exchange ratio to get to an implied book value per share for Dime at close. But in terms of how the accounting works, the share count is going to be Bridge's share count at close. If we thought about the earn back from a Dime perspective, it's probably somewhere between 4.5 and 5 years over there, which, again, is a tremendously favorable transaction for us, given the fact that we've completely transformed the balance sheet with 1 transaction. And in addition to that, the thing to really remember is we've marked the balance sheet with a significant mark. So if you had gone back in time, let's say, 6 months, 12 months, when marks on balance sheets were really close to the reserve, the transaction will be even more accretive to Bridge's tangible book value, and the earn back for Dime would have probably been in the 1- to 2-year time frame. Again, we've taken this mark and it's very conservative. But even with that, it's accretive to Bridge's tangible book.

Okay. Okay. Got it. So will -- what will the tangible book value be at 4Q '20 and 1Q '21 based on what you're going to show in kind of the GAAP release on 1Q '21?

Yes. So it's probably around $21 per share, Collyn, at close for Bridge, I mean, ballpark at close. There's obviously going to -- they're going to accrete tangible book between now and the closing of the transaction. And then in addition to that, the transaction is accretive to that book value. So ballpark, $21 per share at close. And that includes all of the marks. So I'm also including the CECL day 2 double count in that number. And Collyn, we can follow-up off-line to get any more...

Yes. I think I might need to. Yes. Okay. Okay. And then just a few other questions. So this -- it seems as if -- and I know the discussion started before the pandemic, but you guys seem to have a fairly positive outlook about the market around you. You're obviously doubling down in the markets that you already are. So it seems as if you're fairly optimistic on how the pandemic may unfold in your region. So can you just talk a little bit about that? And maybe what you're seeing and why -- where your comfort comes from sort of increasing scale in the market?

I mean I'll speak for our side a little bit. I mean, obviously, we've all entered into the moratorium forbearance business. But I think as we are now having conversations with a lot of the customers that were on forbearance, we're finding out there was a lot of rents collected. And so we hope to see that start to come down, although we'll continue to work with people that have issues. Obviously, our economies are opening up. We take a benefit at BNB from having a big chunk of our business on the east end of the island, and that has benefited in some way from what's gone on. So -- and I think, Avi has -- he said conservative about 12 times in his comments, but we think that we have taken a very, I've used the word draconian, and I don't know if people want me to use it, to look at the -- our loan portfolio. And it was done by a third-party. We both -- again, it's part of -- let's step back a second. Part of the way that this worked is we brought a third-party in that -- with one third-party -- to look at both loan portfolios as part of this process. So there was no sort of editorial one way or another, and feel very comfortable that they have, I'll call, broken the bank in managing and identifying the credit, and we still feel comfortable about moving this transaction forward.

Our next question comes from Matthew Breese from Stephens.

I'd like to just follow-up on that point. You had kind of followed some of your previous comments in terms of taking a draconian look at the loan portfolio by a third-party. Can you just walk me through some of the high points of that stress test? And I'd be interested in what the outlook for deferral was? What the migration of deferrals to NPAs was? And then what the assumed charge-off levels were?

Well, just generally speaking, we're looking at a U recovery. The scenario we used was a U recovery with a significant COVID stress. We've put the COVID stress significantly out into the latter part of 2021 for the COVID-related industries. And -- so just generally speaking, that is where the mark really comes from on the COVID-related stress portfolio. In terms of -- if you look at specific loans, it was really -- there's not a lot of losses out there in terms of the detail. As Kevin said, the portfolio has been pristine. And so this is really a stress scenario layering and there are various scenarios and extrapolating that out to the entire portfolio, particularly as it relates to the COVID-related industries.

Right, Matt, generally, for the economy, the scenario, as '20 -- the COVID for the general economy really goes into the first quarter of '21 and then we start getting recovery in quarter 2. But to Stu's point, the kind of enhanced risk segments of the portfolio did have stress going out further than that.

Yes. And in fact, there were 0 losses in the 0- to 6-month category as part of their review as well.

Maybe we could try the question as it relates to the deal more, the $77 million. Can you just give me some highlights across the major categories to which the deal mark was applied? And how does that apply to some of the hotspot sectors like hotel, restaurant, retails versus office and multifamily?

Matt, sure. So the way that they did the analysis was they broke it out into different segments. Obviously, have C&I, multifamily, commercial real estate. But then there was also a special isolation pool, which was basically the COVID pool. So within that pool, there was a whole lot of subindustry types, such as restaurants, hotels, as you can imagine, schools, contractors, fitness centers, items like that. And the way they really approach it was from an activity-based analysis, as in, if we continue this lockdown and the significant slowdown in activity even from the current levels and it lasts for an extended period of time, where do we end up then. So that specialized pool probably accounted for 55% to 60% of the losses. So off that $77 million, there was around 55% in that particular pool. Other segments like multifamily, it was pretty low, just given the conservative nature of Bridge's balance sheet. It's probably less than around 50 basis points on that piece. So again, as a pool, this isolation pool is probably around 55% to 60% of that $77 million.

Great. Very helpful. And then a couple more for me. So the deal fee of $60 million, I think, it's north of 10% of the total deal value, just stood out as relatively high. Can you give me a breakdown of what's in there? And are there any unusual change of controls triggers that are in that number?

No, Matt. I mean, it's -- we've been conservative. As Kevin said, I've used the word 12 times, I'll use it for the 13th time now. We are modeling cost savings of $33 million in the transaction. We have a contract with Fiserv, that's a few years out. We've assumed certain terminations associated with that contract, standard employee severance over here. I think you can go back to our proxy statements and look at whatever change of controls both companies have. I think a lot of the analysts have already done corporate governance reports on both of our respective change of controls. And it's pretty typical with the deal of this size. I think the path that you're missing with this is -- look, our market caps are $450 million right now. Our market caps used to be $700 million to $800 million. So $60 million on $800 million is more like 7%. I mean the restructuring costs are what they are. The deal value is down because we're in a depressed market. So that's the way to look at it.

Our next question comes from William Wallace from Raymond James.

Maybe just one last follow-up, as it relates to the mark. If -- I don't know how many various scenarios your third-party may have applied or given to you as far as the economic recovery possibilities. But could you give us a sense of how many they gave you? And where your mark fell out relative to those? Were you at the worst, the second worst or was a U recovery, one of the better scenarios? Can you kind of give us a sense of where you fell relative to the third-party's scenarios?

I think, generally speaking, it tended toward the more draconian, the more conservative level. There is certainly not a V or a swoosh. It was really the conservative side of the various scenarios. And the significant stress that they put on, it's not just a U scenario. It's a U stress scenario, where they extend out the COVID issue significantly into 2021. So even if the economy comes back and employment returns, if the lockdown continues, that's not going to help certain COVID-related sectors, like restaurants, hotels, travel, et cetera. So they didn't just look at the fact that the employment and the economy becomes better. But they looked at how the individual sectors affected by COVID would react to an extended -- a further extension of the COVID situation.

The other thing I'd add, Wally, to Kevin and Ken's point earlier, we're improving the pretax pre-provisions earnings power of this company. So regardless of the credit environment, we're going to have a leg up on a lot of our peers, who are going to have to take reserves over time. Again, we've used an M&A mark here, but the cost savings are really going to help going forward.

Right. And one last question just on the recovery. On the non-COVID pool scenario, what kind of unemployment rates in '21 would that anticipate?

Sure, Wally, it's not really based on an unemployment rate because we did a loan level review over here. So it's not as if we can say if the unemployment rate was 20%, what would the impact on restaurants be, right? So if we're in a lockdown stage, even if the unemployment rate is 5%, restaurants are shutdown, right? So it's more from an activity-based perspective, as Stu mentioned, means really a prolonged U-shaped recovery that we've assumed over here.

Ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I'd like to turn the call back over to Ken and Kevin for any closing remarks.

I appreciate everybody's time. Some thoughtful consideration on this. As you can tell, we've spent a lot of time diving into each organization. We feel very comfortable that, again, this is the right time. It's the right transaction. We're excited to get to work on building this because we know there's tremendous opportunities for this combined organization to continue to grow and deliver for our marketplaces what we have delivered individually. So I look forward to working with Avi, Stu and Ken to get this done. This is an exciting time for our organizations. And so we're looking forward to get back to work. And if anybody has any specific questions, you can call Avi. So again, I want to thank you and Ken, I'll let you...

Nothing.

No?

Something like that.

And so you guys have a great day. Have a great holiday, and I'm sure we'll be chatting in the future. Thank you.

Ladies and gentlemen, that does conclude today's conference. We do thank you for joining. You may now disconnect your lines.